Securities and Exchange Commission
Washington, D.C.
20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 29, 1995 Commission file number 0-16093
CONMED CORPORATION
(Exact name of 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)
Registrant's telephone number, including area code (315) 797-8375
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x ]
The aggregate market value of the shares of the voting stock held by
non-affiliates of the Registrant was approximately $335,243,098 based upon the
average bid and asked prices of stock, which was $23.13 on March 22, 1996.
The number of shares of the Registrant's $0.01 par value common stock
outstanding as of March 22, 1996 was 14,884,815.
Portions of the Definitive Proxy Statement, scheduled to be mailed on or about
April 12, 1996 for the annual meeting of stockholders to be held May 21, 1996,
are incorporated by reference into Part III.
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-K
Item Number
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signature
Exhibit Index
PART I
CONMED CORPORATION
Item 1: Business
General
CONMED Corporation ("CONMED" or the "Company") was incorporated on
February 10, 1970 in the State of New York. The Company is a leading provider of
advanced electrosurgical systems and ECG electrodes and accessories. The Company
also manufactures and markets a line of instruments for use in MIS procedures,
as well as products used for IV therapy. Eighty-five percent of the Company's
revenues are derived from the sale of single-use, disposable products. The
Company's products are used in a variety of clinical settings, such as operating
rooms, physicians' offices and critical care areas of hospitals.
The Company is divided into three divisions: Electrosurgical Systems,
Patient Care and Minimally-Invasive Surgery. Each division has its own dedicated
salesforce. Through its Electrosurgical Systems Division, the Company develops,
manufactures and markets a comprehensive range of electrosurgical generators,
argon beam coagulation systems, electrosurgical ground pads and electrosurgical
pencils. The Company's Patient Care Division develops, manufactures and markets
a broad line of ECG electrodes (adult, infant, premie, stress test and
diaphoretic), ECG cables and lead wires, IV stabilization dressings and IV fluid
drip rate gravity controllers. As disclosed below, the Company's Patient Care
Division will enter the wound care market with the NDM acquisition. The
Company's Minimally-Invasive Surgery Division develops, manufactures and markets
a line of minimally-invasive surgical ("MIS") products, including an electronic
trocar system, suction-irrigation instruments, scissors and electrosurgical
probes with suction/irrigation capability.
The Company has used strategic business acquisitions to increase its
market share in certain product lines, broaden its product offerings and realize
economies of scale. In July 1993, the Company acquired the business and certain
assets of Medtronic Andover Medical, Inc., a manufacturer of ECG monitoring and
diagnostic electrodes and ECG cables and lead wires, for a cash purchase price
of approximately $21.8 million plus the assumption of approximately $1.2 million
of liabilities. In November 1994, the Company purchased the assets associated
with a product line involving the manufacture and sale of ECG electrodes from
Becton Dickinson Vascular Access, Inc. for approximately $2.0 million. These
acquisitions expanded the ECG product offerings of the Company and have given
the Company the additional market share necessary to become a leading supplier
of ECG disposables to the domestic ECG disposables industry.
In March 1995, the Company acquired Birtcher Medical Systems, Inc.
("Birtcher") for approximately 1.6 million shares of common stock in a
transaction valued at approximately $21.2 million. With the Birtcher
acquisition, the Company added the argon beam coagulation technology to its
existing lines of electrosurgical products and strengthened the Company's
position as a leading supplier of electrosurgical systems to the medical
industry. In May 1995, the Company acquired the business and certain assets and
liabilities of The Master Medical Corporation ("Master Medical") for a cash
purchase price of approximately $9.5 million plus the assumption of net
liabilities totaling approximately $0.5 million. The Master Medical acquisition
added a line of single-use IV fluid drip rate gravity controllers to the
Company's product line. The completed acquisitions, together with internal
growth, resulted in net sales growth of approximately 135% over the past three
years.
In October 1995, the Company signed an asset purchase agreement whereby
the Company will acquire substantially all the business and certain assets of
New Dimensions in Medicine, Inc. ("NDM") for a cash purchase price of
approximately $32.0 million plus the assumption of net liabilities of
approximately $5.1 million. Through the NDM acquisition, which closed on
February 23, 1996, the Company has acquired the business of NDM relating to the
design, manufacture and marketing of a broad line of ECG electrode products,
disposable electrosurgical products and a broad line of various Hydrogel wound
care products.
Industry
The health care industry is undergoing significant and rapid change.
Health care delivery costs have increased dramatically in recent years as
compared to the overall rate of inflation. The growing influence of managed care
has resulted in increasing pressure on participants in the health care industry
to contain costs. Accordingly, health care providers have been purchasing
medical devices which improve productivity and contain costs.
Health care providers continue to utilize low-cost, disposable medical
devices, such as electrosurgical pencils and ground pads, ECG electrodes and
other patient care products. Disposable devices improve health care professional
productivity and, unlike reusable products, do not require costly,
labor-intensive sterilization or reassembling. The risks of transmission of
infectious diseases, such as AIDS, hepatitis and tuberculosis, and related
concerns about occupational safety of health care professionals have also
contributed to an increased demand for disposable, single-use products. In
addition, the combination of medical cost containment pressures and
patient-driven demands have resulted in greater use of minimally-invasive
procedures as an alternative to traditional open surgery. MIS procedures reduce
patient hospitalization and therapy, thereby reducing the cost to patients and
health insurers.
According to the American Hospital Association and the American College
of Surgeons, in 1993 more than 23 million surgical procedures were performed in
the over 5,300 general hospitals in the United States, with another
approximately three million procedures being performed in the approximately
1,800 free standing ambulatory surgery centers. The Company believes that a
majority of these operations involved electrosurgery. The American Hospital
Association data also show that of the hospitals in the United States, there are
approximately 96,000 intensive care beds, including neonatal, pediatric, cardiac
and medical/surgical intensive care. The Company believes that a majority of
these beds are equipped for ECG monitoring. In addition, the Company believes
that demographic trends, such as the aging of the U.S. population, also should
have a favorable effect on the demand for the Company's disposable medical
products, since older people generally require more medical care and undergo
more surgical procedures.
In response to increased competitive pressures in the health care
industry, manufacturers of medical devices have been improving efficiency and
productivity and consolidating. The Company believes that consolidations in the
industry have increased primarily as a result of health care cost containment
pressures. Consolidations can reduce costs from synergies in manufacturing,
corporate overhead and research and development. The Company regards these
developments as presenting opportunities for medical device companies seeking to
increase sales in core product lines and expand into new product lines through
acquisitions.
Electrosurgical Systems Division
The Company's electrosurgical products consist of electrosurgical
pencils, electrosurgical ground pads and electrosurgical generators. The Company
also distributes a wide range of accessories used with electrosurgical
generators such as forceps, adapters and cables. Most accessories of other
electrosurgical companies are compatible with the Company's generators,
including specialty accessories used in urologic surgery. During 1993, 1994 and
1995, net sales attributable to the Electrosurgical Systems Division represented
43%, 54% and 53%, respectively, of the Company's net sales.
Electrosurgery
Electrosurgery is the technique of using a high-frequency electric
current which, when applied to tissue through special instruments, can be used
to cut tissue, coagulate, or cut and coagulate simultaneously. An
electrosurgical system consists of a generator, an active electrode in the form
of a pencil or other instrument which the surgeon uses to apply the current from
the generator to the target tissue and a ground pad to safely return the current
to the generator. Electrosurgery is routinely used in most forms of surgery,
including dermatologic and thoracic, orthopedic, urologic, neurosurgical,
gynecological, laparoscopic and other endoscopic procedures.
Argon Beam Coagulation ("ABC") is a special method of electrosurgery,
which allows a faster and more complete coagulation of many tissues as compared
to conventional electrosurgery. Unlike conventional electrosurgery, the current
travels in a beam of ionized argon gas, allowing the current to be dispersed
onto the bleeding tissue without the instrument touching the tissue. Clinicians
have reported notable benefits of ABC in certain clinical situations including
open-heart surgery, liver, spleen and trauma surgery and various other
applications.
Electrosurgery Products
Electrosurgical Pencils. The Company manufactures and markets
electrosurgical pencils, which are used by surgeons to introduce the
electrosurgical current to the target tissue. The pencils can be either
foot-controlled or hand-controlled; the majority of pencils sold by the Company
are hand-controlled. The Company manufactures primarily disposable
electrosurgical pencils, but also offers reusable pencils. In addition, the
Company sells a line of disposable blades used with electrosurgical pencils for
specific surgical applications, including cutting, coagulating and the resection
of diseased tissue.
Electrosurgical Ground Pads. The Company manufactures and markets
disposable ground pads in adult, pediatric and infant sizes as well as a ground
pad specifically designed for prematurely born or low birth-weight infants
(premies), the PREMIE Ground Pad. The Company believes that its PREMIE Ground
Pad is the only disposable ground pad specifically made and marketed for these
special patients. The Company also manufactures and markets ground pads
specifically designed for use with its Aspen Return Monitor alarm system
(A.R.M.), as well as alarm systems of competitive generators. Most of the
Company's ground pads are made with its proprietary conductive adhesive polymer.
Electrosurgical Generators. The Company offers both conventional
electrosurgical generators and the ABC(R), which combines conventional
electrosurgical cutting and coagulation capabilities with the Company's patented
argon gas electrocoagulation technology. Most models include a safety alarm, the
A.R.M., which monitors the contact of the ground pad to the patient's skin
surface. Should the ground pad lose contact with the patient's skin, or a rise
in electrical resistance occur, the monitor will disable the electrosurgical
current until the problem is identified and corrected. Systems such as this
provide an increased level of safety to the patient.
