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 June 30, 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
July 20, 1995 is 7,190,254 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
Signature
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(thousands except per share amounts)
(unaudited)
For the three months ended For the six months ended
-------------------------- -------------------------
July 1, June 30, July 1, June 30,
1994 1995 1994 1995
-------- -------- -------- --------
Net sales .................... $ 17,547 $ 25,875 $ 35,385 $ 45,628
-------- -------- -------- --------
Cost and expenses:
Cost of sales .............. 9,598 13,498 19,602 24,223
Selling and administrative . 5,271 6,779 10,669 12,117
Research and development ... 577 670 1,102 1,334
-------- -------- -------- --------
Total operating expenses . 15,446 20,947 31,373 37,674
-------- -------- -------- --------
Income from operations ....... 2,101 4,928 4,012 7,954
Interest income (expense), net (158) (501) (305) (695)
-------- -------- -------- --------
Income before taxes .......... 1,943 4,427 3,707 7,259
Provision for income taxes ... 680 1,609 1,297 2,601
-------- -------- -------- --------
Net income ................... $ 1,263 $ 2,818 $ 2,410 $ 4,658
======== ======== ======== ========
Weighted average common shares
and equivalents ............ 6,293 7,877 6,299 7,400
======== ======== ======== ========
Earnings per share ........... $ .20 $ .36 $ .38 $ .63
======== ======== ======== ========
See Notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
December 30, June 30,
1994 1995
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 3,615 $ 2,286
Accounts receivable, net ............................. 13,141 19,749
Inventories (Note 4) ................................. 9,620 19,598
Deferred income tax assets ........................... 1,494 712
Prepaid expenses and other current assets ............ 451 752
--------- ---------
Total current assets .......................... 28,321 43,097
Property, plant and equipment, net ..................... 16,227 19,040
Covenant not to compete ................................ 1,530 1,373
Goodwill ............................................... 13,109 47,058
Patents, trademarks, and other assets .................. 2,917 5,610
--------- ---------
Total assets .................................. $ 62,104 $ 116,178
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................... $ 2,500 $ 6,000
Accounts payable ..................................... 1,539 3,103
Income taxes payable ................................. 455 98
Accrued payroll and withholdings ..................... 2,571 2,569
Accrued pension ...................................... 307 598
Accrued patent litigation (Note 7) ................... 2,360 --
Other current liabilities ............................ 430 1,619
--------- ---------
Total current liabilities ..................... 10,162 13,987
Long-term debt ......................................... 6,875 29,340
Deferred income tax liabilities ........................ 1,011 1,011
Accrued pension ........................................ 276 276
Long term leases ....................................... -- 3,871
Other long-term liabilities ............................ -- 685
Deferred compensation .................................. 719 790
--------- ---------
Total liabilities ............................. 19,043 49,960
--------- ---------
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands except share amounts)
December 30, June 30,
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
7,190,254 issued and outstanding
in 1994 and 1995, respectively ................... 60 71
Paid-in capital ...................................... 23,532 42,020
Retained earnings .................................... 19,469 24,127
--------- ---------
Total equity .................................. 43,061 66,218
--------- ---------
Total liabilities and shareholders' equity .... $ 62,104 $ 116,178
========= =========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the six months ended
-------------------------
July 1, June 30,
1994 1995
-------- --------
Cash flows from operations:
Net income ..................................... $ 2,410 $ 4,658
-------- --------
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ............................ 1,222 1,359
Amortization ............................ 732 895
Increase (decrease) in cash flows
from changes in assets and liabilities
Accounts receivable ............ (885) (1,043)
Inventories .................... (669) (4,061)
Prepaid expenses and other
current asset ............... (125) (301)
Accounts payable ............... 349 (374)
Income tax payable ............. (37) 633
Accrued payroll and withholdings 690 (350)
Accrued pension ................ (58) 291
Accrued patent litigation costs (140) (2,360)
Other current liabilities ...... (213) 681
Deferred income taxes,other
assets and liabilities (net) (42) 484
-------- --------
824 (4,146)
-------- --------
Net cash provided by operations ......... 3,234 512
-------- --------
Cash flows from investing activities:
Business acquisitions .......................... -- (10,451)
Acquisition of property, plant, and equipment .. (1,003) (2,984)
-------- --------
Net cash provided (used) by
investing activities .................. (1,003) (13,435)
-------- --------
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
(unaudited)
For the six months ended
-------------------------
July 1, June 30,
1994 1995
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net .... -- 765
Proceeds of long and short term debt ........... -- 26,590
Payments on debt and other obligations ......... (1,875) (15,761)
-------- --------
Net cash provided (used) by
financing activities ................... (1,875) 11,594
-------- --------
Net increase (decrease) in cash
and cash equivalents ........................... 356 (1,329)
Cash and cash equivalents at beginning of year ... 1,978 3,615
-------- --------
Cash and cash equivalents at end of period ....... $ 2,334 $ 2,286
======== ========
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 and six months ended July 1, 1994 and June
30, 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 and six months
ended July 1, 1994 and June 30, 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 to the Securities and Exchange Commission on Form 10-K.
