UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No.1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2003 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.)
525 French Road, Utica, New York 13502
(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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 126-2).
Yes |X| No |_|
The number of shares outstanding of registrant's common stock, as of April
28, 2003 is 28,943,210 shares.
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-Q/A
Explanatory Note
This Amendment No. 1 to CONMED Corporation's Quarterly Report on Form 10-Q/A
includes unaudited restated consolidated condensed financial statements as of
March 31, 2003 and for the three months ended March 31, 2003. The purpose of
this restatement is to reflect in our results of operations for the three months
ended March 31, 2003, the purchase price allocation of our March 10, 2003
purchase of Bionx Implants, Inc. The purchase price allocation, which we arrived
at with the assistance of a third party valuation, resulted in a $7.9 million
write-off of purchased in-process research and development assets. Information
regarding the restatement is included in Note 1 to the consolidated condensed
financial statements. The items amended in this 10-Q/A are Items 1, 2 and 4.
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 20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 29
Item 4. Controls and Procedures 29
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
PART I FINANCIAL INFORMATION
Item 1.
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
Three Months Ended
------------------
March 31,
---------
Restated
--------
2002 2003
-------- ---------
Net sales ................................ $113,205 $ 118,034
Cost of sales ............................ 54,104 56,378
-------- ---------
Gross profit ............................. 59,101 61,656
Selling and administrative ............... 34,468 37,145
Research and development ................. 3,824 3,703
Write-off of purchased in-process research
and development assets ............... -- 7,900
Other expense (income) ................... -- (7,492)
-------- ---------
38,292 41,256
Income from operations ................... 20,809 20,400
Interest expense ......................... 6,628 5,538
-------- ---------
Income before income taxes ............... 14,181 14,862
Provision for income taxes ............... 5,105 8,194
-------- ---------
Net income ............................... $ 9,076 $ 6,668
======== =========
Per share data:
Net income
Basic ................................ $ .36 $ .23
Diluted .............................. .35 .23
Weighted average common shares*
Basic ................................ 25,397 28,876
Diluted .............................. 25,969 29,037
* Not restated.
See notes to consolidated condensed financial statements.
1
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands except share amounts)
(unaudited)
Restated
--------
December 31, March 31,
2002 2003
---- ----
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 5,626 $ 6,250
Accounts receivable, net ...................... 58,093 60,257
Inventories ................................... 120,443 125,922
Deferred income taxes ......................... 6,304 6,321
Prepaid expenses and other current assets ..... 3,200 3,645
--------- ---------
Total current assets ........................ 193,666 202,395
--------- ---------
Property, plant and equipment, net .............. 95,608 97,403
Goodwill ........................................ 262,394 286,484
Other intangible assets, net .................... 180,271 194,631
Other assets .................................... 10,201 9,977
--------- ---------
Total assets ................................ $ 742,140 $ 790,890
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............. $ 2,631 $ 2,387
Accounts payable .............................. 22,074 21,851
Accrued compensation .......................... 10,463 9,484
Income taxes payable .......................... 5,885 8,260
Accrued interest .............................. 3,794 1,058
Other current liabilities ..................... 13,127 15,032
--------- ---------
Total current liabilities ................... 57,974 58,072
--------- ---------
Long-term debt .................................. 254,756 282,949
Deferred income taxes ........................... 28,446 38,426
Other long-term liabilities ..................... 14,025 14,347
--------- ---------
Total liabilities ........................... 355,201 393,794
--------- ---------
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; 28,808,105 and
28,915,707 shares issued and outstanding in
2002 and 2003, respectively ............... 288 290
Paid-in capital ............................... 231,832 233,613
Retained earnings ............................. 162,391 169,059
Accumulated other comprehensive loss .......... (7,153) (5,447)
Less 37,500 shares of common stock in treasury,
at cost ..................................... (419) (419)
--------- ---------
Total shareholders' equity .................. 386,939 397,096
--------- ---------
Total liabilities and shareholders equity . $ 742,140 $ 790,890
========= =========
See notes to consolidated condensed financial statements.
2
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
------------------
March 31,
---------
Restated
--------
2002 2003
---- ----
Cash flows from operating activities:
Net income ........................................... $ 9,076 $ 6,668
-------- --------
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ................................... 2,206 2,374
Amortization ................................... 3,197 3,168
Deferred income taxes .......................... 2,758 4,409
Write-off of purchased in-process research and
development assets ......................... -- 7,900
Increase (decrease) in cash flows
from changes in assets and liabilities:
Accounts receivable .................. 289 1,270
Inventories .......................... (3,605) (3,107)
Accounts payable ..................... 6,503 (1,580)
Income taxes payable ................. (167) 2,375
Accrued compensation ................. (2,607) (1,943)
Accrued interest ..................... (3,381) (2,736)
Other assets/liabilities, net ........ (1,918) 1,680
-------- --------
3,275 13,810
-------- --------
Net cash provided by operating activities ...... 12,351 20,478
-------- --------
Cash flows from investing activities:
Payments related to business acquisitions,
net of cash acquired ........................... -- (48,177)
Purchases of property, plant, and equipment ........ (3,208) (1,710)
-------- --------
Net cash used by investing activities .......... (3,208) (49,887)
-------- --------
Cash flows from financing activities:
Net proceeds from exercise of stock options .......... 1,985 808
Payments on debt ..................................... (9,938) (3,051)
Proceeds of debt ..................................... -- 31,000
-------- --------
Net cash provided (used) by financing activities (7,953) 28,757
-------- --------
Effect of exchange rate changes
on cash and cash equivalents ....................... 42 1,276
-------- --------
Net increase in cash and cash equivalents .............. 1,232 624
Cash and cash equivalents at beginning of period ....... 1,402 5,626
-------- --------
Cash and cash equivalents at end of period ............. $ 2,634 $ 6,250
======== ========
See notes to consolidated condensed financial statements.
3
CONMED CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands except share amounts)
(unaudited)
Note 1 - Operations and Significant Accounting Policies
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, implants and video
equipment for arthroscopic sports medicine and powered surgical instruments,
such as drills and saws, for orthopedic, ENT, neuro-surgery and other surgical
specialties. We are a leading developer, manufacturer and supplier of RF
electrosurgery systems used routinely to cut and cauterize tissue in nearly all
types of surgical procedures worldwide, endoscopy products such as trocars, clip
appliers, scissors and surgical staplers, and a full line of ECG electrodes for
heart monitoring and other patient care products. We also offer integrated
operating room systems and intensive care unit service managers. 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.
