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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 31, 1996 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. [ ]
The aggregate market value of the shares of the voting stock held by
non-affiliates of the Registrant was approximately $285,194,957 based upon the
average bid and asked prices of stock, which was $19.75 on March 12, 1997.
The number of shares of the Registrant's $0.01 par value common stock
outstanding as of March 12, 1997 was 14,998,351.
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement, scheduled to be mailed on or about
April 21, 1997 for the annual meeting of stockholders to be held May 20, 1997,
are incorporated by reference into Part III.
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-K
Part I
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
Signatures
Exhibit Index
PART I
CONMED CORPORATION
Item 1: Business
Forward Looking Statements
This Annual Report on Form 10-K contains statements that
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers primarily
with respect to the future operating performance of the Company. Investors are
cautioned that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results or
developments may differ materially from those in the forward looking statements
as a result of various factors. Factors which may cause such differences to
occur include but are not limited to (i) whether gross margins continue to
increase or increase at a different rate than expected, (ii) whether the Company
can continue to increase revenue, (iii) customer demand, competition, the cost
of products and industry conditions, (iv) new competitors selling competing
products, and (v) the other risks and uncertainties in the Company's 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
minimally-invasive surgical ("MIS") procedures, as well as products used for IV
therapy and wound care. 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 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.
On February 23, 1996, the Company acquired substantially all the
business and certain assets of New Dimensions in Medicine, Inc. ("NDM") for a
cash purchase price of approximately $31.6 million plus the assumption of net
liabilities of approximately $3.3 million. Through the NDM acquisition, the
Company 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. The completed
acquisitions, together with internal growth, resulted in net sales growth of
approximately 135% over the past three years.
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, more than 23 million surgical procedures are performed
annually in the over 5,200 general hospitals in the United States, with another
approximate three million annual procedures being performed in the approximately
1,800 free standing ambulatory surgery centers. The Company believes that a
majority of these operations involve 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.
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. 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 1994, 1995 and 1996, net sales of electrosurgery
products represented 54%, 53% and 49%, respectively, of the Company's net sales.
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 a complete line of
electrosurgical generators for monopolar and bipolar applications, including
general surgery as well as thoracic, urologic, laparoscopic, orthopedic and
neurosurgical procedures. All models include a safety alarm, the A.R.M., which
monitors the contact of the ground pad to the patients' skin surface. 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. In addition to the EXCALIBUR(R) PLUS/PC, 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.
The 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. 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. 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 Plus(TM) 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
Plus (TM) ABC(R) units work in conjunction with the hospital's present
electrosurgery unit.
Patient Care Products
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 1994, 1995, and
1996 net sales of patient care products represented 44%, 44%, and 48%,
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). ClearSite(R) 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. Using its wound care technology, NDM has developed a number of
innovative products for its clinical markets including an island dressing form
of Clearsite(R) which has a clean, breathable, pliable, adhesive polyurethane
film border and Hydrogauze(R), a gauze-like material that has been impregnated
with dehydrated Clearsite(R) that hydrates upon contact with wound exudate.
Minimally-Invasive Surgical Products
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 1994, 1995 and 1996, net sales attributable to
the Minimally-Invasive Surgery Division represented 2%, 3% 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(TM)
(suction/irrigation) and UNIVERSAL-PLUS(TM) 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(TM) 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(TM)
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 5,200 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 six years.
The Company has located its salespeople (territory managers) in
key metropolitan areas. They are supervised and supported by 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.
In response to competitive pressures in the health care industry,
hospitals and other health care providers have aligned themselves with group
purchasing organizations. Such organizations are able to negotiate competitive
pricing from healthcare suppliers based on the purchasing volume of its
affiliated membership. Terms of arrangements between group purchasing
organizations, affiliated members and healthcare suppliers vary. The Company has
a corporate sales department which is responsible for interacting with group
purchasing organizations. The Company believes that it has contracts with most
such organizations and that the lack of any individual group purchasing contract
will not impact the Company's competitiveness in the marketplace.
Prior to January 1, 1997, the Company's domestic salesforce was
structured into three groups, Electrosurgical Systems, Patient Care and MIS;
with each group responsible for selling only the products in these categories.
