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 29, 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 April 22, 1996 is 14,906,140 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 Exhibit Index
Item 1. CONMED CORPORATION CONSOLIDATED STATEMENTS OF INCOME (thousands except per share amounts) (unaudited) <TABLE> <CAPTION> For the three months ended -------------------------- March 31, March 29, 1995 1996 -------- -------- <S> <C> <C> Net sales .......................................... $ 19,753 $ 29,200 -------- -------- Cost and expenses: Cost of sales .................................... 10,725 15,167 Selling and administrative ....................... 5,338 7,556 Research and development ......................... 664 683 -------- -------- Total operating expenses .................. 16,727 23,406 -------- -------- Income from operations ............................. 3,026 5,794 Interest income (expense), net ..................... (194) (682) -------- -------- Income before taxes ................................ 2,832 5,112 Provision for income taxes ......................... 992 1,840 -------- -------- Net income ......................................... $ 1,840 $ 3,272 ======== ======== Weighted average common shares and equivalents ..... 10,383 12,570 ======== ======== Earnings per share ................................. $ .18 $ .26 ======== ======== </TABLE> See notes to consolidated financial statements.
CONMED CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands except share amounts) (unaudited) <TABLE> <CAPTION> December 29, March 29, 1995 1996 -------- -------- <S> <C> <C> Current assets: Cash and cash equivalents ............................ $ 1,539 $ 11,549 Accounts receivable, net ............................. 22,649 23,933 Income taxes receivable .............................. 961 Inventories (Note 4) ................................. 20,943 24,243 Deferred income taxes ................................ 2,678 2,678 Prepaid expenses and other current assets ............ 476 513 -------- -------- Total current assets .......................... 49,246 62,916 Property, plant and equipment, net ..................... 19,728 29,127 Deferred income taxes .................................. 2,907 2,907 Covenant not to compete ................................ 1,153 1,043 Goodwill ............................................... 41,438 60,124 Patents, trademarks, and other assets .................. 4,931 6,456 -------- -------- Total assets .................................. $119,403 $162,573 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt .................... $ 6,000 $ -- Accounts payable ..................................... 2,351 2,932 Income taxes payable ................................. 1,297 Accrued payroll and withholdings ..................... 2,282 3,644 Accrued pension ...................................... 274 467 Other current liabilities ............................ 989 2,885 -------- -------- Total current liabilities ..................... 11,896 11,225 Long-term debt ......................................... 26,340 Accrued pension ........................................ 276 276 Deferred compensation .................................. 868 896 Long-term leases ....................................... 3,521 3,384 Other long-term liabilities ............................ 1,500 1,496 -------- -------- 44,401 17,277 -------- -------- </TABLE>
CONMED CORPORATION CONSOLIDATED BALANCE SHEETS -- Continued (in thousands except share amounts) (unaudited) <TABLE> <CAPTION> December 29, March 29, 1995 1996 -------- -------- <S> <C> <C> 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 14,885,090 issued and outstanding in 1995 and 1996, respectively ...................... 110 149 Paid-in capital ...................................... 44,560 111,543 Retained earnings .................................... 30,332 33,604 -------- -------- 75,002 145,296 -------- -------- Total liabilities and shareholders' equity .......... $119,403 $162,573 ======== ======== </TABLE> See notes to consolidated financial statements.
CONMED CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) <TABLE> <CAPTION> For the three months ended -------------------------- March 31, March 29, 1995 1996 -------- -------- <S> <C> <C> Cash flows from operating activities: Net income ......................................... $ 1,840 $ 3,272 -------- -------- Adjustments to reconcile net income to net cash provided by operations: Depreciation ................................ 641 800 Amortization ................................ 300 631 Increase (decrease) in cash flows from changes in assets and liabilities Accounts receivable ................ (299) 1,290 Inventories ........................ (923) (445) Prepaid expenses and other current assets ............. (380) 117 Other assets ....................... (68) (1,244) Accounts payable ................... 346 581 Income taxes payable ............... 896 2,258 Income tax benefit of stock option exercises ................. -- 1,032 Accrued payroll and withholdings ... (472) 1,362 Accrued pension .................... 139 193 Accrued patent litigation costs .... (1) -- Other current liabilities .......... 379 (1,337) Deferred compensation and other long-term liabilities ...... 129 (273) -------- -------- 687 4,965 -------- -------- Net cash provided by operating activities ... 2,527 8,237 -------- -------- Cash flows from investing activities: Cash used to liquidate liabilities associated with the Birtcher acquisition ......... (8,282) -- Acquisition of NDM, net of cash acquired ........... -- (30,721) Acquisition of property, plant, and equipment ...... (1,684) (1,015) -------- -------- Net cash used by investing activities ....... (9,966) (31,736) -------- -------- </TABLE>