Restatement
The purpose of the restatement described below is to reflect in our consolidated
condensed financial statements for the quarter ended March 31, 2003, the
purchase price allocation of our March 10, 2003 acquisition of Bionx Implants,
Inc. (the "Bionx acquisition"). The purchase price allocation was arrived at
with the assistance of a third party valuation. The impact of the restatement on
the consolidated condensed statement of income for the quarter ended March 31,
2003, is to recognize expense of $7.9 million to write-off the purchased
in-process research and development assets acquired as a result of the Bionx
acquisition. No benefit for income taxes has been recorded on the write-off of
the purchased in-process research and development assets as these costs are not
deductible for income tax purposes. A summary of the impact of the restatement
on the consolidated condensed statement of income for the three months ended
March 31, 2003 is as follows:
As
Previously As
Reported Adjustment Restated
-------- ---------- --------
Consolidated Condensed Statement of Income Data
For the Quarter Ended March 31, 2003:
Write-off of purchased in-process
Research and development assets ............. $ -- $ 7,900 $ 7,900
Income from operations ........................ 28,300 (7,900) 20,400
Income before income taxes .................... 22,762 (7,900) 14,862
Net income .................................... $14,568 $(7,900) $ 6,668
Net income per share:
Basic ................................ $ .50 $ (.27) $ .23
Diluted .............................. .50 (.27) .23
4
The impact of the restatement on the consolidated condensed balance sheets,
apart from the in-process research and development write-off, is the
reclassification of a portion of the purchase price from goodwill to inventory,
property, plant and equipment and other intangible assets as shown above. We
have also recognized a deferred income tax liability based on the difference
between the financial statement and tax basis of assets and liabilities acquired
as a result of the Bionx acquisition. A summary of the impact of the restatement
on the consolidated condensed balance sheet at March 31, 2003 is as follows:
As
Previously As
Reported Adjustment Restated
-------- ---------- --------
Consolidated Condensed Balance Sheet Data
As of March 31, 2003:
Inventories ............................. $125,721 $ 201 $125,922
Property, plant and equipment, net ...... 96,326 1,077 97,403
Goodwill ................................ 304,530 (18,046) 286,484
Other intangible assets, net ............ 180,209 14,422 194,631
Total assets ............................ $793,236 $ (2,346) $790,890
Deferred income taxes ................... $ 32,872 $ 5,554 $ 38,426
Total liabilities ....................... $388,240 $ 5,554 $393,794
Retained earnings ....................... $176,959 $ (7,900) $169,059
Total shareholders' equity .............. $404,996 $ (7,900) $397,096
The impact of the restatement on the consolidated condensed statement of cash
flows is to reduce net income by the $7.9 million write-off of the purchased
in-process research and development assets and increase non-cash expense related
to the write-off by $7.9 million. The restatement had no effect on net cash
provided by operating activities for the three months ended March 31, 2003. A
summary of the impact of the restatement on the consolidated condensed statement
of cash flows for the three months ended March 31, 2003 is as follows:
As
Previously As
Reported Adjustment Restated
-------- ---------- --------
Consolidated Condensed Statement of Cash Flows
Data as of March 31, 2003:
Net income ................................... $14,568 $(7,900) $ 6,668
Write-off of purchased in-process
research and development assets ............ $ -- $ 7,900 $ 7,900
Net cash provided by operating activities .... $20,478 $ -- $20,478
The Bionx acquisition and the related purchased in-process research and
development write-off are described more fully in Note 6 to the consolidated
condensed financial statements.
Stock-based Compensation
We account for our stock-based compensation plans under the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". No compensation expense has been recognized in the accompanying
financial statements relative to our stock option plans. Pro forma information
regarding net income and earnings per share is required by Statement of
Financial Accounting Standards No. 123,
5
"Accounting for Stock-Based Compensation" ("SFAS 123") and has been determined
as if we had accounted for our employee stock options under the fair value
method of that statement. The weighted average fair value of options granted in
the three months ended March 31, 2002 and 2003 was $8.66 and $6.56,
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 the three months ended March 31, 2002 and
2003, respectively: Risk-free interest rates of 2.70% and 2.87%; volatility
factors of the expected market price of the Company's common stock of 41.10% and
43.23%; 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:
Three months ended
March 31,
Restated
--------
2002 2003
---- ----
Net income -- as reported ............ $ 9,076 $ 6,668
--------- ---------
Pro forma stock-based employee
compensation expense, net of related
income tax effect .................. (474) (524)
--------- ---------
Net income -- pro forma .............. $ 8,602 $ 6,144
========= =========
EPS - as reported:
Basic ............................ $ .36 $ .23
Diluted .......................... $ .35 $ .23
EPS - pro forma:
Basic ............................ $ .34 $ .21
Diluted .......................... $ .33 $ .21
Note 2 - Interim financial information
The statements for the three months ended March 31, 2002 and 2003 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 results of operations for the three months ended March 31,
2003 are not necessarily indicative of the results of operations to be expected
for any other quarter nor for the year ending December 31, 2003. The
consolidated condensed financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the year ended December
31, 2002 included in our Annual Report to the Securities and Exchange Commission
on Form 10-K.
6
Note 3 - Other comprehensive income (loss)
Comprehensive income (loss) consists of the following:
Three months ended
March 31,
Restated
--------
2002 2003
---- ----
Net income ................................. $9,076 $6,668
------ ------
Other comprehensive income:
Foreign currency
translation adjustment ................. 36 1,313
Cash flow hedging
(net of income taxes) .................. 480 393
------ ------
Comprehensive income ..................... $9,592 $8,374
====== ======
Accumulated other comprehensive income (loss) consists of the following:
Accumulated
Minimum Cumulative Cash Other
Pension Translation Flow Comprehensive
Liability Adjustments Hedges Income (loss)
--------- ----------- ------ -------------
Balance, December 31, 2002 ..... $(5,086) $(1,159) $(908) $(7,153)
Foreign currency translation
adjustments .............. -- 1,313 -- 1,313
Cash flow hedging (net of
income taxes) ............ -- -- 393 393
------- ------- ----- -------
Balance, March 31, 2003 ........ $(5,086) $ 154 $(515) $(5,447)
======= ======= ===== =======
Note 4 - Inventories
The components of inventory are as follows:
December 31, March 31,
Restated
--------
2002 2003
---- ----
Raw materials ...................... $ 44,701 $ 43,041
Work-in-process .................... 12,869 14,357
Finished goods ..................... 62,873 68,524
-------- --------
Total .................. $120,443 $125,922
======== ========
7
Note 5 - 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 (i.e., 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 31,
2002 2003
---- ----
Shares used in the calculation
of Basic EPS(weighted average
shares outstanding) ...................... 25,397 28,876
Effect of dilutive potential
securities ............................... 572 161
------ ------
Shares used in the calculation
of Diluted EPS ........................... 25,969 29,037
====== ======
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 351 and 2,395 for
the three months ended March 31, 2002 and 2003, respectively.
Note 6 - Business acquisitions
On January 13, 2003, we entered into an agreement to acquire the common stock of
Bionx Implants, Inc. (the "Bionx acquisition") in a cash transaction valuing
Bionx at $4.35 per share. We completed the acquisition on March 10, 2003, paying
$47.0 million in cash which we financed through borrowings under our revolving
credit facility. The results of Bionx's operations have been included in the
financial statements since that date.
Bionx develops and manufactures self-reinforced resorbable polymer implants
including screws, pins and meniscal implants for use in a variety of orthopedic
applications, including sports medicine and fracture fixation. In 2002, Bionx
recorded revenues of approximately $18.0 million. The acquired product lines are
expected to complement CONMED's existing orthopedic product lines.
Pro forma statements of income for the three months ended March 31, 2002 and
2003, assuming the Bionx acquisition occurred as of January 1, 2002 are
presented below. The pro forma net income and earnings per share for each period
presented exclude the $7.9 million write-off of purchased in-process research
and development assets discussed below.
Three months ended
March 31,
2002 2003
---- ----
Net sales .................... $ 117,971 $ 121,716
Net income ................... $ 8,731 $ 14,004
Basic EPS .................... $ .34 $ .48
Diluted EPS .................. .34 .48
8
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition based on a third-party
valuation. Goodwill and identifiable intangible assets associated with the Bionx
acquisition are not deductible for income tax purposes.
Restated
--------
Cash................................................. $ 517
Other current assets................................. 7,284
Property, plant and equipment........................ 2,459
In-process research and development.................. 7,900
Identifiable intangible assets....................... 15,700
Goodwill............................................. 22,351
-------
Total assets acquired................................ 56,211
-------
Current liabilities.................................. (3,120)
Deferred income taxes................................ (5,554)
Other long-term liabilities.......................... (521)
-------
Total liabilities assumed............................ (9,195)
-------
Net assets acquired.................................. $47,016
=======
Based on the third-party valuation, $7.9 million of the purchase price
represents the estimated fair value of projects that, as of the acquisition date
had not reached technological feasibility and had no alternative future use.
Accordingly, this amount of purchased in-process research and development assets
was written-off to other expense in accordance with FASB Interpretation No. 4,
"Applicability of FASB Statement No. 2 to Business Combinations Accounted for by
the Purchase Method". No benefit for income taxes has been recorded on the
write-off of purchased in-process research and development assets as these costs
are not deductible for income tax purposes.
