SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997 Commission File Number 0-16093
CONMED CORPORATION
(Exact name of the 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)
(315) 797-8375
(Registrant's telephone number, including area code)
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 [ ]
The number of shares outstanding of registrant's common stock, as of
May 9, 1997 is 15,013,574 shares.
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART I FINANCIAL INFORMATION
Item Number
Item 1. Financial Statements
- Consolidated Statements of Income
- Consolidated Balance Sheets
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
PART II OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
Item 1.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 1996 and 1997
(thousands except per share amounts)
(unaudited)
1996 1997
-------- --------
Net sales .................................... $ 29,200 $ 31,472
-------- --------
Cost and expenses:
Cost of sales .............................. 15,167 16,475
Facility consolidation expense (Note 7) .... -- 2,328
Selling and administrative ................. 7,556 8,336
Research and development ................... 683 751
-------- --------
Total operating expenses ............ 23,406 27,890
-------- --------
Income from operations ....................... 5,794 3,582
Interest income (expense), net ............... (682) 262
-------- --------
Income before taxes .......................... 5,112 3,844
Provision for income taxes ................... 1,840 1,384
-------- --------
Net income ................................... $ 3,272 $ 2,460
======== ========
Weighted average common shares and equivalents 12,570 15,205
======== ========
Earnings per share ........................... $ .26 $ .16
======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
(unaudited)
December March
1996 1997
-------- --------
Current assets:
Cash and cash equivalents .............................. $ 20,173 $ 28,175
Accounts receivable, net ............................... 26,336 26,615
Income taxes receivable ................................ 766 --
Inventories (Note 4) ................................... 23,187 21,790
Deferred income taxes .................................. 626 626
Prepaid expenses and other current assets .............. 740 1,094
-------- --------
Total current assets ............................ 71,828 78,300
Property, plant and equipment, net ....................... 26,458 26,462
Deferred income taxes .................................... 1,246 1,246
Covenant not to compete .................................. 713 603
Goodwill ................................................. 64,283 64,449
Patents, trademarks, and other assets .................... 5,555 5,420
-------- --------
Total assets .................................... $170,083 $176,480
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................... $ 2,433 $ 2,321
Income taxes payable ................................... -- 1,426
Accrued payroll and withholdings ....................... 2,037 1,798
Accrued pension ........................................ 333 627
Accrued facility consolidation (Note 7) ................ -- 2,328
Other current liabilities .............................. 951 1,045
-------- --------
Total current liabilities ....................... 5,754 9,545
Accrued pension .......................................... 276 276
Deferred compensation .................................... 1,033 1,085
Long-term leases ......................................... 2,924 2,937
Other long-term liabilities .............................. 1,461 1,461
-------- --------
11,448 15,304
-------- --------
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
(unaudited)
(continued)
December March
1996 1997
-------- --------
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized 500,000 shares; none outstanding ..... -- --
Common stock, par value $.01 per share;
40,000,000 authorized; 14,988,783 and
14,998,983 issued and outstanding in
1996 and 1997, respectively ........................ 150 150
Paid-in capital ........................................ 111,867 111,948
Retained earnings ...................................... 46,618 49,078
-------- --------
158,635 161,176
-------- --------
Total liabilities and shareholders' equity ...... $170,083 $176,480
======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 1996 and 1997
(in thousands)
(unaudited)
1996 1997
-------- --------
Cash flows from operating activities:
Net income ....................................... $ 3,272 $ 2,460
-------- --------
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation .............................. 800 946
Amortization .............................. 631 799
Increase (decrease) in cash flows
from changes in assets and liabilities
Accounts receivable .............. 1,290 (279)
Inventories ...................... (445) 1,213
Prepaid expenses and
other current assets ........... 117 (354)
Other assets ..................... (1,244) (19)
Accounts payable ................. 581 (112)
Income taxes payable ............. 2,258 2,192
Income tax benefit of stock
option exercises ............... 1,032 --
Accrued payroll and withholdings . 1,362 (239)
Accrued pension .................. 193 294
Accrued facility consolidation ... -- 2,328
Other current liabilities ........ (1,337) (410)
Deferred compensation and
other long-term liabilities .... (273) 52
-------- --------
4,965 6,411
Net cash provided by operating activities . 8,237 8,871
-------- --------
Cash flows from investing activities:
Acquisition of NDM, net of cash acquired ......... (30,721) --
Acquisition of property, plant, and equipment .... (1,015) (950)
-------- --------
Net cash used by investing activities ..... (31,736) (950)
-------- --------
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 1996 and 1997
(in thousands)
(unaudited)
(continued)
1996 1997
-------- --------
Cash flows from financing activities:
Proceeds of long term debt ....................... 32,660 --
Proceeds from issuance of common stock ........... 65,990 81
Payments on long-term debt and leases ............ (65,141) --
-------- --------
Net cash provided by financing activities .... 33,509 81
-------- --------
Net increase in cash
and cash equivalents ............................. 10,010 8,002
Cash and cash equivalents at beginning of period ... 1,539 20,173
-------- --------
Cash and cash equivalents at end of period ......... $ 11,549 $ 28,175
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest ................................ $ 882 $ --
Income taxes ............................ 124 182
See notes to consolidated financial statements.
