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, 1995. 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
April 4, 1995 is 7,127,254 shares.
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART I FINANCIAL INFORMATION
Item Number
Item 1. Financial Statements
- Consolidated Statements of Income
- Consolidated Balance Sheets
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
Item 1.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(thousands except per share amounts)
(unaudited)
For the three months ended
--------------------------
April 1, March 31,
1994 1995
--------- ---------
Net sales .................................................. $ 17,838 $ 19,753
--------- ---------
Cost and expenses:
Cost of sales ............................................ 10,004 10,725
Selling and administrative ............................... 5,398 5,338
Research and development ................................. 525 664
--------- ---------
Total operating expenses........................... 15,927 16,727
--------- ---------
Income from operations ..................................... 1,911 3,026
Interest income (expense), net ............................. (147) (194)
--------- ---------
Income before taxes ........................................ 1,764 2,832
Provision for income taxes ................................. 617 992
--------- ---------
Net income ................................................. $ 1,147 $ 1,840
========= =========
Weighted average common shares and equivalents ............. 6,305 6,922
========= =========
Earnings per share ......................................... $ .18 $ .27
========= =========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
ASSETS
December 30, March 31,
1994 1995
--------- ---------
(unaudited)
Current assets:
Cash and cash equivalents ................................ $ 3,615 $ 955
Accounts receivable, net ................................. 13,141 18,115
Inventories (Note 4) ..................................... 9,620 16,241
Deferred income taxes .................................... 1,494 1,494
Prepaid expenses and other current assets ................ 451 579
--------- ---------
Total current assets .............................. 28,321 37,384
Property, plant and equipment, net ......................... 16,227 17,706
Covenant not to compete .................................... 1,530 1,486
Goodwill ................................................... 13,109 40,077
Patents, trademarks, and other assets ...................... 2,917 5,760
--------- ---------
Total assets ...................................... $ 62,104 $ 102,413
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........................ $ 2,500 $ 3,000
Accounts payable ......................................... 1,539 3,080
Income taxes payable ..................................... 455 1,351
Accrued payroll and withholdings ......................... 2,571 2,994
Accrued pension .......................................... 307 446
Accrued patent litigation ................................ 2,360 2,359
Other current liabilities ................................ 430 2,932
--------- ---------
Total current liabilities.......................... 10,162 16,162
Long-term debt ............................................. 6,875 17,000
Deferred income taxes ...................................... 1,011 1,011
Accrued pension ............................................ 276 276
Long term leases ........................................... -- 3,871
Other long-term liabilities ................................ -- 685
Deferred compensation ...................................... 719 755
--------- ---------
Total liabilities .................................... 19,043 39,760
--------- ---------
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands except share amounts)
December 30, March 31,
1994 1995
--------- ---------
(unaudited)
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized 500,000 shares; none outstanding ....... -- --
Common stock, par value $.01 per share;
20,000,000 authorized; 6,039,414 and
7,127,254 issued and outstanding
in 1994 and 1995, respectively ....................... 60 71
Paid-in capital .......................................... 23,532 41,273
Retained earnings ........................................ 19,469 21,309
--------- ---------
43,061 62,653
--------- ---------
Total liabilities and shareholders' equity ........ $ 62,104 $ 102,413
========= =========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the three months ended
--------------------------
April 1, March 31,
1994 1995
-------- --------
Cash flows from operating activities:
Net income ............................................ $ 1,147 $ 1,840
-------- --------
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ................................... 721 641
Amortization ................................... 371 300
Increase (decrease) in cash flows
from changes in assets and liabilities,
net of effects from acquisitions
Accounts receivable ................... (749) (299)
Inventories ........................... (212) (923)
Prepaid expenses and other assets ..... 98 (448)
Accounts payable ...................... 677 346
Income tax payable .................... 470 896
Accrued payroll and withholdings ...... 636 (472)
Accrued pension ....................... (57) 139
Accrued patent litigation costs ....... (63) (1)
Other current liabilities ............. (101) 379
Deferred income taxes/other liabilities 28 129
-------- --------
1,819 687
-------- --------
Net cash provided by operations ................ 2,966 2,527
-------- --------
Cash flows from investing activities:
Cash used to liquidate liabilities
associated with the Birtcher acquisition ............ -- (8,282)
Acquisition of property, plant, and equipment ......... (670) (1,684)
-------- --------
Net cash provided (used) by
investing activities ......................... (670) (9,966)
-------- --------
Cash flows from financing activities:
Proceeds of long term debt ............................ -- 11,250
Payments on long-term debt ............................ (1,250) (6,471)
-------- --------
Net cash provided (used) by
financing activities ......................... (1,250) 4,779
-------- --------
Net increase (decrease) in cash
and cash equivalents .................................. 1,046 (2,660)
Cash and cash equivalents at beginning of year .......... 1,978 3,615
-------- --------
Cash and cash equivalents at end of period .............. $ 3,024 $ 955
======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Consolidation
The consolidated financial statements include the accounts of CONMED
Corporation (the Company), and its subsidiaries. The Company is primarily
engaged in the development, manufacturing and marketing of disposable medical
products and related devices. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Note 2 - Interim financial information
The statements for the three months ended April 1, 1994 and March 31,
1995 are unaudited; in the opinion of the Company such unaudited statements
include all adjustments (which comprise only normal recurring accruals)
necessary for a fair presentation of the results for such periods. The
consolidated financial statements for the year ending December 29, 1995 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
April 1, 1994 and March 31, 1995 are not necessarily indicative of the results
of operations to be expected for any other quarter nor for the year ending
December 29, 1995. The consolidated financial statements and notes thereto
should be read in conjunction with the financial statements and notes for the
years ended December 31, 1993 and December 30, 1994 included in the Company's
Annual Report filed with the Securities and Exchange Commission on Form 10-K.
