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, 2001 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 3,
2001 is 15,430,275 shares.
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART I FINANCIAL INFORMATION
Item Number Page
----
Item 1. Financial Statements
- Consolidated Condensed Statements
of Income 1
- Consolidated Condensed Balance Sheets 2
- Consolidated Condensed Statements
of Cash Flows 3
- Notes to Consolidated Condensed
Financial Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Item 1.
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Months Ended March 2000 and 2001
(in thousands except per share amounts)
(unaudited)
2000 2001
---- ----
Net sales ..................................................... $102,811 $105,909
-------- --------
Cost of sales ................................................. 48,661 49,674
Selling and administrative expense ............................ 30,762 34,829
Research and development expense .............................. 3,406 3,696
-------- --------
82,829 88,199
-------- --------
Income from operations ........................................ 19,982 17,710
Interest expense, net ......................................... 8,405 8,331
-------- --------
Income before income taxes .................................... 11,577 9,379
Provision for income taxes .................................... 4,168 3,376
-------- --------
Net income .................................................... $ 7,409 $ 6,003
======== ========
Per share data:
Net income
Basic ..................................................... $ .48 $ .39
Diluted ................................................... 48 .39
Weighted average common shares
Basic ..................................................... 15,286 15,371
Diluted ................................................... 15,559 15,538
See notes to consolidated condensed financial statements
1
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands except share amounts)
(unaudited)
December March
2000 2001
-------- --------
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 3,470 $ 4,104
Accounts receivable, net............................................................ 78,626 80,462
Inventories......................................................................... 104,612 104,472
Deferred income taxes............................................................... 1,761 1,761
Prepaid expenses and other current assets........................................... 3,562 4,228
-------- --------
Total current assets.............................................................. 192,031 195,027
-------- --------
Property, plant and equipment, net.................................................... 62,450 64,130
Goodwill, net......................................................................... 225,801 224,232
Other intangible assets, net.......................................................... 195,008 193,334
Other assets .................................................................... 4,281 4,368
-------- --------
Total assets...................................................................... $679,571 $681,091
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................... $ 36,068 $ 36,866
Accounts payable.................................................................... 20,350 22,464
Accrued compensation................................................................ 9,913 10,093
Income taxes payable................................................................ 1,979 5,015
Accrued interest.................................................................... 5,130 2,016
Other current liabilities........................................................... 4,836 5,307
------- --------
Total current liabilities......................................................... 78,276 81,761
------- --------
Long-term debt........................................................................ 342,680 335,859
Deferred income taxes................................................................. 12,154 11,282
Other long-term liabilities........................................................... 15,858 17,715
------- --------
Total liabilities................................................................. 448,968 446,617
------- --------
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized 500,000 shares; none outstanding....................................... - -
Common stock, par value $.01 per share;
100,000,000 shares authorized; 15,352,186 and
15,430,275 shares issued and outstanding in
2000 and 2001, respectively..................................................... 153 154
Paid-in capital..................................................................... 128,062 128,542
Retained earnings................................................................... 103,834 109,837
Accumulated other comprehensive loss................................................ (1,027) (3,640)
Less 25,000 shares of common stock in treasury,
at cost........................................................................... (419) (419)
-------- --------
Total shareholders' equity........................................................ 230,603 234,474
-------- --------
Total liabilities and shareholders' equity........................................ $679,571 $681,091
======== ========
See notes to consolidated condensed financial statements
2
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 2000 and 2001
(in thousands)
(unaudited)
2000 2001
---- ----
Cash flows from operating activities:
Net income.......................................................................... $ 7,409 $ 6,003
------- -------
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation.................................................................. 2,306 2,185
Amortization.................................................................. 4,798 5,381
Increase (decrease) in cash flows
from changes in assets and liabilities:
Accounts receivable................................................. (2,959) (1,837)