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Consolidation
The consolidated financial statements include the accounts of CONMED
Corporation (the Company), and its subsidiaries. The Company is primarily
engaged in the development, manufacturing and marketing of disposable medical
products and related devices. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Note 2 - Interim financial information
The statements for the three months ended March 1996 and 1997 are
unaudited; in the opinion of the Company such unaudited statements include all
adjustments (which comprise only normal recurring accruals) necessary for a fair
presentation of the results for such periods. The consolidated financial
statements for the year ending December 1997 are subject to adjustment at the
end of the year when they will be audited by independent accountants. The
results of operations for the three months ended March 1996 and 1997 are not
necessarily indicative of the results of operations to be expected for any other
quarter nor for the year ending December 1997. The consolidated financial
statements and notes thereto should be read in conjunction with the financial
statements and notes for the years ended December 1995 and 1996 included in the
Company's Annual Report to the Securities and Exchange Commission on Form 10-K.
Note 3 - Earnings per share
Earnings per share was computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the quarter.
Note 4 - Inventories
The components of inventory are as follows (in thousands):
December March
1996 1997
------- -------
Raw materials .......................... $ 7,079 $ 7,354
Work-in-process ........................ 7,541 6,927
Finished goods ......................... 8,567 7,509
------- -------
Total ......................... $23,187 $21,790
======= =======
Note 5 - Business Acquisition
On February 23, 1996, the Company acquired the business and certain
assets of New Dimensions in Medicine, Inc. ("NDM") for a cash purchase price of
approximately $31.6 million and the assumption of $3.3 million of liabilities.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, 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.
On an unaudited pro forma basis, assuming the NDM acquisition had
occurred as of the beginning of 1996, the consolidated results of the Company
for the quarter ended March 1996 would have been as follows: (in thousands,
except per share amounts):
Pro forma revenues $32,700
=======
Pro forma net income $ 3,576
=======
Pro forma earnings per common and
common equivalent shares $ .28
=======
Note 6 - Stock Offering
On March 20, 1996, the Company completed a public offering of its
common stock whereby 3,000,000 and 850,000 shares of common stock were sold by
the Company and certain shareholders, respectively. The common shares sold by
the shareholders were received upon the exercise of a warrant and options during
the first quarter of 1996. Net proceeds to the Company related to the sale of
3,000,000 shares and exercise of the warrant and options amounted to
approximately $62,500,000 and $3,500,000, respectively. Of the aggregate
proceeds, $65,000,000 was used to eliminate the Company's indebtedness under its
credit agreements.
Note 7 - Facility Consolidation
During the first quarter of 1997, the Company recorded a pre-tax charge
of $2,328,000 related to the closure of the Company's Dayton, Ohio manufacturing
facility. Operations of the Dayton facility, which was acquired in connection
with the February 1996 acquisition of NDM, will be transferred to the Company's
manufacturing location in Rome, New York over the remainder of 1997. The
components of the charge consist primarily of estimated costs associated with
employee severance and termination, and the impairment of the carrying value of
fixed assets.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three months ended March 1997 compared to three months ended March 1996
Sales for the quarter ended March 1997 were $31,472,000, an increase of
7.8% compared to sales of $29,200,000 in the quarter ended March 1996. The
increase was primarily a result of the NDM acquisition that was reflected in
1996 results only from February 23, 1996, the date of acquisition. Offsetting
the incremental NDM sales volume was the effects of realignment of the Company's
domestic sales force effective January 1, 1997.
Prior to 1997, the Company maintained separate salesforces, each of
which sold only a portion of the Company's product offerings. With the
realignment, each of the Company's territory managers sell the entire produce
line of the Company. While management believes that this change will ultimately
enhance the Company's sales efforts, first quarter sales were negatively
impacted by this change due to training issues. Further, management believes
that sales for the second quarter of 1997 may also be affected as the domestic
sales force completes their transition to new responsibilities.
Additionally, during the second quarter of 1997, the Company announced
that it would immediately discontinue certain end of quarter dealer incentives
which had previously been offered. Management believes that this may have a
negative timing effect on the Company's sales in the second quarter of 1997 by
as much as $2.0 million. However, after the second quarter of 1997, sales should
return to normal levels as dealers utilize regular ordering patterns rather than
relying on end of period purchases to meet hospital needs.
Cost of sales increased to $16,475,000 in the current quarter compared
to the $15,167,000 in the same quarter a year ago as a result of increased sales
volume. The Company's gross margin percentage was 47.7% for the first quarter of
1997 as compared to 48.1% in the first quarter of 1996. The slight deterioration
in gross margin percentage reflects the effects of lower pricing primarily on
ECG electrodes and the effects of the NDM product line, which generally have
lower gross margin percentages than the Company's overall gross margin
percentage.