The Company's line of conventional electrosurgical generators features
the EXCALIBUR(R) PLUS, which incorporates the A.R.M. and offers full-function
capabilities for both monopolar and bipolar applications, including general
surgery as well as thoracic, urologic, laparoscopic and neurosurgical
procedures. In addition to the EXCALIBUR(R) PLUS, the conventional generators
marketed by the Company include the SABRE(R) 2400, a full-feature generator
suitable for routine use in most surgical procedures, and the SABRE(R) 180, a
low-power generator for surgical procedures in a physician's office or clinic
setting.
Hyfrecator Plus(R) is a low-power electrosurgical generator
specifically designed for the physician's office based procedures, including
dermatology, plastic surgery, dental and oral surgery and otolaryngology. The
Hyfrecator Plus(R) is the latest model of Hyfrecator(R) generator that has been
marketed to physicians for over 50 years, and was acquired in the Birtcher
acquisition. The Company markets a line of accessories for the Hyfrecator
Plus(R).
Argon Beam Coagulation System. The Company's ABC(R) products include
specialized electrosurgical generators, specialized disposable handpieces and
ground pads. The Company's proprietary ABC(R) devices provide non-contact argon
gas electrocoagulation and conventional electrosurgical cutting and coagulation
capabilities. The models 6000 and 6400 ABC(R) generators offer automatic
gas-flow control as the power settings are increased or decreased, and a
full-function electrosurgical generator with integrated argon beam coagulation
capability. The Company's Beamer ABC(R) module is a gas cart which is used in
conjunction with an existing electrosurgical generator and is a lower cost
alternative to the fully featured ABC(R) system. The Beamer ABC(R) units work in
conjunction with the hospital's present electrosurgery unit.
Patient Care Division
The Company's patient care products consist of ECG monitoring
electrodes, intravenous flow controllers and catheter stabilization dressings,
wound care products and other miscellaneous products. During 1993, 1994 and
1995, net sales attributable to the Patient Care Division represented 55%, 44%
and 44%, respectively, of the Company's net sales.
ECG Monitoring
ECGs. An ECG is a representation of the electrical activity that
stimulates the contraction of the heart muscle. This electrical activity can be
detected by disposable electrodes which consist of a conductive element, a
conductive gel for contact to the skin and an adhesive backing material that
keeps the electrode adhered to the patient's skin for the required period of ECG
monitoring. ECG monitoring is used to diagnose irregularities in heart function.
Disposable ECG electrodes are placed on the patient's skin in various
patterns around the heart using 3, 5 or 10 electrodes per patient, depending
upon the specific type of monitoring technique. The electrodes provide a direct
contact to the skin surface by which the electrical activity of the heart can be
sensed and relayed to a special ECG monitor by way of its lead wire and cable
connections. ECG electrodes are used in the operating room and critical care
areas of hospitals and for diagnostic tests, including exercise stress testing
and ambulatory monitoring. Many ambulances and paramedic units have the
capability to monitor the ECG in emergency situations outside of the hospital.
ECG Monitoring Products. The Company has developed and markets ECG
electrodes for various patients and applications, including prematurely born
infants, diaphoretic patients, stress test monitoring, ambulatory monitoring and
special ECG electrodes for use in surgery. The strength of the product line lies
in specific design features that provide those characteristics required to
accurately detect the electrical signal and to remain in contact with the
patient's skin for extended periods of time. Several special monitoring
situations require electrodes that will not show a visible image under x-ray.
This will allow the patient to undergo special diagnostic or therapeutic
procedures with the use of x-ray and still have continuous monitoring of the
ECG. The Company has developed special electrodes for this purpose.
The Company also manufactures and markets ECG monitoring cables, lead
wire products and accessories. ECG cables and lead wires are products designed
to transmit ECG signals from the heart (converted into electrical signals by an
electrode) to an ECG monitor or recorder. Lead wires connected directly to the
electrodes are plugged into the patient end of the cable. Cables are designed to
accept from three to fifteen lead wires depending on the level of monitoring
required. The Company also manufactures and markets disposable defibrillation
pads for use in cardio defibrillation.
Intravenous Therapy
IVs. A large percentage of patients admitted to hospitals will undergo
some type of IV therapy where medical fluids or blood are introduced into the
patient's bloodstream. As part of the nursing care to the patient, the catheter
or needle must be stabilized onto the skin to prevent movement of the catheter,
as well as be covered with a dressing to keep the entry site free from bacterial
contamination. The volume and speed of fluids administered to the patient in
surgery or medical units must be controlled for proper infusion of the fluids.
Typically, the flow of these intravenous fluids is controlled either by an
electronic pump or gravity controller or by a manually operated clamping
mechanism.
Intravenous Therapy Products -- VENI-GARD(R) Catheter Stabilization
Dressing. VENI-GARD(R) is a disposable, sterile product designed to hold and
secure an IV needle or catheter in place. VENI-GARD(R) provides a protective,
sterile barrier over the entry site by incorporating a transparent,
semi-permeable membrane to allow an unobstructed view of the entry site with a
patented foam border to provide stabilization of the catheter. This membrane
also allows the evaporation of moisture vapor but is impermeable to outside
fluids. The VENI-GARD(R) product line also includes specialized products for
various applications in specialty segments of the IV therapy market including
those used in conjunction with Total Parenteral Nutrition (intravenous feeding)
and cardiovascular catheters, as well as NeoDerm(R) for use in stabilizing
epidural catheters.
Disposable IV Fluid Drip Rate Gravity Controllers. With the Master
Medical acquisition, the Company acquired Master Medical's line of disposable IV
fluid drip rate gravity controllers. These disposable devices are a
cost-effective alternative to electronic controllers or pumps. These devices are
available as add-on extension sets which are attached to the primary IV tubing
or as part of the full tubing set connecting the main IV bag to the patient's IV
catheter.
Wound Care Management
Wound Care. Wounds to the skin are referred to as acute, such as
surgical incisions and burns, or chronic, which are slow-healing conditions such
as chronic venous ulcers, pressure ulcers, diabetic ulcers and wounds from
various skin diseases. Traditionally, most open wounds have been treated with
"dry" dressings such as gauze or covered with various ointments. A recent trend
has been the use of occlusive dressings made from polymers called hydrocolloids
and hydrogels. These occlusive dressings keep the wound "moist" or hydrated in
order to promote healing. Wound care dressings are sold to hospitals as well as
to alternate care sites such as nursing homes and skilled nursing facilities.
Wound Care Products. As part of the NDM acquisition, the Company
expanded into the wound care market. NDM has developed a proprietary hydrogel
technology, which is currently manufactured and marketed under the name
ClearSite(R). It is a transparent wound dressing that consists of hydrogel and a
flexible, continuous polyurethane film covering. Because ClearSite(R) is
transparent, the health care provider is able to monitor the course of healing
without removing the wound dressing. ClearSite(R) absorbs wound exudate and, as
the gel begins to saturate, moisture vapor transpires into the atmosphere.
ClearSite(R) is able to absorb 2 1/2 times its weight in wound exudate and
maintain its structural integrity and wound healing capabilities for up to seven
days.
In 1994, NDM introduced its island dressing form of ClearSite(R). The
island dressing has a clear, breathable, pliable, adhesive polyurethane film
border. The Company also markets a wound care product called Hydrogauze(R),
which is a gauze-like material that has been impregnated with dehydrated
ClearSite(R) that hydrates upon contact with wound exudate. Hydrogauze(R)
combines the look and feel of gauze bandages with the wound healing advantages
of ClearSite(R) hydrogel.
Minimally-Invasive Surgery Division
Building on its expertise in electrosurgery, in 1991 the Company began
marketing its line of MIS products, consisting of electronic trocars and
multifunctional instruments. In 1993, 1994 and 1995, net sales attributable to
the Minimally-Invasive Surgery Division represented 2%, 2% and 3%, respectively,
of the Company's net sales.
Minimally-Invasive Surgery
MIS, or surgery performed without a major incision, results in less
trauma for the patient and produces important cost savings as a result of
reduced hospitalization and therapy. Laparoscopic surgery is an MIS procedure
performed on organs in the abdominal cavity such as the gallbladder, appendix
and female reproductive organs. During a laparoscopic procedure, devices called
"trocars" are used to puncture the abdominal wall and then removed, leaving in
place a trocar cannula. The trocar cannula provides access into the abdomen for
the camera systems and surgical instruments. The recent trend toward minimally
invasive surgery has led to the development of additional applications for
laparoscopic surgery that can utilize electrosurgery systems.
Electrosurgical Products for Laparoscopic Surgery
TroGARD(R), a proprietary electronically controlled trocar system for
laparoscopic surgery, incorporates a blunt-tipped version of a trocar
(ordinarily a sharp pointed surgical instrument that punctures the abdominal
wall) and an Electronic Trocar Monitor ("ETM") for making the puncture through
the body wall. The TroGARD(R) cuts through the body wall with electrosurgical
current rather than the sharp, pointed tips of conventional trocars. The ETM
automatically and immediately deactivates the electrosurgical generator when the
monitor senses that the trocar has entered the abdominal cavity. Simultaneously,
it sounds an audible alarm for the surgeon upon entry into the abdominal cavity.
The Company also markets the UNIVERSAL S/I (suction/irrigation) and
UNIVERSAL-PLUS laparoscopic instruments, specialized suction/irrigation
electrosurgical instrument systems for use in laparoscopic surgery, which
consist of a disposable handle and valve/control assembly with a system of
interchangeable, single-use, disposable cannulae and instrument tips. The
UNIVERSAL-PLUS offers the surgeon a choice of hand-control or foot-control of
electrosurgery with suction/irrigation controls conveniently located on the
handle of the instrument. The UNIVERSAL S/I laparoscopic instrument system
provides high flow suction/irrigation, without electrosurgical capability, to
fit the preferences of a wide range of surgeons and laparoscopic techniques. The
Company also markets electrosurgical pencils, suction/irrigation accessories,
laparoscopic scissors, active electrodes, insufflation needles and ABC(R)
handpieces for use in laparoscopic surgery.