Inventories......................................................... (2,213) (1,168)
Prepaid expenses and
other current assets.............................................. 25 (677)
Accounts payable.................................................... 3,479 2,114
Income taxes payable................... ........................... 3,149 3,036
Accrued compensation................................................ (2,431) 180
Accrued interest.................................................... (1,443) (3,114)
Other assets/liabilities, net....................................... (699) (987)
------- -------
4,012 5,113
------- -------
Net cash provided by operating activities..................................... 11,421 11,116
------- -------
Cash flows from investing activities:
Purchases of property, plant, and equipment......................................... (3,798) (3,867)
------- -------
Net cash used by investing activities......................................... (3,798) (3,867)
------- -------
Cash flows from financing activities:
Borrowings under revolving credit facility.......................................... 1,000 3,000
Proceeds from issuance of common stock.............................................. 229 481
Payments on long-term debt.......................................................... (8,230) (9,023)
------- -------
Net cash used by financing activities......................................... (7,001) (5,542)
------- -------
Effect of exchange rate changes
on cash and cash equivalents...................................................... (141) (1,073)
------- --------
Net increase in cash and cash equivalents............................................. 481 634
Cash and cash equivalents at beginning of period...................................... 3,747 3,470
------- -------
Cash and cash equivalents at end of period............................................ $ 4,228 $ 4,104
======= =======
See notes to consolidated condensed financial statements
3
CONMED CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - Organization and operations
The consolidated condensed financial statements include the accounts of CONMED
Corporation and its subsidiaries ("CONMED", the "Company", "we" or "us"). 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, for orthopaedic,
ENT, neuro-surgery and other surgical specialties. We are also a leading
developer, manufacturer and supplier of advanced medical devices, including RF
electrosurgery systems used in all types of surgery, ECG electrodes for heart
monitoring, and minimally invasive surgical devices. Our products are used in a
variety of clinical settings, such as operating rooms, surgery centers,
physicians' offices and critical care areas of hospitals. Our business is
organized, managed and internally reported as a single segment, since our
product offerings have similar economic, operating and other related
characteristics.
Note 2 - Interim financial information
The statements for the three months ended March 2000 and 2001 are unaudited; in
our opinion 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 condensed financial statements for the year
ending December 2001 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 2001 are not necessarily indicative of the results of
operations to be expected for any other quarter nor for the year ending December
2001. The consolidated condensed financial statements and notes thereto should
be read in conjunction with the financial statements and notes for the year
ended December 2000 included in our Annual Report to the Securities and Exchange
Commission on Form 10-K. Certain prior year amounts have been reclassified to
conform with the presentation used in 2001.
Note 3 - Other comprehensive income (loss)
Comprehensive income (loss) consists of the following:
Three months ended
March
2000 2001
---- ----
Net income ........................................................... $ 7,409 $ 6,003
------- -------
Other comprehensive income:
Foreign currency translation adjustment .......................... (163) (1,063)
Cash flow hedging (net of income taxes) .......................... -- (1,550)
------- -------
Comprehensive income ............................................. $ 7,246 $ 3,390
======= =======
4
Accumulated other comprehensive income (loss) consists of the following:
Accumulated
Cumulative Cash Other
Translation Flow Comprehensive
Adjustments Hedges Income (loss)
----------- ------ -------------
Balance, December 2000.................................. $ (1,027) $ - $ (1,027)
-------- --------- ----------
Foreign currency translation adjustments............ (1,063) - (1,063)
Cash flow hedging (net of income taxes)............. - (1,550) (1,550)
-------- --------- -----------
Balance, March 2001..................................... $ (2,090) $ (1,550) $ (3,640)
======== ========= ===========
Note 4 - Inventories
The components of inventory are as follows (in thousands):
December March
2000 2001
---- ----
Raw materials............................ $38,278 $38,877
Work-in-process.......................... 12,612 12,058
Finished goods........................... 53,722 53,537
------- --------
Total ....................... $104,612 $104,472
======== ========
Note 5 - Derivative financial instruments
We adopted Statement of Financial Accounting Standard ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, on January 1,
2001. SFAS No. 133 requires that derivatives be recorded 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 are accounted for depending on
whether the derivative qualifies for hedge accounting.
Upon adoption of SFAS No. 133, we recorded a net-of-tax cumulative-effect-type
loss adjustment of $971,000 in accumulated other comprehensive income to
recognize at fair value an interest rate swap which we have designated as a
cash-flow hedge and which effectively converts $50,000,000 of LIBOR-based
floating rate debt under our credit facility into fixed rate debt with a base
interest rate of 7.01%.