The purchased in-process research and development value relates to next
generation sports medicine and orthopedic products, which are expected to be
released between the second quarter of 2003 and fourth quarter of 2004. The
acquired projects include enhancements and upgrades to existing device
technology, introduction of new device functionality and the development of new
materials technology for sports medicine and orthopedic applications.
The value of the in-process research and development was calculated using a
discounted cash flow analysis of the anticipated net cash flow stream associated
with the in-process technology of the related product sales. The estimated net
cash flows were discounted using a discount rate of 22%, which was based on the
weighted-average cost of capital for publicly-traded companies within the
medical device industry and adjusted for the stage of completion of each of the
in-process research and development projects. The risk and return considerations
surrounding the stage of completion were based on costs, man-hours and
complexity of the work completed versus to be completed and other risks
associated with achieving technological feasibility. In total, these projects
were approximately 40% complete as of the acquisition date. The total budgeted
costs for the projects were approximately $5.5 million and the remaining costs
to complete these projects were approximately $3.3 million as of the acquisition
date.
The major risks and uncertainties associated with the timely and successful
completion of these projects consist of the ability to confirm the safety and
efficacy of the technologies and products based on the data from clinical trials
and obtaining the necessary regulatory approvals. In addition, no assurance can
be given that the underlying assumptions used to forecast the cash flows or the
timely and successful completion of such projects will materialize, as
estimated. For these reasons, among others, actual results may vary
significantly from the estimated results.
9
Of the $15.7 million of acquired intangible assets, $.8 million were assigned to
registered trademarks and are not subject to amortization. The remaining $14.9
million of acquired intangible assets have a weighted average useful life of 20
years. The intangible assets that make up that amount include $9.0 million of
customer relationships (38 year weighted average useful life), $5.4 million of
core technology (12 year weighted average useful life) and $.5 million of
distributor relationships (7 year weighted average useful life).
During the quarter ended March 31, 2003, we paid additional purchase
consideration related to the December 31, 2002 acquisition of CORE Dynamics,
Inc. (the "CORE acquisition") of approximately $1.7 million which resulted in an
increase to goodwill and which had been contingent on the satisfactory execution
of the plan to transition manufacturing and distribution from CORE's
Jacksonville, Florida facility to our facilities in Utica, New York.
During the quarter ended March 31, 2003, we incurred approximately $1.7 million
in other acquisition expenses related primarily to the CORE and Bionx
acquisitions of which $1.3 million has been recorded in other expense and $.4
million has been recorded to cost of sales. The $1.3 million recorded to other
expense consists of various acquisition integration costs to wind down CORE
operations in Jacksonville, Florida and Bionx operations in Blue Bell,
Pennsylvania. The $.4 million recorded to cost of sales consists of the step-up
to fair value related to the sale of a portion of the inventory acquired as a
result of the CORE and Bionx acquisitions as well as certain training and
transition-related costs related to the transfer of CORE's manufacturing
operations.
Note 7 - Other expense (income)
Other expense (income) consists of the following:
Gain on settlement of a contractual dispute,
net of legal costs................................... ($9,000)
Acquisition-related costs..................................... 1,342
Loss on early extinguishments of debt......................... 166
-------
Other expense (income)............................... $(7,492)
=======
On March 10, 2003, we entered into an agreement with Bristol-Myers Squibb
Company ("BMS") and Zimmer, Inc., ("Zimmer") to settle a contractual dispute
related to the 1997 sale by BMS and its then subsidiary, Zimmer, of Linvatec
Corporation to CONMED Corporation. As a result of the agreement, BMS paid us
$9.5 million in cash, which has been recorded as a gain on settlement of a
contractual dispute net of $.5 million in legal costs.
During the quarter ended March 31, 2003, we incurred approximately $1.7 million
in costs related primarily to the CORE acquisition and the Bionx acquisition of
which $1.3 million has been recorded in other expense as discussed in Note 6 to
the consolidated condensed financial statements.
During the quarter ended March 31, 2003 we purchased $2.6 million of our 9%
senior subordinated notes and recorded expense of $.2 million in premium and
unamortized deferred financing costs to other expense related to this purchase.
10
Note 8 - Goodwill and other intangible assets
The changes in the net carrying amount of goodwill for the three months ended
March 31, 2003 are as follows:
Restated
--------
Balance as of January 1, 2003................................... $ 262,394
Goodwill acquired .............................................. 24,090
---------
Balance as of March 31, 2003.................................... $ 286,484
=========
Other intangible assets consist of the following:
December 31, 2002 March 31, 2003
----------------- --------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amortized intangible assets: Amount Amortization Amount Amortization
------ ------------ ------ ------------
Restated
--------
Customer relationships............................... $ 96,712 $(12,725) $ 105,712 $(13,362)
Patents and other intangible assets.................. 23,674 (13,534) 29,327 (13,990)
Unamortized intangible assets:
Trademarks and tradenames............................ 86,144 -- 86,944 --
-------- -------- -------- --------
$206,530 $(26,259) $221,983 $(27,352)
======== ======== ======== ========
Other intangible assets primarily represent allocations of purchase price to
identifiable intangible assets of acquired businesses. The weighted average
amortization period for intangible assets which are amortized is 22 years.
Customer relationships are being amortized over 38 years. Patents and other
intangible assets are being amortized over a weighted average life of 9 years.
The trademarks and tradenames intangible asset has been determined to have an
indefinite life and therefore is not amortized.
Amortization expense related to intangible assets which are subject to
amortization totaled $1,352 in the three months ended March 31, 2003 and $1,789
in the three months ended March 31, 2002 and is included in selling and
administrative expense on the consolidated condensed statement of income.
The estimated amortization expense for the year ending December 31, 2003 and for
each of the five succeeding years is as follows:
Restated
--------
2003 $5,978
2004 5,579
2005 4,776
2006 4,366
2007 4,143
2008 3,934
Note 9 -- Guarantees
We provide service and warranty policies on certain of our products at the time
of sale. Liability under service and warranty policies is based upon a review of
historical warranty and service claim experience. Adjustments are made to
accruals as claim data and historical experience warrant.
11
The changes in the carrying amount of service and product warranties for the
three months ended March 31, 2003 are as follows:
Balance as of January 1, 2003........................ $ 3,213
Provision for warranties............................. 1,211
Claims made.......................................... (1,100)
-------
Balance as of March 31, 2003 $ 3,324
=======
Note 10 - New Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
which updates, clarifies, and simplifies certain existing accounting
pronouncements beginning at various dates in 2002 and 2003. This Statement
rescinds SFAS 4 and SFAS 64, which required net gains or losses from the
extinguishment of debt to be classified as an extraordinary item in the income
statement. These gains and losses will now be classified as extraordinary only
if they meet the criteria for such classification as outlined in Accounting
Principles Board ("APB") Opinion 30, which allows for extraordinary treatment if
the item is material and both unusual and infrequent in nature. We adopted this
pronouncement during 2003. As a result we will reclassify the extraordinary loss
recognized in the third quarter of 2002 related to the refinancing of debt to
ordinary income in the 2003 annual and interim financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses financial accounting and
reporting for costs associated with exit or disposal activities. This Statement
supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit and Activity
(including Certain Costs Incurred in a Restructuring)." The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. This pronouncement has not
had an impact on our financial condition or results of operations during 2003.
In November 2002, FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" was issued. The interpretation provides guidance on the
guarantor's accounting and disclosure requirements for guarantees, including
indirect guarantees of indebtedness of others. We have adopted the disclosure
requirements of the interpretation as of December 31, 2002. The accounting
guidelines are applicable to guarantees issued after December 31, 2002 and
require that we record a liability for the fair value of such guarantees in the
balance sheet. FIN 45 has not had a material accounting impact on our financial
condition or results of operations during 2003.
