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, 1999 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 August 4, 1999 is 15,294,798 shares.
CONMED CORPORATION TABLE OF CONTENTS FORM 10-Q PART I FINANCIAL INFORMATION Item 1. Financial Statements - Consolidated Statements of Income - Consolidated Balance Sheets - Consolidated Statements of Shareholders' Equity - 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
<TABLE> <CAPTION> CONMED CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share amounts) (unaudited) For three months ended For six months ended ------------------------ ------------------------ June June June June 1998 1999 1998 1999 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net sales ...................... $ 80,513 $ 90,483 $ 160,755 $ 181,352 --------- --------- --------- --------- Cost and expenses: Cost of sales ................ 40,874 42,825 85,264 86,367 Selling and administrative ... 21,995 26,550 43,774 53,116 Research and development ..... 2,874 2,842 5,601 5,798 --------- --------- --------- --------- Total operating expenses ... 65,743 72,217 134,639 145,281 --------- --------- --------- --------- Income from operations ......... 14,770 18,266 26,116 36,071 Interest expense, net .......... (7,666) (7,814) (15,181) (15,740) --------- --------- --------- --------- Income before income taxes and extraordinary item ....... 7,104 10,452 10,935 20,331 Provision for income taxes ..... (2,557) (3,762) (3,936) (7,318) --------- --------- --------- --------- Income before extraordinary item ......................... 4,547 6,690 6,999 13,013 Extraordinary item, net of income taxes (Note 4) ........ -- -- (1,569) -- --------- --------- --------- --------- Net income ..................... $ 4,547 $ 6,690 $ 5,430 $ 13,013 ========= ========= ========= =========
<CAPTION> CONMED CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share amounts) (unaudited) For three months ended For six months ended ------------------------ ------------------------ June June June June 1998 1999 1998 1999 --------- --------- --------- --------- <S> <C> <C> <C> <C> Per share data: Income before extraordinary item Basic ................. $ .30 $ .44 $ .46 $ .86 Diluted ............... .30 .43 .46 .84 Extraordinary item - (Note 4) Basic ................. $ -- $ -- $ (.10) $ -- Diluted ............... -- -- (.10) -- Net Income Basic ................. $ .30 $ .44 $ .36 $ .86 Diluted ............... .30 .43 .36 .84 Weighted average common shares Basic ................. 15,057 15,235 15,047 15,204 Diluted ............... 15,326 15,612 15,286 15,575 </TABLE> See notes to consolidated financial statements.
<TABLE> <CAPTION> CONMED CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands except share amounts) (unaudited) December June 1998 1999 --------- --------- <S> <C> <C> ASSETS Current assets: Cash and cash equivalents ...................... $ 5,906 $ 2,519 Accounts receivable, net ....................... 66,819 70,515 Income taxes receivable ........................ 1,441 -- Inventories (Note 3) ........................... 78,058 87,920 Deferred income taxes .......................... 2,776 2,776 Prepaid expenses and other current assets ...... 4,620 4,178 --------- --------- Total current assets .................... 159,620 167,908 Property, plant and equipment, net ............... 59,044 56,479 Deferred income taxes ............................ 3,900 3,900 Goodwill, net .................................... 194,690 192,443 Patents, trademarks, and other assets, net ....... 211,530 207,700 --------- --------- Total assets ............................... $ 628,784 $ 628,430 ========= =========
<CAPTION> CONMED CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands except share amounts) (unaudited) December June 1998 1999 --------- --------- <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt .............. $ 22,995 $ 27,785 Accrued interest ............................... 6,069 4,458 Accounts payable ............................... 19,594 18,125 Income taxes payable ........................... -- 7,526 Accrued payroll and withholdings ............... 9,665 6,519 Other current liabilities ...................... 7,873 5,517 --------- --------- Total current liabilities .................. 66,196 69,930 Long-term debt ................................... 361,877 341,478 Other long-term liabilities ...................... 18,543 20,294 --------- --------- Total liabilities ....................... 446,616 431,702 --------- --------- Shareholders' equity: Preferred stock, par value $.01 per share; authorized 500,000 shares; none outstanding -- -- Common stock, par value $.01 per share; 100,000,000 authorized; 15,182,811 and 15,300,091 issued and outstanding,in 1998 and 1999, respectively ................ 152 153 Paid-in capital ................................ 125,039 126,605 Retained earnings .............................. 57,361 70,374 Cumulative translation adjustments ............. 35 15 Less 25,000 shares of common stock in treasury, at cost ...................................... (419) (419) --------- --------- Total equity ............................ 182,168 196,728 --------- --------- Total liabilities and shareholders' equity . $ 628,784 $ 628,430 ========= ========= </TABLE> See notes to consolidated financial statements.