While this structure had been effective in maintaining business associated with
recent acquisitions, it was not efficient as the Company had multiple sales
people calling on individual customers. Accordingly, effective January 1, 1997,
the three groups were combined into one salesforce whereby each of the territory
managers sell the entire product line of the Company. The Company believes that
this new structure is growth-oriented, will permit greater attention to each
account and will facilitate focused selling of the Company's products.
The Company's international sales efforts are conducted by seven
area managers who coordinate with local distributors in over 60 countries.
International sales accounted for 14.5% of the Company's sales during 1996.
Among the top foreign markets for the Company are Japan, Germany, Canada, Italy
and Korea. International sales grew in 1995 in all areas and sales growth
continued in 1996, with the strongest sales gains in Europe 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 advise 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 32 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 1994, 1995 and 1996, the Company spent approximately $2,352,000,
$2,832,000 and $2,953,000, respectively, for research and development.
The Company has approximately 152 U.S. patents and numerous
corresponding foreign patents on its products expiring at various dates from
1997 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
During 1996, the Company introduced a smoke evacuation system
which includes a evacuation (vacuum) unit with disposable electrosurgical
pencil, tubing and filter. 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 has signed an agreement that will permit it to bring
ClearSite(R) to the consumer market in 1997. Under this agreement, the Company
will supply a consumer bandage manufacturer with variations of its wound care
technology for marketing and distribution through retail outlets.
The Company will expand its MIS offerings with its introduction
of the TroGARD(R) Finesse(TM) trocar. The TroGARD(R) Finesse(TM) is a system
which includes a dilating, conical blunt tip trocar and multi-feature cannulas.
The Company believes that the TroGARD(R) Finesse(TM) will be competitive with
existing trocar systems in the areas of patient safety, ease of use and economy.
The Company expects to fully release the TroGARD(R) Finesse(TM) to the market in
the second quarter of 1997.
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 assumed NDM's
obligations under a non-exclusive distribution agreement with Allegiance
Healthcare Corporation (formerly Baxter Healthcare Corporation). Allegiance was
and continues to be the largest distributor of NDM products. This agreement
outlined certain terms and pricing for NDM's products distributed through
Allegiance. Effective December 31, 1996, this agreement expired and sales of NDM
products distributed through Allegiance became subject to the Company's
established dealer terms and pricing. Management believes that the terms and
pricing effective January 1, 1997 are materially consistent with that under the
former distribution agreement.
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, Graphic Controls, 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 and,
in certain instances, the reliance on or utilization of group purchasing
organizations and distributors. 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.
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 31, 1996 the Company had 957 full-time employees,
of whom 668 were in manufacturing, 32 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 owned 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 29,000 square foot
warehouse and distribution center in El Paso, Texas pursuant to a lease that
expires in April 1999 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 or
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. In the United Kingdom, the patent office ruled to
invalidate a portion of the claims stated in the Company's ABC(R) patent,
however, the majority of the significant claims remain valid and enforceable.
The Company is vigorously defending the validity of these patents in the above
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 31, 1996.
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 31, 1996, there were 1,505
owners of record of the Company's Common Stock.
The following table show the high-low last sales prices for the years ended
December 1995 and 1996, as reported by the Nasdaq National Market. The sales
prices have been adjusted to give retroactive effect to the three-for-two stock
split in the form of stock dividend paid on November 30, 1995.
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
1996
----------------------------------------------
Period High Low
----------------------------------------------
First Quarter $25.63 $20.50
Second Quarter 34.00 24.50
Third Quarter 25.25 13.50
Fourth Quarter 20.88 16.00
The Company did not pay cash dividends on its Common Stock during 1995 and 1996.