In January 2003, FIN No. 46, "Consolidation of Variable Interest Entities" was
issued. The interpretation provides guidance on consolidating variable interest
entities and applies immediately to variable interests created after January 31,
2003. The guidelines of the interpretation will become applicable for us in our
third quarter 2003 financial statements for variable interest entities created
before February 1, 2003. The interpretation requires variable interest entities
to be consolidated if the equity investment at risk is not sufficient to permit
an entity to finance its activities without support from other parties or the
equity investors lack certain specified characteristics. We are reviewing FIN
No. 46 to determine its impact, if any, on future reporting periods, and do not
currently anticipate any material accounting or disclosure requirement under the
provisions of the interpretation.
In April 2003, FAS No. 149 "Amendment of Statement 133 on Derivative Instruments
and Hedging Activities" was issued. FAS No. 149 amends and clarifies financial
accounting
12
and reporting for derivative instruments embedded in other contracts and for
hedging activities under FAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". FAS No. 149 will be applicable for us in our third quarter
2003. We are reviewing FAS No. 149 to determine its impact, if any, on future
reporting periods, and do not currently anticipate any material accounting or
disclosure requirement under the provisions of the statement.
Note 11 - Guarantor financial statements
Our senior credit agreement and Senior Subordinated Notes (the "Notes") are
guaranteed (the "Subsidiary Guarantees") by each of our subsidiaries (the
"Subsidiary Guarantors") except CONMED Receivables Corporation (the
"Non-Guarantor Subsidiary"). The Subsidiary Guarantees provide that each
Subsidiary Guarantor will fully and unconditionally guarantee our obligations
under our senior credit agreement and the Notes on a joint and several basis.
Each Subsidiary Guarantor and Non-Guarantor Subsidiary is wholly-owned by CONMED
Corporation. The following supplemental financial information sets forth on a
condensed consolidating basis, condensed consolidating balance sheets,
statements of income and statements of cash flows for the Parent Company only,
Subsidiary Guarantors and Non-Guarantor Subsidiary and for the Company as of
December 31, 2002 and March 31, 2003 and for the three months ended March 31,
2002 and 2003.
13
CONMED CORPORATION
CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2002
(in thousands)
Parent Non-
Company Subsidiary Guarantor Company
Only Guarantors Subsidiary Eliminations Total
---- ---------- ---------- ------------ -----
ASSETS
Current assets:
Cash and cash equivalents ............... $ 3,824 $ 1,516 $ 286 $ -- $ 5,626
Accounts receivable, net ................ 746 13,397 43,950 -- 58,093
Inventories ............................. 25,829 94,614 -- -- 120,443
Deferred income taxes ................... 6,210 -- 94 -- 6,304
Prepaid expenses and other current assets 823 2,377 -- -- 3,200
--------- --------- ------- --------- ---------
Total current assets .............. 37,432 111,904 44,330 -- 193,666
--------- --------- ------- --------- ---------
Property, plant and equipment, net .......... 47,327 48,281 -- -- 95,608
Goodwill, net ............................... 96,393 166,001 -- -- 262,394
Other intangible assets, net ................ 3,565 176,706 -- -- 180,271
Other assets ................................ 498,111 2,406 -- (490,316) 10,201
--------- --------- ------- --------- ---------
Total assets ............................ $ 682,828 $ 505,298 $44,330 $(490,316) $ 742,140
========= ========= ======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ....... $ 1,284 $ 1,347 $ -- $ -- $ 2,631
Accounts payable ........................ 4,907 17,167 -- -- 22,074
Accrued compensation .................... 4,052 6,411 -- -- 10,463
Income taxes payable .................... 5,885 -- -- -- 5,885
Accrued interest ........................ 3,733 36 25 -- 3,794
Other current liabilities ............... 5,781 7,346 -- -- 13,127
--------- --------- ------- --------- ---------
Total current liabilities ........... 25,642 32,307 25 -- 57,974
--------- --------- ------- --------- ---------
Long-term debt .............................. 234,468 20,288 -- 254,756
Deferred income taxes ....................... 28,446 -- -- 28,446
Other long-term liabilities ................. 7,333 269,259 41,932 (304,499) 14,025
--------- --------- ------- --------- ---------
Total liabilities ....................... 295,889 321,854 41,957 (304,499) 355,201
--------- --------- ------- --------- ---------
Shareholders' equity:
Preferred stock ......................... -- -- -- -- --
Common stock ............................ 288 -- -- -- 288
Paid-in capital ......................... 231,832 -- 2,000 (2,000) 231,832
Retained earnings ....................... 162,391 184,603 373 (184,976) 162,391
Accumulated other comprehensive loss .... (7,153) (1,159) -- 1,159 (7,153)
Less common stock in treasury, at cost .. (419) -- -- -- (419)
--------- --------- ------- --------- ---------
Total shareholders' equity .......... 386,939 183,444 2,373 (185,817) 386,939
--------- --------- ------- --------- ---------
Total liabilities and shareholders' equity $ 682,828 $ 505,298 $44,330 $(490,316) $ 742,140
========= ========= ======= ========= =========
14
CONMED CORPORATION
CONSOLIDATING CONDENSED BALANCE SHEET
Restated March 31, 2003
(in thousands)(unaudited)
Parent Non-
Company Subsidiary Guarantor Company
Only Guarantors Subsidiary Eliminations Total
---- ---------- ---------- ------------ -----
ASSETS
Current assets:
Cash and cash equivalents ....... $ 4,174 $ 1,791 $ 285 $ -- $ 6,250
Accounts receivable, net ........ -- 16,607 43,650 -- 60,257
Inventories ..................... 27,073 98,849 -- -- 125,922
Deferred income taxes ........... 6,227 -- 94 -- 6,321
Prepaid expenses and other
current assets .............. 914 2,731 -- -- 3,645
--------- -------- ------- --------- ---------
Total current assets ...... 38,388 119,978 44,029 -- 202,395
--------- -------- ------- --------- ---------
Property, plant and equipment, net .. 47,375 50,028 -- -- 97,403
Goodwill, net ....................... 98,095 188,389 -- -- 286,484
Other intangible assets, net ........ 3,533 191,098 -- -- 194,631
Other assets ........................ 540,928 2,431 -- (533,382) 9,977
--------- -------- ------- --------- ---------
Total assets .................... $ 728,319 $551,924 $44,029 $(533,382) $ 790,890
========= ======== ======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,034 $ 1,353 $ -- $ -- $ 2,387
Accounts payable ................ 4,478 17,373 -- -- 21,851
Accrued compensation ............ 3,264 6,220 -- -- 9,484
Income taxes payable ............ 8,260 -- -- -- 8,260
Accrued interest ................ 797 236 25 -- 1,058
Other current liabilities ....... 4,848 10,184 -- -- 15,032
--------- -------- ------- --------- ---------
Total current liabilities ... 22,681 35,366 25 -- 58,072
--------- -------- ------- --------- ---------
Long-term debt ...................... 262,574 20,375 -- 282,949
Deferred income taxes ............... 38,426 -- -- 38,426
Other long-term liabilities ......... 7,542 313,087 41,613 (347,895) 14,347
--------- -------- ------- --------- ---------
Total liabilities ............... 331,223 368,828 41,638 (347,895) 393,794
--------- -------- ------- --------- ---------
Shareholders' equity:
Preferred stock ................. -- -- -- -- --
Common stock .................... 290 -- -- -- 290
Paid-in capital ................. 233,613 -- 2,000 (2,000) 233,613
Retained earnings ............... 169,059 182,942 391 (183,333) 169,059
Accumulated other comprehensive
income (loss) ............... (5,447) 154 -- (154) (5,447)
Less common stock in
treasury, at cost .............. (419) -- -- -- (419)
--------- -------- ------- --------- ---------
Total shareholders' equity .. 397,096 183,096 2,391 (185,487) 397,096
--------- -------- ------- --------- ---------
Total liabilities and
shareholders' equity ...... $ 728,319 $551,924 $44,029 $(533,382) $ 790,890
========= ======== ======= ========= =========
15
CONMED CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF INCOME
Three Months Ended March 31, 2002
(in thousands)
(unaudited)
Parent
Company Subsidiary Non-Guarantor Company
Only Guarantors Subsidiary Eliminations Total
---- ---------- ---------- ------------ -----
Net sales ..................... $26,299 $ 86,906 $ -- $ -- $113,205
