Securities and Exchange Commission
Washington, D.C.
20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission file number 0-16093
CONMED CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0977505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 Broad Street, Utica, New York 13501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (315) 797-8375
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ X]
The aggregate market value of the shares of the voting stock held by
non-affiliates of the Registrant was approximately $405,669,235 based upon the
closing price of the Company's common stock, which was $26.50 on February 25,
2000.
The number of shares of the Registrant's $0.01 par value common stock
outstanding as of February 25, 2000 was 15,308,273.
<PAGE>
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement, scheduled to be mailed on
or about April 10, 2000 for the annual meeting of stockholders to be held May
16, 2000, are incorporated by reference into Part III.
<PAGE>
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-K
Part I
Item Number Page
Item 1. Business 2
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Part II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
Part III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management 26
Item 13. Certain Relationships and Related Transactions 26
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 27
Signatures 28
Exhibit Index 29
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PART I
CONMED CORPORATION
Item 1. Business
Forward Looking Statements
This Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1999 ("Form 10-K") contains certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) and information
relating to CONMED Corporation ("CONMED" or the "Company"--references to
"CONMED" or the "Company" shall be deemed to include the Company's subsidiaries)
that is based on the beliefs of the management of the Company, as well as
assumptions made by and information currently available to the management of the
Company. When used in this Form 10-K, the words "estimate," "project,"
"believe," "anticipate," "intend," "expect" and similar expressions are intended
to identify forward-looking statements. Such statements involve known and
unknown risks, uncertainties and other factors, including those identified under
the caption "Item 1: Business -- Risk Factors" and elsewhere in this Form 10-K
that may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions; changes in customer preferences; competition; changes
in technology; the introduction of new products; the integration of any
acquisition; changes in business strategy; the indebtedness of the Company;
quality of management, business abilities and judgment of the Company's
personnel; the availability, terms and deployment of capital; the possibility
that the United States or foreign regulatory and/or administrative agencies
might initiate enforcement actions against the Company, its subsidiaries or
distributors; the risk of litigation, especially patent litigation; changes in
regulatory requirements that could have an impact on the Company's business; and
various other factors referenced in this Form 10-K. See "Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 1: Business." Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
does not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
General
CONMED Corporation is a medical technology company specializing in
instruments and implants for arthroscopic sports medicine, and powered surgical
instruments, such as drills and saws, for orthopaedic, ENT and neurosurgery. The
Company is also a leading developer, manufacturer and supplier of advanced
medical devices, including electrosurgical systems, ECG electrodes for heart
monitoring, and minimally invasive surgical devices. The Company's products are
used in a variety of clinical settings, such as operating rooms, surgery
centers, physicians' offices and critical care areas of hospitals.
The Company has used strategic business acquisitions to broaden its
product offerings, to increase its market share in certain product lines and to
realize economies of scale. During the last five years, the Company has
completed seven acquisitions. The completed acquisitions, together with internal
growth, have resulted in a compound annual growth rate in net sales of 39%
between 1995 and 1999.
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Industry
The number of surgical procedures performed in the United States is
increasing. According to SMG Marketing Group, the total number of U.S. surgical
procedures increased at a compound annual growth rate of 5% from 25.1 million in
1989 to 40.7 million in 1999. This growth in surgical procedures reflects
demographic trends, such as the aging of the population, and technological
advancements which result in safer and less invasive surgical procedures.
Additionally, as people are living longer, more active lives, they are engaging
in contact sports and activities such as running, skiing, rollerblading, golf
and tennis which result in injuries with greater frequency and at an earlier age
than ever before. According to MDI, it is expected that the $1.0 billion sports
medicine industry will grow 20% in the next few years in categories such as
implantable devices. Sales of surgical products represented over 80% of the
Company's total 1999 sales. See "Item 1: Business-Product Sales".
In response to rising health care costs, managed care companies and
other payers have placed pressures on health care providers to reduce costs. As
a result, health care providers have focused on the high cost areas such as
surgery. To reduce costs, health care providers use minimally-invasive
techniques, which generally reduce patient trauma, recovery time and ultimately
the length of hospitalization. Many of the Company's products are designed for
use in minimally invasive surgical procedures. See "Item 1: Business-Products
Sales." Health care providers are also increasingly purchasing single-use,
disposable products, which reduce the costs associated with sterilizing surgical
instruments and products following surgery. The single-use nature of disposable
products lowers the risk of incorrectly sterilized instruments spreading
infection into the patient and increasing the cost of post-operative care.
Approximately 75% of the Company's sales are derived from single-use disposable
products.
In the United States, the pressure on health care providers to contain
costs has altered their purchasing patterns for general surgical instruments and
disposable medical products. Many health care providers have entered into
comprehensive purchasing contracts with fewer suppliers, which offer a broader
array of products at lower prices. In addition, many health care providers have
aligned themselves with group purchasing organizations ("GPOs"). GPOs aggregate
the purchasing volume of their members in order to negotiate competitive pricing
with suppliers, including manufacturers of surgical products. The Company
believes that these trends will favor entities that offer a broad product
portfolio. See "Item 1: Business-Business Strategy".
The Company believes that foreign markets offer growth opportunities
for its products. As economic conditions improve in developing countries,
expenditures on health care are expected to rise; according to Dorland's
Biomedical, expenditures on surgical products in developing countries is
expected to grow at a compound annual growth rate of 17% to $65 billion in 2005.
The Company currently distributes its products through its own sales
subsidiaries or through local dealers in over 100 foreign countries.
International sales represent approximately 25% of total sales in 1999.
Product sales
The Company is a leading developer, manufacturer and supplier of a
broad range of medical instruments and systems used in surgical and other
medical procedures. The Company's surgical lines include products for
arthroscopy, powered surgical instruments, electrosurgery and minimal access
surgery markets. Surgical products represented over 80% of the Company's 1999
sales. The balance of the Company's 1999 sales were in a variety of non-surgery
markets and are included under "Patient Care" in the following discussion.
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Arthroscopy
The Company offers a broad line of devices and products for use in
arthroscopic surgery. Net sales attributable to arthroscopy products represented
36% and 39% of the Company's 1998 and 1999 net sales, respectively.
Arthroscopy refers to diagnostic and therapeutic surgical procedures
performed on joints with the use of minimally-invasive endoscopes and related
instruments. Minimally-invasive arthroscopy procedures enable surgical repairs
to be completed with less trauma to the patient, resulting in shorter recovery
times and cost savings. Approximately 75% of all arthroscopy is performed on the
knee, although arthroscopic procedures are increasingly performed on smaller
joints and shoulders.
The Company's arthroscopy products include powered resection
instruments, arthroscopes, reconstructive systems, tissue repair sets, fluid
management systems, imaging products, implants and related disposable products.
It is the Company's standard practice to transfer some of these capital
products, such as shaver consoles and pumps, to certain customers at no charge.
These capital "placements" allow for and accommodate the use of a variety of
disposable products, such as shaver blades, burs and pump tubing. The Company
has benefited from the introduction of new products and new technologies in the
arthroscopic area, such as bioabsorbable screws, "push-in" suture anchors,
resection shavers and cartilage repair implants.
<TABLE>
<CAPTION>
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Arthroscopy
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Product Description Brand Name
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Resection Shavers Shaver consoles and handpieces, disposable blades to Apex(R)
resect and remove soft tissue and bone; used in knee, XtraSharp(R)
shoulder and small joint surgery, as well as Merlin(R)Polyblade(TM)
endoscopic sinus surgery. Sterling(R)
Knee Reconstructive Products used in cruciate reconstructive surgery; Paramax(R)
Systems includes instrumentation, screws, pins and drill bits. Pinn-ACL(R)
GraFix(TM)
Soft Tissue Repair Systems Instrument systems designed to attach specific torn or Spectrum(R)
damaged soft tissue to bone or other soft tissue in the Inteq(R)
knee, shoulder and wrist; includes instrumentation,
guides, hooks and suture devices.
Fluid Management Systems Disposable tubing sets, disposable and reusable inflow Apex(R)
devices, pumps and suction/waste management systems for Quick-Flow(R)
use in arthroscopic and general surgeries. Quick-Connect(R)
Imaging Surgical video systems for endoscopic procedures; Apex(R)
includes autoclavable single-chip digital and three-chip 8180 Series
camera consoles, heads, endoscopes, light
sources, monitors, VCRs and printers.
</TABLE>
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<TABLE>
<CAPTION>
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Arthroscopy
- --------------------------------------------------------------------------------------------------------------------
Product Description Brand Name
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Implants Products including bioabsorbable and metal interference BioScrew(R)
screws and suture anchors for attaching soft tissue to BioStinger(R)
bone in the knee, shoulder and wrist. Ultrafix(R)
Revo(R)
Other Instruments and Accessories Forceps, graspers, punches, probes, sterilization Shutt(R)
cases and other general instruments for arthroscopic Concept(R)
procedures. TractionTower(R)
</TABLE>
Powered Surgical Instruments
The Company offers a broad line of powered instruments which
represented 21% and 23% of the Company's 1998 and 1999 net sales, respectively.
Powered instruments are used to perform orthopaedic, arthroscopic and
other surgical procedures, such as cutting, drilling or reaming and are driven
by electric, battery or pneumatic power. Each instrument consists of one or more
handpieces and related accessories as well as disposable and limited reuse items
(e.g., burs, saw blades, drills and reamers). Powered instruments are generally
categorized as either small bone, large bone or specialty powered instruments.
Speciality powered instruments include surgical applications other than
orthopaedics, such as neurosurgical, otolaryngological (ENT), and cardiothoracic
applications.
The Company's line of powered instruments are sold principally under
the Hall(R) Surgical brand name, for use in large and small bone orthopaedic,
arthroscopic, oral/maxillofacial, otolaryngologic, neurological, spine and
cardiothoracic surgeries. Large bone, neurosurgical, spine and cardiothoracic
powered instruments are sold primarily to hospitals while small bone
arthroscopic, otolarygological and oral/maxillofacial powered instruments are
sold to hospitals, outpatient facilities and physician offices. The Company's
Linvatec subsidiary has devoted substantial resources to developing a new
technology base for small bone, arthroscopic and otolaryngological instruments
that can be easily adapted and modified for new procedures.
<TABLE>
<CAPTION>
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Powered Surgical Instruments
- --------------------------------------------------------------------------------------------------------------------
Product Description Brand Name
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Small Bone Powered saws, drills and related disposable accessories Hall(R)Surgical
for small bone and joint surgical procedures. E9000(R)
MiniDriver(TM)
MicroChoice(R)
Micro 100(TM)
Large Bone Powered saws, drills and related disposable accessories Hall(R)Surgical
for use primarily in total knee and hip joint MaxiDriver(TM)
replacements and trauma surgical procedures. VersiPower(R)Plus
Series 4(R)
</TABLE>
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<TABLE>
<CAPTION>
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Powered Surgical Instruments
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Product Description Brand Name
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Otolaryngology Specialty powered saws, drills and related disposable UltraPower(R)
Neurosurgery accessories for use in neurosurgery, spine, and Hall Osteon(R)
Spine otolaryngologic procedures. Hall Ototome(R)
E9000(R)
Cardiothoracic Powered sternum saws, drills, and related disposable Hall(R)Surgical
Oral/maxillofacial accessories for use by cardiothoracic and E9000(R)
oral/maxillofacial surgeons. UltraPower(R)
Micro 100
Versipower(R)Plus
</TABLE>
Electrosurgery and Minimal Access Surgery
During 1997, 1998 and 1999, net sales attributable to electrosurgery
and minimal access surgery products represented 47%, 20%, and 18% respectively,
of the Company's net sales.
Electrosurgery
Electrosurgery is the technique of using a high-frequency electric
current which, when applied to tissue through special instruments, can be used
to cut tissue, coagulate, or cut and coagulate simultaneously. An
electrosurgical system consists of a generator, an active electrode in the form
of a pencil or other instrument which the surgeon uses to apply the current from
the generator to the target tissue and a ground pad to safely return the current
to the generator. Electrosurgery is routinely used in most forms of surgery,
including general, dermatologic, thoracic, orthopaedic, urologic, neurosurgical,
gynecological, laparoscopic, arthroscopic and other endoscopic procedures.
The Company's electrosurgical products include electrosurgical pencils,
ground pads, generators, the argon-beam coagulation system (ABC(R)), and related
disposable products. ABC(R) technology is a special method of electrosurgery,
which allows a faster and more complete coagulation of many tissues as compared
to conventional electrosurgery. Unlike conventional electrosurgery, the
electrical current travels in a beam of ionized argon gas, allowing the current
to be dispersed onto the bleeding tissue without the instrument touching the
tissue. Clinicians have reported notable benefits of ABC(R) over traditional
electrosurgical coagulation in certain clinical situations, including
open-heart, liver, spleen and trauma surgery.
Minimal Access Surgery
Minimal Access Surgery (MAS) is surgery performed without a major
incision, which results in less trauma for the patient and produces important
cost savings as a result of reduced hospitalization and therapy. Laparoscopic
surgery is an MAS procedure performed on organs in the abdominal cavity such as
the gallbladder, appendix and female reproductive organs. During a laparoscopic
procedure, devices called "trocars" are used to puncture the abdominal wall and
then are removed, leaving in place a trocar cannula. The trocar cannula provides
access into the abdomen for camera systems and surgical instruments.
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The Company's MAS products include the UNIVERSAL S/I(TM)
(suction/irrigation) and UNIVERSAL PLUS(R) laparoscopic instruments,
specialized, suction/irrigation electrosurgical instrument systems for use in
laparoscopic surgery and the TroGARD Finesse(R) which incorporates a
blunt-tipped version of a trocar. The TroGARD Finesse(R) dilates access through
the body wall rather than cutting with the sharp, pointed tips of conventional
trocars. This results in smaller wounds, and less bleeding. The Company also
markets electrosurgical pencils, suction/irrigation accessories, laparoscopic
scissors, active electrodes, insufflation needles and ABC(R) handpieces for use
in laparoscopic surgery.
<TABLE>
<CAPTION>
Electrosurgery and Minimal Access Surgery
- --------------------------------------------------------------------------------------------------------------------
Product Description Brand Name
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pencils Disposable and reusable instruments designed to deliver Hand-trol(R)
high-frequency electric current to cut and/or coagulate Gold Line(R)
tissue. Clear Vac(R)
Ground Pads Disposable ground pads to safely return the current to Macrolyte(R)
the generator; available in adult, pediatric and infant Bio-gard(R)
sizes.
Generators Monopolar and bipolar generators for surgical EXCALIBUR(R)Plus PC
procedures performed in a physician's office or clinic SABRE(R)
setting. Hyfrecator(R)2000
Argon Beam Coagulation Systems Specialized electrosurgical generators, disposable hand ABC(R)
pieces and ground pads for non-contact cutting and Beamer Plus(R)
coagulation of tissue. System 7500(R)
ABC Flex(R)
Laparoscopic Instruments Specialized trocars, suction/irrigation UNIVERSAL Plus(R)
electrosurgical instrument systems for use in TroGard(R)
laparoscopic surgery; includes disposable handles, Finesse(TM)
valve/control assemblies with disposable accessories
and monopolar and bipolar scissors, graspers and
loops.