Note 3 - Earnings per share
Earnings per share was computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the quarter. Common stock equivalents consisting of stock
options and warrants totalled 183,000 and 187,000 for the three and six months,
respectively, ended July 1, 1994 and 699,000 and 691,000 for the three and six
months, respectively, ended June 30, 1995.
Note 4 - Inventories
The components of inventory are as follows (in thousands):
December 30, June 30,
1994 1995
-------- --------
Raw materials .......................... $ 4,154 $ 5,332
Work-in-process ........................ 1,851 6,485
Finished goods ......................... 3,615 7,781
-------- --------
Total ......................... $ 9,620 $ 19,598
======== ========
Note 5 - Acquisitions
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.
On May 22, 1995, the Company acquired the business and certain assets
and liabilities of The Master Medical Corporation for a cash purchase price of
approximately $9,500,000. The acquisition was accounted for using the purchase
method of accounting. Goodwill and other intangible assets are being amortized
over a 15 year period.
The allocation of the purchase prices for these acquisitions is based
on management's preliminary estimates; it is possible that re-allocations will
be required during the twelve month periods following the acquisitions as
additional information becomes available. Management does not believe that such
reallocations will have a material effect on the Company's results of operations
or financial position.
On an unaudited pro forma basis, assuming the purchases 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 Three Months Ended For the Six Months Ended
-------------------------- ------------------------
July 1, June 30, July 1, June 30,
1994 1995 1994 1995
-------- -------- -------- -------
Pro forma revenues ... $ 26,668 $ 26,877 $ 53,270 $53,495
======== ======== ======== =======
Pro forma net income . $ 1,582 $ 2,951 $ 2,344 $ 5,567
======== ======== ======== =======
Pro forma earnings per
common and common
equivalent share .... $ .22 $ .38 $ .33 $ .72
======== ======== ======== =======
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, earnings per share 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 plus accrued interest 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
has paid the award in the quarter ended June 1995.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three months ended June 30, 1995 compared to three months ended July 1, 1994
Sales for the quarter ended June 30, 1995 were $25,875,000, an increase
of 47.5% compared to sales of $17,547,000 in the quarter ended July 1, 1994. The
increase is a result of sales volume gains resulting from the Birtcher and
Master Medical acquisitions.
Cost of sales also increased to $13,498,000 in the current quarter
compared to the $9,598,000 in the same quarter a year ago as a result of
increased sales volume. The gross margin percentage increased to 47.8% from
45.3%. This increase is substantially a result of increased sales volume
generating manufacturing efficiencies.
Selling and administrative expenses increased to $6,779,000 compared to
$5,271,000 in the second quarter of 1994. This increase results from the effects
of the acquisitions. As a percentage of sales, however, selling and
administrative expense declined to 26.2% from 30.0% in the comparable period of
1994. This decrease results from economies of scale and the elimination of
duplicate administrative and selling costs from the acquired businesses.