Cost of sales ................. 14,003 40,101 -- -- 54,104
------- -------- ----- -------- --------
Gross profit .................. 12,296 46,805 -- -- 59,101
Selling and administrative .... 7,447 27,355 (334) -- 34,468
Research and development ...... 429 3,395 -- -- 3,824
------- -------- ----- -------- --------
7,876 30,750 (334) -- 38,292
------- -------- ----- -------- --------
Income from operations ........ 4,420 16,055 334 -- 20,809
Interest expense .............. -- 6,308 320 -- 6,628
------- -------- ----- -------- --------
Income before income taxes .... 4,420 9,747 14 -- 14,181
Provision for income taxes .... 1,591 3,509 5 -- 5,105
------- -------- ----- -------- --------
Income before equity in
earnings of unconsolidated
subsidiaries .............. 2,829 6,238 9 -- 9,076
Equity in earnings of
unconsolidated subsidiaries 6,247 -- -- (6,247) --
------- -------- ----- -------- --------
Net income .................... $ 9,076 $ 6,238 $ 9 $ (6,247) $ 9,076
======= ======== ===== ======== ========
16
CONMED CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF INCOME
Restated Three Months Ended March 31, 2003
(in thousands)
(unaudited)
Parent
Company Subsidiary Non-Guarantor Company
Only Guarantors Subsidiary Eliminations Total
---- ---------- ---------- ------------ -----
Net sales ..................... $ 29,135 $ 88,899 $ -- $ -- $ 118,034
Cost of sales ................. 16,058 40,320 -- -- 56,378
-------- -------- ----- ------- ---------
Gross profit .................. 13,077 48,579 -- -- 61,656
Selling and administrative .... 7,933 29,455 (243) -- 37,145
Research and development ...... 481 3,222 -- -- 3,703
Write-off of purchased
in-process research
and development assets ...... -- 7,900 -- -- 7,900
Other expense (income) ........ (8,324) 832 -- -- (7,492)
-------- -------- ----- ------- ---------
90 41,409 (243) -- 41,256
-------- -------- ----- ------- ---------
Income from operations ........ 12,987 7,170 243 -- 20,400
Interest expense .............. -- 5,322 216 -- 5,538
-------- -------- ----- ------- ---------
Income before income taxes .... 12,987 1,848 27 -- 14,862
Provision for income taxes .... 4,676 3,509 9 -- 8,194
-------- -------- ----- ------- ---------
Income (loss) before equity in
earnings of unconsolidated
subsidiaries .............. 8,311 (1,661) 18 -- 6,668
Equity in earnings (loss) of
unconsolidated subsidiaries (1,643) -- -- 1,643 --
-------- -------- ----- ------- ---------
Net income (loss) ............. $ 6,668 $ (1,661) $ 18 $ 1,643 $ 6,668
======== ======== ===== ======= =========
17
CONMED CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2002
(in thousands)
(unaudited)
Parent Non-
Company Subsidiary Guarantor Company
Only Guarantors Subsidiary Eliminations Total
---- ---------- ---------- ------------ -----
Net cash flows from operating
activities ........................ $ 2,761 $ 6,090 $ 3,500 $ -- $ 12,351
------- ------- ------- ------- --------
Cash flows from investing activities:
Distributions from subsidiaries ... 6,752 -- -- (6,752) --
Purchases of property, plant and
equipment ..................... (1,560) (1,648) -- -- (3,208)
------- ------- ------- ------- --------
Net cash provided (used)
by investing activities ... 5,192 (1,648) -- (6,752) (3,208)
------- ------- ------- ------- --------
Cash flows from financing:
Distributions to parent ........... -- (4,114) -- 4,114 --
Repayment on note payable to parent -- -- (2,638) 2,638 --
Net proceeds from exercise of
stock options ................... 1,985 -- -- -- 1,985
Payments on debt .................. (9,938) -- -- -- (9,938)
------- ------- ------- ------- --------
Net cash provided (used) by
financing activities ..... (7,953) (4,114) (2,638) 6,752 (7,953)
------- ------- ------- ------- --------
Effect of exchange rate changes on cash
and cash equivalents .............. -- 42 -- -- 42
------- ------- ------- ------- --------
Net increase (decrease) in cash and
cash equivalents .................. -- 370 862 -- 1,232
Cash and cash equivalents at
beginning of period ............... -- 1,181 221 -- 1,402
------- ------- ------- ------- --------
Cash and cash equivalents at
end of period ..................... $ -- $ 1,551 $ 1,083 $ -- $ 2,634
======= ======= ======= ======= ========
18
CONMED CORPORATION
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2003
(in thousands)
(unaudited)
Parent Non-
Company Subsidiary Guarantor Company
Only Guarantors Subsidiary Eliminations Total
---- ---------- ---------- ------------ -----
Net cash provided by operating activities $ 11,059 $ 9,101 $ 318 $ -- $ 20,478
-------- -------- ----- -------- --------
Cash flows from investing activities:
Distributions to subsidiaries ....... (36,881) -- -- 36,881 --
Payments related to business
acquisitions, net of cash acquired (1,678) (46,499) -- -- (48,177)
Purchases of property, plant and
equipment ....................... (907) (803) -- -- (1,710)
-------- -------- ----- -------- --------
Net cash provided (used)
by investing activities ..... (39,466) (47,302) -- 36,881 (49,887)
-------- -------- ----- -------- --------
Cash flows from financing:
Net distributions to parent ......... -- 37,200 -- (37,200) --
Borrowings on note payable to parent -- -- (319) 319 --
Net proceeds from exercise
of stock options ................... 808 -- -- -- 808
Payments on debt .................... (3,051) -- -- -- (3,051)
Proceeds of debt .................... 31,000 -- -- -- 31,000
-------- -------- ----- -------- --------
Net cash provided (used) by
financing activities ....... 28,757 37,200 (319) (36,881) 28,757
-------- -------- ----- -------- --------
Effect of exchange rate changes on cash
and cash equivalents ................ -- 1,276 -- -- 1,276
-------- -------- ----- -------- --------
Net increase (decrease) in cash
and cash equivalents .................. 350 275 (1) -- 624
Cash and cash equivalents
at beginning of period ................ 3,824 1,516 286 -- 5,626
-------- -------- ----- -------- --------
Cash and cash equivalents
at end of period ...................... $ 4,174 $ 1,791 $ 285 $ -- $ 6,250
======== ======== ===== ======== ========
19
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements Made in this Form 10-Q/A
In this Form 10-Q/A, we make forward-looking statements about our financial
condition, results of operations and business. Forward-looking statements are
statements made by us concerning events that may or may not occur in the future.
These statements may be made directly in this document or may be "incorporated
by reference" from other documents. You can find many of these statements by
looking for words like "believes," "expects," "anticipates," "estimates" or
similar expressions.
Forward-Looking Statements are not Guarantees of Future Performance
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, including those 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 those identified under "Risk
Factors" in our Annual Report on Form 10-K for the year-ended December 31, 2002
and the following, among others:
o general economic and business conditions;
o cyclical customer purchasing patterns due to budgetary and other
constraints;
o changes in customer preferences;
o competition;
o changes in technology;
o our ability to manufacture product consistently and in a timely manner,
especially those products involving delicate or complex manufacturing
processes;
o the introduction and acceptance of new products, including our
PowerPro(R)battery-powered instrument product line;
o the success of our distribution arrangement with DePuy Orthopaedics;
o the integration of any acquisition, including the Bionx acquisition;
o changes in business strategy;
o the possibility that United States or foreign regulatory and/or
administrative agencies might initiate enforcement actions against us or
our distributors;
o our indebtedness;
o quality of our management and business abilities and the judgment of our
personnel;
o the risk of litigation, especially patent litigation as well as the cost
associated with patent and other litigation;
o changes in regulatory requirements; and
o the availability, terms and deployment of capital.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" below and "Business" in our Annual Report on Form 10-K for the
year-ended December 31, 2002 for a further discussion of these factors. 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
20
these forward-looking statements to reflect events or circumstances after the
date of this Form 10-Q/A or to reflect the occurrence of unanticipated events.