</TABLE>
Patient Care Products
During 1997, 1998 and 1999 net sales attributable to patient care
products represented 53%, 23% and 20% respectively, of the Company's net sales.
The Company manufactures a variety of patient care products for use in
monitoring cardiac rhythms, wound care management and IV therapy. These products
include ECG electrodes and cables, wound dressings and catheter stabilization
dressings. These products are sold to hospitals, outpatient surgery centers and
physician offices primarily in the United States. The majority of the Company's
sales in this category are derived from the sale of ECG electrodes. Although
wound management and intravenous
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therapy product sales are comparatively small, the application of these products
in the operating room complements the Company's surgery business.
<TABLE>
<CAPTION>
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Patient Care Products
- --------------------------------------------------------------------------------------------------------------------
Product Description Brand Name
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ECG Monitoring Line of disposable electrodes, monitoring cables, lead CONMED(R)
wire products and accessories designed to transmit ECG Ultratrace(R)
signals from the heart to an ECG monitor or recorder. Cleartrace(R)
Wound Care Disposable transparent wound dressings comprising ClearSite(R)
proprietary hydrogel; able to absorb 2 1/2 times its weight Hydrogauze(R
in wound exudate.
Surgical Suction Instruments and Disposable surgical suction instruments and connecting CONMED(R)
Tubing tubing, including Yankauer, Poole, Frazier and Sigmoidoscopic
instrumentation, for use by physicians in the majority of
open surgical procedures.
Intravenous Therapy Disposable IV drip rate gravity controller and VENI-GARD(R)
disposable catheter stabilization dressing designed MasterFlow(R)
to hold and secure an IV needle or catheter for use in IV
Stat 2(R) therapy.
</TABLE>
Competitive Strengths
The Company attributes its strong position in certain markets to the
following competitive factors:
Leading Market Position in Key Product Areas. The Company is a leading
provider of arthroscopic surgery devices, electrosurgical systems, powered
surgical instruments and ECG electrodes. The Company's product breadth has
enhanced its ability to market its products to surgeons, hospitals, surgery
centers, GPOs and other customers, particularly as institutions seek to reduce
costs and to minimize the number of suppliers. In addition, many of the
Company's products are sold under leading brand names, including CONMED(R),
Linvatec(R), Aspen Labs(R) and Hall(R) Surgical.
Broad Product Offering in Key Product Areas. The Company offers a broad
product line in its key product areas. For example, the Company offers a
complete set of the arthroscopy products a surgeon requires for most
arthroscopic procedures, including instrument and repair sets, implants, shaver
consoles and handpieces, video systems and related disposables. The Company's
product offerings have enabled it to meet a wide range of customer requirements
and preferences. In addition, the Company's customers are increasingly dealing
with fewer vendors and demanding a broader product offering from vendors in
order to reduce administrative costs.
Marketing and Distribution Network. The Company's national sales force
consists of approximately 230 sales representatives who seek to maintain close
relationships with end-users.
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The Company's sales representatives are trained and educated in the
applications for the products they sell and call directly on surgeons, hospital
departments, outpatient surgery centers and physician offices. Additionally, the
Company has an international presence through sales subsidiaries and branches
located in key international markets. The Company also maintains distributor
relationships domestically and in numerous countries worldwide.
Vertically-integrated Manufacturing. The Company manufactures most of
its products. The Company's vertically-integrated manufacturing allows it to
provide quality products, to react quickly to changes in demand and to generate
manufacturing efficiencies, including purchasing raw materials used in a variety
of disposable products in bulk. The Company believes that its manufacturing
capabilities allow it to contain costs, control quality and maintain security of
proprietary processes. The Company continually evaluates its manufacturing
processes with the objective of increasing automation, streamlining production
and enhancing efficiency in order to achieve cost savings.
Research and Development Capabilities. CONMED has utilized its research
and development capabilities to introduce new products, product enhancements and
new technologies. Research and development expenditures were $12.1 million in
1999. Recent new product introductions include the E9000(R) drive console,
BioStinger(R) miniscal repair device, UltrAblator(TM) for the ablation and
thermal modification of soft tissue, the System 7500 electrosurgical unit with
argon beam coagulation and ABCFlex(TM) for the repair of digestive tract
lesions.
Integrating Acquisitions. Since 1995, the Company has completed seven
acquisitions including the 1997 acquisition of Linvatec Corporation which more
than doubled the size of the Company. These acquisitions have enabled the
Company to broaden its product categories, expand its sales and distribution
capabilities and increase its international presence. The Company's management
team has demonstrated a historical ability to identify complementary
acquisitions and to integrate acquired companies or product lines into the
Company's operations.
Business Strategy
The Company is implementing the following business strategies:
Introduce New Products and Product Enhancements. The Company's research
and development program is focused on the development of new surgical products,
as well as the enhancement of existing products. In addition to its own research
and development, the Company benefits from the dialogue and suggestions for
product innovations from its relationships with surgeons and other users of the
Company's products.
Increase International Sales. The Company believes there are
significant sales opportunities for its surgical products outside the United
States. The Linvatec acquisition increased the Company's access to international
markets. The Company is expanding its international presence and increasing its
penetration into international markets by utilizing Linvatec's relationships
with foreign surgeons, hospitals and third-party payers, as well as foreign
distributors. The Company is also utilizing Linvatec's sales relationships to
introduce Linvatec's customers to CONMED's products. In 1999, the Company's
sales outside the United States grew 30%.
Pursue Strategic Acquisitions. The Company believes that strategic
acquisitions represent a cost-effective means of broadening its product line.
The Company has historically targeted companies with proven technologies,
established brand names and a significant portion of sales from single-use,
disposable products. Since 1995, the Company has completed seven acquisitions,
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expanding its product line to include surgical suction instruments, wound care
products and most recently arthroscopic products and powered surgical
instruments.
Provide Broad Product Offering in Key Product Areas. As a result of
competitive pressures in the health care industry, many health care providers
have aligned themselves with GPOs, which are increasingly contracting with fewer
vendors and demanding a broader product offering from their vendors in order to
reduce administrative costs. The Company believes that its broad product line is
a positive factor in the Company's efforts to meet such demands. In addition,
the Company has a corporate sales department that markets the Company's broad
product offering to GPOs.
Realize Manufacturing and Operating Efficiencies. The Company expects
to continue to review opportunities for consolidating product lines and
streamlining production. The Company believes its vertically integrated
manufacturing process should produce further opportunities to reduce overhead
and to increase operating efficiencies and capacity utilization.
Marketing
CONMED markets its products domestically through a sales force
consisting of approximately 230 sales people. In order to provide a high level
of expertise to medical specialties served, the Company's overall sales force is
separated into dedicated groups for 1) arthroscopy, 2) powered surgical
instruments, 3) electrosurgery and minimal access surgery and 4) patient care
products. Each sales representative has a defined geographic area and is
compensated on a commission basis or through a combination of salary and
commission. The sales force is supervised and supported by area directors. Home
office sales and marketing management provide the overall direction for the
sales of the Company's products.
CONMED's salespeople call on surgeons, hospitals, outpatient surgery
centers and physician offices. The Company also has a corporate sales department
that is responsible for interacting with GPOs. The Company has contracts with
many such organizations and believes that the lack of any individual group
purchasing contract will not adversely impact the Company's competitiveness in
the marketplace. The sale of the Company's products is accompanied by initial
and ongoing in-service training of the end-user. The field sales force is
trained in the technical aspects of the Company's products and their uses, and
provides surgeons and medical personal with information relating to the
technical features and benefits of the Company's products. For hospital
inventory management purposes, at the hospital's request, some products are sold
to hospitals through distributors. The sales force is required to work closely
with distributors where applicable and to maintain close relationships with
end-users.
The Company's international sales accounted for approximately 25% of
total revenues in 1999. Products are sold in over 100 foreign countries.
International sales efforts are coordinated through local country dealers or
with direct sales efforts. CONMED distributes its products through sales
subsidiaries and branches with offices located in Australia, Belgium, Canada,
France, Germany, Korea, Spain and the United Kingdom.
Manufacturing
The Company manufactures most of its products. The Company believes its
vertically integrated manufacturing process allows it to provide quality
products and generate manufacturing efficiencies by purchasing raw materials for
its disposable products in bulk. The Company also believes that its
<PAGE>
manufacturing capabilities allow it to contain costs, control quality and
maintain security of proprietary processes. The Company uses various manual and
automated equipment for fabrication and assembly of its products and is
continuing to further automate its facilities.
The Company believes its production and inventory practices are
generally reflective of conditions in the industry. The Company's products are
not generally made to order or to individual customer specifications.
Accordingly, the Company schedules production and stocks inventory on the basis
of experience and its knowledge of customer order patterns, and its judgment as
to anticipated demand. Since customer orders must generally be filled promptly
for immediate shipment, backlog of unfilled orders is not significant to an
understanding of the Company's business.
Research and Development Activities
During the three years, 1997, 1998 and 1999, the Company spent
approximately $3.0 million, $12.0 million and $12.1 million, respectively, for
research and development. The Company's research and development departments
consist of 99 employees.
The Company's research and development programs focus on the
development of new products, as well as the enhancement of existing products
with the latest technology and updated designs. The Company is continually
seeking to develop new technologies to improve durability, performance and
usability of existing products. In addition to its own research and development,
the Company receives new product and technology disclosures, especially in
procedure-specific areas, from surgeons, inventors and operating room personnel.
For disclosures that the Company deems promising from a clinical and commercial
perspective, the Company seeks to obtain rights to these ideas by negotiating
agreements, which typically compensate the originator of the idea through
royalty payments based on a percentage of net sales of licensed products.
The Company has rights to numerous U.S. patents and corresponding
foreign patents, covering a wide range of its products. The Company owns a
majority of these patents and has licensed rights to the remainder, both on an
exclusive and non-exclusive basis. In addition, certain patents are currently
licensed to third parties on a non-exclusive basis. Due to technological
advancements, the Company does not rely on its patents to maintain its
competitive position, and believes that development of new products and
improvement of existing ones is and will continue to be more important than
patent protection in maintaining its competitive position.
Competition
The markets for the Company's products are highly competitive, and many
of the Company's competitors are substantially larger and stronger financially
than the Company. However, the Company does not believe that any one competitor
competes with the Company across all its product lines. Major competitors of the
Company include Arthrex, Arthrocare Corporation, Johnson & Johnson, Medtronic,
Inc., Minnesota Mining and Manufacturing Company, Smith & Nephew plc, Stryker
Corporation, and Tyco International Ltd.
The Company believes that product design, development and improvement,
customer acceptance, marketing strategy, customer service and price are critical
elements to compete in its industry. Other alternatives, such as medical
procedures or pharmaceuticals, could at some point prove to be interchangeable
alternatives to the Company's products.
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Government Regulation
Most if not all of the Company's products are classified as medical
devices subject to regulation by the FDA and foreign regulatory agencies. The
Company's new products generally require FDA clearance under a procedure known
as 510(k) premarketing notification. A 510(k) premarketing notification
clearance indicates FDA agreement with an applicant's determination that the
product for which clearance has been sought is substantially equivalent to
another medical device which was on the market prior to 1976 or which has
received 510(k) premarketing notification clearance. Some products have been
continuously produced, marketed and sold since May 1976 and require no 510(k)
premarketing clearance. The Company's products generally are either Class I or
Class II products with the FDA, meaning that the Company's products must meet
certain FDA standards and are subject to the 510(k) premarketing notification
clearance discussed above, but are not required to be approved by the FDA. FDA
clearance is subject to continual review, and later discovery of previously
unknown problems may result in restrictions on a product's marketing or
withdrawal of the product from the market.
The Company has a quality control/regulatory compliance group of
approximately 120 employees that is tasked with monitoring compliance with
design specifications and relevant government regulations for all of the
Company's products. The Company and substantially all of its products are
subject to the provisions of the Federal Food, Drug and Cosmetic Act of 1938, as
amended by the Medical Device Amendments of 1976, and the Safe Medical Device
Act of 1990, as amended in 1992, and similar foreign regulations.
As a manufacturer of medical devices, the Company's manufacturing
processes and facilities are subject to periodic on-site inspections and
continuing review by the FDA to insure compliance with Quality System
Regulations as specified in Title 21, Code of Federal Regulation (CFR) part 820.
Many of the Company's products are subject to industry-set standards. Industry
standards relating to the Company's products are generally formulated by
committees of the Association for the Advancement of Medical Instrumentation.
See Item 1: Business-Risk Factors: Government Regulation of Products. The
Company markets its products in a number of foreign markets. Requirements
pertaining to its products vary widely from country to country, ranging from
simple product registrations to detailed submissions such as those required by
the FDA. The Company believes that its products currently meet applicable
standards for the countries in which they are marketed.
The Company is subject to product recall. The Company initiated three
recalls during 1998 and 1999. Corrective actions were taken to address the cause
of the recalls. No recall or production matter has had a material effect on the
Company's business or financial condition, but there can be no assurances that
there could not be such a material effect in the future.
Any change in existing federal, state or foreign laws or regulations,
or in the interpretation or enforcement thereof, or the promulgation or any
additional laws or regulations could have an adverse effect on the Company's
business, financial condition or results of operations.
Employees
As of December 31, 1999, the Company had 2,454 full-time employees, of
whom 1,652 were in manufacturing, 99 in research and development, and the
balance were in sales, marketing, executive and administrative positions. None
of the Company's employees are represented by a union, and the Company considers
its employee relations to be excellent. The Company has never experienced any
strikes or work stoppages.
12
<PAGE>
Risk Factors
Investors should carefully consider the specific factors set forth
below as well as the other information included or incorporated by reference in
this Form 10-K. See "Item 1: Business -- Forward Looking Statements" relating to
certain forward-looking statements in this Form 10-K.
Significant Leverage and Debt Service
The Company has indebtedness which is substantial in relation to its
shareholders' equity, as well as interest and debt service requirements that are
significant compared to its cash flow from operations. As of December 31, 1999,
the Company had $394.7 million of debt outstanding, which represented 65.1% of
total capitalization. In addition, on December 31, 1999, the Company had
approximately $70.0 million available for borrowing under the revolving portion
of the Company's principal bank credit agreement (the "credit facility").
The degree to which the Company is leveraged could have important
consequences to investors, including but not limited to the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to debt service and will not be available for operations, capital expenditures,
acquisitions and other purposes; (ii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or general corporate purposes may be limited or impaired; and (iii) certain of
the Company's borrowings, including its borrowings under the credit facility,
are and will continue to be at variable rates of interest, which exposes the
Company to the risk of increased interest rates.
The Company's ability to satisfy its obligations will depend upon the
Company's future operating performance, which will be affected by the Company's
ability to effectively integrate acquired businesses with the Company's
operations and by prevailing economic conditions and financial, business and
other factors, many of which are beyond the Company's control. There can be no
assurance that the Company's operating results will be sufficient for the
Company to meet its obligations. If the Company is unable to service its
indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as forgoing acquisitions, reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital. There can be no assurance that any of these
strategies could be implemented on terms acceptable to the Company, if at all.