Research and development expense was $670,000 in the second quarter of
1995 compared to $577,000 in the second quarter of 1994. This increase is
primarily a result of growth in the Company's research activities in its
surgical product lines.
The second quarter of 1995 had interest expense of $501,000 compared to
interest expense of $158,000 in the second quarter of 1994. The interest
increase results from the debt incurred as a result of the 1995 acquisitions.
The provision for income tax increased in 1995 due to the higher income
before tax. The Company's estimated effective income tax rate was 36.3% in the
second quarter of 1995 compared to 35.0% in the second quarter of 1994.
Six months ended June 30, 1995 compared to six months ended July 1, 1994
The Company recorded net sales of $45,628,000 for the six months ended
June 1995, compared to $35,385,000 for the six months ended July 1, 1994, an
increase of 28.9%. The increase is substantially a result of the effects of the
acquisitions.
The Company's gross margin was 46.9% for the first six months of 1995
compared to 44.6% for the first six months of 1994. The increase in gross margin
is a result of economies of scale due to the acquisitions.
Selling and administrative costs have increased comparing the first six
months of 1995 with the first six months of 1994 due to the effects of the
acquisitions. However, as percentage of sales, selling and administrative
expense declined to 26.6% from 30.2% in the prior comparable period due to
economies of scale resulting from acquisitions.
The Company incurred $695,000 in interest expense in the first six
months of 1995 compared to $305,000 in 1994. This change is a result of the
effects of the debt incurred as a result of the 1995 acquisitions.
The estimated effective income tax rates were approximately 35.8% in
the first six months of 1995 and 35.0% in the first six months of 1994.
Liquidity and Capital Resources
Cash flows generated or used by operating, investing, and financing
activities for the first six months of 1994 and 1995 are disclosed in the
consolidated Statements of Cash Flows. Cash flows from operations were $512,000
for the first six months of 1995 and $3,234,000 for the first six months of
1994. Operating cash flows for the first half of 1995 were aided by higher net
income compared to the same period in 1994. Depreciation and amortization in
1995 were increased due to the effects of including Birtcher and Master Medical
subsequent to their acquisitions. First half 1995 cash flows from operations
were negatively impacted by increases in accounts receivable, inventories and
prepaid expenses and other assets. Payment of accounts payable, accrued payroll
and the patent litigation award 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 $13,435,000 in the first half
of 1995 compared to $1,003,000 in the first half of 1994. Business acquisitions
utilized $10,451,000 of cash. Additions to property, plant and equipment for the
first half of 1995 totalled $2,984,000. 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 $11,594,000 in the first six
months of 1995. The Company refinanced its existing bank debt, as described
below, and received $26,590,000 in additional proceeds. Payments on debt and
other obligations included $625,000 on the Company's debt, $5,846,000 to
Birtcher's bank to liquidate debt assumed in the acquisition and $9,290,000 of
other Birtcher liabilities.
Management believes that cash generated from operations, its current
cash resources, and funds available under its banking agreement will provide
sufficient liquidity to ensure continued working capital for operations and
funding of capital expenditures in the foreseeable future.
The Company's credit facility consists of a $30,000,000 secured term
loan and secured revolving line of credit of $10,000,000. As of June 30, 1995,
$30,000,000 was outstanding under the term loan and $5,340,000 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-KA dated May 29, 1995 was filed providing pro forma financial information
concerning the Birtcher acquisition.
Form 8-K dated June 5, 1995 was filed explaining the Master Medical acquisition
on May 22, 1995.
Form 8-KA dated August 2, 1995 was filed providing pro forma financial
information concerning the Master Medical acquisition.
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 10, 1995
/s/ Robert D. Shallish Jr.
-------------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial and
Accounting Officer)
5
1,000
6-MOS
DEC-31-1995
JUN-30-1995
2,286
0
20,122
373
19,598
43,097
32,548
13,508
116,178
13,987
0
71
0
0
66,147
116,178
45,628
45,628
24,223
37,674
0
0
695
7,259
2,601
0
0
0
0
4,658
.63
0