Restatement
The purpose of the restatement described below is to reflect in our consolidated
condensed financial statements for the quarter ended March 31, 2003, the
purchase price allocation of our March 10, 2003 acquisition of Bionx Implants,
Inc. (the "Bionx acquisition"). The purchase price allocation was arrived at
with the assistance of a third party valuation. The impact of the restatement on
the consolidated condensed statement of income for the quarter ended March 31,
2003, is to recognize expense of $7.9 million to write-off the purchased
in-process research and development assets acquired as a result of the Bionx
acquisition. No benefit for income taxes has been recorded on the write-off of
the purchased in-process research and development assets as these costs are not
deductible for income tax purposes.
A summary of the impact of the restatement on the consolidated condensed
statement of income for the three months ended March 31, 2003 is as follows:
As
Previously As
Reported Adjustment Restated
Consolidated Condensed Statement of Income Data
For the Quarter Ended March 31, 2003:
Write-off of purchased in-process
research and development assets ............. $ -- $ 7,900 $ 7,900
Income from operations ........................ 28,300 (7,900) 20,400
Income before income taxes .................... 22,762 (7,900) 14,862
Net income .................................... $14,568 $(7,900) $ 6,668
Net income per share:
Basic ................................ $ .50 $ (.27) $ .23
Diluted .............................. .50 (.27) .23
The impact of the restatement on the consolidated condensed balance sheets,
apart from the in-process research and development write-off, is the
reclassification of a portion of the purchase price from goodwill to inventory,
property, plant and equipment and other intangible assets as shown above. We
have also recognized a deferred income tax liability based on the difference
between the financial statement and tax basis of assets and liabilities acquired
as a result of the Bionx acquisition. A summary of the impact of the restatement
on the consolidated condensed balance sheet at March 31, 2003 is as follows:
21
As
Previously As
Reported Adjustment Restated
-------- ---------- --------
Consolidated Condensed Balance Sheet Data
As of March 31, 2003:
Inventories ............................. $125,721 $ 201 $125,922
Property, plant and equipment, net ...... 96,326 1,077 97,403
Goodwill ................................ 304,530 (18,046) 286,484
Other intangible assets, net ............ 180,209 14,422 194,631
Total assets ............................ $793,236 (2,346) $790,890
Deferred income taxes ................... $ 32,872 $ 5,554 $ 38,426
Total liabilities ....................... $388,240 $ 5,554 $393,794
Retained earnings ....................... $176,959 $ (7,900) $169,059
Total shareholders' equity .............. $404,996 $ (7,900) $397,096
The impact of the restatement on the consolidated condensed statement of cash
flows is to reduce net income by the $7.9 million write-off of the purchased
in-process research and development assets and increase non-cash expense related
to the write-off by $7.9 million. The restatement had no effect on net cash
provided by operating activities for the three months ended March 31, 2003. A
summary of the impact of the restatement on the consolidated condensed statement
of cash flows for the three months ended March 31, 2003 is as follows:
As
Previously As
Reported Adjustment Restated
-------- ---------- --------
Consolidated Condensed Statement of Cash Flows
Data as of March 31, 2003:
Net income ................................... $14,568 $(7,900) $ 6,668
Write-off of purchased in-process
research and development assets ............ -- 7,900 7,900
Net cash provided by operating activities .... $20,478 $ -- $20,478
The Bionx acquisition and the related purchased in-process research and
development write-off are described more fully in Note 6 to the consolidated
condensed financial statements.
Critical Accounting Estimates
Preparation of our financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Note 1 to the consolidated financial statements in our Annual
Report on Form 10K for the year-ended December 31, 2002 describes the
significant accounting policies used in preparation of the consolidated
financial statements. The most significant areas involving management judgments
and estimates are described below and are considered by management to be
critical to understanding the financial condition and results of operations of
CONMED Corporation.
22
Revenue Recognition
We recognize revenue upon shipment of product and passage of title to our
customers. Factors considered in our revenue recognition policy are as follows:
o Sales to customers are evidenced by firm purchase orders. Title and
the risks and rewards of ownership are transferred to the customer
when product is shipped.
o Payment by the customer is due under fixed payment terms. Even when
the sale is to a distributor, payment to us is not contractually or
implicitly delayed until the product is resold by the distributor.
o We place certain of our capital equipment with customers in return
for commitments to purchase disposable products over time periods
generally ranging from one to three years. In these circumstances,
no revenue is recognized upon capital shipment and we recognize
revenue upon the disposable product shipment.
o Product returns are only accepted at the discretion of the Company
and in keeping with our "Returned Goods Policy". Product returns
have not been significant historically. We accrue for sales returns,
rebates and allowances based upon analysis of historical data.
o The terms of the Company's sales to customers do not involve any
obligations for the Company to perform future services. Limited
warranties are generally provided for capital equipment sales and
provisions for warranty are provided at the time of product
shipment.
o Amounts billed to customers related to shipping and handling are
included in net sales. Shipping and handling costs are included in
selling and administrative expense.
o We sell to a diversified base of customers around the world and,
therefore, believe there is no material concentration of credit
risk.
o We assess the risk of loss on accounts receivable and adjust the
allowance for doubtful accounts based on this risk assessment.
Historically, losses on accounts receivable have not been material.
Management believes the allowance for doubtful accounts of $1.0
million at March 31, 2003 is adequate to provide for any probable
losses from accounts receivable.
Business Acquisitions
We completed the Bionx acquisition in 2003 with a purchase price of $47.0
million and have a history of growth through acquisitions. The assets and
liabilities of acquired businesses are recorded under the purchase method at
their estimated fair values at the dates of acquisition. Goodwill represents
costs in excess of fair values assigned to the underlying net assets of acquired
businesses. Other intangible assets primarily represent allocations of purchase
price to identifiable intangible assets of acquired businesses. We have
accumulated goodwill of $286.5 million and other intangible assets of $194.6
million at March 31, 2003.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," ("SFAS 142"), goodwill and intangible
assets deemed to have indefinite lives are not amortized, but are subject to
annual impairment testing. The identification and measurement of goodwill
impairment involves the estimation of the fair value of our business. The
estimates of fair value are based on the best information available as of the
date of the assessment, which primarily incorporate management assumptions about
expected future cash flows and contemplate
23
other valuation techniques. Future cash flows can be affected by changes in
industry or market conditions or the rate and extent to which anticipated
synergies or cost savings are realized with newly acquired entities. Intangible
assets with a finite life are amortized over the estimated useful life of the
asset. Intangible assets which continue to be subject to amortization are also
evaluated on an annual basis to determine whether events and circumstances
warrant a revision to the remaining period of amortization. An intangible asset
is determined to be impaired when estimated future cash flows indicate the
carrying amount of the asset may not be recoverable. Although no goodwill or
other intangible asset impairment has been recorded to date, there can be no
assurances that future impairment will not occur.
In connection with the Bionx acquisition, significant estimates were made in the
valuation of the purchased in-process research and development assets. The
aggregate purchased in-process research and development value relates to next
generation sports medicine and orthopedic products, which are expected to be
released between the second quarter of 2003 and fourth quarter of 2004. The
acquired projects include enhancements and upgrades to existing device
technology, introduction of new device functionality and the development of new
materials technology for sports medicine and orthopedic applications.