5
Note 6 - Earnings per share
Basic earnings per share (EPS) is computed based on the weighted average number
of common shares outstanding for the period. Diluted EPS gives effect to all
dilutive potential shares outstanding (ie., options and warrants) during the
period. The following is a reconciliation of the weighted average shares used in
the calculation of basic and diluted EPS (in thousands):
Three months ended
March
2000 2001
---- ----
Shares used in the calculation of Basic EPS
(weighted average shares outstanding).......................... 15,286 15,371
Effect of dilutive potential securities............................ 273 167
Shares used in the calculation of Diluted EPS...................... 15,559 15,538
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 period. Such shares aggregated 1,485,000 and
2,296,000 for the three months ended March 2000 and 2001, respectively.
Note 7 - Business acquisitions
On November 20, 2000 we agreed to purchase certain assets of the disposable
minimally invasive surgical business of Imagyn Medical Technologies, Inc. (the
"Imagyn acquisition") for a purchase price of $6,000,000. The acquisition was
funded through borrowings under our revolving credit facility and is being
accounted for using the purchase method. The results of operations of the
acquired business are included in our consolidated results from the date of
acquisition. Goodwill associated with the acquisition is being amortized on a
straight-line basis over a 40-year period.
Note 8 - Guarantor financial statements
Our credit facility and subordinated notes (the "Notes") are guaranteed (the
"Subsidiary Guarantees") by our subsidiaries (the "Subsidiary Guarantors"). The
Subsidiary Guarantees provide that each Subsidiary Guarantor will fully and
unconditionally guarantee our obligations under the credit facility and the
Notes on a joint and several basis. Each Subsidiary Guarantor is wholly-owned by
CONMED Corporation. The following supplemental financial information sets forth
on a condensed consolidating basis, consolidating balance sheet, statement of
income and statement of cash flows for the Parent Company Only, Subsidiary
Guarantors and for the Company as of December 2000 and March 2001 and for the
three months ended March 2000 and 2001.
6
CONMED CORPORATION
CONSOLIDATING CONDENSED BALANCE SHEET
December 2000
(in thousands)
Parent
Company Subsidiary Company
Only Guarantors Eliminations Total
-------- -------- --------- --------
ASSETS
Current assets:
Cash and cash equivalents........................ $ - $ 3,470 $ - $ 3,470
Accounts receivable, net......................... 35,218 43,408 - 78,626
Inventories...................................... 20,174 84,438 - 104,612
Deferred income taxes............................ 1,761 - - 1,761
Prepaid expenses and other
current assets............................... 598 2,964 - 3,562
-------- -------- -------- --------
Total current assets....................... 57,751 134,280 - 192,031
-------- -------- -------- --------
Property, plant and equipment, net................... 38,275 24,175 - 62,450
Goodwill, net........................................ 61,651 164,150 - 225,801
Other intangible assets, net......................... 7,498 187,510 - 195,008
Other assets......................................... 473,408 5,217 (474,344) 4,281
-------- -------- --------- --------
Total assets..................................... $638,583 $515,332 $(474,344) $679,571
======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................ $ 36,068 $ - $ - $ 36,068
Accounts payable................................. 4,398 15,952 - 20,350
Accrued compensation............................. 2,147 7,766 - 9,913
Income taxes payable............................. 1,338 641 - 1,979
Accrued interest................................. 5,130 - - 5,130
Other current liabilities........................ 1,890 2,946 - 4,836
-------- ------- --------- --------
Total current liabilities.................... 50,971 27,305 - 78,276
-------- -------- --------- --------
Long-term debt....................................... 342,680 - - 342,680
Deferred income taxes................................ 12,154 - - 12,154
Other long-term liabilities.......................... 2,175 349,295 (335,612) 15,858
-------- -------- ---------- --------
Total liabilities................................ 407,980 376,600 (335,612) 448,968
-------- -------- --------- --------
Shareholders' equity:
Preferred stock.................................. - - - -
Common stock..................................... 153 1 (1) 153
Paid-in capital.................................. 128,062 - - 128,062
Retained earnings................................ 103,834 139,758 (139,758) 103,834
Accumulated other comprehensive
loss......................................... (1,027) (1,027) 1,027 (1,027)
Less common stock in
treasury, at cost............................... (419) - - (419)
