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 28, 1996 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, 1996 is 14,937,676 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
(thousands except per share amounts)
(unaudited)
For the three months ended For the six months ended
-------------------------- ------------------------
June 30, June 28, June 30, June 28,
1995 1996 1995 1996
-------- -------- -------- --------
Net Sales ........................ $ 25,875 $ 31,790 $ 45,628 $ 60,990
-------- -------- -------- --------
Cost and expenses:
Cost of Sales ................ 13,498 16,505 24,223 31,672
Selling and administrative ... 6,779 8,140 12,117 15,696
Research and development ..... 670 694 1,334 1,377
-------- -------- -------- --------
Total operating expenses ..... 20,947 25,339 37,674 48,745
Income from operations ....... 4,928 6,451 7,954 12,245
Interest income (expense), net (501) 150 (695) (532)
-------- -------- -------- --------
Income before taxes .......... 4,427 6,601 7,259 11,713
Provision for income taxes ... 1,609 2,377 2,601 4,217
-------- -------- -------- --------
Net Income ................... $ 2,818 $ 4,224 $ 4,658 $ 7,496
======== ======== ======== ========
Weighted average common shares
and equivalents ........... 11,816 15,229 11,100 13,805
======== ======== ======== ========
Earnings per share ........... $ 0.24 $ 0.28 $ 0.42 $ 0.54
======== ======== ======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
December 29, June 28,
1995 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 1,539 $ 8,348
Accounts receivable, net ........................... 22,649 25,506
Income taxes receivable ............................ 961 --
Inventories (Note 4) ............................... 20,943 24,384
Deferred income taxes .............................. 2,678 2,678
Prepaid expenses and other current assets .......... 476 1,215
-------- --------
Total current assets ............................ 49,246 62,131
Property, plant and equipment, net ..................... 19,728 29,335
Deferred income taxes .................................. 2,907 2,907
Covenant not to compete ................................ 1,153 933
Goodwill ............................................... 41,438 61,383
Patents, trademarks, and other assets .................. 4,931 5,780
-------- --------
Total assets .................................. $119,403 $162,469
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................. $ 6,000 $ --
Accounts payable ................................... 2,351 2,458
Income taxes payable ............................... -- 884
Accrued payroll and withholdings ................... 2,282 1,546
Accrued pension .................................... 274 597
Other current liabilities .......................... 989 1,757
-------- --------
Total current liabilities ..................... 11,896 7,242
Long-term debt ......................................... 26,340 --
Accrued pension ........................................ 276 276
Deferred compensation .................................. 868 937
Long-term leases ....................................... 3,521 3,199
Other long-term liabilities ............................ 1,500 1,491
-------- --------
44,401 13,145
-------- --------
(Continued)
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS -- Continued
(in thousands except share amounts)
December 29, June 28,
1995 1996
-------- --------
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; 11,000,105 and
14,933,353 issued and outstanding in
1995 and 1996, respectively .................... 110 150
Paid-in capital .................................... 44,560 111,346
Retained earnings .................................. 30,332 37,828
-------- --------
75,002 149,324
-------- --------
Total liabilities and shareholders' equity .... $119,403 $162,469
======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(unaudited)
For the six months ended
------------------------
June 30, June 28,
1995 1996
-------- --------
Cash flows from operating activities:
Net income ........................................... $ 4,658 $ 7,496
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation .................................... 1,359 1,809
Amortization .................................... 895 1,432
Increase (decrease) in cash flows
from changes in assets and liabilities:
Accounts receivable ........................ (1,043) (283)
Inventories ................................ (4,061) (1,376)
Prepaid expenses and other current asset ... (301) (585)
Other assets ............................... 538 (1,277)
Accounts payable ........................... (374) 107
Income tax payable ......................... 633 1,845
Income tax benefit of stock option exercises 1,032
Accrued payroll and withholdings ........... (350) (736)
Accrued pension ............................ 291 323
Accrued patent litigation costs ............ (2,360)
Other current liabilities .................. 681 (2,465)
Other liabilities .......................... (54) (232)
-------- --------
(4,146) (406)
-------- --------
Net cash provided by operations ................. 512 7,090
-------- --------
Cash flows from investing activities:
Business acquisitions ................................ (10,451) (31,172)
Acquisition of property, plant, and equipment ........ (2,984) (2,232)
-------- --------
Net cash used by investing activities ........... (13,435) (33,404)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net .......... 765 65,794
Proceeds of long and short term debt ................. 26,590 32,660
Payments on debt and other obligations ............... (15,761) (65,331)
-------- --------
Net cash provided by financing activities ........ 11,594 33,123
-------- --------
Net increase (decrease) in cash
and cash equivalents ................................. (1,329) 6,809
Cash and cash equivalents at beginning of period ......... 3,615 1,539
-------- --------
Cash and cash equivalents at end of period ............... $ 2,286 $ 8,348
======== ========
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 June 30, 1995 and
June 28, 1996 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 27, 1996 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 June 30, 1995 and June 28, 1996 are not necessarily indicative of the
results of operations to be expected for any other quarter nor for the year
ending December 27, 1996. The consolidated financial statements and notes
thereto should be read in conjunction with the financial statements and notes
for the years ended December 30, 1994 and December 29, 1995 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.