See "Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Effects of Acquisitions Generally
An element of the Company's business strategy has been to expand
through acquisitions and the Company may seek to pursue acquisitions in the
future. The success of the Company is dependent in part upon its ability to
effectively integrate acquired operations with the Company's operations. While
the Company believes that it has sufficient management and other resources to
accomplish the integration of its past and future acquisitions, there can be no
assurance in this regard or that the Company will not experience difficulties
with customers, suppliers, distributors, governmental authorities, personnel or
others. In addition, the Company is generally entitled to customary
indemnification from sellers of businesses for any difficulties that may have
<PAGE>
arisen prior to the Company's acquisition of each business, but the amount and
time for claiming under these indemnification provisions is limited. There can
be no assurance that the Company will be able to identify and make acquisitions
on acceptable terms or that the Company will be able to obtain financing for
such acquisitions on acceptable terms. As a result, the financial performance of
the Company is now and will continue to be subject to various risks associated
with the acquisition of businesses, including the financial effects described
above.
13
<PAGE>
Limitations Imposed by Certain Indebtedness
The credit facility contains certain restrictive covenants which will
affect, and in many respects significantly limit or prohibit, among other
things, the ability of CONMED and its subsidiaries to incur indebtedness, make
prepayments of certain indebtedness, make investments, engage in transactions
with affiliates, sell assets, engage in mergers and acquisitions and realize
important elements of its business strategy. The credit facility also requires
the Company to meet certain financial ratios and tests. These covenants may
prevent the Company from integrating its acquired businesses, pursuing
acquisitions, significantly limit the operating and financial flexibility of the
Company and limit its ability to respond to changes in its business or
competitive activities. The ability of the Company to comply with such
provisions may be affected by events beyond its control. In the event of any
default under the credit facility, the credit facility lenders could elect to
declare all amounts borrowed under the credit facility, together with accrued
interest, to be due and payable. If the Company were unable to repay such
borrowings, the lenders thereunder could proceed against the collateral securing
the credit facility, which consists of substantially all of the property and
assets of CONMED and its subsidiaries.
Significant Competition and Other Market Considerations
The market for the Company's products is highly competitive. Many of
these competitors offer a range of products in areas other than those in which
the Company competes, which may make such competitors more attractive to
surgeons, hospitals, GPOs and others. In addition, many of the Company's
competitors are larger and have greater financial resources than the Company and
offer a range of products broader than the Company's. Competitive pricing
pressures or the introduction of new products by the Company's competitors could
have an adverse effect on the Company's revenues and profitability. Some of the
companies with which the Company now competes or may compete in the future have
or may have more extensive research, marketing and manufacturing capabilities
and significantly greater technical and personnel resources than the Company,
and may be better positioned to continue to improve their technology in order to
compete in an evolving industry. See "Item 1: Business-- Competition."
Demand for and use of the Company's products may fluctuate as a result
of changes in surgeon preferences, the introduction of new products or new
features to existing products, the introduction of alternative surgical
technology and advances in surgical procedures and discoveries or developments
in the health care industry. In recent years, the health care industry has
undergone significant change driven by various efforts to reduce costs,
including efforts at national health care reform, trends toward managed care,
cuts in Medicare, consolidation of health care distribution companies and
collective purchasing arrangements by office-based health care practitioners.
There can be no assurance that demand for the Company's products will not be
adversely affected by such fluctuations and trends.
Patents and Proprietary Technology
Much of the technology used in the markets in which the Company
competes is covered by patents. The Company has numerous U.S. patents and
corresponding foreign patents on products expiring at various dates from 2000
through 2017 and has additional patent applications pending. See "Item 1:
Business -- Research and Development Activities." Although the Company does not
<PAGE>
rely solely on its patents to maintain its competitive position, the loss of the
Company's patents could reduce the value of the related products and any related
competitive advantage. Competitors may also be able to design around the
Company's patents and to compete effectively with the Company's products. In
addition, the cost to prosecute infringements of the Company's patents or the
cost to defend the Company against patent infringement actions by others could
be substantial. There can be no assurance that pending patent applications will
result in issued patents, that patents issued to or licensed by the Company will
14
<PAGE>
not be challenged by competitors or that such patents will be found to be valid
or sufficiently broad to protect the Company's technology or provide the Company
with a competitive advantage.
Government Regulation of Products
All of the Company's products are classified as medical devices subject to
regulation by the Food and Drug Administration (the "FDA") and are subject to
similar regulations in foreign countries. As a manufacturer of medical devices,
the Company's manufacturing processes and facilities are subject to on-site
inspection and continuing review by the FDA to insure compliance with "Quality
System Regulations," as defined by the FDA. Failure to comply with applicable
domestic and/or foreign requirements can result in fines, recall or seizure of
products, total or partial suspension of production, withdrawal of existing
product approvals or clearances, refusal to approve or clear new applications or
notices and criminal prosecution. Many of the Company's products are also
subject to industry-set standards. The failure to comply with Quality System
Regulations or industry-set standards could have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company is subject to product recall. The Company's product lines have
experienced a number of product recalls. See "Item 1: Business-Government
Regulation". Although no recall or production matter has had a material adverse
effect on the Company's business, financial condition or results of operations,
there can be no assurance to this effect in the future. The Company has been
expending significant resources to improve the quality of its regulatory status.
There can be no assurance that these expenditures will not increase, or that
regulatory agencies will be satisfied with these efforts.
Risks Relating to International Operations
A portion of the Company's operations are conducted outside the United States,
with approximately 25% of the Company's 1999 net sales constituting foreign
sales. As a result of its international operations, the Company is subject to
risks associated with operating in foreign countries, including devaluations and
fluctuations in currency exchange rates, imposition of limitations on
conversions of foreign currencies into dollars or remittance of dividends and
other payments by foreign subsidiaries, imposition or increase of withholding
and other taxes on remittances and other payments by foreign subsidiaries, trade
barriers, political risks, including political instability, hyperinflation in
certain foreign countries and imposition or increase of investment and other
restrictions by foreign governments. There can be no assurance that such risks
will not have a material adverse effect on the Company's business and results of
operations.
Risk of Product Liability Actions
The nature of the Company's products as medical devices and today's litigious
environment in the United States should be regarded as potential risks that
could significantly and adversely affect the Company's financial condition and
results of operations. The Company maintains insurance to protect against claims
associated with the use of its products, but such insurance coverage is subject
to numerous deductibles and policy limitations and there can be no assurance
that its insurance coverage would adequately cover the amount or nature of any
claim asserted against the Company. See "Item 3: Legal Proceedings."
15
<PAGE>
Item 2. Properties
Facilities
The Company manufactures most of its products. Substantially all of the
Company's property and assets are pledged as collateral under the Credit
Facility. The following table provides information regarding the Company's
facilities. The Company believes its facilities are adequate in terms of space
and suitability for its needs over the next several years.
<TABLE>
<CAPTION>
Lease
Location Square Feet Own or Lease Expiration
-------- ----------- ------------ ----------
<S> <C> <C> <C>
Utica, NY (two facilities) 650,000 Own --
Largo, FL 213,000 Lease 2009
Rome, NY 120,000 Own --
Englewood, CO 65,000 Own --
Irvine, CA 31,000 Lease August 2001
El Paso, TX 29,000 Lease April 2002
Juarez, Mexico 25,000 Lease December 2002
Santa Barbara, CA 18,000 Lease December 2001
</TABLE>
Item 3. Legal Proceedings
From time to time the Company is a defendant in certain lawsuits
alleging product liability, patent infringement, or other claims incurred in the
ordinary course of business. While patent infringement claims are not subject to
insurance, the product liability, and many other claims are generally covered by
various insurance policies, subject to certain deductible amounts and maximum
policy limits. When there is no insurance coverage, the Company establishes
sufficient reserves to cover probable losses associated with such claims. The
Company does not expect that the resolution of any pending claims will have a
material adverse effect on the Company's financial condition or results of
operations.
Manufacturers of medical products may face exposure to significant
product liability claims. To date, the Company has not experienced any material
product liability claims, but any such claims arising in the future could have a
material adverse effect on the Company's business or results of operations. The
Company currently maintains commercial product liability insurance of
$25,000,000 per incident and $25,000,000 in the aggregate annually, which the
Company, based on its experience, believes is adequate. This coverage is on a
claims-made basis. There can be no assurance that claims will not exceed
insurance coverage or that such insurance will be available in the future at a
reasonable cost to the Company.
The Company's operations are subject to a number of environmental laws
and regulations governing, among other things, air emissions, wastewater
<PAGE>
discharges, the use, handling and disposal of hazardous substances and wastes,
soil and groundwater remediation and employee health and safety. In some
jurisdictions environmental requirements may be expected to become more
stringent in the future. In the United States certain environmental laws can
<PAGE>
impose liability for the entire cost of site restoration upon each of the
parties that may have contributed to conditions at the site regardless of fault
or the lawfulness of the party's activities.
While the Company does not believe that the present costs of
environmental compliance and remediation are material, there can be no assurance
that future compliance or remedial obligations could not have a material adverse
effect on the Company's financial condition or results of operations.
16
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
17
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock, par value $.01 per share, is traded on the
Nasdaq Stock Market (symbol - CNMD). At December 31, 1999, there were 1,238
registered holders of the Company's Common Stock and, in addition, the Company
has been notified that, on such date, there were approximately 7,074 accounts
held in "street name".
The following table shows the high-low last sales prices for the years
ended December 31, 1998 and 1999, as reported by the Nasdaq Stock Market. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down and commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
--------------------------------------
1998
Period High Low
--------------------------------------
<S> <C> <C>
First Quarter $25.75 $21.50
Second Quarter 26.00 21.13
Third Quarter 24.88 20.31
Fourth Quarter 33.00 21.88
<CAPTION>
--------------------------------------
1999
Period High Low
--------------------------------------
<S> <C> <C>
First Quarter $33.62 $27.09
Second Quarter 34.25 28.12
Third Quarter 33.18 24.50
Fourth Quarter 27.62 22.37
</TABLE>
The Company has never paid cash dividends on its Common Stock. The
Board of Directors presently intends to retain future earnings to service
indebtedness and finance the development of the Company's business and does not
presently intend to declare cash dividends. Should this policy change, the
declaration of dividends will be determined by the Board in light of conditions
then existing, including the Company's financial requirements and condition and
the prohibition on the declaration and payment of cash dividends contained in
debt agreements.
18
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
Years Ended December
---------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data(1):
Net sales ...................................... $ 99,558 $ 125,630 $ 138,270 $ 336,442 $ 372,617
Cost of sales (2) .............................. 52,402 65,393 74,220 169,599 178,480
Selling and administrative expense (3) ......... 25,570 31,620 35,299 93,647 107,233
Research and development expense .............. 2,832 2,953 3,037 12,029 12,108
Unusual items (3) ............................. -- -- 37, 242 -- --
--------- --------- --------- --------- ---------
Income (loss) from operations ................. 18,754 25,664 (11,528) 61,167 74,796
--------- --------- --------- --------- ---------
Interest income (expense), net ................. (1,991) (217) 823 (30,891) (32,360)
Income (loss) before income taxes
and extraordinary item ....................... 16,763 25,447 (10,705) 30,276 42,436
Provision (benefit) for income taxes ........... 5,900 9,161 (3,640) 10,899 15,277
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item ........ 10,863 16,286 (7,065) 19,377 27,159
Extraordinary item, net of income taxes (4) -- -- -- (1,569) --
Net income (loss) .......................... $ 10,863 $ 16,286 $ (7,065) $ 17,808 $ 27,159
========= ========= ========= ========= =========
Earnings (Loss) Per Share Before Extraordinary Item:
Basic .......................................... $ 1.03 $ 1.16 $ (0.47) $ 1.28 $ 1.78
========= ========= ========= ========= =========
Diluted ........................................ $ 0.94 $ 1.12 $ (0.47) $ 1.26 $ 1.76
========= ========= ========= ========= =========
Earnings (Loss) Per Share:
Basic ....................................... $ 1.03 $ 1.16 $ (0.47) $ 1.18 $ 1.78
========= ========= ========= ========= =========
Diluted ..................................... $ 0.94 $ 1.12 $ (0.47) $ 1.16 $ 1.76
========= ========= ========= ========= =========
Weighted Average Number of Common Shares
In Calculating:
Basic earnings (loss) per share ................ 10,517 14,045 14,997 15,085 15,241
========= ========= ========= ========= =========
Diluted earnings (loss) per share ............. 11,613 14,496 14,997 15,321 15,430
========= ========= ========= ========= =========
Other Financial Data:
Depreciation and amortization .................. $ 5,015 $ 6,410 $ 6,954 $ 23,601 $ 25,749
EBITDA(5) ...................................... 23,769 32,074 32,668 86,576 99,568
Capital expenditures ........................... 5,195 4,946 8,178 12,924 9,352
Ratio of earnings to fixed charges (6) ......... 8.84x 79.30x (6) 1.95 2.27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December
----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data(7):
Cash and cash equivalents ........................... $ 1,539 $ 20,173 $ 13,452 $ 5,906 $ 3,747
Total assets ........................................ 119,403 170,083 561,637 628,784 662,161
Long-term debt (including current portion) ......... 32,340 -- 365,000 384,872 394,669
Total shareholders' equity .......................... 75,002 158,635 162,736 182,168 211,261
</TABLE>
(footnotes on following page)
19
<PAGE>
(1) Includes, based on the purchase method of accounting, the results of (i)
Birtcher Medical Systems, Inc. from March 1995; (ii) the IV controller
product line acquired from Master Medical Corporation from May 1995; (iii)
NDM, Inc., the subsidiary formed as a result of the product lines acquired
from New Dimensions in Medicine, Inc., from February 1996; (iv) the
surgical suction product line acquired from the Davol subsidiary of C.R.
Bard, Inc., from July 1997; (v) Linvatec Corporation from December 31,
1997; (vi) the arthroscopy product line acquired from Minnesota Mining and
Manufacturing (3M) from November 1998; and (vii) the powered instrument
product line acquired from 3M from August 1999; in each such case from the
date of acquisition.
(2) Includes for 1998, $3,000,000 of incremental expense related to the excess
of the fair value at the acquisition date of Linvatec inventory over the
cost to produce; includes for 1999, $1,600,000 of incremental expense
related to the excess of the fair value at the acquisition date over the
cost to produce inventory related to the powered instrument produce line
acquired from 3M.
(3) Included in unusual items for 1997, a $34,000,000 non-cash acquisition
charge for the write-off of all of the in-process research and development
products (comprised of products in the development stage) acquired in the
Linvatec acquisition, $914,000 write-off of deferred financing fees
resulting from refinancing the Company's loan agreements in connection with
the Linvatec acquisition, and $2,328,000 charge for the closing of the
Company's Dayton, Ohio manufacturing facility. Included in selling and
administrative expense for 1999, a $1,256,000 benefit related to a
previously recorded litigation accrual which was settled on favorable
terms.
(4) In March 1998, the Company recorded an extraordinary item of $1,569,000 net
of income taxes related to the write-off of deferred financing fees.
(5) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, (except amortization of deferred financing
fees included in interest expense) unusual items and inventory adjustments
pursuant to purchase accounting. EBITDA is included herein because certain
investors consider it to be a useful measure of a company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations, as defined in generally accepted accounting principles, and
should not be considered in isolation or as a substitute for net income or
cash flow from operations or as a measure of profitability or liquidity.