Marketing
The principal markets for the Company's products are the approximately
5,300 general hospitals and approximately 1,800 surgery centers in the United
States. Certain of the Company's products are sold to others in the medical
industry for private labeling. The total domestic sales and marketing force
consists of approximately 100 persons. The Company's salespeople have been with
the Company an average of five years.
The Company has located its salespeople (territory managers) in key
metropolitan areas. They are supervised and supported by district managers and
regional managers. Home office sales and marketing management provide the
overall direction for the sales of the Company's products. The sales force is
required to work closely with distributors where applicable and to maintain
close relationships with end-users. Domestically, the Company's products are
sold through approximately 20 national and regional hospital distributors, 150
to 250 local distributors, and directly to hospitals.
The Company's domestic salesforce is structured into three groups,
Electrosurgical Systems, Patient Care and MIS. The Electrosurgical Systems
salesforce is responsible for selling the Company's electrosurgical products
which are typically used during surgical procedures. The Patient Care salesforce
is responsible for selling the Company's products which are typically used by
various patient care areas of a hospital. The primary patient care products are
ECG electrodes and the IV therapy products. The MIS salesforce is responsible
for selling the Company's laparoscopic products.
The Company's international sales efforts are conducted by five
international marketing managers. International sales accounted for 15.5% of the
Company's sales during 1995. Among the top foreign markets for the Company are
Japan, Germany, Canada, China and Korea. International sales grew in 1994 in all
regions and sales growth continued in 1995, with the strongest sales gains in
China and the Far East.
The Company focuses on keeping its salespeople highly trained and
educated in the applications for its products. The Company's salespeople call on
key departments such as the surgery, intensive care, cardiac care and neonatal
intensive care units and the emergency room. Therefore, it is essential that the
sales force has the ability to train doctors and nursing staff on the techniques
needed to take full advantage of the Company's products. A key element in the
sale of any Company product is the initial and ongoing inservice training
required of the end-user. The hiring criteria of the Company's salespeople
include requiring them to have a background in the sale of medical devices. The
field sales force is trained in the technical aspects of the Company's products
and their uses, and provides hospital personnel and surgeons with information
relating to the technical features and benefits of the Company's products.
Research and Development Activities
The Company's research and development department consists of
approximately 35 employees. The Company's research and development programs are
focused on the development of new products, as well as the enhancement of
existing products through the updating of technology and design. Product
development efforts include product extensions and improvements, electrosurgical
applications in MIS procedures and other single use medical products. During the
three years 1993, 1994 and 1995, the Company spent approximately $2,222,000,
$2,352,000 and $2,832,000, respectively, for research and development.
The Company has approximately 146 U.S. patents and numerous
corresponding foreign patents on its products expiring at various dates from
1996 through 2013 and has additional patents pending. Due to technological
change, the Company does not solely rely on its patents, but believes that
development of new products and improvement of existing ones is and will be
generally more important than patent protection in maintaining its competitive
position.
New Products
At the American College of Surgeons meeting in October 1995, the
Company introduced four new products. The EXCALIBUR(R) PLUS/PC (Power Control)
is the most recent generation of the Company's EXCALIBUR(R) generator and
incorporates a unique feature not previously seen in electrosurgical generators.
The EXCALIBUR(R) PLUS/PC has been designed with a special software program that
allows the surgeon to use any standard hand-controlled pencil or instrument to
directly increase or decrease the power settings of the generator. The Company
believes this is the first technology of its kind applied to electrosurgery and
has applied for patent protection. The Company began marketing EXCALIBUR(R)
PLUS/PC in January 1996.
The Company has extended its line of electrosurgical instruments for
laparoscopic surgery with its SELECT ONE(R) Monopolar Laparoscopic Scissors. The
laparoscopic scissors are single-use and disposable. The Company released this
product in early November 1995.
The third product introduced at the College of Surgeons meeting was the
disposable smoke evacuation pencil. This electrosurgical pencil has specially
designed channels to remove the smoke plume, generated by the cutting and
coagulation of tissue, from the surgical field. This feature addresses the
concerns of health care givers toward certain potential health hazards from
prolonged exposure to possible contaminants carried by the smoke plume generated
by the use of electrosurgery and lasers. The Company began the marketing of this
product in January 1996.
The BEAMER PLUS ABC(R) module is an updated design of the Company's
current stand-alone ABC(R) module, the BEAMER(R). The BEAMER PLUS adds increased
flow capabilities and flow control for use in laparoscopic surgery. The BEAMER
PLUS is a more economical unit for providing argon beam coagulation capability
to most electrosurgical generators. The Company began marketing the BEAMER PLUS
in January 1996.
Manufacturing and Supply Arrangements
The Company manufactures or assembles most of its products at its own
facilities. The Company's vertically integrated manufacturing process allows it
to (i) obtain cost efficiencies by purchasing raw materials for its disposable
products in bulk and converting those materials into the parts and pieces used
in final assembly and (ii) react quickly to changes in demand for the Company's
products. The Company believes that its manufacturing capabilities are
significant in terms of cost control, quality control and security of
proprietary processes. The Company uses various manual, semi-automated and
automated equipment for fabrication and assembly of its products and is
continuing to further automate its facilities to remain competitive.
The Company believes its production and inventory practices are
generally reflective of conditions in the industry. The Company's products are
not generally made to order or to individual customer specifications.
Accordingly, the Company schedules production and stocks inventory on the basis
of experience and its knowledge of customer order patterns, and its judgment as
to anticipated demand. Since customer orders must generally be filled promptly
for immediate shipment, backlog is not significant to an understanding of the
Company's business.
In connection with the NDM acquisition, the Company agreed to assume
all of NDM's obligations under NDM's distribution agreement with Baxter
Healthcare Corporation ("Baxter"). Under the distribution agreement, which
Baxter has assigned to the Company, Baxter has the non-exclusive right to sell
and distribute NDM's critical care products and patient care products throughout
the United States. The agreement is effective until December 31, 1996 and is
subject to renewal, unless terminated by either party. Baxter is the largest
distributor of NDM's products, accounting for approximately 95% of NDM's sales
to U.S. hospitals.
Competition
The market for the Company's products is competitive. The Company faces
competition from other manufacturers and from suppliers of products employing
other technologies. Competitive pricing pressures or the introduction of new
products by the Company's competitors could have an adverse effect on the
Company's revenues and profitability. In addition, the Company operates in an
industry that engages in extensive research efforts. Some of the companies with
which the Company now competes or may compete in the future have or may have
more extensive research, marketing and manufacturing capabilities and
significantly greater technical and personnel resources than the Company, and
may be better positioned to continue to improve their technology in order to
compete in an evolving industry. The major competitors of the Company include
ValleyLab (a division of Pfizer), 3M Corporation, Johnson & Johnson and U.S.
Surgical Corporation.
The Company believes that product design, development and improvement,
customer acceptance, marketing strategy, customer service and price are critical
elements to compete in the industry. Demand for and use of the Company's
electrosurgical equipment may fluctuate as a result of changes in surgeon
preferences, the introduction of new electrosurgery products or new features to
existing products, the introduction of alternative surgical technology and
advances in surgical procedures and discoveries or developments in the health
care industry. In addition, the growing trend toward managed care has increased
cost-containment efforts of hospital purchasing departments. There can be no
assurances that demand for the Company's products will not be adversely affected
by such fluctuations and trends.
Government Regulation
All the Company's products are classified as medical devices subject to
regulation by the FDA. The Company's new products require FDA clearance under a
procedure known as 510(k) premarketing notification. A 510(k) premarketing
notification clearance indicates FDA agreement with an applicant's determination
that the product for which clearance has been sought is substantially equivalent
to another medical device that was on the market prior to 1976 or that has
received 510(k) premarketing notification clearance. Some products have been
continuously produced, marketed and sold since May 1976 and require no 510(k)
premarketing clearance. The Company's products are all either Class I or Class
II products with the FDA, meaning that the Company's products must meet certain
FDA standards and are subject to the 510(k) premarketing notification clearance
discussed above, but are not required to be approved by the FDA. FDA clearance
is subject to continual review, and later discovery of previously unknown
problems may result in restrictions on a product's marketing or withdrawal of
the product from the market.
The Company markets its products in a number of foreign markets.
Requirements pertaining to its products vary widely from country to country,
ranging from simple product registrations to detailed submissions such as those
required by the FDA. The Company's European Community sales are subject to
government regulations known as the "CE" mark certification. The Company's
electronic devices (electrosurgical generators, Hyfrecators(R) and ABC(R) units)
have received a "CE" mark certification. The Company believes that its products
currently meet all applicable standards for the countries in which they are
marketed.
As a manufacturer of medical devices, the Company's manufacturing
processes and facilities are subject to periodic on-site inspections and
continuing review by the FDA to insure compliance with "Good Manufacturing
Practices." Many of the Company's products are subject to industry-set
standards. Industry standards relating to the Company's products are generally
formulated by committees of the Association for the Advancement of Medical
Instrumentation. The Company believes that its products presently meet
applicable standards.
The Company is subject to product recall. In March 1993, the Company
voluntarily recalled certain lots of its TechSwitch electrosurgical pencils due
to a production matter which caused a small percentage of the pencils in the
affected lots to function in an inconsistent manner. The production matter was
resolved and did not have a material effect on the Company's financial
condition.
Any change in existing federal, state or foreign laws or regulations,
or in the interpretation or enforcement thereof, or the promulgation or any
additional laws or regulations could have an adverse effect on the Company's
financial condition or results of operations.
Employees
As of December 29, 1995 the Company had 876 full-time employees, of
whom 631 were in manufacturing, 35 were in research and development, and the
balance were in sales, marketing, executive and administrative positions. None
of the Company's employees is represented by a union, and the Company considers
its employee relations to be excellent. The Company has never experienced any
strikes or work stoppages.