<TABLE> <CAPTION> CONMED CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Six Months Ended June 1998 and 1999 (in thousands) (unaudited) 1998 1999 --------- --------- <S> <C> <C> Common stock Balance at beginning of period ................. $ 151 $ 152 Exercise of stock options ...................... -- 1 --------- --------- Balance at end of period ....................... 151 153 --------- --------- Paid-in capital Balance at beginning of period ................. 123,451 125,039 Exercise of stock options ...................... 416 1,566 --------- --------- Balance at end of period ....................... 123,867 126,605 --------- --------- Retained earnings Balance at beginning of period ................. 39,553 57,361 Net income (A) ................................. 5,430 13,013 --------- --------- Balance at end of period ....................... 44,983 70,374 --------- --------- Accumulated other comprehensive income Balance at beginning of period Cumulative foreign currency translation adjustments ............................... -- 35 Other comprehensive income Foreign currency translation adjustments(B) .. -- (20) --------- --------- Balance at end of period Cumulative foreign currency translation adjustments ............................... -- 15 --------- --------- Treasury stock at beginning and end of period ............................ (419) (419) --------- --------- Total shareholders' equity ....................... $ 168,582 $ 196,728 ========= ========= Total comprehensive income (A + B) ............... $ 5,430 $ 12,993 ========= ========= </TABLE> See notes to consolidated financial statements.
<TABLE> <CAPTION> CONMED CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30 1998 and 1999 (in thousands) (unaudited) 1998 1999 ---- ---- <S> <C> <C> Cash flows from operating activities: Net income ..................................... $ 5,430 $ 13,013 --------- --------- Adjustments to reconcile net income to net cash provided by operations: Depreciation ............................ 3,944 4,330 Amortization ............................ 7,849 8,095 Extraordinary item, net of income taxes (Note 4) ................. 1,569 -- Increase (decrease) in cash flows from changes in assets and liabilities: Accounts receivable ............ (1,867) (3,716) Inventories .................... (8,192) (11,039) Prepaid expenses and other current assets ......... (1,387) 442 Accounts payable ............... 8,703 (1,469) Income taxes receivable/payable (1,081) 8,967 Accrued interest ............... 4,832 (1,611) Accrued payroll and withholdings 1,438 (3,146) Other current liabilities ...... (2,305) (668) Other assets/liabilities, net .. (439) 1,249 --------- --------- 13,064 1,434 Net cash provided by operations .............. 18,494 14,447 --------- --------- Cash flows from investing activities: Payments related to acquisition of Linvatec .... (6,996) -- Acquisition of property, plant, and equipment ............................. (6,663) (3,792) --------- --------- Net cash used by investing activities ........ (13,659) (3,792) --------- --------- <CAPTION> Cash flows from financing activities: Proceeds of long term debt ..................... 130,000 900 Repayments under revolving credit facility .............................. (10,000) (5,000) Proceeds from issuance of common stock ......... 416 1,567 Payments related to issuance of long-term debt . (4,635) -- Payments on long-term debt ..................... (129,614) (11,509) --------- --------- Net cash used by financing activities ............................. (13,833) (14,042) --------- --------- Net decrease in cash and cash equivalents .......................... (8,998) (3,387) Cash and cash equivalents at beginning of period . 13,452 5,906 --------- --------- Cash and cash equivalents at end of period ....... $ 4,454 $ 2,519 ========= ========= </TABLE> See notes to consolidated financial statements.
CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and Operations The consolidated financial statements include the accounts of CONMED Corporation (the "Company"), and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company is a leading developer, manufacturer and supplier of a range of medical instruments and systems used in surgical and other medical procedures. The Company's business is organized, managed and internally reported as a single segment. The Company believes its product offerings, which include arthroscopic surgery devices, powered surgical instruments, electrosurgical systems, electrocardiogram electrodes and accessories, surgical suction instruments, intravenous therapy accessories and wound care products, have similar economic, operating and other related characteristics. The Company's products are used in a variety of clinical settings, such as operating rooms, surgery centers, physicians' offices and critical care areas of hospitals. Note 2 - Interim financial information The financial statements for the three and six months ended June 1998 and 1999 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 1999 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 1999 are not necessarily indicative of the results of operations to be expected for any other quarter nor for the year ending December 1999. The consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes for the year ended December 1998 included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K. Certain 1998 amounts previously reported have been reclassified to conform with the current year presentation. Note 3 - Inventories The components of inventory are as follows (in thousands): December June 1998 1999 ------- ------- Raw materials......... $35,204 $35,963 Work-in-process....... 7,429 11,472 Finished goods........ 35,425 40,485 ------- ------- Total........ $78,058 $87,920 ======= =======
Note 4 - Subordinated Note Offering The Company completed a subordinated note offering (the "Notes") in the aggregate principal amount of $130,000,000 in March 1998. Proceeds from the offering amounting to $126,100,000 were used to reduce the Company's term loans under its credit facility. Deferred financing fees related to the portion of the credit facility repaid amounting to $2,451,000 ($1,569,000 net of income taxes) were written-off as an extraordinary charge. Note 5 - Subsidiary Guarantees The Company's credit facility and Notes are guaranteed (the "Subsidiary Guarantees") by each of the Company's subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantees provide that each Subsidiary Guarantor will fully and unconditionally guarantee the Company's obligations on a joint and several basis. Each Subsidiary Guarantor is wholly-owned by the Company. Separate financial statements and other disclosures concerning the Subsidiary Guarantors are not presented because management has determined such financial statements and other disclosures are not material to investors. The combined condensed financial information of the Company's Subsidiary Guarantors is as follows (in thousands): December June -------- ---- 1998 1999 ---- ---- Current assets................................... $ 96,434 $106,411 Non-current assets............................... 366,299 356,652 Current liabilities.............................. 30,367 23,852 Non-current liabilities.......................... 363,160 347,347 For the Six Months Ended June ----------------- 1998 1999 ---- ---- Revenues......................................... $113,579 $139,222 Operating income................................. 18,266 30,205 Net income....................................... 1,849 9,229 Note 6 - Subsequent Events On June 29, 1999, the Company entered into an agreement to purchase certain assets of the Powered Surgical Instrument business of Minnesota Mining and Manufacturing Company ("3M")). The Company and 3M have also agreed to a series of transition-related matters that will facilitate the transfer of the business. The acquisition was completed on August 11, 1999 for a purchase price of $39,000,000, before certain adjustments, which was funded through borrowings under the Company's amended credit facility (see discussion under Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations).
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion includes certain forward-looking statements. Such forward-looking statements are subject to a number of factors, including material risks, uncertainties and contingencies, which could cause actual results to differ materially from the forward-looking statements. Such factors include, among others, the following: general economic and business conditions; changes in customer preferences; competition; changes in technology; the integration of any acquisitions, changes in business strategy; the indebtedness of the Company; the identification and remediation of Year 2000 issues; quality of management, business abilities and judgment of the Company's personnel; and the availability, terms and deployment of capital. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Three months ended June 1999 compared to three months ended June 1998 Sales for the quarter ended June 1999 were $90,483,000, an increase of 12.4% compared to sales of $80,513,000 in the quarter ended June 1998. Approximately 5% of the sales increase reflects the pricing impact of changes in distribution from the second quarter of 1999 as compared to 1998. In connection with the December 31, 1997 acquisition of Linvatec Corporation from Bristol-Myers Squibb ("BMS"), the Company entered into fixed price distribution agreements with Zimmer, Inc., a wholly-owned subsidiary of BMS, to distribute certain of the Company's orthopaedic products in selected geographic markets. In 1999, most of the products formerly distributed by Zimmer were sold and distributed directly by the Company, resulting in improved pricing for the affected products. The remainder of the increase is a result of increased sales volumes, primarily of orthopaedic products, due to the acquisition of the fluid management business from 3M in November 1998 as well as increased demand for existing product lines. Cost of sales increased to $42,825,000 in the current quarter compared to the $40,874,000 in the same quarter a year ago. The Company's gross margin percentage for the second quarter of 1998 was 49.2% compared to 52.7% for the second quarter of 1999. The increase in gross margin percentage is primarily attributable to higher sales volumes of orthopaedic products as well as improved pricing resulting from the elimination of most of the fixed price distribution agreements with Zimmer discussed previously. Selling and administrative costs increased to $26,550,000 in the current quarter as compared to $21,995,000 in the second quarter of 1998. As a percentage of sales, selling and administrative expense was 29.3% in the second quarter of 1999 as compared to 27.3% in the comparable 1998 period. The increase was primarily a result of costs associated with the direct selling and distribution of products formerly distributed through Zimmer.