(6) The ratio of earnings to fixed charges is calculated by dividing fixed
charges into income before income taxes and extraordinary items plus fixed
charges. Fixed charges include interest expense, amortization of deferred
financing fees and the estimated interest component of rent expense. In
1997, the Company had a deficiency of earnings to cover fixed charges of
$10,558,000.
(7) Linvatec is included in the Historical Balance Sheet Data as of December
31, 1997, its date of acquisition, after a one-time non-cash acquisition
charge of $34,000,000.
20
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with Selected
Historical Financial Information (Item 6) and the consolidated financial
statements of CONMED which are included elsewhere or incorporated by reference
in this Form 10-K.
General
CONMED Corporation (the "Company") is a medical technology company
specializing in instruments and implants for arthroscopic sports medicine, and
powered surgical instruments, such as drills and saws, for orthopaedic, ENT and
neurosurgery. The Company is also a leading developer, manufacturer and supplier
of advanced medical devices, including electrosurgical systems, ECG electrodes
for heart monitoring, and minimally invasive surgical devices. The Company's
products are used in a variety of clinical settings, such as operating rooms,
surgery centers, physicians' offices and critical care areas of hospitals.
Results of Operations
The following table presents, as a percent of net sales, certain
categories included in CONMED's consolidated statements of income for the
periods indicated:
<TABLE>
<CAPTION>
Years Ended December
----------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of sales................................................. 53.7 50.4 47.9
----- ----- -----
Gross margin............................................... 46.3 49.6 52.1
Selling and administrative expense............................ 25.5 27.8 28.8
Research and development expense.............................. 2.2 3.6 3.3
Unusual items................................................. 26.9 - -
----- ----- -----
Income (loss) from operations................................. (8.3) 18.2 20.0
Interest income (expense), net................................ .6 (9.2) (8.6)
----- ----- -----
Income (loss) before income taxes and extraordinary item...... (7.7) 9.0 11.4
Provision (benefit) from income taxes......................... (2.6) 3.2 4.1
----- ----- -----
Income (loss) before extraordinary item.................. (5.1)% 5.8% 7.3%
===== ===== =====
</TABLE>
Years Ended December 1999 and December 1998
Sales for 1999 were $372,617,000, an increase of 10.8% compared to
sales of $336,442,000 in 1998. Arthroscopy sales grew 19.4% in 1999 to
$144,000,000, with 10.3% of the increase due to internal growth and 9.1% due to
the Company's acquisition of an arthroscopy product line from Minnesota Mining
and Manufacturing Company (3M) in November 1998 (the "Arthroscopy
<PAGE>
acquisition"--Note 2). Powered surgical instrument sales grew 20.5% in 1999 to
$84,700,000 with 7.3% due to internal growth and 13.2% due to the Company's
acquisition of the powered instrument business from 3M in August 1999 (the
"Powered Instrument acquisition"--Note 2). Electrosurgery, patient care and
other surgical product lines declined 1.2% in 1999 to $143,900,000.
Approximately 2% of the total sales growth in 1999 as compared to 1998 reflects
the pricing impact of changes in distribution from 1999 as compared to the first
six months of 1998. In connection with the December 1997 acquisition of Linvatec
Corporation (the "Linvatec acquisition"--Note 2) from Bristol-Meyers Squibb
("BMS"), the Company entered into fixed price distribution agreements with
Zimmer, Inc., a wholly-owned subsidiary of BMS, to distribute certain of the
Company's products in selected geographic markets. Beginning in the third
quarter of 1998, most of the products formerly distributed by Zimmer were sold
and distributed directly by the Company, resulting in improved pricing for the
affected products.
21
<PAGE>
Cost of sales increased to $178,480,000 in 1999 compared to
$169,599,000 in 1998. In connection with the August 1999 Powered Instrument
acquisition, the Company increased the acquired value of inventory by
$1,600,000; this inventory was sold during the quarter ended September 1999 and
served to increase cost of sales in 1999 by $1,600,000. Similarly, in connection
with purchase accounting for the Linvatec acquisition, the Company increased the
acquired value of inventory by $3,000,000 over its production cost; this
inventory was sold during the quarter ended March 1998 and served to increase
cost of sales in 1998 by $3,000,000. Excluding the impact of these non-recurring
adjustments, cost of sales increased to $176,859,000 in 1999 from $166,606,000
in 1998, as a result of increased sales volumes as described above. Excluding
the nonrecurring adjustments, the Company's gross margin percentage for 1999 was
52.5% compared to 50.5% for 1998. The increase in gross margin percentage is
primarily attributable to higher sales volumes in the Company's orthopaedic
product lines which carry higher gross margins than certain of the Company's
other product lines as well as improved pricing resulting from the elimination
of most of the fixed price product distribution agreements with Zimmer discussed
previously.
Selling and administrative costs increased to $107,233,000 in 1999 as
compared to $93,647,000 in 1998. The increase in selling and administrative
expense is primarily a result of additional selling expense associated with the
increase in sales in 1999 as compared to 1998, including increased costs
associated with the direct selling and distribution of products formerly
distributed through Zimmer during the first half of 1998 and increased
intangible amortization resulting from the Powered Instrument acquisition and
the Arthroscopy acquisition. Partially offsetting these increases, during the
fourth quarter of 1999, the Company recognized the benefit amounting to
$1,256,000 of a previously recorded litigation accrual which was settled on
favorable terms and is included in selling and administrative expense. As a
result of these costs, as a percentage of sales, selling and administrative
expense increased to 28.8% in 1999 as compared to 27.8% in 1998.
Research and development expense was $12,108,000 in 1999 as compared to
$12,029,000 in 1998. As a percentage of sales, research and development expense
was 3.3% in 1999 as compared to 3.6% in 1998. The amount of research and
development expense incurred in 1999 is consistent with 1998 representing the
Company's ongoing efforts in this area.
Interest expense for 1999 was $32,360,000 compared to $30,891,000 in
1998. In connection with the Powered Instrument acquisition, the Company's
existing credit facility was amended in the third quarter of 1999 to provide for
an additional $40,000,000 loan commitment which was used to fund the acquisition
purchase price. The increase in interest expense is a result of these higher
term loan borrowings and higher average borrowings under the Company's revolving
credit facility during 1999 as compared to 1998. The Company funded its
Arthroscopy acquisition during the fourth quarter of 1998 through borrowings
under the revolving credit facility which resulted in the higher average
borrowings. Offsetting the interest on these increased borrowings was reduced
interest expense on the Company's term loans as a result of scheduled quarterly
principal payments totaling $23,103,000 in 1999. (See discussion under Liquidity
and Capital Resources section of Management's Discussion and Analysis of
Financial Condition and Results of Operations).
During the first quarter of 1998, the Company completed an offering of
subordinated notes (the "Notes") and used the net proceeds to repay a portion of
the Company's term loans under its credit facility. Deferred financing fees
<PAGE>
relating to the portion of the credit facility repaid amounting to $2,451,000
($1,569,000 net of income taxes) were written-off as an extraordinary charge.
(See Note 5 and discussion under Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations).
22
<PAGE>
Years Ended December 1998 and December 1997
Sales for 1998 were $336,442,000, an increase of 143% compared to sales
of $138,270,000 in 1997. Approximately 138% of the total sales increase is
related to the Linvatec acquisition. The remaining increase of approximately 5%
is attributable to the July 1997 surgical suction instrument and tubing
acquisition from Davol, Inc. (the "Davol acquisition"--Note 2).
Cost of sales increased to $169,599,000 in 1998 compared to $74,220,000
in 1997. In connection with purchase accounting for the Linvatec acquisition,
the Company increased the acquired value of inventory by $3,000,000 over its
production cost; this inventory was sold during the quarter ended March 1998 and
served to increase cost of sales in 1998 by $3,000,000. Excluding the impact of
this non-recurring adjustment, cost of sales increased to $166,606,000 in 1998
from $74,220,000 in 1997, as a result of increased sales volumes as described
above. Excluding the nonrecurring adjustment, the Company's gross margin
percentage for 1998 was 50.5% compared to 46.3% for 1997. The increase in gross
margin percentage is primarily attributable to sales of the Company's
orthopaedic product lines acquired through the Linvatec acquisition which carry
higher gross margins than certain of the Company's other product lines.
Additionally as discussed above, in connection with the Linvatec acquisition,
the Company entered into fixed price distribution agreements with Zimmer to
distribute certain of the Company's products in selected geographic markets.
Beginning in the third quarter of 1998, most of the products formerly
distributed by Zimmer were sold and distributed directly by the Company. As a
result, the Company's gross margin percentage was 52.0% in the second half of
1998 as compared to 47% in the first half of 1998.
Selling and administrative costs increased to $93,647,000 in 1998 as
compared to $35,299,000 in 1997, primarily as a result of the Linvatec
acquisition. As a percentage of sales, selling and administrative expense was
27.8% in 1998 and 25.5% in 1997. This increase reflects the overall higher
selling and administrative efforts associated with the sales of the orthopaedic
products acquired in connection with the Linvatec acquisition.
Research and development expense was $12,029,000 in 1998 as compared to
$3,037,000 in 1997. The increase reflects expense related to Linvatec research
and development activities.
There were no unusual charges recorded in 1998. As discussed in Note
11, in 1997 CONMED recorded $37,242,000 of unusual items, including a
$34,000,000 non-cash acquisition charge for the write-off of the in-process
research and development (comprised of products in the development stage)
acquired in the Linvatec acquisition, $914,000 of deferred financing fees
resulting from the refinancing of the Company's loan agreements in connection
with the Linvatec acquisition and a $2,328,000 charge for the closing of
CONMED's Dayton, Ohio manufacturing facility.
Interest expense for 1998 was $30,891,000 compared to interest income
of $823,000 in 1997. As discussed under Liquidity and Capital Resources section
of Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Company acquired Linvatec Corporation on December 31, 1997 and
borrowed $365 million under its credit facility. The Company had no borrowings
outstanding during 1997, except the acquisition related borrowings on December
31, 1997. The Company completed an offering of subordinated notes during the
quarter ended March 1998 and used the net proceeds to repay a portion of the
Company's term loans under its credit facility. Deferred financing fees relating
to the portion of the credit facility repaid amounting to $2,451,000 ($1,569,000
net of income taxes) were written-off as an extraordinary item in 1998.
23
<PAGE>
Liquidity and Capital Resources
The Company's net working capital position increased $16,102,000 or
17.2% to $109,526,000 at December 1999 compared to $93,424,000 at December 1998.
Net cash provided by operations was $37,030,000 for 1999 compared to $20,962,000
for 1998. Operating cash flow was positively impacted by higher net income,
depreciation, and amortization in 1999 as compared to 1998, as well as the
change in deferred income taxes. Negatively impacting operating cash flow in
1999 were increases in accounts receivable and inventory and decreases in
accounts payable, accrued interest and accrued liabilities. The increase in
accounts receivable is primarily related to the increase in sales; the increase
in inventory is related to the Arthroscopy acquisition and Powered Instrument
acquisition and overall higher levels of inventory on-hand. The decreases in
accounts payable, accrued interest and accrued liabilities are primarily related
to the timing of the payment of these liabilities. Adversely impacting operating
cash flows in 1998 as compared to 1997 was an increase in accounts receivable
and inventories primarily as a result of the timing of the Company's assumption
of Linvatec's international operations previously managed by Zimmer. In
connection with the Linvatec acquisition, the Company assumed responsibility for
the majority of Linvatec's international operations on July 1, 1998.
Accordingly, the receivables and inventory of the international operations were
not acquired or funded by the Company until the second half of 1998.
Net cash used by investing activities in 1999 included $40,600,000 paid
related to the Powered Instrument acquisition. Net cash used by investing
activities in 1998 included $17,500,000 paid related to the Arthroscopy
acquisition and $14,400,000 of payments related to the Linvatec and Davol
acquisitions. Components of the Linvatec acquisition related payments include
investment banking and professional fees related to the acquisition
($6,300,000), payments associated with the closure of Linvatec's San Dimas,
California facility ($2,500,000), payments to Zimmer, Inc. to acquire
demonstration equipment ($1,400,000) and other acquisition related payments
($2,500,000). Cash payments related to the Davol acquisition amounted to
$1,700,000, of which $1,200,000 represented severance costs associated with
closure of the Company's Kansas manufacturing operation. Net cash used by
investing activities in 1997 includes $370,000,000 in payments related to the
Linvatec acquisition and $24,000,000 related to the Davol acquisition. Capital
expenditures for 1999, 1998 and 1997 amounted to $9,352,000, $12,924,000 and
$8,178,000, respectively.
Financing activities during 1999 consisted primarily of a $40,000,000
term loan used to fund the Powered Instrument acquisition, scheduled payments of
$23,103,000 on the Company's previously existing term loans and $8,000,000 in
repayments on the Company's revolving credit facility. Financing activities
during 1998 involved the completion of the Notes offering in the aggregate
principal amount of $130,000,000; net proceeds from the offering amounting to
$126,100,000 were used to repay a portion of the Company's term loans under its
credit facility. Additionally, the Company borrowed $23,000,000 under the
revolving credit facility primarily to finance the Arthroscopy acquisition and
made scheduled payments of $7,028,000 on the Company's term loans. Financing
activities during 1997 involved borrowing $350,000,000 in term loans and
$15,000,000 on the revolving credit facility to finance the Linvatec
acquisition.
Management believes that cash generated from operations, its current
cash resources and funds available under its revolving credit facility will
provide sufficient liquidity to ensure continued working capital for operations,
debt service and funding of capital expenditures in the foreseeable future.
<PAGE>
Foreign Operations
The Company's foreign operations are subject to special risks inherent
in doing business outside the United States, including governmental instability,
war and other international conflicts, civil and labor
24
<PAGE>
disturbances, requirements of local ownership, partial or total expropriation,
nationalization, currency devaluation, foreign exchange controls and foreign
laws and policies, each of which may limit the movement of assets or funds or
result in the deprivation of contract rights or the taking of property without
fair compensation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's principal market risks involve foreign currency exchange
rates and interest rates.
The Company manufactures its products in the United States and
distributes its products throughout the world. As a result, the Company's
financial results could be significantly affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As of December 31, 1999, the Company had not established a foreign
currency-hedging program. The Company has mitigated and will continue to
mitigate its foreign currency exposure by transacting the majority of its
foreign sales in United States dollars. To date, changes in foreign currency
exchange rates have not had a material effect on the Company's financial
conditions or results of operations. The Company will continue to monitor and
evaluate its foreign currency exposure and the need to establish a foreign
currency hedging program.
The Company's exposure to market risk for changes in interest rates
relate to its borrowings. The Company does not use derivative financial
instruments for trading or other speculative purposes. Interest rate swaps, a
form of derivative, are used to manage interest rate risk. Currently, the
Company has entered into two interest rate swaps expiring in June 2001 which
convert $100,000,000 of the approximate $264,000,000 of floating rate borrowings
under the Company's credit facility into fixed rate borrowings at rates ranging
from 7.18% to 8.25%. Provisions in one of the interest rate swaps cancels such
agreement when LIBOR exceeds 7.35%. If market interest rates for similar
borrowings average 1% more in 2000 than they did in 1999, the Company's interest
expense, after considering the effects of its interest rate swaps, would
increase, and income before taxes would decrease by $1,300,000. Comparatively,
if market interest rates averaged 1% less in 2000 than they did during 1999, the
Company's interest expense, after considering the effects of its interest rate
swaps, would decrease, and income before taxes would increase by $1,200,000.