The value of the in-process research and development was calculated using a
discounted cash flow analysis of the anticipated net cash flow stream associated
with the in-process technology of the related product sales. The estimated net
cash flows were discounted using a discount rate of 22%, which was based on the
weighted-average cost of capital for publicly-traded companies within the
medical device industry and adjusted for the stage of completion of each of the
in-process research and development projects. The risk and return considerations
surrounding the stage of completion were based on costs, man-hours and
complexity of the work completed versus to be completed and other risks
associated with achieving technological feasibility. In total, these projects
were approximately 40% complete as of the acquisition date. The total budgeted
costs for the projects were approximately $5.5 million and the remaining costs
to complete these projects were approximately $3.3 million as of the acquisition
date.
The major risks and uncertainties associated with the timely and successful
completion of these projects consist of the ability to confirm the safety and
efficacy of the technologies and products based on the data from clinical trials
and obtaining the necessary regulatory approvals. In addition, no assurance can
be given that the underlying assumptions used to forecast the cash flows or the
timely and successful completion of such projects will materialize, as
estimated. For these reasons, among others, actual results may vary
significantly from the estimated results.
Pension Plans
We sponsor defined benefit pension plans for the Company and its subsidiaries.
Major assumptions used in the accounting for these plans include the discount
rate, expected return on plan assets and rate of increase in employee
compensation levels. Assumptions are determined based on Company data and
appropriate market indicators, and are evaluated each year as of the plans'
measurement date. A change in any of these assumptions would have an effect on
net periodic pension costs reported in the consolidated financial statements.
Lower market interest rates and plan asset returns have resulted in declines in
pension plan asset performance and funded status and higher pension expense. The
discount rate used in determining pension expense in 2003 is 6.75%.
Income Taxes
The recorded future tax benefit arising from net deductible temporary
differences and tax carryforwards is approximately $11.0 million at March 31,
2003. Management believes that our earnings during the periods when the
temporary differences become deductible will be sufficient to realize the
related future income tax benefits.
24
In assessing the need for a valuation allowance, we estimate future
taxable income, considering the feasibility of ongoing tax planning strategies
and the realizability of tax loss carryforwards. Valuation allowances related to
deferred tax assets can be impacted by changes to tax laws, changes to statutory
tax rates and future taxable income levels. In the event we were to determine
that we would not be able to realize all or a portion of our deferred tax assets
in the future, we would reduce such amounts through a charge to income in the
period that such determination was made.
Results of Operations
Three months ended March 31, 2003 compared to three months ended March 31, 2002
The following table presents, as a percentage of net sales, certain categories
included in our unaudited consolidated statements of income for the periods
indicated:
Three Months Ended
March 31,
2002 2003
------- -------
(unaudited)
Net sales.............................................................. 100.0% 100.0%
Cost of sales.......................................................... 47.8 47.8
------- -------
Gross profit...................................................... 52.2 52.2
Selling and administrative............................................. 30.4 31.5
Research and development............................................... 3.4 3.1
In-process R & D write-off............................................. -- 6.7
Other expense (income)................................................. -- (6.4)
------- -------
Income from operations............................................ 18.4 17.3
Interest expense....................................................... 5.9 4.8
------- -------
Income before income taxes........................................ 12.5 12.5
Provision for income taxes............................................. 4.5 6.9
------- -------
Net income........................................................ 8.0% 5.6%
======= =======
Sales for the quarter ended March 31, 2003 were $118.0 million, an increase of
4.2% compared to sales of $113.2 million in the same quarter a year ago.
Favorable changes in foreign currency exchange rates accounted for 2.2% of our
sales growth.
o Sales in our orthopedic businesses increased 4.3% to $72.7 million
from $69.7 million in the comparable quarter last year.
o Arthroscopy sales, which represented approximately 57.4% of total
first quarter 2003 orthopedic revenues, grew 1.0% to $41.7 million
from $41.3 million in the same period a year ago as sales of imaging
systems improved while sales of procedure specific and fluid
management products were slightly less than the same period a year
ago.
o Powered surgical instrument sales, which represented approximately
42.6% of orthopedic revenues, increased 9.2% to $31.0 million from
$28.4 million in the same quarter last year on the strength of our
PowerPro(R) battery powered instrument product line.
o Patient care sales for the three months ended March 31, 2003 were
$17.3 million, flat when compared to the same period a year ago as
increases in sales of our automatic defibrillator pad and certain
other products were offset by decreases in the suction instrument
product lines.
25
o Electrosurgery sales for the three months ended March 31, 2003 were
$16.8 million, flat when compared to the first quarter of last year,
as declines in sales of electrosurgical generators offset gains in
sales of disposables when compared with the same period a year ago.
o Sales of endoscopy products increased 13.8% to $10.7 million in the
three months ended March 31, 2003 from $9.4 million in the same
period a year ago as a result of the CORE acquisition.
Cost of sales increased to $56.4 million in the first quarter 2003 as compared
to $54.1 million in the same quarter a year ago, primarily as a result of the
increased sales volumes described above while gross margin percentage remained
at 52.2% in the first quarter of 2003, the same as in the first quarter of 2002.
Included in cost of sales during the quarter ended March 31, 2003 were
approximately $.4 million in acquisition-related costs.
Selling and administrative expense increased to $37.1 million in the first
quarter of 2003 as compared to $34.5 million in the first quarter of 2002. As a
percentage of sales, selling and administrative expense totaled 31.5% in the
first quarter of 2003 compared to 30.4% in the first quarter of 2002. The
increase in selling and administrative expense as a percentage of sales is due
principally to increased marketing costs associated with recently launched
product lines including the integrated operating room systems product lines,
PowerPro(R), and new electrosurgical generators.
Research and development expense decreased to $3.7 million in the first quarter
of 2003 as compared to $3.8 million in the first quarter of 2002. As a
percentage of sales, research and development expense also decreased to 3.1% in
the current quarter compared to 3.4% in the same quarter a year ago but remains
within the range of our historical percentages.
As discussed in Note 6 to the consolidated condensed financial statements, we
wrote off purchased in-process research and development assets in connection
with the Bionx acquisition of $7.9 million in the first quarter of 2003.
As discussed in Note 7 to the consolidated condensed financial statements, other
expense (income) is comprised of a net gain on settlement of a contractual
dispute of $9.0 million offset by other acquisition-related costs of $1.3
million and the loss of $.2 million on the early extinguishment of debt. There
was no other expense (income) in the comparable quarter in 2002.
Interest expense in the first quarter of 2003 was $5.5 million compared to $6.6
million in the first quarter of 2002. The decrease in interest expense is
primarily a result of lower total borrowings outstanding during the current
quarter as compared to the same period a year ago, as borrowings have declined
to $285.3 million at March 31, 2003 as compared to $326.0 million at March 31,
2002. Additionally, the weighted average interest rates on our borrowings has
declined to 5.91% at March 31, 2003 as compared to 6.25% at March 31, 2002.
Provision for income taxes has been recorded at an effective rate of 55% for the
first quarter 2003 and 36% for the first quarter 2002. The effective rate of 55%
for the first quarter 2003 is substantially higher than the 36% which we have
experienced historically as a result of the non-deductibility for income tax
purposes of the $7.9 million in-process research and development write-off
recorded in the first quarter 2003 in conjunction with the Bionx acquisition. A
reconciliation of the United States statutory income tax rate of 35% to our
historical effective tax rate of 36% (excluding the effect of the in-process
research and development write-off) is included in Note 7 to the Company's
financial statements for the year ended December 31, 2002 included in our Annual
Report to the Securities and Exchange Commission on Form 10-K.
26
Liquidity and Capital Resources
Cash generated from our operations and borrowings under our revolving credit
facility have traditionally provided the working capital for our operations,
debt service under our credit facility and the funding of our capital
expenditures. In addition, we have used term borrowings, including:
o borrowings under our senior credit agreement;
o Senior Subordinated Notes issued to refinance borrowings under our
senior credit agreement, in the case of the acquisition of Linvatec
Corporation in 1997;
o borrowings under separate loan facilities, in the case of real
property acquisitions, to finance our acquisitions.