-------- -------- --------- --------
Total shareholders' equity................... 230,603 138,732 (138,732) 230,603
-------- -------- --------- --------
Total liabilities and
shareholders' equity....................... $638,583 $515,332 $(474,344) $679,571
======== ======== ========= ========
7
CONMED CORPORATION
CONSOLIDATING CONDENSED BALANCE SHEET
March 2001
(in thousands)
(unaudited)
Parent
Company Subsidiary Company
Only Guarantors Eliminations Total
-------- -------- ------------ --------
ASSETS
Current assets:
Cash and cash equivalents........................ $ - $ 4,104 $ - $ 4,104
Accounts receivable, net......................... 32,763 47,699 - 80,462
Inventories...................................... 20,456 84,016 - 104,472
Deferred income taxes............................ 1,761 - - 1,761
Prepaid expenses and other
current assets............................... 761 3,467 - 4,228
-------- -------- -------- --------
Total current assets....................... 55,741 139,286 - 195,027
-------- -------- -------- --------
Property, plant and equipment, net................... 40,781 23,349 - 64,130
Goodwill, net........................................ 61,194 163,038 - 224,232
Other intangible assets, net......................... 7,500 185,834 - 193,334
Other assets......................................... 474,822 40,400 (510,854) 4,368
-------- -------- --------- --------
Total assets..................................... $640,038 $551,907 $(510,854) $681,091
======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................ $ 36,866 $ - $ - $ 36,866
Accounts payable................................. 5,798 16,666 - 22,464
Accrued compensation............................. 2,242 7,851 - 10,093
Income taxes payable............................. 4,414 601 - 5,015
Accrued interest................................. 2,016 - - 2,016
Other current liabilities........................ 2,361 2,946 - 5,307
-------- ------- --------- --------
Total current liabilities.................... 53,697 28,064 - 81,761
-------- -------- --------- --------
Long-term debt....................................... 335,859 - - 335,859
Deferred income taxes................................ 11,282 - - 11,282
Other long-term liabilities.......................... 4,726 381,135 (368,146) 17,715
-------- -------- ---------- --------
Total liabilities................................ 405,564 409,199 (368,146) 446,617
-------- -------- --------- --------
Shareholders' equity:
Preferred stock.................................. - - - -
Common stock..................................... 154 1 (1) 154
Paid-in capital.................................. 128,542 - - 128,542
Retained earnings................................ 109,837 144,797 (144,797) 109,837
Accumulated other comprehensive
loss......................................... (3,640) (2,090) 2,090 (3,640)
Less common stock in
treasury, at cost............................... (419) - - (419)
-------- -------- --------- --------
Total shareholders' equity................... 234,474 142,708 (142,708) 234,474
-------- -------- --------- --------
Total liabilities and
shareholders' equity....................... $640,038 $551,907 $(510,854) $681,091
======== ======== ========= ========
8
CONMED CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF INCOME
Three Months Ended March 2000
(in thousands)
(unaudited)
Parent
Company Subsidiary Company
Only Guarantors Eliminations Total
-------- -------- ------------ --------
Net sales............................................ $ 20,620 $ 82,191 $ - $102,811
-------- -------- -------- --------
Cost of sales........................................ 11,053 37,608 - 48,661
Selling and administrative expense................... 5,245 25,517 - 30,762
Research and development expense..................... 487 2,919 - 3,406
-------- -------- -------- --------
16,785 66,044 - 82,829
-------- -------- -------- --------
Income from operations............................... 3,835 16,147 - 19,982
Interest expense, net................................ - 8,405 - 8,405
-------- -------- -------- --------
Income before income taxes........................... 3,835 7,742 - 11,577
Provision for income taxes........................... 1,381 2,787 - 4,168
-------- -------- -------- --------
Income before equity in earnings
of unconsolidated subsidiaries..................... 2,454 4,955 - 7,409
Equity in earnings of unconsolidated
subsidiaries....................................... 4,955 - (4,955) -
-------- -------- -------- --------
Net income........................................... $ 7,409 $ 4,955 $ (4,955) $ 7,409
======== ======== ======== ========
9
CONMED CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF INCOME
Three Months Ended March 2001
(in thousands)
(unaudited)
Parent
Company Subsidiary Company
Only Guarantors Eliminations Total