These amounts are determined by considering the impact of hypothetical interest
rates on the Company's borrowing cost and interest rate swap agreements and does
not consider any actions by management to mitigate its exposure to such a
change.
Item 8. Financial Statements and Supplementary Data
The Company's 1999 Financial Statements, together with the report
thereon of PricewaterhouseCoopers LLP dated February 9, 2000, are included
elsewhere herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
The Company and PricewaterhouseCoopers LLP have had no disagreements
which would be required to be reported under this Item 9.
25
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the Directors and Executive Officers of the
Company is incorporated herein by reference to the sections captioned "Proposal
One: Election of Directors" and "Directors, Executive Officers and Senior
Officers" in CONMED Corporation's definitive Proxy Statement to be mailed on or
about April 10, 2000 for the annual meeting of shareholders to be held on May
16, 2000.
Item 11. Executive Compensation
Information with respect to Executive Compensation is incorporated
herein by reference to the sections captioned "Compensation of Executive
Officers", "Stock Option Plans", "Pension Plans" and "Board of Directors
Interlocks and Insider Participation; Certain Relationships and Related
Transactions" in CONMED Corporation's definitive Proxy Statement to be mailed on
or about April 10, 2000 for the annual meeting of shareholders to be held on May
16, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to Security Ownership of Certain Beneficial
Owners and Management is incorporated herein by reference to the section
captioned "Security Ownership of Certain Beneficial Owners and Management" in
CONMED Corporation's definitive Proxy Statement to be mailed on or about April
10, 2000 for the annual meeting of shareholders to be held on May 16, 2000.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
incorporated herein by reference to the section captioned "Board of Directors
Interlocks and Insider Participation; Certain Relationships and Related
Transactions" in CONMED Corporation's definitive Proxy Statement to be mailed on
or about April 10, 2000 for the annual meeting of shareholders to be held on May
16, 2000.
26
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Index to Financial Statements:
(a)(1) List of Financial Statements Form 10-K Page
--------------
Report of Independent Accountants F-1
Consolidated Balance Sheets at December 1998 and 1999 F-2
Consolidated Statements of Income for the Years Ended
December 1997, 1998 and 1999 F-3
Consolidated Statements of Shareholders' Equity for the
Years Ended December 1997, 1998 and 1999 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 1997, 1998 and 1999 F-5
Notes to Consolidated Financial Statements F-7
(2) List of Financial Statement Schedules
Valuation and Qualifying Accounts (Schedule VIII) F-24
All other schedules have been omitted because they are not
applicable, or the required information is shown in the financial
statements or notes thereto.
(3) List of Exhibits
The exhibits listed on the accompanying Exhibit Index on page 29
below are filed as part of this Form 10-K.
(b) Reports on Form 8-K
None
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the date indicated
below.
CONMED CORPORATION
March 27, 2000
By: /s/ Eugene R. Corasanti
--------------------------
Eugene R. Corasanti
(Chairman of the Board,
Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrants and
in the capacities and on the dates indicated.
Signature Title Date
/s/ EUGENE R. CORASANTI Chairman of the Board
- ----------------------- Chief Executive Officer
Eugene R. Corasanti And Director March 27, 2000
/s/ ROBERT D. SHALLISH, JR. Vice President-Finance
- --------------------------- and Chief Financial Officer
Robert D. Shallish, Jr. (Principal Financial Officer) March 27, 2000
/s/ JOSEPH J. CORASANTI President, Chief Operating
- ------------------------ Officer and Director March 27, 2000
Joseph J. Corasanti
/s/ LUKE A. POMILIO Vice President - Corporate
- ------------------- Controller (Principal Accounting
Luke A. Pomilio Officer) March 27, 2000
/s/ BRUCE F. DANIELS Director March 27, 2000
- --------------------
Bruce F. Daniels
/s/ ROBERT E. REMMELL Director March 27, 2000
- ---------------------
Robert E. Remmell
/s/ WILLIAM D. MATTHEWS Director March 27, 2000
- -----------------------
William D. Matthews
/s/ STUART J. SCHWARTZ Director March 27, 2000
- ----------------------
Stuart J. Schwartz
28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Instrument
- ----------- -------------------------
2.1 Purchase Agreement, dated as of May 28, 1997, by and between Davol,
Inc. and CONMED Corporation-- incorporated by reference to Exhibit 2
in the Company's Current Report on Form 8-K, filed on July 11, 1997.
2.2 Stock and Asset Purchase Agreement dated as of November 26, 1997,
between Bristol-Myers Squibb company and CONMED Corporation, as
amended by an amendment dated as of December 31, 1997-- incorporated
herein by reference to Exhibit 2.1(a) in the Company's Current Report
on Form 8-K, filed on January 8, 1998
2.3 Amendment dated as of December 31, 1997, between Bristol-Myers Squibb
Company and CONMED Corporation, to the Stock and Asset Purchase
Agreement, dated as of November 26, 1997 between Bristol-Myers Squibb
company and CONMED-- incorporated herein by reference to Exhibit
2.1(b) in the Company's Current Report on Form 8-K, filed on January
8, 1998.
2.4 Asset Purchase Agreement between Linvatec Corporation and Minnesota
Mining & Manufacturing Company dated October 8, 1998-- incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
2.5 The Asset Purchase Agreement, dated June 29, 1999 by and between
Linvatec Corporation and Minnesota Mining and Manufacturing Company,
as amended by an amendment dated August 11, 1999-- incorporated
herein by reference to Exhibit 10.1 of the Company's report on Form
10-Q filed on August 13, 1999.
3.1 Amended and Restated By-Laws, as adopted by the Board of Directors on
December 26, 1990-- incorporated herein by reference to the exhibit
in the Company's Current Report on Form 8-K, dated March 7, 1991
(File No. 0-16093).
3.2 1999 Amendment to Certificate of Incorporation and Restated
Certificate of Incorporation of CONMED Corporation.
4.1 See Exhibit 3.1.
4.2 See Exhibit 3.2.
4.3 Amended and Restated Credit Agreement, dated August 11, 1999, among
CONMED Corporation and the several banks and other financial
institutions or entities from time to time parties thereto, --
incorporated herein by reference to Exhibit 10.2 of the Company's
report on Form 10-Q filed on August 13, 1999.
4.4 Guarantee and Collateral Agreement, dated December 31, 1997, made by
CONMED Corporation and certain of its subsidiaries in favor of The
Chase Manhattan Bank-- incorporated herein by reference to Exhibit
10.2 in the Company's Current Report on Form 8-K filed on January 8,
1998.
29
<PAGE>
Exhibit No. Description of Instrument
- ----------- -------------------------
4.5 Indenture, dated as of March 5, 1998, by an among CONMED Corporation,
the Subsidiary Guarantors named therein and First Union National
Bank, as Trustee--incorporated by reference to the exhibit in the
Company's Registration Statement on Form S-8 filed on March 26, 1998
(File No. 333-48693).
4.6 Acknowledgement and Consent, dated August 11, 1999, among CONMED
Corporation and each of its subsidiaries -- incorporated herein by
reference to Exhibit 10.3 of the Company's report on Form 10-Q filed
on August 13, 1999.
10.1 Employment Agreement between the Company and Eugene R. Corasanti,
dated December 16, 1996-- incorporated herein by reference to the
exhibit in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
10.2 Amended and Restated Employee Stock Option Plan (including form of
Stock Option Agreement)-- incorporated herein by reference to the
exhibit in the Company's Annual Report on Form 10-K for the year
ended December 25, 1992-- incorporated herein by reference to the
exhibit in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
10.3 (a) Eugene R. Corasanti disability income plans with Northwestern
Mutual Life Insurance Company, dated January 14, 1980 and March 7,
1981-- policy specification sheets-- incorporated herein by reference
to Exhibit 10.0(a) of the Company's Registration Statement on Form
S-2 (File No. 33-40455).
(b) William W. Abraham disability income plan with Northwestern Mutual
Life Insurance Company, dated March 24, 1981 -- policy specification
sheet -- incorporated herein by reference to Exhibit 10.0(b) of the
Company's Registration Statement on Form S-2 (File No. 33-40455).
(c) Eugene R. Corasanti life insurance plan with Northwestern Mutual Life
Insurance Company, dated October 6, 1979 -- policy specification
sheet -- incorporated herein by reference to Exhibit 10.0(c) of the
Company's Registration Statement on Form S-2 (File No. 33-40455).
10.4 Eugene R. Corasanti life insurance plans with Northwestern Mutual
Life Insurance Company dated August 25, 1991-- Statements of Policy
Cost and Benefit Information, Benefits and Premiums, Assignment of
Life Insurance Policy as Collateral -- incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year
ended December 27, 1991.
10.5 1992 Stock Option Plan (including form of Stock Option Agreement). --
incorporated herein by reference to the exhibit in the Company's
Annual Report on Form 10-K for the year ended December 25, 1992.
30
<PAGE>
Exhibit No. Description of Instrument
- ----------- -------------------------
10.6 Stock Option Plan for Non-Employee Directors of CONMED Corporation--
incorporated by referenceto the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
10.7 Amendment to 1992 Stock Option Plan-- incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
10.8 Transition and Distribution Services Agreement, dated December 31,
1997, among Zimmer, Inc., Linvatec Corporation and CONMED
Corporation- incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
10.9 Distribution Agreement, dated December 31, 1997, among Zimmer, Inc.,
Linvatec Corporation and CONMED Corporation - incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.10 CONMED Corporation 1999 Long-Term Incentive Plan-- incorporated by
reference to the Definitive Proxy Statement for the 1999 annual
meeting as filed on April 16, 1999.
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant.
23 Consent, dated March 27, 2000, of PricewaterhouseCoopers LLP,
independent auditors for CONMED Corporation.
27 Financial Data Schedule.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of CONMED Corporation
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14 (a)(1) on Page 27 present fairly, in all material
respects, the financial position of CONMED Corporation and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 27 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Syracuse, New York
February 9, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
December 1998 and 1999
(In thousands except share amounts)
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 5,906 $ 3,747
Accounts receivable, less allowance for doubtful accounts of $2,213 in 1998
and $1,434 in 1999 .................................................... 66,819 76,413
Income taxes receivable (Note 6) .......................................... 1,441 --
Inventories (Notes 1 and 3) ............................................... 78,058 89,681
Deferred income taxes (Note 6) ............................................ 2,776 1,453
Prepaid expenses and other current assets ................................. 4,620 5,423
--------- ---------
Total current assets ........................................... 159,620 176,717
--------- ---------
Property, plant and equipment, net (Notes 1 and 4) ............................ 60,787 57,834
Deferred income taxes (Note 6) ................................................ 3,900 --
Goodwill, net (Notes 1 and 2) ................................................. 192,947 223,174
Patents, trademarks and other assets (Note 2) ................................. 211,530 204,436
--------- ---------
Total assets ................................................... $ 628,784 $ 662,161
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5) ................................ $ 22,995 $ 32,875
Accounts payable .......................................................... 19,594 16,518
Accrued payroll and withholdings .......................................... 9,665 9,658
Income taxes payable ...................................................... -- 226
Accrued interest .......................................................... 6,069 4,588
Other current liabilities ................................................. 7,873 3,326
--------- ---------
Total current liabilities ...................................... 66,196 67,191
--------- ---------
Long-term debt (Note 5) ....................................................... 361,877 361,794
Deferred income taxes ......................................................... -- 3,330
Other long-term liabilities ................................................... 18,543 18,585
--------- ---------
Total liabilities .............................................. 446,616 450,900
--------- ---------
Commitments (Notes 4, 7, 9, and 10)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Shareholders' equity (Notes 1 and 7):
Preferred stock, par value $.01 per share; authorized 500,000 shares, none
outstanding ........................................................... -- --
Common stock, par value $.01 per share; 100,000,000 authorized; 15,182,811
and 15,303,806, issued and outstanding in 1998 and 1999, respectively.. 152 153
Paid-in capital ........................................................... 125,039 127,394
Retained earnings ......................................................... 57,361 84,520
Cumulative translation adjustments ........................................ 35 (387)
Less 25,000 shares of common stock in treasury, at cost ................... (419) (419)
--------- ---------
Total shareholders' equity ............................................ 182,168 211,261
--------- ---------
Total liabilities and shareholders' equity ..................... $ 628,784 $ 662,161
========= =========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 1997, 1998 and 1999
(In thousands except per share amounts)
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net sales (Note 8) ................................. $ 138,270 $ 336,442 $ 372,617
--------- --------- ---------
Cost of sales (Note 2) ............................. 74,220 169,599 178,480
Selling and administrative expense (Note 11) ....... 35,299 93,647 107,233
Research and development expense ................... 3,037 12,029 12,108
Unusual items (Note 11) ............................ 37,242 -- --
--------- --------- ---------
149,798 275,275 297,821
--------- --------- ---------
Income (loss) from operations ...................... (11,528) 61,167 74,796
Interest income (expense), net (Note 5) ............ 823 (30,891) (32,360)
--------- --------- ---------
Income (loss) before income taxes and
extraordinary item .............................. (10,705) 30,276 42,436
Provision (benefit) for income taxes (Note 6) (3,640) 10,899 15,277
--------- --------- ---------
Income (loss) before extraordinary item ............ (7,065) 19,377 27,159
========= ========= =========
Extraordinary item, net of income taxes (Note 5) ... -- (1,569) --
--------- --------- ---------
Net income (loss) .................................. $ (7,065) $ 17,808 $ 27,159
========= ========= =========
Per share data:
Income (loss) before extraordinary item
Basic ................................... $ (.47) $ 1.28 $ 1.78
Diluted ................................. (.47) 1.26 1.76
Extraordinary item
Basic ................................... -- (.10) --
Diluted ................................. -- (.10) --
Net income (loss)
Basic .................................. (.47) 1.18 1.78
Diluted ................................ (.47) 1.16 1.76
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 1997, 1998 and 1999
(In thousands)
Common Stock Cumulative
-------------------- Paid-in Retained Translation
Number Amount Capital Earnings Adjustments
------ ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 1996 ........................... 14,989 $ 150 $ 111,867 $ 46,618 $ --
Exercise of stock options ........................ 73 1 661
Tax benefit arising from exercise of stock ....... 298
options
Issuance of a warrant (Note 2) ................... 10,625
Purchase of CONMED common stock
(Note 7) ......................................
Net loss ......................................... (7,065)
------ ------- --------- --------- ----------
Balance at December 1997 ........................... 15,062 151 123,451 39,553 --
Exercise of stock options ........................ 121 1 1,087
Tax benefit arising from exercise of stock ....... 501
options
Comprehensive income:
Translation adjustments ....................... 35
Net income .................................... 17,808
Total comprehensive income .......................
------- ------- --------- -------- ----------
Balance at December 1998 ........................... 15,183 152 125,039 57,361 35
Exercise of stock options ...................... 121 1 1,611
Tax benefit arising from exercise of ........... 744
stock options
Comprehensive income:
Translation adjustments ...................... (422)
Net income ................................... 27,159
Total comprehensive income .....................