The senior credit agreement consists of a $100 million term loan and a $100
million revolving credit facility of which $99.5 million and $36.0 million,
respectively, was outstanding at March 31, 2003. The weighted average interest
rates at March 31, 2003 on the term loan and revolving credit facility were
4.09% and 5.75%, respectively.
The Senior Subordinated Notes (the "Notes") are in aggregate principal amount
outstanding at March 31, 2003, of $127.4 million, have a maturity date of March
15, 2008 and bear interest at 9.0% per annum which is payable semi-annually. The
Notes are redeemable for cash at anytime on or after March 15, 2003, at our
option, in whole or in part, at the redemption prices set forth therein, plus
accrued and unpaid interest to the date of redemption. During the quarter ended
March 31, 2003, we purchased $2.6 million of our Notes at 104.5% and recorded
expense of $.2 million in premium and unamortized deferred financing costs as
discussed in Note 7 to the consolidated condensed financial statements. On March
12, 2003, we served notice to the trustee for the Notes that we would redeem
$15.0 million par value of the Notes, on May 1, 2003, at the redemption price of
104.5%, for a total redemption price of $15.7 million, plus accrued and unpaid
interest. We redeemed those Notes on May 1, 2003 through borrowings under our
revolving credit facility. The premium paid on the Notes will be recorded as a
charge to operating income in the second quarter of 2003. Although the
outstanding Notes do not mature until 2008, we continue to review alternatives
for redeeming the remaining outstanding Notes, including the addition of a term
loan tranche under the senior credit agreement to redeem all outstanding Notes
at the applicable redemption price.
We used term loans to purchase the property in Largo, Florida utilized by our
Linvatec subsidiary. The term loans consist of a Class A note bearing interest
at 7.50%, a Class C note bearing interest at 8.25% and a seller-financed note
bearing interest at 6.50%. The principal balances outstanding on the Class A
note, Class C note and seller-financed note aggregate $10.7 million, $7.1
million and $3.9 million, respectively, at March 31, 2003. These loans are
secured by our Largo, Florida property.
We have a five-year accounts receivable sales agreement pursuant to which we and
certain of our subsidiaries sell on an ongoing basis certain accounts receivable
to CONMED Receivables Corporation, a wholly-owned special-purpose subsidiary of
CONMED Corporation. CRC may in turn sell up to an aggregate $50.0 million
undivided percentage ownership interest in such receivables to a commercial
paper conduit (the "conduit purchaser"). As of December 31, 2002 and March 31,
2003, the undivided percentage ownership interest in receivables sold by CRC to
the conduit purchaser aggregated $37.0 million, which has been accounted for as
a sale and reflected in the balance sheet as a reduction in accounts receivable.
Our net working capital position was $144.3 million at March 31, 2003. Net cash
provided by operations increased to $20.5 million in the three months ended
March 31,
27
2003 compared to $12.4 million for the same period a year ago, principally as a
result of the $9.0 million gain on the settlement of a contractual dispute
discussed in Note 7 to the consolidated financial statements.
Net cash provided by operations in the first quarter of 2003 was positively
impacted by depreciation, amortization, the non-cash write-off of purchased
in-process research and development and increases in income taxes payable and
deferred income taxes and negatively impacted primarily by increases in
inventory and decreases in accounts payable, accrued compensation and accrued
interest. The increase in inventory is a result of the Bionx acquisition
discussed in Note 6 to the consolidated condensed financial statements. The
increases in income taxes payable and deferred income taxes and decreases in
accounts payable, accrued compensation and accrued interest are primarily
related to the timing of the payment of these liabilities.
Capital expenditures in the three months ended March 31, 2003 were $1.7 million
compared to $3.2 million in the same period a year ago. These capital
expenditures represent the ongoing capital investment requirements of our
business and are expected to continue at the rate of approximately $12.0 to
$14.0 million annually. Net cash used by investing activities in the three
months ended March 31, 2003 also included $48.2 million in payments related to
business acquisitions, net of cash acquired, of which $46.5 million related to
the Bionx acquisition and the remainder related to the CORE acquisition as
discussed in Note 6 to the consolidated condensed financial statements.
Financing activities in the three months ended March 31, 2003 consisted of
payments on our debt of $3.1 million and borrowings on our revolving credit
facility of $31.0 million in order to finance the Bionx acquisition. Proceeds
from the exercise of stock options in the three months ended March 31, 2003
totaled $.8 million.
Management believes that cash generated from operations, our current cash
resources and funds available under our new senior credit agreement will provide
sufficient liquidity to ensure continued working capital for operations, debt
service and funding of capital expenditures in the foreseeable future.
Contractual Obligations
There were no capital lease obligations or unconditional purchase obligations as
of March 31, 2003. The following table summarizes our contractual obligations
related to operating leases and long-term debt as of March 31, 2003:
(Amounts in thousands)
2003 2004 2005 2006 2007 Thereafter
---- ---- ---- ---- ---- ----------
Long-term debt............. $ 2,072 $ 2,554 $ 2,741 $ 2,943 $133,914 $141,112
Operating lease
obligations.............. 1,783 1,589 1,310 1,238 1,259 3,173
------- ------- ------- ------- -------- --------
Total contractual
cash obligations......... $ 3,855 $ 4,143 $ 4,051 $ 4,182 $135,174 $144,285
======= ======= ======= ======= ======== ========
28
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no significant change in our exposures to market risk during the
three months ended March 31, 2003. For a detailed discussion of market risk, see
our Annual Report on Form 10K for the year-ended December 31, 2002, Part II,
Item 7A, Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of these disclosure
controls and procedures were effective. No significant changes were made in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, provided, however, that, as
a result of the required restatement, procedures have been implemented to ensure
in the future, a preliminary allocation of purchase price will be made in the
quarter in which the applicable acquisition is made.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K
On April 29, 2003, the Company filed a Report on Form 8-K furnishing as Exhibit
99.1 under Item 7, an April 24, 2003 press release announcing first quarter
results.
On May 1, 2003, the Company filed a Report on Form 8-K under Item 5, a
supplement to the discussion under Liquidity and Capital Resources included in
our Form 10-K for the year-ended December 31, 2002.
29
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: August 11, 2003
/s/ Robert D. Shallish, Jr.
---------------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial Officer)
30
Exhibit Index
Sequential Page
Exhibit Number
- ------- ------
31.1 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 E-1
31.2 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 E-2
32.1 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 E-3
31
Exhibit 31.1
CERTIFICATION
I, Eugene R. Corasanti, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of CONMED
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
August 11, 2003
/s/ Eugene R. Corasanti
-----------------------
Eugene R. Corasanti
Chairman and Chief Executive Officer
E-1
Exhibit 31.2
CERTIFICATION
I, Robert D. Shallish, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of CONMED
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
August 11, 2003
/s/ Robert D. Shallish Jr.
--------------------------
Robert D. Shallish, Jr.
Vice President - Finance and
Chief Financial Officer
E-2
Exhibit 32.1
Section 1350 Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of section 1350, chapter 63 of title 18, United States Code), each of
the undersigned officers of CONMED Corporation, a New York corporation (the
"Corporation"), does hereby certify that:
The Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2003
(the "Form 10-Q/A") of the Corporation fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information
contained in the Form 10-Q/A fairly presents, in all material respects, the
financial condition and results of operations of the Corporation.
Date: August 11, 2003 /s/ Eugene R. Corasanti
-----------------------
Eugene R. Corasanti
Chairman and Chief Executive Officer
Date: August 11, 2003 /s/ Robert D. Shallish, Jr.
--------------------------
Robert D. Shallish, Jr.
Vice President-Finance and Chief Financial Officer
The foregoing certification is being furnished as an exhibit to the Form 10-Q/A
pursuant to Item 601(b)(32) of Regulation S-K and section 906 of the
Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63
of title 18, United States Code) and, accordingly, is not being filed as part of
the Form 10-Q/A.
E-3