-------- -------- ------------ --------
Net sales............................................ $ 20,470 $ 85,439 $ - $105,909
-------- -------- -------- --------
Cost of sales........................................ 12,483 37,191 - 49,674
Selling and administrative expense................... 6,098 28,731 - 34,829
Research and development expense..................... 382 3,314 - 3,696
-------- -------- -------- --------
18,963 69,236 - 88,199
-------- -------- -------- --------
Income from operations............................... 1,507 16,203 - 17,710
Interest expense, net................................ - 8,331 - 8,331
-------- -------- -------- --------
Income before income taxes........................... 1,507 7,872 - 9,379
Provision for income taxes........................... 543 2,833 - 3,376
-------- -------- -------- --------
Income before equity in earnings
of unconsolidated subsidiaries..................... 964 5,039 - 6,003
Equity in earnings of unconsolidated
subsidiaries....................................... 5,039 - (5,039) -
-------- -------- -------- --------
Net income........................................... $ 6,003 $ 5,039 $ (5,039) $ 6,003
======== ======== ======== ========
10
CONMED CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended March 2000
(in thousands)
(unaudited)
Parent
Company Subsidiary Company
Only Guarantors Eliminations Total
-------- -------- ------------ --------
Net cash flows from operating
activities.......................................... $ 3,801 $ 7,620 $ - $ 11,421
------- ------- ------- --------
Cash flows from investing activities:
Distributions from subsidiaries.................... 5,247 - (5,247) -
Purchases of property, plant and
equipment.................................... (2,428) (1,370) - (3,798)
------- ------- ------- --------
Net cash provided (used)
by investing activities.................. 2,819 (1,370) (5,247) ( 3,798)
------- ------- ------- --------
Cash flows from financing:
Distributions to parent.......................... - (5,247) 5,247 -
Borrowings under revolving
credit facility.............................. 1,000 - - 1,000
Proceeds from issuance of
common stock................................. 229 - - 229
Payments on long-term debt....................... (8,230) - - (8,230)
------- ------- ------- ---------
Net cash provided (used) by
financing activities...................... (7,001) (5,247) 5,247 (7,001)
------- ------- ------- --------
Effect of exchange rate changes on cash
and cash equivalents............................... - (141) - (141)
------- ------- ------- --------
Net increase (decrease) in cash and
cash equivalents.................................... (381) 862 - 481
Cash and cash equivalents at
beginning of period................................. 598 3,149 - 3,747
------- ------- ------- --------
Cash and cash equivalents at
end of period....................................... $ 217 $ 4,011 $ - $ 4,228
======= ======= ======= ========
11
CONMED CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 2001
(in thousands)
(unaudited)
Parent
Company Subsidiary Company
Only Guarantors Eliminations Total
-------- -------- ------------ --------
Net cash flows from operating
activities.......................................... $ 3,120 $ 7,996 $ - $ 11,116
------- ------- ------- --------
Cash flows from investing activities:
Distributions from subsidiaries.................... 5,661 - (5,661) -
Purchases of property, plant and
equipment.................................... (3,239) (628) - (3,867)
------- ------- ------- --------
Net cash provided (used)
by investing activities................. 2,422 (628) (5,661) (3,867)
------- ------- ------- --------
Cash flows from financing:
Distributions to parent.......................... - (5,661) 5,661 -
Borrowings under revolving
credit facility.............................. 3,000 - - 3,000
Proceeds from issuance of
common stock................................. 481 - - 481
Payments on long-term debt....................... (9,023) - - (9,023)
------- ------- ------- --------
Net cash provided (used)by
financing activities...................... (5,542) (5,661) 5,661 (5,542)
------- ------- ------- --------
Effect of exchange rate changes on cash
and cash equivalents............................... - (1,073) - (1,073)
------- ------- ------- --------
Net increase (decrease) in cash and
cash equivalents.................................... - 634 - 634
Cash and cash equivalents at
beginning of period................................. - 3,470 - 3,470
------- -------- ------- --------
Cash and cash equivalents at
end of period....................................... $ - $ 4,104 $ - $ 4,104
======= ======== ======= ========
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995) and information that is based on the beliefs of management, as well as
assumptions made by and information currently available to management.