Item 2. Properties
The Company operates in Utica, New York from an owned facility of
approximately 130,000 square feet and in Rome, New York from a leased facility
of approximately 120,000 square feet. Additionally, the Aspen subsidiary
operates from an owned facility of approximately 65,000 square feet of space in
Englewood, Colorado; the Birtcher subsidiary leases a 15,000 square foot
warehouse and distribution center in El Paso, Texas pursuant to a lease that
expires in May 1997 and a 25,000 square foot manufacturing facility in Juarez,
Mexico pursuant to a lease that expires in June 1998; and the NDM business is
operated from an owned facility of approximately 100,000 square feet in Dayton,
Ohio. The Company believes its facilities are adequate in terms of space and
suitability for its needs over the next several years.
Item 3. Legal Proceedings
From time to time the Company is a defendant in certain lawsuits
alleging product liability or other claims incurred in the ordinary course of
business. These claims are generally covered by various insurance policies,
subject to certain deductible amounts and maximum policy limits.
The Company's Birtcher subsidiary is voluntarily participating in an
environmental investigation at its former facility in El Monte, California. The
former facility is located in the El Monte Operable Unit of the San Gabriel
Valley Superfund Site. The Environmental Protection Agency has not named
Birtcher as a Potentially Responsible Party in this matter. In connection with
its accounting for the Birtcher acquisition, the Company has established what it
believes is an appropriate reserve for this matter. Such reserve is the subject
of an adjustment in the purchase accounting for the Birtcher acquisition. The
Company does not expect that the resolution of the environmental investigation
will have a material adverse effect on the Company's financial condition and
results of operations.
The Company's ABC(R) technology is protected by patents in the United
States, Canada, United Kingdom, Germany and Japan. Three separate companies have
filed challenges to the validity of the United Kingdom, German and Japanese
patents. The Company is vigorously defending the validity of these patents in
those jurisdictions.
Manufacturers of medical products may face exposure to significant
product liability claims. To date, the Company has not experienced any material
product liability claims, but any such claims arising in the future could have a
material adverse effect on the Company's business or results of operations. The
Company currently maintains commercial product liability insurance of
$10,000,000 per incident and $10,000,000 in the aggregate annually, which the
Company, based on its experience, believes is adequate. This coverage is on a
claims-made basis. There can be no assurance that claims will not exceed
insurance coverage or that such insurance will be available in the future at a
reasonable cost to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 29, 1995.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock, par value $.01 per share, is traded on the
Nasdaq National Market System (symbol - CNMD). At December 29, 1995, there were
1,365 owners of record of the Company's Common Stock.
The following table show the high-low last sales prices for the years
ended December 30, 1994 and December 29 1995, as reported by the Nasdaq National
Market. The sales prices have been adjusted to give retroactive effect to the
three-for-two stock splits in the form of stock dividends paid on December 27,
1994 and November 30, 1995.
1994
----
Period High Low
- ------ ------ ------
First Quarter $ 6.89 $ 4.44
Second Quarter 6.44 5.11
Third Quarter 8.44 5.56
Fourth Quarter 13.67 8.00
1995
----
Period High Low
- ------ ------ ------
First Quarter $15.17 $11.17
Second Quarter 16.67 9.67
Third Quarter 23.33 15.67
Fourth Quarter 25.00 20.25
The Company did not pay cash dividends on its Common Stock during 1994
and 1995. The Board of Directors presently intends to retain future earnings to
finance the development of the Company's business and does not presently intend
to declare cash dividends. Should this policy change, the declaration of
dividends will be determined by the Board in light of conditions then existing,
including the Company's financial requirements and condition and provisions
affecting the declaration and payment of dividends contained in debt agreements.
Item 6. Selected Financial Data
FIVE - YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
1991 1992 1993(2) 1994 1995
-------- -------- -------- -------- --------
Consolidated Statements of Income (Loss)(1)
- -------------------------------------------
Net sales ................................. $ 38,458 $ 42,602 $ 53,641 $ 71,064 $ 99,558
Net income (loss) ......................... 3,945 4,106 (1,396) 5,416 10,863
Earnings (loss) per share(3) .............. .46 .42 (.15) .56 .94
Weighted average number of shares
and equivalents outstanding(3) ........ 8,526 9,702 9,426 9,624 11,613
Consolidated Balance Sheet(1)
- -----------------------------
Working capital ........................... $ 22,094 $ 23,827 $ 15,399 $ 18,159 $ 37,350
Total assets .............................. 38,338 41,939 57,338 62,104 119,403
Long-term debt (less current portion) ..... 107 30 9,375 6,875 26,340
Shareholders' equity ...................... 33,951 38,669 37,490 43,061 75,002
(1) Includes the results of (i) CONMED Andover Medical from July 12, 1993; (ii)
Birtcher from March 14, 1995; and Master Medical from May 22, 1995, in each
such case from the date of acquisition.
(2) Includes litigation charge of $5,000 relating to a patent infringement case
involving CONMED's line of coated electrosurgical accessory blades and a
product restructure charge of $675 for the write-off of obsolete inventory,
net of related tax benefit of $1,930.
(3) Share and per share information have been adjusted to give retroactive
effect to the three-for-two stock splits the form of stock dividends paid to
shareholders on December 27, 1994 and November 30, 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
Results of Operations
The following table presents, as a percent of net sales, certain
categories included in the Company's consolidated statements of income for the
periods indicated:
Years Ended
December 31, December 30, December 29,
1993 1994 1995
----- ----- -----
Net sales .................................. 100.0% 100.0% 100.0%
Operating expense:
Cost of sales ........................... 56.3 54.6 52.6
Selling and administrative expense ...... 32.4 29.5 25.7
Litigation and product restructure ...... 10.6 -- --
Research and development expense ........ 4.2 3.3 2.9
Income (loss) from operations .............. (3.5) 12.6 18.8
Interest income (expense), net ............. (0.4) (0.9) (2.0)
Income (loss) before income taxes .......... (3.9) 11.7 16.8
Net income (loss) .......................... (2.6) 7.6 10.9
Years Ended December 29, 1995 and December 30, 1994
The Company had net sales of $99,558,000 for 1995 as compared to
$71,064,000 in 1994, an increase of $28,494,000 or 40.1%. The increase was
substantially a result of the effects of the Birtcher and Master Medical
acquisitions.
The Company's gross margin percentage was 47.4% in 1995 as compared to
45.4% in 1994. This increase was primarily a result of manufacturing
efficiencies and economies of scale realized through the Birtcher and Master
Medical acquisitions. On a quarterly basis, gross margin percentage for the
first quarter of 1995 was 45.7% and approximated 47.8% for each of the remaining
three quarters of 1995.
Selling and administrative expense increased to $25,570,000 during 1995
compared to $20,979,000 in 1994, an increase of $4,591,000 or 21.9%, due
primarily to the effects of the Birtcher and Master Medical acquisitions.
However, as a percentage of net sales, selling and administrative expense
declined to 25.7% in 1995 as compared to 29.5% in 1994, due to the economies of
scale resulting from the acquisitions of Birtcher and Medical Medical.
Research and development expense increased 20.4% to $2,832,000 in 1995
as compared to $2,352,000 in 1994. Research and development expenditures for
1995 reflect increased activities relative to integration and further
development of Birtcher products, as well as the continued emphasis on the
development of surgical products for MIS procedures.
The Company incurred $1,991,000 in interest expense in 1995 compared to
$628,000 in 1994. This increase reflects the incremental debt incurred as a
result of the Birtcher and Master Medical acquisition.
The Company's effective tax rate for 1995 was 35.2% as compared to
34.8% in 1994.
Years Ended December 30, 1994 and December 31, 1993
Net sales in 1994 increased to $71,064,000 compared to $53,641,000 in
1993, an increase of 32.5%. Approximately 75% of the total increase was a
function of the Andover Medical acquisition that occurred on July 12, 1993. Net
sales of CONMED Andover Medical's products are included with the Company's
consolidated sales for all of 1994 but for only one-half of 1993. The remainder
of the increase was a result of increased volumes of product sold.
The gross margin percentage increased to 45.4% in 1994 compared to
43.7% in 1993. This increase in gross margin is a result of increasing economies
of scale and manufacturing efficiencies. During 1994, the Company consolidated
its ECG wire and plastic molding operations in one location, and this reduced
manufacturing expense as a percentage of net sales.
Selling and administrative expense increased 20.6% to $20,979,000 from
$17,402,000 as a result of increased sales activity. However, as a percentage of
net sales, selling and administrative expense declined to 29.5% in 1994 compared
to 32.4% in 1993. This improvement in selling and administrative expense as
compared to net sales was a result of economies of scale resulting from the
increased level of net sales and cost improvement programs including
consolidation of customer service and realignment of sales territories after the
Andover Medical acquisition.
During 1993, the Company recorded a pre-tax charge of $5,700,000 for
litigation and product restructure costs. No such costs were incurred in 1994.
Research and development expense increased 5.9% in 1994 compared to
1993. The Company continues to conduct research activities in all of its product
lines, with a particular emphasis on surgical products for MIS procedures.
Net interest expense increased to $628,000 in 1994 from $214,000 in
1993. The increase was primarily a result of the Andover Medical acquisition
indebtedness being outstanding for an entire year in 1994 and only approximately
one-half year in 1993. Further, 1993 had higher interest income amounts than
1994 as the Company had higher invested cash balances in the first half of 1993
prior to the Andover Medical acquisition.
The Company's effective tax rate in 1994 was 34.8% reflecting the
federal statutory rate of 34%, the effect of state income taxes and the tax
benefit of a foreign sales corporation.