------ ------- --------- -------- ----------
Balance at December 1999 ........................... 15,304 $ 153 $ 127,394 $ 84,520 $ (387)
====== ====== ========= ======== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total
Treasury Shareholders'
Stock Equity
----- ------
<S> <C> <C>
Balance at December 1996 ........................... $ -- $ 158,635
Exercise of stock options ........................ 662
Tax benefit arising from exercise of stock ....... 298
options
Issuance of a warrant (Note 2) ................... 10,625
Purchase of CONMED common stock
(Note 7) ...................................... (419) (419)
Net loss ......................................... (7,065)
--------- ----------
Balance at December 1997 ........................... (419) 162,736
Exercise of stock options ........................ 1,088
Tax benefit arising from exercise of stock ....... 501
options
Comprehensive income:
Translation adjustments .......................
Net income
Total comprehensive income 17,843
--------- ----------
Balance at December 1998 ........................... (419) 182,168
Exercise of stock options ...................... 1,612
Tax benefit arising from exercise of ........... 744
stock options
Comprehensive income:
Translation adjustments ......................
Net income ...................................
Total comprehensive income ..................... 26,737
--------- ---------
Balance at December 1999 ........................... $ (419) $ 211,261
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 1997, 1998 and 1999
(In thousands)
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................. $ (7,065) $ 17,808 $ 27,159
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation .............................................. 3,880 8,098 9,207
Amortization .............................................. 3,074 15,503 16,542
Extraordinary item, net of income taxes (Note 5) .......... -- 1,569 --
Write-off of in-process research and development (Note 2) .
34,000 -- --
Increase (decrease) in cash flows from changes in
assets and liabilities, net of effects from
acquisitions (Note 2):
Accounts receivable .................................. (1,499) (19,614) (9,566)
Inventories .......................................... 6,295 (19,303) (8,554)
Prepaid expenses and other current assets ............ (228) (1,180) (803)
Accounts payable ..................................... (73) 10,028 (3,076)
Income tax receivable/payable ........................ 521 (1,348) 1,667
Income tax benefit of stock option exercises ......... 298 501 744
Accrued payroll and withholdings ..................... 263 2,834 (7)
Accrued interest ..................................... -- 6,069 (1,481)
Other current liabilities ............................ 1,627 (1,347) (2,366)
Deferred income taxes ................................ (10,809) 7,039 8,553
Other assets/liabilities, net ........................ 1,476 (5,695) (989)
--------- --------- ---------
38,825 3,154 9,871
--------- --------- ---------
Net cash provided by operations ...................... 31,760 20,962 37,030
--------- --------- ---------
Cash flows from investing activities:
Payments related to business acquisitions (Note 2) ............ (395,273) (31,909) (40,585)
Acquisition of property, plant and equipment .................. (8,178) (12,924) (9,352)
--------- --------- ---------
Net cash used by investing activities ................ (403,451) (44,833) (49,937)
--------- --------- ---------
Cash flows from financing activities:
Proceeds of long-term debt .................................... 350,000 130,000 40,900
Borrowings (repayments)under revolving credit facility (Note
5) ............................................................ 15,000 23,000 (8,000)
Proceeds from issuance of common stock ........................ 662 1,088 1,612
Purchase of treasury stock (Note 7) ........................... (419) -- --
Payments related to issuance of long-term debt ................ -- (4,635) (661)
Payments on long-term debt and other obligations .............. (273) (133,128) (23,103)
--------- --------- ---------
Net cash provided by financing activities ............ 364,970 16,325 10,748
--------- --------- ---------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net decrease in cash and cash equivalents .......................... (6,721) (7,546) (2,159)
Cash and cash equivalents at beginning of year ..................... 20,173 13,452 5,906
--------- --------- ---------
Cash and cash equivalents at end of year ........................... $ 13,452 $ 5,906 $ 3,747
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .................................................. $ -- $ 24,078 $ 32,662
Income taxes .............................................. 6,079 4,121 4,502
</TABLE>
F-6
<PAGE>
Supplemental non-cash investing and financing activities:
As more fully described in Note 2, the Company issued a warrant for the
purchase of 1,000,000 common shares with a value of $10,625,000 in connection
with a 1997 acquisition.
See notes to consolidated financial statements.
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Operations and Significant Accounting Policies
Organization and operations
The consolidated financial statements include the accounts of CONMED
Corporation and its subsidiaries (the "Company"). All intercompany accounts and
transactions have been eliminated. CONMED Corporation is a medical technology
company specializing in instruments and implants for arthroscopic sports
medicine, and powered surgical instruments, such as drills and saws, for
orthopaedic, ENT and neuro-surgery. The Company is also a leading developer,
manufacturer and supplier of advanced medical devices, including electrosurgical
systems, ECG electrodes for heart monitoring, and minimally invasive surgical
devices. The Company's products are used in a variety of clinical settings, such
as operating rooms, surgery centers, physicians' offices and critical care areas
of hospitals.
Statement of cash flows
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Inventories
The inventories are stated at the lower of cost or market, cost being
determined on the first-in, first-out basis.
Property, plant and equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
which range from four to forty years. Expenditures for repairs and maintenance
are charged to expense as incurred. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resultant gain or loss is recognized.
Goodwill
Goodwill is amortized over periods ranging from 13 to 40 years. Accumulated
amortization of goodwill amounted to $10,996,000 and $16,901,000 at December 31,
1998 and 1999, respectively.
When events and circumstances so indicate, the Company will assess the
recoverability of its goodwill based upon cash flow forecasts (undiscounted and
without interest). No impairment losses have been recognized in any of the
periods presented.
Translation of foreign currency financial statements
Assets and liabilities of foreign subsidiaries have been translated into
United States dollars at the applicable rates of exchange in effect at the end
of the period reported. Revenues and expenses have been translated at the
applicable weighted average rates of exchange in effect during the period
reported.
F-7
<PAGE>
Translation adjustments are reflected as a separate component of shareholders'
equity. Any transaction gains and losses are included in net income.
Earnings (loss) per share
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" requires presentation of basic earnings per share ("EPS"), computed based
on the weighted average number of common shares outstanding for the period, and
diluted EPS, which gives effect to all dilutive potential shares outstanding
(i.e., options and warrants) during the period. Income used in the EPS
calculation is net income (loss) for each year. Shares used in the calculation
of basic and diluted EPS were (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Shares used in the calculation of Basic EPS (weighted average
shares outstanding) ..................................... 14,997 15,085 15,241
Effect of dilutive potential securities ..................... -- 236 189
------ ------ ------
Shares used in the calculation of Diluted EPS ............... 14,997 15,321 15,430
====== ====== ======
</TABLE>
The 1997 calculation of diluted EPS excluded the effect of dilutive
potential securities aggregating 230,000 shares because to give effect thereto
would have been antidilutive given the net loss for the year. The shares used in
the calculation of diluted EPS exclude warrants and options to purchase shares
where the exercise price was greater than the average market price of common
shares for the year. Such shares aggregated 1,395,000, 1,440,000 and 1,326,000
at December 31, 1997, 1998 and 1999, respectively.
Comprehensive income
SFAS No. 130, "Reporting Comprehensive Income", requires companies to
report a measure of operations called comprehensive income. This measure, in
addition to "net income" includes as income or loss, the following items, which
if present are included in the equity section of the balance sheet: 1)
unrealized gains and losses on certain investments in debt and equity
securities; 2) foreign currency translation; and 3) minimum pension liability
adjustments. The Company has reported comprehensive income within the
Consolidated Statement of Shareholders' Equity.
Derivative financial instruments
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from the changes in the values of the
derivatives would be accounted for depending on whether it qualifies for hedge
accounting. The Company will be required to adopt this standard in the fiscal
year beginning January 1, 2001. Management does not believe that the adoption of
this statement will have a material impact on the financial statements.
The Company uses interest rate swaps to manage the interest risk
associated with its variable rate debt. The Company accounts for interest rate
F-8
<PAGE>
swaps on the accrual method, whereby the net receivable or payable is recognized
on a periodic basis and included as a component of interest expense. The Company
does not trade in derivative securities.
The estimated fair value of cash and cash equivalents, accounts
receivable, and accounts payable, approximate their carrying amount. The
estimated fair values and carrying amounts of long-term borrowings and interest
rate swaps are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Swap agreements ............................. $ (49) $ (443) $ 37 $ 248
Long-term debt (including current maturities) (384,872) (384,872) (394,669) (386,219)
</TABLE>
Fair values were determined from quoted market prices or discounted cash flows.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2 -- Business Acquisitions
On July 1, 1997, the Company completed the acquisition of a product
line from Davol, Inc., a subsidiary of C.R. Bard, Inc., for a cash purchase
price of $24,000,000 (the "Davol acquisition"). This acquisition was funded
through available cash on hand and is being accounted for using the purchase
method. The results of operations of the acquired product line are included in
the consolidated results of the Company from the date of acquisition. Goodwill
associated with the acquisition is being amortized on a straight-line basis over
a 40-year period.
On December 31, 1997, the Company acquired the business and certain
assets of Linvatec Corporation from Bristol-Myers Squibb Company, for a cash
purchase price of $370,000,000 and the assumption of $28,600,000 of liabilities
(the "Linvatec acquisition"). This acquisition was funded through borrowings
under the Company's credit facility (Note 5). Bristol-Myers Squibb Company also
received a warrant to purchase 1,000,000 shares of the Company's common stock at
$34.23 per share. This warrant expires December 31, 2007, and was valued at
$10,625,000.
The Linvatec acquisition is being accounted for using the purchase
method. The allocation of purchase price resulted in identifiable intangible
assets, including patents and technology ($9,000,000), trademarks and tradenames
($96,000,000) and customer relationships ($108,000,000), aggregating
$213,000,000, which will be amortized over periods from 5 to 40 years. Goodwill
associated with the Linvatec acquisition approximated $89,300,000 and is being
amortized on a straight-line basis over a 40-year period. In connection with the
<PAGE>
Linvatec acquisition, the Company increased the acquired value of inventory by
$3,000,000 over its production cost. This inventory was sold during the quarter
ended March 1998 and, accordingly this non-recurring adjustment served to
increase cost of sales during 1998 by $3,000,000. Additionally, a portion of the
purchase price was allocated to purchased in-process research
F-9
<PAGE>
and development ("R&D"). Purchased in-process R&D includes the value of products
in the development stage and not considered to have reached technological
feasibility. In accordance with applicable accounting rules, purchased
in-process R&D is required to be expensed. Accordingly, $34,000,000 of the
acquisition cost was expensed on December 31, 1997. The value assigned to
purchased in-process R&D, based on a valuation prepared by an independent
third-party appraisal company, was determined by identifying research projects
in areas for which technological feasibility had not been established, including
arthroscopic resection and procedure specific surgical instruments
($10,112,000), imaging technology for minimally invasive surgical procedures
($11,706,000), specialty surgical powered instruments ($8,386,000) and other
($3,796,000). The value was determined by estimating the costs to develop the
purchased in-process technology into commercially viable products, estimating
the resulting net cash flows from such projects, and discounting the net cash
flows back to their present value using a discount rate of 13%. At the date of
acquisition, remaining costs to complete these projects were $162,000 for
arthroscopic resection and procedure specific, $281,000 for imaging technology,
$424,000 for specialty surgical powered instruments and $840,000 for other
projects. During 1998, these projects were either completed or abandoned. These
projects ranged from 60% to 90% complete at the date of acquisition. Costs to
complete these projects consist primarily of direct salaries and wages. Revenues
from certain of these projects began in 1998.
During 1998, goodwill for the Davol and Linvatec acquisitions increased
by $1.7 million and $28.9 million, respectively. The Davol increase reflects
severance ($1.2 million) and other costs associated with the 1998 closure of the
former Davol manufacturing operation located in Kansas. The significant
components of the increase in Linvatec goodwill include the finalization of
unfunded employee benefit obligations assumed at the acquisition date ($7.5
million), payments for investment banking fees and professional fees related to
the acquisition ($6.3 million), payments and the writedown of fixed assets in
connection with the closure of Linvatec's San Dimas, California facility which
was completed in 1998 ($4.0 million), and payments and accruals related to
contingent liabilities assumed with the acquisition ($4.5 million).
On November 16, 1998, the Company acquired the assets related to an
arthroscopy product line from Minnesota Mining and Manufacturing Company for a
purchase price of $17,500,000 (the "Arthroscopy acquisition") which was funded
through borrowings under the Company's revolving credit facility (Note 5). This
acquisition is being accounted for using the purchase method. The results of
operations of the acquired product line are included in the consolidated results
of the Company from the date of acquisition. Goodwill associated with the
acquisition is being amortized on a straight-line basis over a 40-year period.
On June 29, 1999, the Company agreed to purchase certain assets of the
powered surgical instrument business of Minnesota Mining and Manufacturing
Company (the "Powered Instrument acquisition"). The Company also agreed to a
series of transition-related matters in order to facilitate the transfer of the
business. The acquisition was completed on August 11, 1999 for a purchase price
of $39,000,000, before certain adjustments, which was funded through borrowings
under the Company's amended credit facility (Note 5). This acquisition is being
accounted for using the purchase method. The results of operations of the
acquired business are included in the consolidated results of the Company from
the date of acquisition. Goodwill associated with the acquisition is being
amortized on a straight-line basis over a 40-year period. In connection with the
Powered Instrument acquisition, the Company increased the acquired value of
inventory by $1,600,000. This inventory was sold during the quarter ended
September 1999 resulting in a non-recurring adjustment to increase cost of sales
during 1999 by $1,600,000.
The allocation of the purchase price for the Powered Instrument
acquisition is based on management's preliminary estimates. It is possible that
F-10
<PAGE>
re-allocation will be required as additional information becomes available.
Management does not believe that such reallocations will have a material effect
on the Company's financial position or results of operations.
On an unaudited pro forma basis, assuming the completed acquisitions
had occurred as of the beginning of the periods presented, the consolidated
results of the Company would have been as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Year Ended December
-------------------------
1998 1999
-------- --------
<S> <C> <C>
Pro forma net sales.................................................. $365,192 $385,117
======== ========
Pro forma income before extraordinary item.......................... $20,628 $27,472
======= =======
Pro forma income per share before extraordinary item:
Basic............................................................ $ 1.37 $ 1.80
======= =======
Diluted.......................................................... $ 1.35 $ 1.78
======= =======
</TABLE>
The unaudited pro forma financial information presented above gives
effect to purchase accounting adjustments which have resulted or are expected to
result from the acquisitions. This pro forma information is not necessarily
indicative of the results that would actually have been obtained had the
companies been combined for the periods presented.