When used in this Form 10-Q, the words "estimate", "project", "believe",
"anticipate", "intend", "expect", and similar expressions are intended to
identify forward-looking statements. These statements involve known and unknown
risks, uncertainties and other factors, including those discussed in our Annual
Report on Form 10-K for the year ended December 2000, that may cause our actual
results, performance or achievements, 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
possibility that United States or foreign regulatory and/or administrative
agencies might initiate enforcement actions against us or our distributors; our
indebtedness; quality of our management and business abilities and the judgment
of our personnel; the availability, terms and deployment of capital; the risk of
litigation, especially patent litigation as well as the cost associated with
patent and other litigation and changes in regulatory requirements.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We do not undertake any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date of this Form 10-Q or to
reflect the occurrence of unanticipated events.
Three months ended March 2001 compared to three months ended March 2000
Sales for the quarter ended March 2001 were $105.9 million, an increase of 3.0%
compared to sales of $102.8 million in the same quarter a year ago.
Sales in our orthopaedic businesses grew 2.8% to $70.8 million from $68.8
million in the comparable quarter last year. Arthroscopy sales, which represent
approximately 56.8% of total orthopaedic revenues, grew 2.0% to $40.2 million
from $39.4 million in the same period a year ago. Powered surgical instrument
sales, which represent approximately 43.2% of orthopaedic revenues, grew 4.0% to
$30.6 million from $29.4 million in the same quarter last year. Adjusted for
constant foreign currency exchange rates, orthopaedic sales growth in the first
quarter of 2001 would have been approximately 4.8% compared with the first
quarter of 2000.
Patient care sales for the three months ended March 2001 were $17.6 million, a
6.0% decline from $18.7 million in the same period a year ago, reflecting
expected declines in sales of our surgical suction product lines as a result of
increased competition and pricing pressures.
Electrosurgery sales for the three months ended March 2001 were $15.0 million,
an increase of 7.5% from $13.9 million in the first quarter of last year,
reflecting improved generator and disposable product sales.
Sales of minimally invasive surgery (MIS) products increased 90.2% to $2.5
million in the three months ended March 2001 from $1.3 million in the same
period a year ago. Approximately 77.1% of the total increase in MIS sales is a
result of our November 2000 Imagyn acquisition (Note 7 to the condensed
consolidated financial statements), while 13.1% is a result of internal growth.
13
Cost of sales increased to $49,674,000 in the current quarter as compared to
$48,661,000 in the same quarter a year ago as a result of the increased sales
volumes described above. Gross margin percentage improved to 53.1% in the first
quarter of 2001 compared to 52.7% in the first quarter of 2000, primarily as a
result of increased sales volumes in our orthopaedic product lines which carry
higher gross margins than certain of our other product lines.
Selling and administrative expenses increased to $34,829,000 in the first
quarter of 2001 as compared to $30,762,000 in the first quarter of 2000. As a
percentage of sales, selling and administrative expenses totaled 32.9% in the
first quarter of 2001 compared to 29.9% in the first quarter of 2000. In the
second quarter of 2000, we announced a plan to replace our arthroscopy direct
sales force with non-stocking exclusive sales agent groups in certain geographic
regions of the United States. This plan resulted in greater sales force coverage
in the affected geographic regions. The increase in selling and administrative
expense is a result of higher commission and other costs associated with the
change to exclusive sales agent groups as well as increased spending on sales
and marketing programs.
Research and development expense increased to $3,696,000 in the first quarter of
2001 as compared to $3,406,000 in the first quarter of 2000. As a percentage of
sales, research and development expense increased to 3.5% in the current quarter
compared to 3.3% in the same quarter a year ago. This increase represents
expanded research and development efforts primarily focused on new product
development in the orthopaedic product lines.