Liquidity and Capital Resources
Cash flow from operations was $5,059,000 for 1995 as compared to
$8,260,000 provided from operations in 1994. Operating cash flows for 1995 were
aided by higher net income as compared to 1994. Additionally, depreciation and
amortization in 1995 increased due to the effects of the Birtcher and Master
Medical acquisitions. Cash flows from operations in 1995 were negatively
impacted by increases in accounts receivable and inventories, and the timing of
payments for income taxes. The increases in accounts receivable and inventories
relate primarily to working capital requirements associated with the Birtcher
and Master Medical acquisitions. Additionally, payment of the patent litigation
award also adversely impacted 1995 operating cash flows.
Cash flows from operations were $8,260,000 for 1994 compared to
$5,673,000 for 1993. Operating cash flows in 1994 were impacted by higher net
income as well as increased depreciation expense and amortization caused by the
Andover Medical acquisition. Additionally, accruals for payroll and withholding
increased $1,327,000, causing a positive addition to operating cash flows for
1994. Accounts receivable increases of $1,684,000 and inventory increases of
$619,000 partially offset increases in cash flow from operations in 1994, and
are due to increased working capital requirements of the Company's expanded
business.
Net cash used by investing activities was $14,695,000 in 1995 compared
to $4,190,000 in 1994. The Master Medical acquisition utilized $9,500,000 of
cash. Additions to property, plant and equipment for 1995 totaled $5,195,000.
Included in this amount was the purchase of land and a building for the
relocation of CONMED Andover Medical to Rome, New York, for $1,200,000 for
manufacturing purposes.
The Company purchased $2,190,000 of new plant and equipment, and
invested $2,000,000 to purchase an ECG product line from Becton Dickinson
Vascular Access Inc. during 1994, resulting in a net use of cash for investing
activities. Financing activities resulted in a net use of cash as the Company
repaid $2,530,000 in long-term debt during 1994.
Cash flows provided by financing activities were $7,560,000 for 1995.
The Company refinanced its existing bank debt and received $26,590,000 in
additional proceeds. Payments on debt and other obligations included $4,371,000
on the Company's debt, $5,846,000 to Birtcher's bank to liquidate debt assumed
in connection with the Birtcher acquisition and $12,141,000 to liquidate other
Birtcher liabilities assumed in connection with the acquisition.
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. As of December 29, 1995, an aggregate of $32,340,000
was outstanding under this facility. 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. In March 1996, the Company
consummated an equity offering of common stock and used 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. This revolving line of credit terminates in
March 2001 and carries an interest rate of 0.5% - 1.25% over LIBOR depending on
defined cash flow performance ratios. As of March 20, 1996, the Company had no
borrowings under this facility.
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.
Inflation
Management does not believe that inflation has had or is likely to have
any significant impact on the Company's operations.
Item 8. Financial Statements and Supplementary Data
The Company's 1995 Financial Statements, together with the report
thereon of Price Waterhouse LLP dated January 29, 1996, included elsewhere
herein. See Item 14 for a list of Financial Statements and Financial Statement
Schedules.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
The Company and Price Waterhouse LLP have had no disagreements which
would be required to be reported under this Item 9.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the Directors and Executive Officers of the
Company is incorporated herein by reference to the sections captioned "Proposal
One: Election of Directors" and "Directors and Executive Officers" in CONMED
Corporation's definitive Proxy Statement to be mailed on or about April 12, 1996
for the annual meeting of shareholders to be held on May 21, 1996.
Item 11. Executive Compensation
Information with respect to Executive Compensation is incorporated
herein by reference to the sections captioned "Compensation of Executive
Officers", "Stock Option Plans", and "Pension Plans" in CONMED Corporation's
definitive Proxy Statement to be mailed on or about April 12, 1996 for the
annual meeting of shareholders to be held on May 21, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to Security Ownership of Certain Beneficial
Owners and Management is incorporated herein by reference to the section
captioned "Security Ownership of Certain Beneficial Owners and Management" in
CONMED Corporation's definitive Proxy Statement to be mailed on or about April
12, 1996 for the annual meeting of shareholders to be held on May 21, 1996.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
incorporated herein by reference to the section captioned "Certain Relationships
and Related Transactions" in CONMED Corporation's definitive Proxy Statement to
be mailed on or about April 12, 1996 for the annual meeting of shareholders to
be held on May 21, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Index to Financial Statements:
(a)(1) List of Financial Statements Form 10-K Page
Report of Independent Accountants
Consolidated Balance Sheets at December 30, 1994 and December 29, 1995
Consolidated Statements of Income for the years ended December 31, 1993,
December 30, 1994, and December 29, 1995
Consolidated Statements of Shareholders' Equity for each of the years
ended December 31, 1993, December 30, 1994, and December 29, 1995
Consolidated Statements of Cash Flows for each of the years ended
December 31, 1993, December 30, 1994, and December 29, 1995
Notes to Consolidated Financial Statements
(2) List of Financial Statement Schedules
Valuation and Qualifying Accounts (Schedule VIII)
All other schedules have been omitted because they are not applicable, or
the required information is shown in the financial statements or notes
thereto.
(3) List of Exhibits
The exhibits listed on the accompanying Exhibit Index on pages 20-21
below are filed as part of this Form 10-K.
(b) Reports on Form 8-K
(1) On October 20, 1995, the Company filed a report on Form 8-K regarding a
press release issued in connection with the anticipated acquisition of a
business.
(2) On December 21, 1995 and February 16, 1996, the Company filed reports on
Form 8-K which included the historic financial statements of a business
being acquired.
(3) 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.
(4) 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 Section 13 or 15(d) 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 on the date indicated
below.
CONMED CORPORATION
March 28, 1996
By: /s/ EUGENE R. CORASANTI
--------------------------
Eugene R. Corasanti
(Chairman of the Board,
Chief Executive Officer
and President)
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrants and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board,
Chief Executive Officer,
President (Principal
/s/ EUGENE R. CORASANTI Executive Officer) and
Eugene R. Corasanti Director March 28, 1996
Vice President-Finance
/s/ ROBERT D. SHALLISH, JR. and Chief Financial Officer March 28, 1996
Robert D. Shallish, Jr. (Principal Financial Officer)
/s/ JOSEPH J. CORASANTI Vice President-Legal Affairs, March 28, 1996
Joseph J. Corasanti General Counsel and Director
/s/ LUKE A. POMILIO Controller March 28, 1996
Luke A. Pomilio (Principal Accounting Officer)
/s/ HARRY CONE Director March 28, 1996
Harry Cone
/s/ BRUCE F. DANIELS Director March 28,1996
Bruce F. Daniels
/s/ ROBERT E. REMMELL Director March 28, 1996
Robert E. Remmell
List of Exhibits
Exhibit No. Description of Instrument
3.1 - Amended and Restated By-Laws, as adopted by the Board of
Directors on December 26, 1990 -- incorporated herein by
reference to the exhibit in the Company's Current Report
on Form 8-K, dated March 7, 1991 (File No. 0-16093).
3.2 - 1992 Amendment to Certificate of Incorporation and
Restated Certificate of Incorporation of CONMED Corporation
-- incorporated herein by reference to the exhibit in the
Company's Annual Report on Form 10-K for the year ended
December 25, 1992.
4.1 - See Exhibit 3.1.
4.2 - See Exhibit 3.2.
4.3 - Warrant to Purchase Common Stock, dated August 31, 1989,
issued by the Company to Zimmer, Inc. covering 300,000
shares of Common Stock -- incorporated herein by reference
to Exhibit 4.6 of the Company's Registration Statement on
Form S-2 (File No. 33-40455).
4.4 - Credit Agreement-Term Loan Facility dated as of December
29, 1995 among CONMED Corporation, the Banks signatory
thereto, and The Chase Manhattan Bank, N.A., as agent -
incorporated herein by reference to Exhibit 99.1 of the
Company's current report on Form 8-K filed February 16,
1996.
4.5 - Credit Agreement-Revolving Credit Facility dated as of
December 29, 1995 among CONMED Corporation, the Banks
signatory thereto, and The Chase Manhattan Bank, N.A., as
agent - incorporated herein by reference to Exhibit 99.2 of
the Company's current report on Form 8-K filed February 16,
1996.
10.1 - Asset Purchase Agreement dated June 10, 1993 among
Medtronic Andover Medical, Inc. and Medtronic, Inc. and
CONMED Acq. Inc. and CONMED Corporation -- incorporated
herein by reference to Exhibit 2 to Form 8-K dated June 11,
1993.
10.2 - Employment Agreement between the Company and Eugene R.
Corasanti, dated October 17, 1991, and Amendment thereto
dated March 6, 1992 -- incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended
December 27, 1991.
10.3 - Amended and Restated Employee Stock Option Plan (including
form of Stock Option Agreement)--incorporated herein by
reference to the exhibit in the Company's Annual Report on
Form 10- K for the year ended December 25, 1992.
10.4 - (a) Eugene R. Corasanti disability income plans with
Northwestern Mutual Life Insurance Company, dated January
14, 1980 and March 7, 1981 -- policy specification sheets
-- incorporated herein by reference to Exhibit 10.9(a) of
the Company's Registration Statement on Form S-2 (File No.
33-40455).
(b) William W. Abraham disability income plan with Northwestern
Mutual Life Insurance Company, dated March 24, 1981 --
policy specification sheet -- incorporated herein by
reference to Exhibit 10.9(b) of the Company's Registration
Statement on Form S-2 (File No. 33-40455).
(c) Eugene R. Corasanti life insurance plan with Northwestern
Mutual Life Insurance Company, dated October 6, 1979 --
policy specification sheet -- incorporated herein by
reference to Exhibit 10.9(c) of the Company's Registration
Statement on Form S-2 (File No. 33-40455).
(d) Eugene R. Corasanti life insurance plans with Northwestern
Mutual Life Insurance Company dated August 25, 1991 --
Statements of Policy Cost and Benefit Information, Benefits
and Premiums, Assignment of Life Insurance Policy as
Collateral -- incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended
December 27, 1991.