Note 3 - Earnings per share
Earnings per share was computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the quarter. Common stock equivalents consisting of stock
options and warrants totalled 287,000 and 682,000 for the quarters ended April
1, 1994 and March 31, 1995, respectively.
Note 4 - Inventories
The components of inventory are as follows (in thousands):
December 30, March 31,
1994 1995
-------- --------
Raw materials ....................... $ 4,154 $ 7,273
Work-in-process ..................... 1,851 1,417
Finished goods ...................... 3,615 7,551
-------- --------
$ 9,620 $ 16,241
======== ========
Note 5 - Acquisition
On March 14, 1995, the Company acquired certain assets and the business
of Birtcher Medical Systems for approximately 1,080,000 shares of CONMED common
stock valued at $17,750,000 and the assumption of net liabilities totaling
approximately $9,300,000. Accordingly, the results of operations of the acquired
business are included in the consolidated results of the Company from the date
of acquisition. The transaction was accounted for using the purchase method of
accounting. Goodwill is being amortized over a 40 year period while other
intangible assets are being amortized over periods ranging from five to ten
years. The allocation of the purchase price for this acquisition is based on
management's preliminary estimates; it is possible that re-allocations will be
required during the next twelve months as additional information becomes
available. Management does not believe that such re-allocation will have a
material effect on the Company's results of operations or financial position.
On an unaudited pro forma basis, assuming the purchase had occurred as of the
beginning of the period, the consolidated results of the Company would have been
as follows: (in thousands, except per share amounts):
For the Quarter For the Quarter
Ended April 1, 1994 Ended March 31, 1995
-------------------- --------------------
Pro forma revenues $24,538 $24,614
======= =======
Pro forma net income $ 495 $ 2,349
======= =======
Pro forma earnings per
common, and common
equivalent share $ .07 $ .30
======= =======
Note 6 - Stock Split
On November 22, 1994, the Board of Directors of the Company declared a
three-for-two split of the Company's common stock, to be effected in the form of
a stock dividend, payable on December 27, 1994 to shareholders of record on
December 8, 1994. Accordingly, common stock, retained earnings, earnings per
share, the number of shares outstanding, and the weighted average number of
shares and equivalents outstanding, have been restated to retroactively reflect
the split.
Note 7 - Legal Matters
The Company has been informed that the appellate court considering the
Company's appeal of a lower court's $2,100,000 award to a competitor in a
previously disclosed patent infringement matter has been affirmed. Adequate
provision for the damage award was made in 1993. The Company believes that
accounting reserves for this matter are adequate and that no additional charge
to expense is required. The Company continues to review its options with respect
to this situation.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three months ended March 31, 1995 compared to three months ended April 1, 1994
Sales for the quarter ended March 31, 1995 were $19,753,000, an
increase of 10.7% compared to sales of $17,838,000 in the quarter ended April 1,
1994. A significant portion of this sales increase results from the effects of
the Birtcher Medical acquisition in March 1995.
Cost of sales also increased to $10,725,000 in the current quarter
compared to the $10,004,000 in the same quarter a year ago as a result of
increased sales volume. The gross margin percentage increased to 45.7% from
43.9%. The increase in gross margins is a result of increasing economies of
scale and manufacturing efficiencies. During the later part of 1994, the Company
consolidated its ECG wire and plastic molding operations in one location which
reduced manufacturing expense as a percentage of sales.