Interest expense in the first quarter of 2001 was $8,331,000 compared to
$8,405,000 in the first quarter of 2000. The decrease in interest expense is a
result of lower total borrowings during the current quarter as compared to the
same period a year ago, as total current and long-term debt outstanding
decreased from approximately $387,439,000 at March 2000 to $372,725,000 at March
2001. Partially offsetting the lower interest expense resulting from lower
borrowings has been an increase in the weighted average interest rates on our
term loans and revolving credit facility in the first quarter of 2001 as
compared to the first quarter of 2000 (See Liquidity and Capital Resources
section of Management's Discussion and Analysis of Financial Condition and
Results of Operations).
Liquidity and Capital Resources
Our net working capital position decreased slightly to $113,266,000 at March
2001 compared to $113,755,000 at December 2000. Net cash provided by operations
was $11,116,000 for the first three months of 2001 compared to $11,421,000 for
the same period a year ago. Operating cash flow in the first quarter of 2001 was
positively impacted by depreciation, amortization and increases in accounts
payable and income taxes payable. Operating cash flow in the first quarter of
2001 was negatively impacted by increases in accounts receivable and inventory
and decreases in accrued interest. The increases in accounts receivable and
inventory are primarily related to higher sales levels in the current quarter.
The increases in accounts payable and income taxes payable and decreases in
accrued interest are primarily related to the timing of the payment of these
liabilities.
Net cash used by investing activities for the three months ended March 2001 and
2000 consisted of $3,798,000 and $3,867,000, respectively, in capital
expenditures.
Financing activities during the three months ended March 2001 consisted
primarily of scheduled payments of $9,023,000 on our term loans and $3,000,000
in borrowings on our revolving credit facility. Financing activities during the
three months ended March 2000 consisted primarily of scheduled payments of
$8,230,000 on our term loans and $1,000,000 in borrowings on our revolving
credit facility.
Our term loans under our credit facility at March 2001 aggregate $191,911,000.
Our term loans are repayable quarterly over remaining terms of approximately
five years.
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Our credit facility also includes a $100,000,000 revolving credit facility which
expires December 2002, of which $50,000,000 was available at March 2001. 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 our
operating results. The weighted average interest rates at March 2001 under the
term loans and the revolving credit facility were 7.94% and 8.14%, respectively.
Additionally, we are obligated to pay a fee of .375% per annum on the unused
portion of the revolving credit facility.
We use interest rate swaps, a form of derivative financial instrument, to manage
interest rate risk. As discussed in Note 5 to the condensed consolidated
financial statements, we have designated as a cash-flow hedge, an interest rate
swap which effectively converts $50,000,000 of LIBOR-based floating rate debt
under our credit facility into fixed rate debt with a base interest rate of
7.01%. The interest rate swap expires in June 2003 and is included in
liabilities on the balance sheet with a fair value approximating $2,422,000.
There were no material changes in our market risk during the quarter ended March
2001. For a detailed discussion of market risk, see our Annual Report on Form
10-K for the year ended December 2000, Part II, Item 7A, Quantitative and
Qualitative Disclosures About Market Risk.
The credit facility is collateralized by all of our personal property. The
credit facility 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. We are 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.
The Notes are in aggregate principal amount of $130,000,000 and have a maturity
date of March 15, 2008. The Notes bear interest at 9.0% per annum which is
payable semi-annually. The indenture governing the Notes has certain restrictive
covenants and provides for, among other things, mandatory and optional
redemptions by us.
The credit facility and Notes are guaranteed by each of our subsidiaries. The
Subsidiary Guarantees provide that each Subsidiary Guarantor will fully and
unconditionally guarantee our obligations on a joint and several basis. Each
Subsidiary Guarantor is wholly-owned by CONMED Corporation. Under the credit
facility and Note indenture, our subsidiaries are subject to the same covenants
and restrictions that apply to us (except that the Subsidiary Guarantors are
permitted to make dividend payments and distributions, including cash dividend
payments, to us or another Subsidiary Guarantor).
Management believes that cash generated from operations, its current cash
resources and funds available under its credit facility will provide sufficient
liquidity to ensure continued working capital for operations, debt service and
funding of capital expenditures in the foreseeable future.
15
Foreign Operations
Our 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 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.
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Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
None
Reports on Form 8-K
None
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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 11, 2001
Robert D. Shallish, Jr.
-----------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial Officer)
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