Research and development expense was $2,842,000 in the second quarter of 1999 as compared to $2,874,000 in the second quarter of 1998. As a percentage of sales, research and development expense was 3.1% in the second quarter of 1999 as compared to 3.6% in the comparable 1998 period. The amount of research and development expense incurred in the second quarter of 1999 is consistent with the comparable 1998 quarter representing the Company's ongoing efforts in this area; the decrease in second quarter 1999 expense as a percentage of sales is primarily a result of higher sales in the second quarter of 1999 as compared to the second quarter 1998. Interest expense for the second quarter of 1999 was $7,814,000 compared to $7,666,000 in the second quarter of 1998. The increase in interest expense is a result of higher borrowings under the Company's revolving credit facility during the second quarter of 1999 as compared to the second quarter of 1998, partially offset by lower principal balances on the Company's term debt. The higher borrowings were primarily a result of the Company's $17,500,000 acquisition of a fluid management product line from 3M during the fourth quarter of 1998. Six months ended June 1999 compared to six months ended June 1998 Sales for the six months ended June 1999 were $181,352,000, an increase of 12.8% compared to sales of $160,755,000 in the six months ended June 1998. Approximately 5% of the increase reflects the pricing impact of changes in distribution from the first six months of 1999 as compared to 1998. In connection with the December 31, 1997 acquisition of Linvatec Corporation from Bristol-Meyers Squibb ("BMS"), the Company entered into fixed price distribution agreements with Zimmer, Inc., a wholly-owned subsidiary of BMS, to distribute certain of the Company's orthopaedic products in selected geographic markets. In 1999, most of the products formerly distributed by Zimmer were sold and distributed directly by the Company, resulting in improved pricing for the affected products. The remainder of the increase is a result of increased sales volumes, primarily of orthopaedic products, due to the acquisition of the fluid management product line from 3M in November 1998 as well as increased demand for existing product lines. Cost of sales increased to $86,367,000 in the six months ended June 1999 compared to $85,264,000 in the six months ended June 1998. In connection with purchase accounting for the December 31, 1997 acquisition of Linvatec Corporation, the Company increased the acquired value of inventory by $3,000,000 over its production cost. This inventory was sold during the quarter ended March 1998 and, accordingly, this non-recurring adjustment served to increase cost of sales during the first quarter of 1998 by $3,000,000. Excluding the impact of this adjustment, cost of sales increased from $82,271,000 in the first six months of 1998 to $86,367,000 in the first six months of 1999, as a result of increased sales volumes. Excluding the nonrecurring adjustment, the Company's gross margin percentage for the first six months of 1998 was 48.8% compared to 52.4% for the first six months of 1999. The increase in gross margin percentage is primarily attributable to higher sales volumes as well as improved pricing resulting from the elimination of most of the fixed price product distribution agreements with Zimmer discussed previously.
Selling and administrative costs increased to $53,116,000 in the six months ended June 1999 as compared to $43,774,000 in the six months ended June 1998. As a percentage of sales, selling and administrative expense was 29.2% in the first half of 1999 as compared to 27.2% in the comparable 1998 period. The increase was primarily a result of costs associated with the direct selling and distribution of products formerly distributed through Zimmer and the launch of several new products. Research and development expense was $5,798,000 in the first half of 1999 as compared to $5,601,000 in the first half of 1998. As a percentage of sales, research and development expense was 3.2% in the first half of 1999 as compared to 3.5% in the comparable 1998 period. The amount of research and development expense incurred in the six months ended June 1999 is consistent with the comparable 1998 period representing the Company's ongoing efforts in this area; the decrease in six months ended June 1999 expense as a percentage of sales is primarily a result of higher sales in the six months ended June 1999 as compared to the six months ended June 1998. Interest expense for the six months ended June 1999 was $15,740,000 compared to $15,181,000 in the first six months of 1998. The increase in interest expense is a result of higher borrowings under the Company's revolving credit facility during the first half of 1999 as compared to the first half of 1998, partially offset by lower principal balances on the Company's term debt. The higher borrowings were primarily a result of the Company's $17,500,000 acquisition of an arthroscopy product line from 3M during the fourth quarter of 1998. As discussed under Liquidity and Capital Resources, during the first quarter of 1998, the Company completed an offering of subordinated notes (the "Notes") and used the net proceeds to repay a portion of the Company's term loans under its credit facility. Deferred financing fees relating to the portion of the credit facility repaid amounting to $2,451,000 ($1,569,000 net of income taxes) were written-off as an extraordinary charge. There was no such write-off during the first six months of 1999. Liquidity and Capital Resources The Company's net working capital position increased $4,554,000 or 5% to $97,978,000 at June 1999 compared to $93,424,000 at December 1998. Net cash provided by operations was $14,447,000 for the first six months of 1999 compared to $18,494,000 for the first six months of 1998. Operating cash flow in the first half of 1999 was positively impacted by higher net income and increases in depreciation, amortization and accrued income taxes payable compared to the first half of 1998. Negatively impacting operating cash flow in the first half of 1999 were increases in accounts receivable and inventory and decreases in accrued interest and accrued payroll compared to the first half of 1998.