Note 4 - Inventories
The components of inventory are as follows (in thousands):
December 29, June 28,
1995 1996
------- -------
Raw materials............... $ 7,209 $ 7,760
Work-in-process............ 5,680 7,887
Finished goods.............. 8,054 8,737
------- -------
Total................. $20,943 $24,384
======= =======
Note 5 - Business acquisitions
On March 14, 1995, the Company acquired Birtcher Medical Systems, Inc.
("Birtcher") through an exchange of the Company's common stock for all of the
outstanding common and preferred stock of Birtcher. In connection with this
transaction, the Company issued 1,590,000 shares of common stock valued at
$17,750,000 and assumed approximately $3,500,000 of net liabilities. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired business are included in
the consolidated results of the Company from the date of acquisition. Goodwill
associated with the acquisition is being amortized on a straight-line basis over
a 40 year period.
On May 19, 1995, the Company acquired the business and certain assets
of the Master Medical Corporation ("Master Medical") for a cash purchase price
of approximately $9,500,000 and assumption of $500,000 of liabilities. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired business are included in
the consolidated results of the Company from the date of acquisition. Goodwill
associated with the acquisition is being amortized on a straight-line basis over
a 15 year period.
On February 23, 1996, the Company acquired the business and certain
assets of New Dimensions in Medicine, Inc. ("NDM") for a cash purchase price of
approximately $31.2 million and the assumption of $2.7 million of liabilities.
The acquisition is being accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired business are included in
the consolidated results of the Company from the date of acquisition. Goodwill
associated with the acquisition is being amortized on a straight line basis over
a 40 year period. 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-allocations will have a
material effect on the Company's results of operations or financial position.
On an unaudited pro forma basis, assuming each of the acquisitions had
occurred as of the beginning of the periods, the consolidated results of the
Company would have been as follows (in thousands, except per share amounts):
For the Three For the Six Months Ended
Months Ended ------------------------
June 28, June 30, June 28,
1996 1995 1996
-------- -------- -------
Pro forma net sales ................ $ 32,188 $ 64,342 $63,490
======== ======== =======
Pro forma net income ............... $ 3,317 $ 6,532 $ 7,717
======== ======== =======
Pro forma earnings per
common, and common
equivalent shares ............. $ .28 $ .56 $ .56
======== ======== =======
Note 6 - Stock Split and Stock Offering
On October 31, 1995, 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 November 30, 1995 to shareholders of record on
November 13, 1995. 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.
On March 20, 1996, the Company completed a public offering of its
common stock whereby 3,000,000 and 850,000 shares of common stock were sold by
the Company and certain shareholders, respectively. The common shares sold by
the shareholders were received upon the exercise of a warrant and options during
the first quarter of 1996. Net proceeds to the Company related to the sale of
3,000,000 shares and exercise of the warrant and options amounted to
approximately $62,500,000 and $3,500,000, respectively. Of the aggregate
proceeds, $65,000,000 was used to eliminate the Company's indebtedness under its
credit agreements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three months ended June 28, 1996 compared to three months ended June 30, 1995
Sales for the quarter ended June 28, 1996 were $31,790,000, an increase
of 22.9% compared to sales of $25,875,000 in the quarter ended June 30, 1995.
The increase is primarily a result of incremental sales volume associated with
NDM acquisition which became effective February 23, 1996, and the Master Medical
acquisition which was reflected in second quarter 1995 results only from the
acquisition date of May 19, 1995.
Cost of sales increased to $16,505,000 in the current quarter compared
to the $13,498,000 in the same quarter a year ago as a result of increased sales
volume. The gross margin percentage increased to 48.1% from 47.8%. The continued
improvement in gross margin percentage reflects the economies of scale and
manufacturing efficiencies resulting from the completed acquisitions, and the
cost saving resulting from the fourth quarter 1995 move of the Company's ECG
electrode manufacturing facility from Haverhill, Massachusetts to Rome, New
York.
Selling and administrative expenses increased to $8,140,000 compared to
$6,779,000 in the second quarter of 1995. This increase results from the effects
of the acquisitions. As a percentage of sales, however, selling and
administrative expense declined to 25.6% from 26.2% in the comparable period of
1995. This decrease results from economies of scale and the elimination of
duplicate administrative and selling costs from the acquired businesses.