10.5 - 1992 Stock Option Plan (including form of Stock Option
Agreement). -- incorporated herein by reference to the
exhibit in the Company's Annual Report on Form 10-K for the
year ended December 25, 1992.
10.6 - Plan and Agreement of Merger dated as of December 5, 1994
among the Company, CONMED Acquisition Corporation and
Birtcher Medical Systems, Inc. - incorporated herein by
reference to appendix A of the Company's registration
statement on S-4 (File No. 33-87746)
10.7 - Asset Purchase Agreement by and between New Dimensions In
Medicine, Inc. and CONMED Corporation dated as of the 18th
day of October 1995 - incorporated herein by reference to
New Dimensions In Medicine, Inc's. (Commission File No.
1-09156) Report on Form 8-K dated October 18, 1995.
10.8 - Non-Exclusive Distribution Agreement effective as of
January 1, 1995 between New Dimensions In Medicine, Inc.
(NDM) and Baxter Healthcare Corporation, as assigned by NDM
to CONMED Corporation on February 23, 1996.
11 - Statement regarding computation of per share earnings.
21 - Subsidiaries of the registrant.
23 - Consent of Independent Accountants.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of CONMED Corporation
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) and (2) on page 18 of the Annual Report on
Form 10-K present fairly, in all material respects, the financial position of
CONMED Corporation and its subsidiaries at December 29, 1995 and December 30,
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 29, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Syracuse, New York
January 29, 1996
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
ASSETS 1994 1995
- ------ -------- --------
Current assets:
Cash and cash equivalents ........................ $ 3,615 $ 1,539
Accounts receivable less allowance for
doubtful accounts of $343 in 1994 and
$400 in 1995 .................................... 13,141 22,649
Income taxes receivable (Note 6) .................. 961
Inventories (Notes 1 and 2) ....................... 9,620 20,943
Deferred income taxes (Note 6) .................... 1,494 2,678
Prepaid expenses and other current assets ......... 451 476
-------- --------
Total current assets ................. 28,321 49,246
Property, plant and equipment, net (Notes 1 and 3) .... 16,227 19,728
Deferred income taxes (Note 6) ......................... -- 2,907
Covenant not to compete, net (Note 1) .................. 1,530 1,153
Goodwill, net (Notes 1 and 10) ......................... 13,920 41,438
Patents, trademarks and other assets (Note 1) .......... 2,106 4,931
-------- --------
Total assets ......................... $ 62,104 $119,403
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4) ........ $ 2,500 $ 6,000
Accounts payable .................................. 1,539 2,351
Income taxes payable (Note 6) ..................... 455 --
Accrued payroll and withholdings .................. 2,571 2,282
Accrued pension (Note 9) .......................... 307 274
Accrued patent litigation (Note 11) ............... 2,360 --
Other current liabilities ......................... 430 989
-------- --------
Total current liabilities ........... 10,162 11,896
Long-term debt (Note 4) ................................ 6,875 26,340
Deferred income taxes (Note 6) ......................... 1,011
Accrued pension (Note 9) ............................... 276 276
Deferred compensation .................................. 719 868
Long-term leases (Note 5) .............................. 3,521
Other long-term liabilities (Note 5) ................... 1,500
-------- --------
Total liabilities .................. 19,043 44,401
-------- --------
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS -- Continued
(In thousands except share amounts)
1994 1995
-------- --------
Commitments (Notes 3, 5, 7, 9, 10 and 11)
Shareholders' equity (Notes 1 and 7):
Preferred stock, par value $.01 per share;
authorized 500,000 shares; none outstanding
Common stock, par value $.01 per share;
20,000,000 authorized; 9,057,321 and
11,000,105, issued and outstanding in
1994 and 1995, respectively ................... 90 110
Paid-in capital .................................... 23,502 44,560
Retained earnings .................................. 19,469 30,332
-------- --------
Total shareholders' equity ......... 43,061 75,002
-------- --------
Total liabilities and
shareholders' equity .......... $ 62,104 $119,403
======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
For the Years Ended
Dec. 31, 1993 Dec. 30, 1994 Dec. 29, 1995
------------- ------------- -------------
Net sales (Note 8) .......................... $ 53,641 $ 71,064 $ 99,558
Cost of sales ............................... 30,218 38,799 52,402
Selling and administrative expense .......... 17,402 20,979 25,570
Litigation and product restructure (Note 11) 5,700 -- --
Research and development expense ............ 2,222 2,352 2,832
-------- -------- --------
55,542 62,130 80,804
-------- -------- --------
Income (loss) from operations ............... (1,901) 8,934 18,754
Interest expense, net (Note 4) .............. (214) (628) (1,991)
-------- -------- --------
Income (loss) before income taxes ........... (2,115) 8,306 16,763
Provision (benefit) for income taxes
(Notes 1 and 6) .......................... (719) 2,890 5,900
-------- -------- --------
Net income (loss) ........................... $ (1,396) $ 5,416 $ 10,863
======== ======== ========
Weighted average number of common shares
and equivalents outstanding (Note 1) .... 9,426 9,624 11,613
======== ======== ========
Earnings (loss) per common and
common equivalent share ................. $ (.15) $ .56 $ .94
======== ======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1993, December 30, 1994 and December 29, 1995
(In thousands)
Common Shares
------------------------ Paid-in Retained
Number Amount Capital Earnings
-------- -------- -------- --------
Balance at December 25, 1992 ....................... 8,947 $ 90 $ 23,129 $ 15,450
Exercise of stock options ........................ 80 -- 203 --
Tax benefit arising from exercise of stock options -- -- 14 --
Net loss ......................................... -- -- -- (1,396)
-------- -------- -------- --------
Balance at December 31, 1993 ....................... 9,027 90 23,346 14,054
Exercise of stock options ........................ 30 -- 97 --
Tax benefit arising from exercise of stock options -- -- 59 --
Cash payment in lieu of fractional shares for
stock split in the form of a stock dividend .. -- -- -- (1)
Net income ...................................... -- -- -- 5,416
-------- -------- -------- --------
Balance at December 30, 1994 ....................... 9,057 90 23,502 19,469
Exercise of stock options ........................ 353 4 2,096 --
Tax benefit arising from exercise of stock options -- -- 1,223 --
Stock issued in connection with Birtcher
acquisition (Note 10) ....................... 1,590 16 17,739 --
Net income ....................................... -- -- -- 10,863
-------- -------- -------- --------
Balance at December 29, 1995 ....................... 11,000 $ 110 $ 44,560 $ 30,332
======== ======== ======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended
Dec. 31, 1993 Dec. 30, 1994 Dec. 29, 1995
------------- -------------- -------------
Cash flows from operating activities:
Net income (loss) .............................................................. $ (1,396) $ 5,416 $ 10,863
-------- -------- --------
Adjustments to reconcile net income to net cash provided by operations:
Depreciation ............................................................ 2,209 2,457 2,861
Amortization ............................................................ 1,053 1,421 2,154
Increase (decrease) in cash flows from changes in assets and liabilities,
net of effects from acquisitions (Note 10):
Accounts receivable ................................................. (100) (1,684) (3,943)
Inventories ......................................................... 1,634 (619) (4,311)
Prepaid expenses and other current assets ........................... 143 58 (25)
Accounts payable .................................................... 397 274 452
Income tax payable .................................................. (25) 394 (2,659)
Income tax benefit of stock option exercises ........................ 14 59 1,233
Accrued payroll and withholdings .................................... 226 1,327 (487)
Accrued pension ..................................................... 342 (147) (33)
Accrued patent litigation ........................................... 2,715 (355) (2,360)
Other current liabilities ........................................... (345) (210) 559
Deferred income taxes ............................................... (1,236) 182 1,398
Other assets/liabilities (net) ...................................... 42 (313) (643)
-------- -------- --------
7,069 2,844 (5,804)
-------- -------- --------
Net cash provided by operations ..................................... 5,673 8,260 5,059
-------- -------- --------
Cash flows from investing activities:
Acquisitions (Note 10) .................................................... (21,800) (2,000) (9,500)
Acquisition of property, plant and equipment ............................. (1,506) (2,190) (5,195)
-------- -------- --------
Net cash used in investing activities ................................ (23,306) (4,190) (14,695)
-------- -------- --------
Cash flows from financing activities:
Proceeds of long term debt ................................................ 13,500 -- 26,590
Proceeds from issuance of common stock .................................... 203 97 3,328
Payments on long-term debt and other obligations .......................... (1,702) (2,530) (22,358)
-------- -------- --------
Net cash provided (used) by financing activities ..................... 12,001 (2,433) 7,560
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .............................. (5,632) 1,637 (2,076)
Cash and cash equivalents at beginning of year .................................... 7,610 1,978 3,615
-------- -------- --------
Cash and cash equivalents at end of year .......................................... $ 1,978 $ 3,615 $ 1,539
======== ======== ========
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(In thousands)
For the Years Ended
Dec. 31, 1993 Dec. 30, 1994 Dec. 29, 1995
------------- -------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................................................. $ 294 $ 641 $ 1,876
Income taxes ............................................................. 682 2,470 2,466
Supplemental non-cash investing and financing activities:
As more fully discussed in Note 10, the Company acquired a business in 1995
through the exchange of 1,590,000 shares of the Company's common stock and the
assumption of $3,500,000 of net liabilities.
See notes to consolidated financial statements.
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and operations
The consolidated financial statements include the accounts of CONMED
Corporation and its subsidiaries (the Company). All intercompany transactions
have been eliminated. The Company is primarily engaged in the development,
manufacturing and marketing of disposable medical products and related devices
for various medical applications.
Statement of cash flows
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Fiscal year end
The Company's fiscal year ends on the last Friday in December.