Net cash used by investing activities for the first six months of 1998 included $6,996,000 of transaction costs related to the Linvatec acquisition. There were no such costs incurred during the first six months of 1999. Capital expenditures for the first six months of 1999 and 1998 amounted to $3,792,000 and $6,663,000, respectively. Financing activities during the first six months of 1999 consisted primarily of scheduled payments of $11,509,000 on the Company's term loans; additionally, $5,000,000 was repaid on the Company's revolving credit facility. Financing activities during the first six months of 1998 involved the completion of the Notes offering in the aggregate principal amount of $130,000,000. Net proceeds from the offering amounting to $126,100,000 were used to repay a portion of the Company's term loans under its credit facility. Additionally, scheduled payments of $1,757,000 on the Company's term loans and $10,000,000 on the Company's revolving credit facility were repaid during the first six months of 1998. The Company's term loans under its credit facility at June 30, 1999 aggregate $205,375,000 and are repayable quarterly over remaining terms approximating four and six years. The Company's credit facility also includes a $100,000,000 revolving credit facility which expires December 2002, of which $67,000,000 was available on June 30, 1999. The borrowings under the credit facility carry interest rates based on a spread over LIBOR or an alternative base interest rate. The covenants of the credit facility provide for increase and decrease to this interest rate spread based on the operating results of the Company. The weighted average interest rates at June 30, 1999 under the term loans and the revolving credit facility were 7.04% and 6.81%, respectively. Additionally, the Company is obligated to pay a fee of .375% per annum on the unused portion of the revolving credit facility. The Company does not use derivative financial instruments for trading or other speculative purposes. Interest rate swaps, a form of derivative, are used to manage interest rate risk. Currently, the Company has entered into two interest rate swaps expiring in June 2001 which convert $100,000,000 of floating rate debt under the Company's credit facility into fixed rate debt at rates ranging from 7.18% to 8.25%. Provisions in one of the interest rate swaps cancels such agreement when LIBOR exceeds 7.35%. The credit facility is collateralized by all the Company's personal property. The credit facility contains covenants and restrictions which, among other things, require maintenance of certain working capital levels and financial ratios, prohibit dividend payments and restrict the incurrence of certain indebtedness and other activities, including acquisitions and dispositions. The Company is also required to make mandatory prepayments from net cash proceeds from any issue of equity and asset sales and also from any excess cash flow, as defined in the credit agreement. The Notes are in aggregate principal amount of $130,000,000 and have a maturity date of March 15, 2008. The Notes bear interest at 9.0% per annum which is payable semi-annually. The indenture governing the Notes has certain restrictive covenants and provides for, among other things, mandatory and optional redemptions by the Company.