CONMED CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued (in thousands) (unaudited) <TABLE> <CAPTION> For the three months ended -------------------------- March 31, March 29, 1995 1996 -------- -------- <S> <C> <C> Cash flows from financing activities: Proceeds of long term debt ......................... 11,250 32,660 Proceeds from issuance of common stock ............. -- 65,990 Payments on long-term debt and leases .............. (6,471) (65,141) -------- -------- Net cash provided by financing activities ...... 4,779 33,509 -------- -------- Net increase (decrease) in cash and cash equivalents ............................... (2,660) 10,010 Cash and cash equivalents at beginning of year ....... 3,615 1,539 -------- -------- Cash and cash equivalents at end of period ........... $ 955 $ 11,549 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the quarter for: Interest .................................. $ 9 $ 882 Income taxes .............................. 163 124 </TABLE> 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 March 31, 1995 and March 29, 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 months ended March 31, 1995 and March 29, 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): <TABLE> <CAPTION> December 29, March 29, 1995 1996 ------- ------- <S> <C> <C> Raw materials .......................... $ 7,209 $ 8,032 Work-in-process ........................ 5,680 5,336 Finished goods ......................... 8,054 10,875 ------- ------- Total ......................... $20,943 $24,243 ======= ======= </TABLE>
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. Accordingly, the results of operations of the acquired business are included in the consolidated results of the Company from the date of acquisition. The acquisition was accounted for using the purchase method of accounting. Goodwill associated with the acquisition is being amortized on a straight-line basis over a 40 year period. On May 22, 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. Accordingly, the results of operations of the acquired business are included in the consolidated results of the Company from the date of acquisition. The acquisition was accounted for using the purchase method of accounting. 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 $31.3 million and the assumption of $2.7 million of liabilities. 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-allocation 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 period, the consolidated results of the Company would have been as follows: (in thousands, except per share amounts): <TABLE> <CAPTION> For the Quarter For the Quarter Ended March 31, 1995 Ended March 29, 1996 -------------------- -------------------- <S> <C> <C> Pro forma revenues ........................ $ 32,110 $32,700 ======== ======= Pro forma net income ...................... $ 3,215 $ 3,576 ======== ======= Pro forma earnings per common, and common equivalent shares ...................... $ .27 $ .28 ======== ======= </TABLE>
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 warrants and option 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 March 29, 1996 compared to three months ended March 31, 1995 Sales for the quarter ended March 29, 1996 were $29,200,000, an increase of 47.8% compared to sales of $19,753,000 in the quarter ended March 31, 1995. The increase was substantially a result of the Birtcher, Master Medical and NDM acquisitions. Cost of sales also increased to $15,167,000 in the current quarter compared to the $10,725,000 in the same quarter a year ago as a result of increased sales volume. The Company's gross margin percentage was 48.1% for the first quarter of 1996 as compared to 45.7% for the first quarter of 1995 and an average of 47.8% for the remaining three quarters of 1995. 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 costs increased to $7,556,000 compared to $5,338,000 in the first quarter of 1995. This increased dollar amount resulted primarily from the effects of the acquisitions. As a percentage of sales, however, selling and administration declined to 25.9% from 27.0% in the prior comparable period due to economies of scale resulting from the acquisitions of Birtcher, Master Medical and NDM. Research and development expense remained substantially the same in the first quarter of 1996 compared to 1995.
The first quarter of 1996 had interest expense of $682,000 compared to interest expense of $194,000 in the first quarter of 1995. As discussed under Liquidity and Capital Resources, maximum borrowings during the first quarter of 1996 were $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 March 31, 1995 was $20,000,000 of which approximately $11,000,000 was incurred in the first quarter of 1995 to facilitate the Birtcher acquisition. The provision for income tax increased in 1996 due to the higher income before tax. Liquidity and Capital Resources 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. Prior to the equity offering discussed below, the Company's credit facility consisted of a $65,000,000 secured term loan and secured revolving line of credit of $15,000,000. In connection with the NDM acquisition on February 23, 1996, the Company borrowed $32,660,000 bringing aggregate borrowings under the 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. Upon the closing of this equity offering, the Company's credit facility was amended to consist 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.
Item 6. Exhibits and Reports on Form 8-K List of Exhibits Exhibit No. Description of Instrument - - ----------- ------------------------- 10.1 First Amendment of Credit Agreements dated March 13, 1996 10.2 Amended and Restated Credit Agreement-Revolving Credit Facility dated as of March 13, 1996 11 Computation of weighted average number of shares of common stock Reports on Form 8-K (1) On February 16, 1996, the Company filed a report on Form 8-K which included the historic financial statements of a business being acquired. (2) On February 16, 1996 (as amended on February 26, 1996), the Company filed a report on Form 8-K which included the consolidated financial statements of the Company for the three years ended December 29, 1995 and the Company's amended credit agreements. (3) On March 8, 1996, the Company filed a report on Form 8-K which included pro forma financial information for a business acquired.
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 10, 1996 /s/ Robert D. Shallish, Jr. --------------------------------- Robert D. Shallish, Jr. Vice President - Finance (Principal Financial Officer)
Exhibit Index Exhibit - - ------- 10.1 - First Amendment of Credit Agreements dated March 13, 1996 10.2 - Amended and Restated Credit Agreement - Revolving Credit Facility dated as of March 13, 1996 11 - Computations of weighted average number of shares of common stock