Inventories
The inventories are stated at the lower of cost or market, cost being
determined on the first-in, first-out basis.
Property, plant and equipment
Property, plant and equipment are stated at cost and depreciated using
the straight-line method over the estimated useful lives of the related assets,
which range from four to forty years. Expenditures for repairs and maintenance
are charged to expense as incurred. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resultant gain or loss is recognized.
Patents and Trademarks
Patents and trademarks are amortized over their expected useful lives
of 3 to 17 years. Accumulated amortization of patents and trademarks was
$504,000 and $867,000 at December 30, 1994 and December 29, 1995, respectively.
Goodwill
Goodwill is amortized over periods ranging from 13 to 40 years.
Accumulated amortization of goodwill amounted to $894,000 and $2,171,000 at
December 30, 1994 and December 29, 1995, respectively.
Covenant not to compete
Covenant not to compete is amortized over a 5 year period. Accumulated
amortization related to this asset amounted to $2,750,000 and $3,047,000 at
December 30, 1994 and December 29, 1995, respectively.
Earnings per common and common equivalent share
Earnings per common and common equivalent share was computed by
dividing net income (loss) by the weighted average number of shares of common
stock and common stock equivalents outstanding during the year.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts previously reported have been reclassified to conform
to current year classifications.
NOTE 2 - INVENTORIES
The components of inventory are as follows (in thousands):
Dec. 30, Dec. 29,
1994 1995
------- -------
Raw materials .......................... $ 4,154 $ 7,209
Work in process ........................ 1,851 5,680
Finished goods ......................... 3,615 8,054
------- -------
$ 9,620 $20,943
======= =======
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Details of property, plant and equipment are as follows (in thousands):
Dec. 30, Dec. 29,
1994 1995
------- -------
Land and improvements ............................ $ 370 $ 495
Building and improvements ........................ 9,720 12,285
Machinery and equipment .......................... 18,191 20,460
Construction in progress ......................... 95 702
------- -------
28,376 33,942
Less: Accumulated depreciation .............. 12,149 14,214
------- -------
$16,227 $19,728
======= =======
Rental expense on operating leases was approximately $392,000,
$441,000, and $445,000 for the years ended December 1993, 1994, and 1995,
respectively. The aggregate future minimum lease commitments for operating
leases at December 29, 1995 amounted to approximately $233,000 and $31,000
payable in 1996 and 1997, respectively.
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
Dec. 30, Dec. 29,
1994 1995
------- -------
Term loan .................................. $ 9,375 $27,000
Revolving line of credit ................... -- 5,340
------- -------
9,375 32,340
Less: current portion ...................... 2,500 6,000
------- -------
$ 6,875 $26,340
======= =======
The Company's credit facility consists of a $30,000,000 term loan and a
$10,000,000 revolving line of credit. The existing term loan is payable in
quarterly installments of $1,500,000 at an interest rate of 1.625% over LIBOR
(7.60% at December 29, 1995). The existing revolving line of credit expires on
April 1, 1998 and carries an interest rate of 1.50% over LIBOR (7.47% at
December 29, 1995). The credit facility, which is secured by substantially all
of the assets of the Company, contains minimum requirements for working capital,
cash flow and net worth. The Company has met these requirements.
In anticipation of the proposed acquisition of NDM (Note 10), the
Company has obtained a commitment from existing lenders to increase its
aggregate credit facility to $80,000,000. Under terms of this commitment which
will become effective upon consummation of the NDM acquisition, the Company will
have a term loan of $65,000,000 and an available revolving line of credit of
$15,000,000. The term loan will be payable in quarterly installments over five
years while the revolving credit facility will initially be outstanding for a
period of three years. Under this commitment, the Company will have interest
rate options equal to a base rate (the higher of prime or a federal funds rate)
or 1.25% over LIBOR.
Total interest costs in 1993 and 1994 were $306,000 and $628,000,
respectively, all of which was expensed. Interest cost during 1995 was
$2,119,000 of which $73,000 was capitalized as interest during construction.
NOTE 5 - LEASES AND OTHER LONG-TERM LIABILITIES
Upon the Company's acquisition of Birtcher (Note 10), use of certain
manufacturing and administrative facilities previously occupied by Birtcher was
discontinued. A liability of approximately $4,407,000 was established in
connection with Birtcher purchase accounting representing the aggregate future
rental payments net of committed sublease income at the date of acquisition.
Future minimum rental commitments, net of sublease income, for such
leases at December 29, 1995 are as follows (in thousands):
Minimum Minimum
Rental Rental
Payments Income Net
-------- ------ ------
1996 $1,404 $ 946 $ 458
1997 1,444 895 549
1998 1,474 590 884
1999 1,534 590 944
2000 1,081 395 686
------ ------ ------
$6,937 $3,416 $3,521
====== ====== ======
Prior to its acquisition by the Company, Birtcher voluntarily began
participation in an environmental investigation at a former facility located in
El Monte, California. The former facility is located in the El Monte Operable
Unit of the San Gabriel Valley Superfund Site. The Environmental Protection
Agency has not named Birtcher as a Potentially Responsible Party in this matter.
Based on estimates prepared by the Company's environmental consultants, the
Company established a liability for site clean-up of $1,500,000 in connection
with purchase accounting for Birtcher.
NOTE 6 - FEDERAL AND STATE INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
For the year ended,
Dec. 31, Dec. 30, Dec. 29,
1993 1994 1995
------- ------- -------
Current tax expense:
Federal .................................... $ 404 $ 2,416 $ 4,493
State ...................................... 113 292 356
------- ------- -------
517 2,708 4,849
Deferred income tax expense (benefit) ........... (1,236) 182 1,051
------- ------- -------
Provision (benefit) for income taxes ...... $ (719) $ 2,890 $ 5,900
======= ======= =======
A reconciliation between income taxes computed at the statutory federal
rate and the provision for income taxes follows:
For the year ended,
Dec. 31, Dec. 30, Dec. 29,
1993 1994 1995
----- ---- ----
Tax provision (benefit) at statutory rate based
on income before taxes ........................ (34.0)% 34.0% 34.7%
Foreign sales corporation ........................... (3.0) (1.5) (1.7)
State taxes ......................................... 3.2 2.3 1.4
Other, net .......................................... (.2) -- .8
----- ---- ----
(34.0)% 34.8% 35.2%
===== ==== ====
The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities are as follows (in thousands):
Dec. 30, Dec. 29,
1994 1995
------- -------
Assets
- ------
Accrued litigation costs .................. $ 800 $ --
Receivables ............................... 138 617
Inventory ................................. 412 1,860
Deferred compensation ..................... 244 295
Employee benefits ......................... 178 201
Other ..................................... 87 258
Leases .................................... -- 1,650
Goodwill .................................. -- 1,406
Birtcher net operating losses ............. -- 6,084
Valuation allowance for deferred tax assets -- (5,417)
------- -------
1,859 6,954
------- -------
Liabilities
- -----------
Depreciation ............................. 957 1,017
Intangible asset amortization ............ 283 102
Interest charge DISC ..................... 136 109
Other .................................... -- 141
------- -------
1,376 1,369
------- -------
$ 483 $ 5,585
======= =======
Birtcher net operating losses are subject to certain limitations and
expire over the period 2008 to 2010. Management has established a valuation
allowance of $5,417,000 to reflect the uncertainty of realizing the benefit of
certain of these carryforwards. Utilization of Birtcher operating loss
carryforwards in excess of the net amount recorded at December 29, 1995 of
$667,000 will serve to decrease Goodwill associated with the Birtcher
acquisition.
NOTE 7 - SHAREHOLDERS' EQUITY
On November 22, 1994 and October 31, 1995, the Board of Directors of
the Company declared three-for-two splits of the Company's common stock to be
effected in the form of stock dividends. Such dividends were payable on December
27, 1994 and November 30, 1995 to shareholders of record on December 8, 1994 and
November 13, 1995, respectively. Accordingly, common stock, retained earnings,
earnings (loss) per share, the number of shares outstanding, the weighted
average number of shares and equivalents outstanding and stock option data have
been restated to retroactively reflect the split.
On December 22, 1995, the Company filed a Registration Statement with
the Securities and Exchange Commission in anticipation of a public offering of
2,800,000 shares of the Company's common stock. Proceeds of this offering, which
is expected to occur in the first quarter of 1996, will be used to repay
outstanding debt under the Company's credit facility (Note 4).
In 1983, the shareholders authorized 500,000 shares of preferred stock,
par value $.01 per share, which may be issued in one or more series by the Board
of Directors without further action by the shareholders. As of December 29,
1995, no preferred stock had been issued.
The Company has reserved shares of common stock for issuance to
employees and directors under three Stock Option Plans (the "Plans"). As of
December 29, 1995, a total of 1,682,470 of these options had been granted at
$.89 to $25.00 per share. The option price on all outstanding options is equal
to the estimated fair market value of the stock at the date of grant. Stock
options are non-transferable other than on death and are exercisable one year
from date of grant but for not more than ten years from date of grant. As of
December 29, 1995, 1,263,000 stock options were exercisable.
The following is a summary of incentive stock option activity under the
Plans (in thousands except per share amounts):
Number of Price per
Shares Share Total
----- ------------ -------
Outstanding at December 25,1992 1,123 $ 0.75-15.00 $ 7,543
Granted during fiscal 1993 147 5.11- 8.77 832
Forfeited (35) 5.11-15.00 (259)
Exercised (80) 0.75- 3.33 (203)
----- ------------ -------
Outstanding at December 31,1993 1,155 0.89-15.00 7,913
Granted during fiscal 1994 137 5.11-10.67 1,275
Forfeited (8) 5.11-12.22 (108)
Exercised (30) 0.89- 6.22 (97)
----- ------------ -------
Outstanding at December 30, 1994 1,254 0.89-15.00 8,983
Granted during fiscal 1995 251 11.67-25.00 4,968
Forfeited (12) 7.67-21.75 (104)
Exercised (253) 0.89-12.22 (1,299)
----- ------------ -------
Outstanding at December 29,1995 1,240 $ 0.89-25.00 $12,548
===== ============ =======
Through the Company's 1989 acquisition of Aspen Laboratories, Inc.,
Bristol-Myers Squibb Company received a warrant dated as of August 31, 1989 to
purchase at $4.29 per share 698,470 shares of the Company's common stock subject
to adjustment for certain stock transactions. The warrant is currently
exercisable and expires on August 31, 2000.