F-11
<PAGE>
Note 3 -- Inventories
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Raw materials .......................... $35,204 $35,651
Work in process ........................ 7,429 9,803
Finished goods ......................... 35,425 44,227
------- -------
$78,058 $89,681
======= =======
</TABLE>
Note 4 -- Property, Plant and Equipment
Details of property, plant and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Land and improvements ............................ $ 2,011 $ 1,511
Building and improvements ........................ 27,966 25,955
Machinery and equipment .......................... 57,801 60,231
Construction in progress ......................... 2,416 4,643
-------- --------
90,194 92,340
Less: Accumulated depreciation ..... (29,407) (34,506)
-------- --------
$ 60,787 $ 57,834
======== ========
</TABLE>
F-12
<PAGE>
Rental expense on operating leases was approximately $489,000,
$2,650,000 and $2,935,000 for the years ended December 31, 1997, 1998 and 1999,
respectively. The aggregate future minimum lease commitments for operating
leases at December 31, 1999 are as follows:
Year ending December 31 (in thousands):
2000..................................... $ 3,388
2001..................................... 3,171
2002..................................... 2,478
2003..................................... 2,280
2004..................................... 2,254
Thereafter............................... 10,725
Note 5 -- Long Term Debt
On December 30, 1997, in connection with the Linvatec acquisition (Note
2), the Company entered into a credit agreement with several banks providing for
a $450,000,000 credit facility. On August 11, 1999, the $450,000,000 credit
facility was amended in connection with the Powered Instrument acquisition (Note
2) to provide for an additional $40,000,000. The amended $490,000,000 credit
facility is comprised of four sub-facilities: (i) a $210,000,000 five-year term
loan with quarterly principal repayments; (ii) a $140,000,000 seven-year term
loan with quarterly principal repayments; (iii) a $40,000,000 six-year term loan
with quarterly principal repayments; and (iv) a $100,000,000 revolving credit
facility. The revolving credit facility expires on December 30, 2002. During the
commitment period, the Company is obligated to pay a fee of .375% per annum on
the unused portion of the revolving credit facility. A covenant under the credit
facility required the Company to complete a senior subordinated note offering,
which was completed in March 1998 with the net proceeds of $126,100,000 being
used to reduce the term loans under the credit facility. Deferred financing fees
related to the portion of the term loans repaid amounting to $2,451,000
($1,569,000 net of income taxes) were written off in March 1998 as an
extraordinary item.
As of December 31, 1998, the Company had $127,733,000, $89,139,000 and
$38,000,000 outstanding under the five-year term loan, the seven-year term loan
and the revolving credit facility, respectively. As of December 31, 1999, the
Company had $105,380,000, $88,497,000, $39,925,000 and $30,000,000 outstanding
under the five-year term loan, the seven-year term loan, the six year term loan
and the revolving credit facility, respectively. The borrowings under the credit
facility carry interest rates based on a spread over LIBOR or an alternative
base interest rate. The covenants of the credit facility provide for increase
and decrease to this interest rate spread based on the operating results of the
Company. Additionally, certain events of default under the credit facility limit
F-13
<PAGE>
interest rate options available to the Company. The weighted average interest
rates at December 31, 1998 under the five-year term loan, the seven-year term
loan and the revolving credit facility were 7.19%, 7.46% and 7.39%,
respectively. The weighted average interest rates at December 31, 1999 under the
five-year term loan, the seven-year term loan, the six year term loan and the
revolving credit facility, were 7.65%, 8.15%, 8.59% and 7.45%, respectively. The
Company has entered into two interest rate swaps expiring in June 2001 which
convert $100 million of floating rate debt under the Company's credit facility
into fixed rate debt at rates ranging from 7.18% to 8.25%. Provisions in one of
the interest rate swaps cancels such agreement when LIBOR exceeds 7.35%.
The term debt and revolving credit facility are collateralized by all
the Company's personal property. The agreement contains covenants and
restrictions which, among other things, require maintenance of certain working
capital levels and financial ratios, prohibit dividend payments and restrict the
incurrence of certain indebtedness and other activities, including acquisitions
and dispositions. The Company is also required to make mandatory prepayments
from net cash proceeds from any issue of equity and asset sales. Mandatory
prepayments are to be applied first to the prepayment of the term loans and then
to reduce borrowings under the revolving credit facility.
As discussed above, in March 1998 the Company issued $130,000,000 of 9%
Senior Subordinated Notes (the "Notes"). The Notes mature on March 15, 2008,
unless previously redeemed by the Company. Interest on the Notes is payable
semi-annually on March 15 and September 15 of each year. The Notes are
redeemable for cash at anytime on or after March 15, 2003, at the option of the
Company, in whole or in part, at the redemption prices set forth therein, plus
accrued and unpaid interest to the date of redemption. In addition, on or before
March 15, 2001, the Company may, at its option, redeem up to 35% of the
aggregate principal amount of the Notes originally issued with the net proceeds
of one or more offerings of common stock of the Company for cash at a redemption
price of 109% of the principal amount thereof plus accrued and unpaid interest
to the date of redemption; provided that at least 65% of the aggregate principal
amount of the Notes remain outstanding after giving effect to any such
redemption.
The scheduled maturities of long-term debt outstanding at December 31,
1999 are as follows: 2000 -- $32,875,000; 2001 -- $36,107,000; 2002 --
$69,298,000; 2003 -- $42,018,000; 2004 -- $45,223,000; thereafter --
$169,148,000.
The credit facility (including the term loans and the revolving credit
facility) is guaranteed on a collateralized basis, and the credit facility and
the Notes are guaranteed (the "Subsidiary Guarantees") by the Company's
subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantees provide
that each Subsidiary Guarantor will fully and unconditionally guarantee the
Company's obligations under the credit facility and the Notes on a joint and
several basis. Each Subsidiary Guarantor is wholly-owned by the Company.
F-14
<PAGE>
Separate financial statements and other disclosures concerning the
Subsidiary Guarantors are not presented because management has determined such
financial statements and other disclosures are not material to investors. The
combined condensed financial information of the Company's Subsidiary Guarantors
is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1999
-------- --------
<S> <C> <C>
Current assets ........................... $ 96,434 $117,541
Non-current assets ....................... 359,499 385,363
Current liabilities ...................... 30,367 21,921
Non-current liabilities .................. 354,063 355,012
<CAPTION>
Year Ended December
----------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Revenues ...................... $ 51,376 $239,491 $289,729
Operating income (loss) ....... (16,452) 45,529 63,028
Net income (loss) ............. (10,529) 7,639 19,525
</TABLE>
F-15
<PAGE>
Note 6 -- Income Taxes
The provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current tax expense:
Federal ............................ $ 6,677 $ 1,652 $ 5,027
State .............................. 492 258 350
Foreign ............................ -- 210 922
-------- -------- --------
7,169 2,120 6,299
Deferred income tax expense (benefit) .. (10,809) 8,779 8,978
-------- -------- --------
Provision (benefit) for income taxes $ (3,640) $ 10,899 $ 15,277
======== ======== ========
</TABLE>
A reconciliation between income taxes computed at the statutory federal
rate and the provision for income taxes follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Tax provision at statutory rate based on income before
income taxes and extraordinary item .............. $ (3,747) $ 10,597 $ 14,853
Foreign sales corporation ............................ (300) (313) (543)
State taxes .......................................... 313 165 257
Nondeductible intangible amortization ................ 224 243 320
Other, net ........................................... (130) 207 390
-------- -------- --------
$ (3,640) $ 10,899 $ 15,277
======== ======== ========
</TABLE>
F-16
<PAGE>
The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities at December 31, 1998 and 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Assets:
Receivables ................................... $ 290 $ 135
Inventory ..................................... 1,002 330
Deferred compensation ......................... 511 597
Employee benefits ............................. 181 794
Other ......................................... 1,056 1,761
Leases ........................................ 373 172
Goodwill and intangible assets ................ 4,400 --
Birtcher net operating losses ................. 4,681 4,258
Valuation allowance for deferred tax assets ... (4,681) (4,258)
------- -------
7,813 3,789
------- -------
Liabilities:
Goodwill and intangible assets ................ -- 4,051
Depreciation .................................. 1,044 1,500
Other
93 115
------- -------
1,137 5,666
------- -------
Net asset (liability) .............................. $ 6,676 $(1,877)
======= =======
</TABLE>
Net operating losses of the Company's Birtcher Medical Systems, Inc.
acquisition are subject to certain limitations and expire over the period 2008
to 2010. Management has established a valuation allowance of $4,258,000 to
reflect the uncertainty of realizing the benefit of certain of these
carryforwards.
Note 7 -- Shareholders' Equity
The shareholders have authorized 500,000 shares of preferred stock, par
value $.01 per share, which may be issued in one or more series by the Board of
Directors without further action by the shareholders. As of December 31, 1999,
no preferred stock had been issued.
In connection with the Linvatec acquisition (Note 2), the Company
issued to Bristol-Myers Squibb Company a ten-year warrant to purchase 1.0
million shares of the Company's common stock at a price of $34.23 per share.
During 1997, the Company was authorized to repurchase up to $30,000,000
of its common stock in the open market or in private transactions. The Company
repurchased 25,000 shares of common stock in 1997 at an aggregate price of
$419,000. The Company's credit agreement (Note 5) prohibits future repurchases
of common stock during its term.
F-17
<PAGE>
The Company has reserved shares of common stock for issuance to
employees and directors under four Stock Option Plans (the "Plans"). The option
price on all outstanding options is equal to the estimated fair market value of
the stock at the date of grant. Stock options are non-transferable other than on
death and generally become exercisable over a five year period from date of
grant and expire ten years from date of grant.
The following is a summary of incentive stock option activity under the
Plans (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Weighted-
Number Average
of Exercise
Shares Price
------ -------
<S> <C> <C>
Outstanding at December 1996 .............. 1,135 $ 13.92
Granted during 1997 .................. 153 22.99
Forfeited ............................ (10) 10.09
Exercised ............................ (73) 9.01
------ -------
Outstanding at December 1997 .............. 1,205 15.39
Granted during 1998 .................. 509 23.64
Forfeited ............................ (93) 24.44
Exercised ............................ (121) 8.99
------ -------
Outstanding at December 1998 .............. 1,500 17.90
Granted during 1999 .................. 401 29.62
Forfeited ............................ (9) 22.91
Exercised ............................ (121) 13.32
------ -------
Outstanding at December 1999 .............. 1,771 $ 20.94
====== ======
Exercisable:
December 1997 ........................ 690 $ 11.51
December 1998 ........................ 856 14.24
December 1999 ........................ 945 16.33
</TABLE>
At December 31, 1999, the number of stock options outstanding with
exercise prices less than $10, between $10 and $20, and greater than $20 were
112,000, 535,000 and 1,124,000, respectively. The weighted average price per
share and remaining life for options in these categories were $5.45 and 2 years,
$12.74 and 4 years, and $26.41 and 8 years, respectively. The number of shares
exercisable at December 31, 1999 and the related weighted average price per
share for options in these categories were 112,000 shares at $5.45, 476,000
shares at $12.29 and 357,000 shares at $25.13, respectively.
F-18
<PAGE>
SFAS No. 123, "Accounting for Stock-Based Compensation." defines a fair
value based method of accounting for an employee stock option whereby
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period. A company may elect to adopt
SFAS No. 123 or elect to continue accounting for its stock option or similar
equity awards using the method of accounting prescribed by Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", where
compensation cost is measured at the date of grant based on the excess of the
market value of the underlying stock over the exercise price. The Company has
elected to continue to account for its stock-based compensation plans under the
provisions of APB No. 25. No compensation expense has been recognized in the
accompanying financial statements relative to the Company's stock option plans.
Pro forma information regarding net income (loss) and net income (loss)
per share is required by SFAS No. 123 and has been determined as if the Company
had accounted for its employee stock options under the fair value method of that
statement. The weighted average fair value of options granted in 1997, 1998 and
1999 was $11.87, $11.57 and $13.28, respectively. The fair value of these
options was estimated at the date of grant using a Black-Scholes options pricing
model with the following weighted-average assumptions for options granted in
1997, 1998 and 1999, respectively: Risk-free interest rates of 5.96%, 5.41% and
6.46%; volatility factors of the expected market price of the Company's common
stock of 51.31%, 48.72% and 39.23%; a weighted-average expected life of the
option of five years; and that no dividends would be paid on common stock.
For purposes of the pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except for earnings per
share information):
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)-- as reported .. $ (7,065) $ 17,808 $ 27,159
Net income (loss)-- pro forma .... (7,427) 15,420 24,678
EPS-- as reported:
Basic ....................... (0.47) 1.18 1.78
Diluted ..................... (0.47) 1.16 1.76
EPS-- pro forma:
Basic ....................... (0.50) 1.02 1.62
Diluted ..................... (0.50) 1.01 1.60
</TABLE>
The pro-forma disclosures include only options granted after January 1,
1995.
Note 8 -- Business Segments, Geographic Areas and Major Customers
CONMED's business is organized, managed and internally reported as a
single segment comprised of medical instruments and systems used in surgical and
other medical procedures. The Company believes its various product lines have
similar economic, operating and other related characteristics.
F-19
<PAGE>
The following is net sales information for geographic areas (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
United States $ 118,673 $ 266,668 $ 281,439
All other countries 19,597 69,774 91,178
--------- --------- ---------
Total $ 138,270 $ 336,442 $ 372,617
========= ========= =========
</TABLE>
There were no significant investments in long-lived assets located outside the
United States at December 31, 1998 and 1999.
The Company uses medical supply distributors to distribute certain
products to their end users. Sales to one distributor totaled 15.3% of the
Company's sales in 1997. In 1998 and 1999, no single customer accounted for 10%
or more of the Company's sales.
Note 9 -- Pension Plans
The Company maintains defined benefit plans covering substantially all
employees. The Company makes annual contributions to the plans equal to the
maximum deduction allowed for federal income tax purposes.
Net pension cost for 1997, 1998 and 1999 included the following
components (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Service cost-- benefits earned during the period $ 925 $ 2,324 $ 2,592
Interest cost on projected benefit obligation .. 436 1,143 1,349
Expected return on plan assets ................. (395) (1,046) (1,090)
Net amortization and deferral .................. 44 27 41
------- ------- -------
Net pension cost ............................... $ 1,010 $ 2,448 $ 2,892
======= ======= =======
</TABLE>
F-20
<PAGE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1998 and
1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Change in benefit obligation
Projected benefit obligation at beginning of year .. $ 17,050 $ 19,536
Service cost ....................................... 2,324 2,592
Interest cost ...................................... 1,143 1,349
Actuarial loss (gain) .............................. (195) (228)
Benefits paid ...................................... (786) (3,512)
-------- --------
Projected benefit obligation at end of year ........ $ 19,536 $ 19,737
-------- --------
Change in plan assets
Fair value of plan assets at beginning of year ..... $ 13,514 $ 13,501
Actual return on plan assets ....................... 773 1,507
Employer contribution .............................. -- 1,263
Benefits paid ...................................... (786) (3,512)
-------- --------
Fair value of plan assets at end of year ........... $ 13,501 $ 12,759
-------- --------
Change in funded status
Funded status ...................................... $ 6,035 $ 6,978
Unrecognized net actuarial loss .................... (872) (200)
Unrecognized transition liability .................. (68) (64)
Unrecognized prior service cost .................... (173) (162)
-------- --------
Accrued pension cost ............................... $ 4,922 $ 6,552
-------- --------
</TABLE>
For 1997, 1998 and 1999 actuarial calculation purposes, the weighted
average discount rate was 7.0%, the expected long term rate of return was 8.0%
and the rate of increase in future compensation levels was 4.0%.
Note 10 -- Legal Matters
From time to time, the Company has been named as a defendant in certain
lawsuits alleging product liability or other claims incurred in the ordinary
course of business. These claims are generally covered by various insurance
policies, subject to deductible amounts and maximum policy limits. Ultimate
liability with respect to these contingencies, if any, is not considered to be
material to the consolidated financial statements of the Company.