The credit facility and Notes are guaranteed by each of the Company's subsidiaries. The Subsidiary Guarantees provide that each Subsidiary Guarantor will fully and unconditionally guarantee the Company's obligations on a joint and several basis. Each Subsidiary Guarantor is wholly-owned by the Company. Under the credit facility and Note indenture, the Company's subsidiaries are subject to the same covenants and restrictions that apply to the Company (except that the Subsidiary Guarantors are permitted to make dividend payments and distributions, including cash dividend payments, to the Company or another Subsidiary Guarantor). On June 29, 1999, the Company entered into an agreement to purchase certain assets of the Powered Surgical Instrument business of 3M. The Company and 3M have also agreed to a series of transition-related matters that will facilitate the transfer of the business. The acquisition was completed on August 11, 1999 for a purchase price of $39,000,000, before certain adjustments. The Company's existing credit facility was amended to provide for an additional $40,000,000 loan commitment, due June 30, 2005, which was used to fund the purchase price and related fees and expenses. The $40,000,000 loan commitment carries an interest rate based on a 2.5% spread over LIBOR. Management believes that cash generated from operations, its current cash resources and funds available under its credit facility will provide sufficient liquidity to ensure continued working capital for operations, debt service and funding of capital expenditures in the foreseeable future. Year 2000 The Company and its subsidiaries use information technology ("IT") and non-IT systems that contain embedded technology throughout their businesses. Third parties with which the Company has material relationships also use such systems. After December 31, 1999, these systems will face a potentially serious problem if they are not able to recognize and correctly process dates beyond December 31, 1999. All of the Company's products, operations and information technology systems have been inventoried and those that were not Year 2000 ready have been identified, upgraded and tested to ensure they function properly after December 31, 1999. The Company is also in the process of contacting its vendors and customers to ascertain their preparation for the Year 2000 issue and is in the process of identifying critical business partners for which the need for additional due diligence will be assessed. The costs of the Company's Year 2000 assessment and remediation program have not been and are not expected to be material. Although the Company does not expect the Year 2000 issue to have a material effect on its results of operations, liquidity or financial condition, failure of critical IT and non-IT systems could have a material adverse effect on the Company's results of operations, liquidity or financial condition. Further, the Company cannot eliminate the risk that revenue will be lost or costs will be incurred as a result of the failure by third parties to properly remediate their Year 2000 issues.
Foreign Operations The Company's foreign operations are subject to special risks inherent in doing business outside the United States, including governmental instability, war and other international conflicts, civil and labor disturbances, requirements of local ownership, partial or total expropriation, nationalization, currency devaluation, foreign exchange controls and foreign laws and policies, each of which may limit the movement of assets or funds or result in the deprivation of contract rights or the taking of property without fair compensation. An additional risk with respect to the Company's European operations relates to the conversion of certain European countries to a common currency which began January 1, 1999 (the "Euro Conversion"). The Company has formed an internal task force to evaluate the risks and implement any required actions with respect to the Euro Conversion. Based on the analysis of this task force, the Company does not believe that the costs to the Company to convert to a common currency will be material. Additionally the Company does not believe that there will be any material impact from a competitive point of view with respect to the impact of the Euro Conversion on the sales of products.
Item 6. Exhibits and Reports on Form 8-K List of Exhibits Exhibit No. Description of Instrument ----------- ------------------------- 10.1 The Asset Purchase Agreement, dated as of June 29, 1999 by and between Linvatec Corporation and Minnesota Mining and Manufacturing Company, as amended by an amendment dated as of August 11, 1999. 10.2 Amended and Restated Credit Agreement, dated as of August 11, 1999, among CONMED Corporation and the several banks and other financial institutions or entities from time to time parties thereto. 10.3 Acknowledgement and Consent, dated as of August 11, 1999, among CONMED Corporation and each of its subsidiaries. 11 Computation of weighted average number of shares of common stock 27 Financial Data Schedule Reports on Form 8-K (1) On July 1, 1999, the Company filed a report on Form 8-K which reported a press release that on June 29, 1999, Linvatec Corporation, ("Linvatec") a wholly-owned subsidiary of the Registrant, and Minnesota Mining and Manufacturing Company ("3M") entered into an Asset Purchase Agreement dated as of June 29, 1999, pursuant to which Linvatec agreed to purchase for cash certain assets relating to 3M's business of manufacturing and selling certain surgical powered instrument products.
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 13, 1999 /s/ Robert D. Shallish, Jr. ----------------------------- Robert D. Shallish, Jr. Vice President - Finance (Principal Financial Officer)
Exhibit Index Exhibit 10.1 The Asset Purchase Agreement, dated as of June 29, 1999 by and between Linvatec Corporation and Minnesota Mining and Manufacturing Company, as amended by an amendment dated as of August 11, 1999. 10.2 Amended and Restated Credit Agreement, dated as of August 11, 1999, among CONMED Corporation and the several banks and other financial institutions or entities from time to time parties thereto. 10.3 Acknowledgement and Consent, dated as of August 11, 1999, among CONMED Corporation and each of its subsidiaries. 11 Computations of weighted average number of shares of common stock 27 Financial Data Schedule