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 September 29, 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
October 23, 1995 is 7,397,191 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
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
For the For the
three months ended nine months ended
-------------------- --------------------
Sept. 30, Sept. 29, Sept. 30, Sept. 29,
1994 1995 1994 1995
-------- -------- -------- --------
Net sales ...................... $ 17,264 $ 26,258 $ 52,649 $ 71,886
-------- -------- -------- --------
Cost and expenses:
Cost of sales ................ 9,300 13,737 28,902 37,960
Selling and administrative ... 5,106 6,586 15,775 18,703
Research and development ..... 591 781 1,693 2,115
-------- -------- -------- --------
Total operating expenses ... 14,997 21,104 46,370 58,778
-------- -------- -------- --------
Income from operations ......... 2,267 5,154 6,279 13,108
Interest income (expense),net .. (179) (741) (484) (1,436)
-------- -------- -------- --------
Income before taxes ............ 2,088 4,413 5,795 11,672
Provision for income taxes ..... 731 1,524 2,028 4,125
-------- -------- -------- --------
Net income ..................... $ 1,357 $ 2,889 $ 3,767 $ 7,547
======== ======== ======== ========
Weighted common shares and
equivalents .................. 6,398 8,112 6,333 7,597
======== ======== ======== ========
Earnings per share ............. $ .21 $ .36 $ .59 $ .99
======== ======== ======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
ASSETS
December 30, Sept. 29,
1994 1995
--------- ---------
(unaudited)
Current assets:
Cash and cash equivalents ............................. $ 3,615 $ 1,602
Accounts receivable, net .............................. 13,141 21,752
Inventories (Note 4) .................................. 9,620 20,490
Deferred income tax assets ............................ 1,494 712
Prepaid expenses and other current assets ............. 451 790
--------- ---------
Total current assets ........................... 28,321 45,346
Property, plant and equipment, net ...................... 16,227 19,325
Covenant not to compete ................................. 1,530 1,263
Goodwill ................................................ 13,109 46,700
Patents, trademarks, and other assets ................... 2,917 5,512
--------- ---------
Total assets ...................................... $ 62,104 $ 118,146
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..................... $ 2,500 $ 6,000
Accounts payable ...................................... 1,539 2,473
Income taxes payable .................................. 455 621
Accrued payroll and withholdings ...................... 2,571 2,822
Accrued pension ....................................... 307 162
Accrued patent litigation ............................. 2,360 --
Other current liabilities ............................. 430 1,037
--------- ---------
Total current liabilities ......................... 10,162 13,115
Long-term debt .......................................... 6,875 27,840
Deferred income taxes ................................... 1,011 1,011
Accrued pension ......................................... 276 276
Long term leases ........................................ -- 3,125
Other long-term liabilities ............................. -- 729
Deferred compensation ................................... 719 826
--------- ---------
Total liabilities .............................. 19,043 46,922
--------- ---------
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
(Continued)
December 30, Sept. 29,
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; 6,038,214 and
7,397,191 issued and outstanding,
in 1994 and 1995, respectively .................... 60 74
Paid-in capital ....................................... 23,532 44,134
Retained earnings ..................................... 19,469 27,016
--------- ---------
Total equity ...................................... 43,061 71,224
--------- ---------
Total liabilities and shareholders' equity ........ $ 62,104 $ 118,146
========= =========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the nine months ended
Sept. 30, Sept. 29,
1994 1995
-------- --------
Cash flows from operating activities:
Net income ...................................... $ 3,767 $ 7,547
-------- --------
Adjustments to reconcile net income
to net cash provided (used)by operations:
Depreciation ................................ 1,805 1,895
Amortization ................................ 1,111 1,454
Increase (decrease) in cash flows
from changes in assets and liabilities
Accounts receivable ................... (904) (3,046)
Inventories ........................... (785) (4,953)
Prepaid expenses and other assets ..... (130) (339)
Accounts payable ...................... 239 (1,004)
Income tax payable .................... 198 (833)
Income tax benefit of stock
option exercises ........... -- 989
Accrued payroll and withholdings ...... 1,228 (97)
Accrued pension ....................... (5) (145)
Accrued patent litigation costs ....... (177) (2,360)
Other current liabilities ............. (459) (371)
Other assets/liabilities (net) ........ (107) 1,040
-------- --------
2,014 (7,770)
Net cash provided (used) by operations ....... 5,781 (223)
-------- --------
Cash flows from investing activities:
Business acquisitions ........................... -- (9,500)
Acquisition of property, plant, and equipment ... (1,334) (3,805)
-------- --------
Net cash used by
investing activities ...................... (1,334) (13,305)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net ..... 25 1,931
Proceeds of long and short term debt ............ -- 26,590
Payments on debt and other obligations .......... (1,905) (17,006)
-------- --------
Net cash provided (used) by
financing activities ...................... (1,880) 11,515
-------- --------
Net increase (decrease) in cash
and cash equivalents ............................ 2,567 (2,013)
Cash and cash equivalents at beginning of year .... 1,978 3,615
-------- --------
Cash and cash equivalents at end of period ........ $ 4,545 $ 1,602
======== ========
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 nine months ended September 30, 1994 and
September 29, 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 nine months
ended September 30, 1994 and September 29, 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 totaled 378,000 and 316,000 for the three and nine months,
respectively, ended September 30, 1994 and 829,000 and 707,000 for the three and
nine months, respectively, ended September 29, 1995.