F-21
<PAGE>
Note 11 -- Unusual and Nonrecurring Items
The unusual items for the year ended December 31, 1997 consist of the
following (in thousands):
Write-off of purchased in-process R&D (Note 2) ... $34,000
Facility consolidations............................ 2,328
Write-off of deferred financing costs.............. 914
--------
$37,242
=======
During the first quarter of 1997, the company recorded a charge of
$2,328,000 related to the closure of the Company's Dayton, Ohio manufacturing
facility. Operations of the Dayton facility were transferred to the Company's
Utica and Rome, New York facilities. The components of the charge consisted
primarily of costs associated with employee severance and termination, and the
impairment of the carrying value of fixed assets. Additionally, during the
fourth quarter of 1997, the Company wrote off $914,000 in previously existing
deferred financing fees as a result of entering into a new credit agreement on
December 30, 1997 in connection with the Linvatec acquisition (Note 2 and Note
5).
During the fourth quarter of 1999, the Company recognized the benefit
amounting to $1,256,000 related to a previously recorded litigation accrual
which was settled on favorable terms and is included in selling and
administrative expense.
Note 12 -- Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for 1998 and 1999 are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
------------------
March June September December
----- ---- --------- --------
<S> <C> <C> <C> <C>
1998
Net sales .................. $80,242 $80,513 $85,714 $89,973
Gross profit ............... 35,860 39,639 44,593 46,751
Net income ................. 882 4,547 5,921 6,458
Earnings per share:
Basic ................... 0.06 0.30 0.39 0.43
Diluted ................. 0.06 0.30 0.39 0.42
Three Months Ended
------------------
March June September December
----- ---- --------- --------
<S> <C> <C> <C> <C>
1999
Net sales .................. $90,869 $90,483 $91,712 $99,553
Gross profit ............... 47,327 47,658 46,676 52,476
Net income ................. 6,323 6,690 5,613 8,533
Earnings per share:
Basic ................... 0.42 0.44 0.37 0.56
Diluted ................. 0.41 0.43 0.36 0.55
</TABLE>
F-22
<PAGE>
As discussed in Note 5, the Company recorded an extraordinary charge in March
1998 related to the write-off of deferred financing fees of $1,569,000 net of
income taxes. Additionally, as discussed in Note 2, the Company increased the
acquired value of inventory in connection with the Linvatec acquisition which
resulted in a non-recurring adjustment to increase cost of sales during the
quarter ended March 1998 by $3,000,000. As discussed in Note 2, the Company
increased the acquired value of inventory in connection with the Powered
Instrument acquisition which resulted in a non-recurring adjustment to increase
cost of sales during the quarter ended September 1999 by $1,600,000. As
discussed in Note 11, the Company recorded a nonrecurring benefit of $1,256,000
in the fourth quarter of 1999.
F-23
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII--Valuation and Qualifying Accounts
(in thousands)
Column C
--------------------------
Additions
--------------------------
Column B (1) (2)
------------ Column E
Column A Balance at Charged to Charged to Column D --------------
------------ Beginning of Costs and Other --------- Balance at End
Description Period Expenses Accounts Deductions of Period
----------- ------ -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1999
Allowance for bad debts.. $ 2,213 $ 263 $ (1,042) $1,434
Inventory reserves....... $ 6,618 $ 220 $ 1,500 $ (1,163) $7,175
Deferred tax asset
Valuation allowance...... $4,681 $ (423) $4,258
1998
Allowance for bad debts.. $ 2,708 $459 $ (954) $2,213
Inventory reserves....... $ 7,411 $918 $ (61) $ (1,650) $6,618
Deferred tax asset
Valuation allowance...... $5,105 $ (424) $4,681
1997
Allowance for bad debts.. $ 500 $887 $1,808 $ (487) $ 2,708
Inventory reserves....... $ 462 $277 $6,672 $ 7,411
Deferred tax asset
valuation allowance...... $5,417 $ (312) $5,105
</TABLE>
F-24
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CONMED CORPORATION
Under Section 807 of the Business Corporation Law
FIRST. The name of the corporation is CONMED Corporation (the
"Corporation").
SECOND. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
Business Corporation Law of the State of New York but not to engage in any act
or activity requiring the consent or approval of any State official, department,
board, agency or other body without such consent or approval first being
obtained.
THIRD. The office of the Corporation in the State of New York
is to be located in the City of
Utica, County of Oneida.
FOURTH. The aggregate number of shares of stock which the
Corporation shall have the authority to issue is 100,500,000, of which the
Corporation shall have the authority to issue 100,000,000 shares of the par
value of $.01 per share shall be designated as Common Stock ("Common Stock"),
and 500,000 shares of the par value of $.01 per share shall be designated as
Preferred Stock ("Preferred Stock").
The relative rights, preferences and limitations of the shares
of such classes of stock are as follows:
1. The Preferred Stock may be issued from time to time by the
Board of Directors as shares of one or more series of Preferred Stock,
and the Board of Directors is expressly authorized, prior to issuance,
in the resolution or resolutions providing for the issue of shares of
each particular series, to establish and designate each particular
series and to fix the rights, preferences and limitations of each
particular series, and the relative rights, preferences and limitations
between series, as follows:
(a) The distinctive serial designation of such series
which shall distinguish it from other series;
(b) The number of shares included in such series,
which number may be increased or decreased from time to time
unless otherwise provided by the Board of Directors in
creating such series;
(c) The annual or other dividend rate or rates (or
method of determining such rate or rates) for shares of such
series and the date or dates upon which such dividends shall
be payable;
(d) Whether dividends on the shares of such series
shall be cumulative, and, in the case of shares of any series
having cumulative dividend
<PAGE>
rights, the date or dates (or method of determining such date
or dates) from which dividends on the shares of such series
shall be cumulative;
(e) The amount or amounts which shall be paid out of
the assets of the Corporation to the holders of the shares of
such series upon voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation;
(f) The price or prices (cash or otherwise) at which,
the period or periods within which and the terms and
conditions upon which the shares of such series may be
purchased, redeemed or acquired (by exchange or otherwise), in
whole or in part, at the option of the Corporation;
(g) Provision or provisions, if any, for the
Corporation to purchase, redeem or acquire (by exchange or
otherwise), in whole or in part, shares of such series
pursuant to a sinking or other similar fund, and the price or
prices (cash or otherwise) at which, the second period or
periods within which and the terms and conditions upon which
the shares of such series shall be purchased, redeemed or
acquired, in whole or in part, pursuant to such provision or
provisions;
(h) The period or periods within which and the terms
and conditions, if any, including the price or prices or the
rate or rates of conversion or exchange and the terms and
conditions of any adjustments thereof, upon which the shares
of such series shall be convertible or exchangeable at the
option of the holder into shares of any class of stock or into
shares of any other series of Preferred Stock, except into
shares having rights or preferences as to dividends or the
distribution of assets upon liquidation, dissolution or
winding up of the Corporation which are prior or superior in
rank to those of the shares being converted or exchanged;
(i) The voting rights, if any, of the shares of such
series in addition to those required by law, including the
number of votes per share and any requirement for the approval
by the holders of up to 66 2/3% of all shares of Preferred
Stock, or of the shares of one or more series, or of both, as
a condition to specified corporate action or amendments to the
Certificate of Incorporation;
(j) Any other relative rights, preferences or
limitations of the shares of such series not inconsistent
herewith or with applicable law.
2. All issued and outstanding Preferred Stock (a) shall rank
prior or superior to the Common Stock in respect of the right to
receive dividends and the right to receive payments out of the assets
of the Corporation upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, (b) shall be of equal
rank, regardless of series, and (c) shall be identical in all respects
except as provided in paragraph 1 of this Article FOURTH. The shares of
any particular series of the Preferred Stock shall be identical with
each other in all respects except as to the dates from and after which
dividends thereon shall be cumulative. In case the stated dividends or
the amounts payable on liquidation are not paid in full, the shares of
all series of the Preferred Stock shall share ratably in the payment of
dividends, including accumulations, if any, in accordance with the sums
<PAGE>
which would be payable on such shares if all dividends were declared
and paid in full, and in any distribution of assets other than by way
of dividends in accordance with the sums which would be payable on such
distributions if all sums payable were discharged in full. All
Preferred Stock redeemed, purchased or otherwise acquired by the
Corporation (including shares surrendered for conversion or exchange or
acquired by exchange or otherwise) shall be cancelled and thereupon
restored to the status of authorized but unissued shares of Preferred
Stock undesignated as to series.
3. No holder of Common Stock or of Preferred Stock shall be
entitled as a matter of right to subscribe for, purchase or receive, or
have any preferential or pre-emptive right with respect to, any part of
any new or additional issue of stock of any class or series whatsoever,
or any options or warrants for such stock, or any rights to subscribe
for or purchase such stock, or of securities convertible into or
exchangeable for any stock of any class or series whatsoever, whether
now or hereafter authorized and whether issued for cash or other
consideration or by way of dividend or otherwise.
4. Except as may from time to time be required by law and
except as otherwise may be provided by the Board of Directors in
accordance with paragraph 1 of this Article FOURTH in respect of any
particular series of Preferred Stock, all voting rights of the
Corporation shall be vested exclusively in the holders of the Common
Stock who shall be entitled to one vote per share on all matters.
FIFTH. The Secretary of State of the State of New York is
designated as agent of the Corporation upon whom process in any action or
proceeding against it may be served. The address to which the Secretary of State
shall mail a copy of any process against the Corporation served upon him is c/o
Eugene R. Corasanti, 310 Broad Street, Utica, New York 13501.
SIXTH. By-laws of the Corporation may be adopted, amended or
repealed by the Board of Directors of the Corporation by the vote of a majority
of the directors present at a meeting of the Board at which a quorum is present.
IN WITNESS WHEREOF, we have subscribed and affirm as true
under the penalties of perjury this Restated Certificate of Incorporation this
28th day of July, 1983.
/s/ Eugene R. Corasanti /s/ Robert E. Remmell
- ----------------------- ----------------------
Eugene R. Corasanti Robert E. Remmell
President Assistant Secretary
310 Broad Street 185 Genesee Street
Utica, New York 13501 Utica, New York 13501
EXHIBIT 3.2
AMENDMENT TO
CERTIFICATE OF INCORPORATION
OF
CONMED CORPORATION
Under Section 805 of the Business Corporation Law
The undersigned, being the President and the Secretary of
CONMED Corporation, a New York corporation, hereby certify that:
FIRST. The name of the corporation is CONMED Corporation, and
the name under which it was formed was Concor Enterprises, Inc.
SECOND. The certificate of incorporation of the corporation
was filed with the Department of State on February 10, 1970.
THIRD. The certificate of incorporation is amended to increase
the number of common shares of the par value of $.01 per share which the
corporation has authority to issue from 40,000,000 shares of common stock of the
par value of $.01 per share to 100,000,000 shares of common stock of the par
value of $.01 per share. To effect such change, the first paragraph of Article
FOURTH of the certificate of incorporation is hereby amended to read as follows:
"FOURTH. The aggregate number of shares of stock which the
Corporation shall have the authority to issue is 100,500,000, of which
100,000,000 shares of the par value of $.01 per share shall be designated as
Common Stock ("Common Stock"), and 500,000 shares of the par value of $.01 per
share shall be designated as Preferred Stock ("Preferred Stock")."
FOURTH: The foregoing amendment of the certificate of
incorporation was authorized by the Board of Directors of the corporation at a
meeting duly called and held on March 3, 1999, followed by the favorable vote of
the holders of a majority of all outstanding shares entitled to vote thereon at
a meeting of shareholders duly called and held on May 18, 1999.
IN WITNESS WHEREOF, the undersigned have signed this
certificate of amendment of the certificate of incorporation on May 19, 1999 and
affirm the statements contained herein as true under the penalties of perjury.
By /s/ Eugene R. Corasanti
-----------------------
Eugene R. Corasanti
President
By /s/ Thomas M. Acey
------------------
Thomas M. Acey
Secretary
EXHIBIT 11
CONMED Corporation
Computation of Weighted Average Number of Shares of Common Stock
Year Ended December,
(in thousands)
1997 1998 1999
------ ------ ------
Shares outstanding at beginning of period ..... 14,989 15,062 15,183
Weighted average shares issued ................ 8 23 58
------ ------ ------
Shares used in the calculation of basic EPS
(weighted average shares outstanding) .... 14,997 15,085 15,241
Effect of dilutive potential securities ....... -- 236 189
------ ------ ------
Shares used in the calculation of diluted EPS . 14,997 15,321 15,430
====== ====== ======
<TABLE>
<CAPTION>
EXHIBIT 12
CONMED Corporation
Statement Showing Computations of Ratio of Earnings to Fixed Charges
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and extraordinary item ........... $ 16,763 $ 25,447 $(10,705) $ 30,276 $ 42,436
Interest expense ................... 1,991 217 -- 30,891 32,360
Portion of rentals representative of
interest factor ............... 146 108 147 875 978
-------- -------- -------- -------- --------
Total earnings available for fixed
charges ....................... $ 18,900 $ 25,772 $(10,558) $ 62,042 75,774
======== ======== ======== ======== ========
Interest expense ................... $ 1,991 $ 217 $ -- $ 30,891 $ 32,360
Portion of rentals representative of
interest factor ................ 146 108 147 875 978
-------- -------- -------- -------- --------
Total fixed charges ................ $ 2,137 $ 325 $ 147 $ 31,766 33,338
======== ======== ======== ======== ========
Ratio of earnings to fixed charges . 8.84 79.30 (A) 1.95 2.27
======== ======== ======== ======== ========
</TABLE>
(A) As a result of the loss incurred in 1997, the Company was unable to fully
cover the indicated fixed charges.
EXHIBIT 21
CONMED Corporation
Subsidiaries of the Registrant
Name State or Country of Incorporation
Aspen Laboratories, Inc. Colorado
CONMED Andover Medical, Inc. New York
Envision Medical Corporation California
Linvatec Corporation Florida
Linvatec Australia Pty. Ltd Australia
Linvatec Canada ULC Canada
Linvatec Deutschland GmbH Germany
Linvatec Europe sprl Belgium
Linvatec France S.A.R.L. France
Linvatec Korea Ltd. Korea
Linvatec U.K. Ltd. United Kingdom
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-23514, 33-40455, 33-49422, 33-49526, 33-58119,
33-87746, 333-48693 and 333-74497) of CONMED Corporation of our report dated
February 9, 2000 appearing on page F-1 of the 1999 Annual Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Syracuse, New York
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,747
<SECURITIES> 0
<RECEIVABLES> 77,847
<ALLOWANCES> (1,434)
<INVENTORY> 89,681
<CURRENT-ASSETS> 176,717
<PP&E> 92,340
<DEPRECIATION> (34,506)
<TOTAL-ASSETS> 662,161
<CURRENT-LIABILITIES> 67,191
<BONDS> 394,669
0
0
<COMMON> 153
<OTHER-SE> 211,108
<TOTAL-LIABILITY-AND-EQUITY> 662,161
<SALES> 372,617
<TOTAL-REVENUES> 372,617
<CGS> 178,480
<TOTAL-COSTS> 178,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,360
<INCOME-PRETAX> 42,436
<INCOME-TAX> 15,277
<INCOME-CONTINUING> 27,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,159
<EPS-BASIC> 1.78
<EPS-DILUTED> 1.76
</TABLE>