Selling and administrative costs decreased to $5,338,000 compared to
$5,398,000 in the first quarter of 1994. This decrease in selling and
administrative costs is a result of a covenant not to compete relative to Aspen
becoming fully amortized in late 1994 with no required amortization in 1995.
Additionally, marketing expense in the first quarter of 1994 was higher than the
first quarter of 1995 due to costs associated with the launch of a new product.
The Company anticipates that selling and administrative costs will increase in
future quarters as the impact of the Birtcher acquisition in March 1995 is
incorporated in the Company's consolidated financial statements for a full
quarterly period. As a percentage of sales, however, management believes that
selling and administrative expense will continue to decline due to sales
productivity and economies of scale. In the first quarter of 1995, selling and
administrative expense costs declined to 27.0% from 30.2% in the comparable
period of 1994.
Research and development expense increased to $664,000 for the first
quarter of 1995 compared to $525,000 during the same period last year. Efforts
to develop products for the less invasive surgery marketplace are contributing
to the increased expenditures.
The first quarter of 1995 had interest expense of $194,000 compared to
interest expense of $147,000 in the first quarter of 1994. The interest expense
results from the increasing interest rates together with increased amounts of
debt outstanding due to the Birtcher acquisition.
The provision for income tax increased in 1995 due to the higher income
before tax. The Company's estimated effective income tax rate is 35.0%.
Liquidity and Capital Resources
Cash flows generated or used by operating, investing, and financing
activities for the first quarters of 1994 and 1995 are disclosed in the
consolidated Statements of Cash Flows. Cash flows from operations were
$2,966,000 for the first three months of 1994 and $2,527,000 for the first three
months of 1995. Operating cash flows for the first quarter of 1995 were aided by
higher net income compared to the same period in 1994. Depreciation and
amortization in 1995 were somewhat reduced from 1994 amounts due to assets
related to the Aspen laboratories acquisition in 1989 becoming fully depreciated
and amortized in late 1994. This reduction in depreciation and amortization was
somewhat offset due to the effects of including Birtcher for approximately two
weeks in the first quarter of 1995 subsequent to its acquisition. First quarter
1995 cash flows from operations were negatively impacted by increases in
accounts receivable, inventories and prepaid expenses and other assets. Payment
of accrued payroll items also reduced cash flow. Adding to cash flows from
operations were increases in accounts payable, income tax payable, accrued
pension and other liabilities.
Net cash used by investing activities was $9,966,000 in the first
quarter of 1995 compared to $670,000 in the first quarter of 1994. Cash
amounting to $8,282,000 was used to liquidate liabilities assumed in the
Birtcher acquisition including employee severance costs, legal settlements,
accounts payable and cash acquisition costs. Additions to property, plant and
equipment for the first quarter of 1995 totalled $1,684,000. Included in this
amount was the purchase of land and building in Rome, New York amounting to
$1,200,000 which will be used by the Company for manufacturing expansion.
Cash flows from financing activities were $4,779,000 in the first three
months of 1995. The Company refinanced its existing bank debt, as described
below, and received $11,250,000 in additional proceeds. Loan payments included
$625,000 on the Company's debt and $5,846,000 to Birtcher's bank to liquidate
debt assumed in the acquisition.
Management believes that cash generated from operations, its current
cash resources, and funds available under its banking agreement will provide
sufficient liquidity to ensure continued working capital for operations and
funding of capital expenditures in the foreseeable future. Should the Company be
required to pay the $2,100,000 patent infringement damage award, cash is
available from operations and from the Company's revolving credit facility.
The Company's credit facility consists of a $30,000,000 secured term
loan and secured revolving line of credit of $10,000,000. As of March 31, 1995,
$20,000,000 was outstanding under the term loan with no borrowings outstanding
on the revolving line of credit.
The term loan is payable over five years at an interest rate of 1.625%
over LIBOR. The revolving line of credit terminates on April 1, 1998 and carries
an interest rate of 1.5% over LIBOR.
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits - None
Reports on Form 8-K
Form 8-K dated March 28, 1995 was filed explaining the consummation of the
Birtcher acquisition on March 14, 1995.
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 12, 1995
/s/ Robert D. Shallish Jr.
-------------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial and
Accounting Officer)
5
1,000
3-MOS
DEC-31-1995
MAR-31-1995
955
0
18,488
373
16,241
37,384
30,496
12,790
102,413
16,162
0
71
0
0
62,582
102,413
19,753
19,753
10,725
16,727
0
304
19432
2,832
992
0
0
0
0
1,840
.27
0