Note 4 - Inventories
The components of inventory are as follows:
December 30, September 29,
1994 1995
------- --------
Raw materials..... $ 4,154 $ 3,987
Work-in-process... 1,851 7,821
Finished goods.... 3,615 8,682
------- --------
Total.... $ 9,620 $ 20,490
======= ========
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 is 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
re-allocations 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 Three For the Nine Months Ended
Months Ended Sept. 30, Sept.29,
Sept. 30, 1994 1994 1995
-------------- -------- -------
Pro forma revenues ................. $ 26,250 $ 79,520 $80,753
======== ======== =======
Pro forma net income ............... $ 2,354 $ 4,698 $ 8,456
======== ======== =======
Pro forma earnings per
common and common
equivalent share ................... $ .32 $ .65 $ 1.03
======== ======== =======
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
paid the award in the second quarter of 1995.
Note 8 - Subsequent Events
In October 1995, the Company signed an asset purchase agreement whereby
the Company will acquire the business and certain assets of New Dimensions in
Medicine, Inc. (NDM) for a cash purchase price of $32 million. The transaction
is subject to standard governmental approvals and the approval of the
shareholders of NDM.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three months ended September 29, 1995 compared to
three months ended September 30, 1994
Sales for the quarter ended September 29, 1995 were $26,258,000, an
increase of 52.1% compared to sales of $17,264,000 in the quarter ended
September 30, 1994. The increase is primarily a result of sales volume gains
resulting from the Birtcher and Master Medical acquisitions.
Cost of sales increased to $13,737,000 in the current quarter compared to
$9,300,000 in the same quarter a year ago as a result of increased sales volume.
The gross margin percentage increased to 47.7% from 46.1%. This increase is
substantially a result of increased sales volume generating manufacturing
efficiencies.
Selling and administrative expenses increased to $6,586,000 compared to
$5,106,000 in the third quarter of 1994. This increase results from the effects
of the acquisitions. As a percentage of sales, however, selling and
administrative expense declined to 25.1% from 29.6% 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 $781,000 in the third quarter of 1995
compared to $591,000 in the third quarter of 1994. This increase is primarily a
result of growth in the Company's research activities in its surgical product
lines.
The third quarter of 1995 had interest expense of $741,000 compared to
interest expense of $179,000 in the third 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.
Nine months ended September 29, 1995 compared to
nine months ended September 30, 1994
The Company recorded net sales of $71,886,000 for the nine months ended
September 29, 1995 compared to $52,649,000 for the nine months ended September
30, 1994, an increase of 36.5%. The increase is substantially a result of the
effects of the acquisitions.
The Company's gross margin was 47.2% for the nine months of 1995 compared
to 45.1% for the nine months ended September 1994. The increase in gross margin
is a result of economies of scale due to the acquisitions.
Selling and administrative costs have increased during the first nine
months of 1995 when compared with the first nine months of 1994 due to the
effects of the acquisitions. However, as percentage of sales, selling and
administrative expense declined to 26.0% from 30.0% in the prior comparable
period due to economies of scale resulting from acquisitions.
The Company incurred $1,436,000 in interest expense in the first nine
months of 1995 compared to $484,000 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 35.3% in the
first nine months of 1995 and 35.0% in the first nine months of 1994.
Liquidity and Capital Resources
Cash flows generated or used by operating, investing, and financing
activities for the first nine months of 1995 and 1994 are disclosed in the
consolidated Statements of Cash Flows. Cash used by operations was $223,000 for
the first nine months of 1995 while cash provided by operations was $5,781,000
for the first nine months of 1994. Operating cash flows for the first nine
months 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. Cash
flows from operations for the first nine months of 1995 were negatively impacted
by increases in accounts receivable, inventories and prepaid expenses and other
assets. Payment of accounts payable, the patent litigation award and other
current liabilities also reduced cash flow. To a large degree, cash flows
related to accounts receivable and inventories represent cash requirements
related to the integration of Birtcher and Master Medical acquisitions into the
Company's operations.
Net cash used by investing activities was $13,305,000 in the first nine
months of 1995 compared to $1,334,000 in the first nine months of 1994. Business
acquisitions utilized $9,500,000 of cash. Additions to property, plant and
equipment for the first nine months of 1995 totaled $3,805,000. Included in this
amount was the purchase of land and building in Rome, New York amounting to
$1,200,000 which has been used by the Company for manufacturing expansion.
Cash flows provided by financing activities were $11,515,000 for the first
nine 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 $2,871,000 on the Company's debt, $5,846,000 to
Birtcher's bank to liquidate debt assumed in the acquisition and $8,289,000 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 September 29, 1995,
$28,500,000 was outstanding under the term loan and $5,340,000 on the revolving
line of credit. The existing 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.
In order to meet cash requirements of the proposed acquisition
discussed in Note 8 of Item 1, the Company has obtained a commitment from
existing lenders to increase its aggregate credit facility to $80,000,000.
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits - None
Reports on Form 8-K
Form 8-K dated October 19, 1995 was filed disclosing a press release relative
to the agreement with a third party to acquire a business and certain assets.
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: October 30, 1995
/s/ Robert D. Shallish Jr.
-------------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial and
Accounting Officer)
5
1,000
9-MOS
DEC-30-1995
SEP-29-1995
1,602
0
22,184
432
20,490
45,346
33,369
14,044
118,146
13,115
30,965
74
0
0
71,150
118,146
71,886
71,886
37,960
58,778
0
0
1,436
11,672
4,125
7,547
0
0
0
7,547
.99
0