In connection with the acquisition of Birtcher (Note 10), Birtcher
incentive stock options outstanding as of the acquisition were exchanged for
options to purchase common stock of CONMED Corporation. Such options were
exercisable for a period of six months from the date of the acquisition.
Proceeds resulting from the exercise of options of 100,000 shares for $797,000
have been recorded as an increase to common stock and paid-in capital.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". SFAS 123 defines a fair value based method of
accounting for an employee stock option. Under the fair value based method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period. A company may elect to adopt
SFAS 123 or elect to continue accounting for its stock option or similar equity
awards using the intrinsic method, where compensation cost is measured at the
date of grant based on the excess of the market value of the underlying stock
over the exercise price. If a company elects not to adopt the fair value method
defined by SFAS 123, then it must provide pro forma disclosure of net income and
earnings per share, as if the fair value based method had been applied. SFAS No.
123 is effective for transactions entered into for fiscal years that begin after
December 15, 1995. It is currently anticipated that the Company will continue to
account for stock-based compensation plans under the intrinsic method and
therefore, SFAS 123 will have no effect on the Company's consolidated financial
position or results of operations.
NOTE 8 - EXPORT SALES AND MAJOR CUSTOMERS
Sales outside of the United States accounted for approximately 12.8% of
the Company's total sales in 1993, 13.6% in 1994 and 15.5% in 1995. The
Company's products are provided to medical professionals and facilities directly
and through medical supply distributors. Sales to one distributor totaled 12.3%
of the Company's sales in 1995 and 10.7% of 1994 sales. Sales to another
distributor totaled 10.0% of the Company's sales in 1994.
NOTE 9 - PENSION PLANS
The Company maintains defined benefit plans covering substantially all
employees. The Company makes annual contributions to the plans equal to the
maximum deduction allowed for federal income tax purposes.
Net pension cost for 1993, 1994, and 1995 included the following
components (in thousands):
1993 1994 1995
----- ----- -----
Service cost - benefits earned during the period .... $ 591 $ 583 $ 758
Interest cost on projected benefit obligation ....... 262 286 353
Actual (gain) loss on plan assets ................... (179) (327) (959)
Net amortization and deferral ....................... 2 86 685
----- ----- -----
Net pension cost ................................... $ 676 $ 628 $ 837
===== ===== =====
The following tables set forth the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheet at December 30, 1994, and
December 29, 1995 (in thousands):
1994 1995
------- -------
Actuarial present value of accumulated benefit obligation
Vested benefits ................................................ $ 3,404 $ 3,811
Non-vested benefits ............................................ 129 216
Accumulated benefits obligations ............................... 3,533 4,027
Additional amounts related to projected pay increases .......... 1,272 661
------- -------
Projected benefit obligations for service rendered to date .......... 4,805 4,688
Plan assets at fair value, consisting of debt and
equity securities .............................................. 3,675 4,014
------- -------
Plan benefit obligations in excess of plan assets ................... 1,130 674
Unrecognized net obligation of CONMED plan at December 26, 1986
being recognized over 25 years ................................... (84) (80)
Unrecognized prior service cost ..................................... (217) (206)
Unrecognized net gain (loss) from past experience different from that
assumed and effects of changes in assumptions ................... (246) 162
------- -------
Accrued pension costs recognized in the
balance sheet ................................................... $ 583 $ 550
======= =======
For actuarial calculation purposes, the weighted average discount rate
was 7.0% in 1993, 1994 and 1995. The expected long term rate of return was 8.0%
in 1993, 1994 and 1995. The rate of increase in future compensation levels was
4.0% in 1993, 1994 and 1995. Common stock of the Company included in plan
assets, at fair value, was approximately $462,000 at December 30, 1994 and
$459,000 at December 29, 1995.
NOTE 10 - BUSINESS ACQUISITIONS
In July 1993 the Company acquired certain assets and the business of
Medtronic Andover Medical, Inc., a manufacturer of cardiac monitoring disposable
products, from Medtronic, Inc. in a purchase transaction for approximately
$21,800,000 in cash. Accordingly, the results of operations of the acquired
business are included in the consolidated results of the Company from the date
of acquisition. The transaction was accounted for using the purchase method of
accounting. Goodwill is being amortized on a straight-line basis over a 40 year
period while a covenant not to compete and other intangible assets related to
the acquisition are being amortized on a straight-line basis over periods
ranging from five to eight years.
In November 1994, the Company acquired a specialty ECG monitoring
product line from Becton Dickinson Vascular Access Company in a purchase
transaction amounting to $2,000,000 in cash. The product line's operations have
been included with the Company's financial results since the acquisition date.
Goodwill is being amortized on a straight-line basis over a 40 year period and a
covenant not to compete is amortized over a five year period.
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 an unaudited pro forma basis, assuming the Birtcher and Master
Medical acquisitions had occurred as of the beginning of the periods presented,
the consolidated results of the Company would have been as follows (in
thousands, except per share amounts):
For the years ended
December
1994 1995
-------- --------
Pro forma revenues ............................. $107,336 $107,425
======== ========
Pro forma net income ........................... $ 7,956 $ 11,713
======== ========
Pro forma earnings per common and
common equivalent share ........................ $ .71 $ .99
======== ========
In October 1995, the Company signed an asset purchase agreement whereby
the Company will acquire substantially all the business and certain assets of
New Dimensions in Medicine, Inc. ("NDM") for a cash purchase price of
approximately $32.0 million plus the assumption of net liabilities of
approximately $5.1 million. Through this acquisition, which is expected to close
in the first quarter of 1996 and which is subject to the approval of the
shareholders of NDM, the Company will acquire the business of NDM relating to
the design, manufacture and marketing of a broad line of ECG electrode products,
disposable electrosurgical products and various Hydrogel wound care products.
On an unaudited pro forma basis, assuming the Birtcher, Master Medical
and NDM acquisitions had occurred as of the beginning of the periods presented,
the consolidated results of the Company would have been as follows (in
thousands, except per share amounts):
For the years ended
December
1994 1995
-------- --------
Pro forma revenues ........................... $135,357 $132,927
======== ========
Pro forma net income ......................... $ 8,790 $ 13,323
======== ========
Pro forma earnings per common
and common equivalent share .............. $ .78 $ 1.12
======== ========
The unaudited pro forma financial information presented above gives
effect to purchase accounting adjustments which have resulted or are expected to
result from the acquisitions, and in the case of the NDM acquisition to the
elimination of certain overhead costs which are not expected to be incurred by
the combined entity. This pro forma information is not necessarily indicative of
the results that would actually have been obtained had the companies been
combined for the periods presented.
NOTE 11 - LEGAL MATTERS AND PRODUCT RESTRUCTURE
On October 13, 1993, a jury in a U.S. District Court trial in Salt Lake
City, Utah found that the Company's line of coated electrosurgical accessory
blades infringed a patent held by a competitor. Subsequently, the District Court
trial Judge fixed the damage award at $2,100,000 and issued an injunction
prohibiting CONMED from selling the affected products. During 1993, the Company
recorded a $5,000,000 charge related to this infringement, which included the
court awarded damages, legal fees and writedown of related inventory. The
$2,100,000 damage award was paid in 1995 after the award was affirmed.
Additionally, during 1993 management determined that approximately
$675,000 of inventory, primarily in the electrosurgical pencil product line, had
become obsolete due to product modifications. Accordingly, these obsolete items
were charged to product restructure expense.
From time to time, the Company has been named as a defendant in certain
lawsuits alleging product liability or other claims incurred in the ordinary
course of business. These claims are generally covered by various insurance
policies, subject to deductible amounts and maximum policy limits. Ultimate
liability with respect to these contingencies, if any, is not considered to be
material to the consolidated financial statements of the Company.
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 30, 1994
and December 29, 1995 are follows (in thousands, except per share amounts):
Three Months Ended
------------------
1994 March June September December
- ---- ------- ------- --------- -------
Net sales .................. $17,838 $17,547 $17,264 $18,415
Gross profit ............... 7,834 7,949 7,964 8,518
Net income ................. 1,147 1,263 1,357 1,649
Earnings per share ......... .12 .13 .14 .17
1994 March June September December
- ---- ------- ------- --------- -------
Net sales .................. $19,753 $25,875 $26,258 $27,672
Gross profit ............... 9,028 12,377 12,521 13,230
Net income ................. 1,840 2,818 2,889 3,316
Earnings per share ........ .18 .24 .24 .27
SCHEDULE VIII - Valuation and Qualifying Accounts (In thousands)
==========================================================================================================
Column A Column B Column C Column D Column E
Additions
Description Balance ------------------------- Deductions Balance
at (1) (2) at End
Beginning Charged to Charged to of Period
of Period Costs and Other
Expenses Accounts
==========================================================================================================
1995
- ----
Allowance for
bad debts $343 $ 85 -- $ (28) $ 400
Inventory
reserves $703 $245 -- $(444) $ 504
Deferred tax asset
valuation allowance $ -- -- $5,417 -- $5,417
1994
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Allowance for
bad debts $347 -- -- $ (4) $ 343
Inventory
reserves $559 $144 -- -- $ 703
1993
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Allowance for
bad debts $303 $ 44 -- -- $ 347
Inventory
reserves $324 $235 -- -- $ 559