Research and development expenditures remained substantially the same
in the second quarter of 1996 compared to 1995.
The second quarter of 1996 had interest income of $150,000 compared to
interest expense of $501,000 in the second quarter of 1995. As discussed below
under Liquidity and Capital Resources, all of the Company indebtedness was
repaid in the first quarter of 1996 with the proceeds of a March 1996 equity
offering.
The provision for income tax increased in 1996 due to the higher income
before tax.
Six months ended June 28, 1996 compared to six months ended June 30, 1995
The Company recorded net sales of $60,990,000 for the six months ended
June 28, 1996 compared to $45,628,000 for the six months ended June 30, 1995, an
increase of 34%. The increase is substantially a result of the effects of the
Birtcher, Master Medical and NDM acquisitions.
The Company's gross margin was 48.1% for the first six months of 1996
compared to 46.9% for the first six months of 1995. As discussed above, the
increase in gross margin percent is primarily a result of economies of scale and
efficiencies resulting from the completed acquisitions and the move of the
Company's ECG electrode manufacturing facility.
Selling and administrative costs have increased comparing the first six
months of 1996 with the first six months of 1995 due to the effects of the
acquisitions. However, as a percentage of sales, selling and administrative
expense declined to 25.7% from 26.6% in the prior comparable period due to
economies of scale resulting from acquisitions.
The first six months of 1996 had interest expense of $532,000 compared
to interest expense of $695,000 in the first six months of 1995. As discussed
under Liquidity and Capital Resources, maximum borrowings during the first two
quarters of 1996 was $65,000,000 of which $32,660,000 related to borrowings
associated with the February 23, 1996 acquisition of NDM. All such indebtedness
was repaid in late March 1996 with proceeds from the Company's equity offering.
Aggregate indebtedness at June 30, 1995 was approximately $35,000,000 of which
approximately $11,000,000 was incurred in the first six months of 1995 to
facilitate the Birtcher acquisition and $10,000,000 was incurred to acquire
Master Medical on May 19, 1995.
Liquidity and Capital
Cash flows provided or used by operating, investing and financing
activities for the first six months of 1995 and 1996 are disclosed in the
Consolidated Statements of Cash Flows. Net cash provided by operations was
$7,090,000 for the first six months of 1996 as compared to $512,000 for the
first six months of 1995. Operating cash flows for the first half of 1996 were
aided by higher net income compared to the same period in 1995. Depreciation and
amortization in 1996 increased due primarily to the effects of the completed
acquisitions. First half 1996 cash flows from operations were negatively
impacted by increases in inventories and other assets, and payments of other
current liabilities. Adding to cash flows from operations were increases in
income taxes payable and the income tax benefit of stock option exercises.
Net cash used by investing activities was $33,404,000 in the first half
of 1996 compared to $13,435,000 in the first half of 1995. Cash used for the
1996 acquisition of NDM approximated $31,172,000. Additions to property, plant
and equipment for the first six months of 1996 amounted to $2,232,000.
Cash flows from financing activities were $33,123,000 for the first six
months of 1996. In connection with the NDM acquisition on February 23, 1996, the
Company borrowed $32,660,000 bringing aggregate borrowings under its credit
facility to $65,000,000. On March 20, 1996, the Company completed an equity
offering of common stock and used $65,000,000 of the proceeds to eliminate the
indebtedness of the Company.
The Company's credit facility consists of a $60,000,000 secured
revolving line of credit which expires in March 2001. This facility carries an
interest rate of 0.5%-1.25% over LIBOR depending on defined cash flow
performance ratios.
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.
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit No. Description
- ----------- -----------
11 Computation of weighted average number
of shares of common stock
Reports on Form 8-K
None
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 8, 1996
/s/ Robert D. Shallish, Jr.
---------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial Officer)
Exhibit Index
Exhibit
-------
11 - Computations of weighted average
number of shares of common stock
EXHIBIT 11
Computation of weighted average number of shares of common stock
For the three months ended For the six months ended
-------------------------- ------------------------
June 30, June 28, June 30, June 28,
1995 1996 1995 1996
-------- -------- -------- -------
Shares outstanding at beginning of
period ........................... 10,670 14,885 9,059 11,105
Weighted average shares issued ....... 30 26 958 2,033
Incremental shares of common stock
outstanding giving effect to stock
options and warrant .............. 1,116 318 1,083 667
------ ------ ------ ------
11,816 15,229 11,100 13,805
====== ====== ====== ======
5
1,000
6-MOS
DEC-31-1996
JUN-28-1996
8,348
0
26,100
(600)
24,384
62,131
45,358
(16,023)
162,469
7,242
0
0
0
150
149,174
162,469
60,990
60,990
31,672
48,745
0
0
532
11,732
4,217
7,496
0
0
0
7,496
0.54
0