During the first quarter of 1997, the Company recorded a charge of
$2,328,000 related to the closure of its Dayton, Ohio manufacturing facility.
Operations of the Dayton facility, which was acquired in connection with the
February 1996 acquisition of NDM, will be transferred to the Company's
manufacturing location in Rome, New York.
Selling and administrative costs increased to $8,336,000 in the current
quarter as compared to $7,556,000 in the first quarter of 1996. As a percentage
of sales, selling and administrative expense was 26.5% in the first quarter of
1997 as compared to 25.9% in the comparable 1996 period. This increase reflects
the first quarter 1997 sales shortfall discussed above compounded by incremental
first quarter 1997 expenses related to domestic sales force realignment and
training.
Research and development expense was $751,000 in the first quarter of
1997 as compared to $683,000 in the first quarter of 1996. The increase reflects
incremental expense related to the NDM acquisition.
The first quarter of 1997 had interest income of $262,000 compared to
interest expense of $682,000 in the first quarter of 1996. As discussed under
Liquidity and Capital Resources, maximum borrowings during the first quarter of
1996 were $65,000,000 of which $32,660,000 related to borrowings associated with
the February 23, 1996 acquisition of NDM. All such indebtedness was repaid in
late March 1996 with proceeds from the Company's equity offering.
The provision for income taxes decreased in 1997 due to the lower
income before tax.
Liquidity and Capital Resources
Cash flows provided or used by operating, investing and financing
activities for the first three months of 1996 and 1997 are disclosed in the
Consolidated Statements of Cash Flows. Net cash provided by operations was
$8,871,000 for the first three months of 1997 as compared to $8,237,000 for the
first three months of 1996. Operating cash flows for the first three months of
1997 were negatively impacted by lower net income as compared to the first three
months of 1996. Depreciation and amortization in 1997 increased primarily due to
the effects of the NDM acquisition. Operating cash flows for the first three
months of 1997 were positively impacted by an accrual for facility
consolidation, a reduction in inventories and an increase in income taxes
payable. Adversely impacting operating cash flows for the first three months of
1997 was an increase in prepaid expenses and other current assets, and a
reduction in other current liabilities.
Net cash used by investing activities was $950,000 in the first three
months of 1997 compared to $31,736,000 in the first three months of 1996. During
the first three months of 1997, additions to property, plant and equipment
amounted to $950,000. Cash used for the 1996 acquisition of NDM approximated
$30.7 million. Additions to property, plant and equipment for the first three
months of 1996 amounted to $1,015,000.
Cash flows from financing activities were $81,000 for the first three
months of 1997 as compared to $33,509,000 for the first three months of 1996. In
connection with the NDM acquisition on February 23, 1996, the Company borrowed
$32,660,000 bringing aggregate borrowings under its credit facility to
$65,000,000. On March 20, 1996, the Company completed an equity offering of
common stock and used $65,000,000 of the proceeds to eliminate the indebtedness
of the Company.
Management believes that cash generated from operations, its current
cash resources and funds available under its banking agreement will provide
sufficient liquidity to ensure continued working capital for operations and
funding of capital expenditures in the foreseeable future.
The Company's credit facility consists of a $60,000,000 secured
revolving line of credit which expires on March 2001. This facility carries an
interest rate of 0.5%-1.25% over LIBOR depending on defined cash flow
performance ratios. There were no borrowings outstanding under this facility
during the quarter ended March 1997.
Item 5. Other Information
On May 6, 1997, the Company announced that its Board of Directors
authorized the Company to repurchase $30,000,000 of its common stock. The
repurchase program calls for shares to be purchased in the open market or in
private transactions from time to time. The Company may suspend or discontinue
the program at any time. The timing of the purchases will depend upon market
conditions, the market price of the common stock and management's assessment of
the Company's liquidity and cash flow needs. The Company will finance the
repurchases from cash-on-hand and amounts available under the Company's bank
credit facility.
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit No. Description of Instrument
----------- -------------------------
11 Computation of weighted average
number of shares of common stock
Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
CONMED CORPORATION
(Registrant)
Date: May 9, 1997
/s/ Robert D. Shallish, Jr.
---------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial Officer)
Exhibit Index
Exhibit
11 - Computations of weighted average
number of shares of common stock
EXHIBIT 11
Computation of weighted average number of shares of common stock
For the three months ended March
--------------------------------
(in thousands)
1996 1997
------ ------
Shares outstanding at beginning of period............... 11,000 14,989
Weighted average shares issued ......................... 396 8
Incremental shares of common stock
outstanding giving effect to stock
options and warrant .................................. 1,174 208
------ ------
12,570 15,205
====== ======
5
3-MOS
DEC-31-1997
MAR-31-1997
28,175
0
26,861
(525)
21,790
78,300
44,801
(18,340)
176,480
9,545
0
0
0
150
161,026
176,480
31,472
31,472
16,475
16,475
11,415
0
(262)
3,844
1,384
2,460
0
0
0
2,460
.16
0