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)
1992 1993(2) 1994 1995 1996
-------- -------- -------- -------- --------
Consolidated Statements of Income (Loss)(1)
Net sales $ 42,602 $ 53,641 $ 71,064 $ 99,558 $125,630
Net income (loss) 4,106 (1,396) 5,416 10,863 16,286
Earnings (loss) per share (3) .42 (.15) .56 .94 1.12
Weighted average number of shares
and equivalents outstanding (3) 9,702 9,426 9,624 11,613 14,496
Consolidated Balance Sheet
Working capital $ 23,827 $ 15,399 $ 18,159 $ 37,350 $ 66,074
Total assets 41,939 57,338 62,104 119,403 170,083
Long-term debt (less current portion) 30 9,375 6,875 26,340 --
Shareholders' equity 38,669 37,490 43,061 75,002 158,635
- --------------------
(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;
(iii) NDM from February 23, 1996, 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 in 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:
1994 1995 1996
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Operating expense:
Cost of sales 54.6 52.6 52.1
Selling and administrative expense 29.5 25.7 25.2
Research and development expense 3.3 2.9 2.4
Income from operations 12.6 18.8 20.4
Interest income (expense), net (0.9) (2.0) (0.2)
Income before income taxes 11.7 16.8 20.2
Net income 7.6 10.9 13.0
1996 Compared to 1995
Sales for 1996 were $125,630,000, an increase of 26.2% compared
to sales of $99,558,000 in 1995. The increase is primarily a result of
incremental sales volume associated with the NDM acquisition, which became
effective February 23, 1996, and the Birtcher and Master Medical acquisitions
that were reflected in 1995 results only from March 14, 1995 and May 19, 1995,
their respective dates of acquisition.
Cost of sales increased to $65,393,000 in 1996 as compared to
$52,402,000 in 1995. The Company's gross margin percentage was 47.9% in 1996 as
compared to 47.4% in 1995. The effects of the Birtcher and Master Medical
acquisitions had a significant positive impact on the overall corporate gross
margin percentage which improved to an average of 47.8% for the last three
quarters of 1995. During 1996, the NDM acquisition resulted in further
manufacturing efficiencies. However, partially offsetting these gains in gross
margin percentage, were the effects of lower pricing on ECG electrodes and the
effects of the NDM product line, which generally have lower gross margin
percentages than the Company's overall gross margin percentage.
Selling and administrative expenses increased to $31,620,000 in
1996 as compared to $25,570,000 in 1995. As a percentage of sales, however,
selling and administrative expense decreased from 25.7% in 1995 to 25.2% in 1996
due to economies of scale resulting from the completed acquisitions.
Research and development expense was $2,953,000 in 1996 as
compared to $2,832,000 in 1995. The Company continues to conduct research
activities in all of its product lines, with a particular emphasis on products
for minimally-invasive surgery.
Net interest expense was $217,000 in 1996 as compared to
$1,991,000 in 1995. In connection with the 1995 acquisitions of Birtcher and
Master Medical, the Company borrowed approximately $23,000,000 bringing
aggregate 1995 borrowing outstanding under its credit agreement to $32,340,000.
While an additional $32,660,000 was borrowed in connection with the February
1996 acquisition of NDM, all indebtedness of the Company under its credit
agreement was repaid in March 1996 following the Company's offering of 2,998,000
shares of common stock.
The Company's effective tax rate for 1996 was 36.0% as compared
to 35.2% in 1995.
1995 Compared to 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, the 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.
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 acquisitions.
The Company's effective tax rate for 1995 was 35.2% as compared
to 34.8% in 1994.
Liquidity and Capital Resources
Cash flows provided or used by operating, investing and financing
activities for 1995 and 1996 are disclosed in the Consolidated Statements of
Cash Flows. Net cash provided by operations was $25,908,000 for 1996 as compared
to $5,059,000 provided by operations in 1995. Operating cash flows for 1996 were
aided by higher net income compared to the same period in 1995. Depreciation and
amortization in 1996 increased primarily due to the effects of the completed
acquisitions. Operating cash flows for 1996 were negatively impacted by
increases in accounts receivable and other current assets, and a reduction in
accrued payroll and withholdings. Adding to cash flows from operations for this
period was a reduction in deferred income taxes and the income tax benefit of
stock option exercises.
Net cash used by investing activities was $36,618,000 in 1996
compared to $14,695,00 in 1995. Cash used for the 1996 acquisition of NDM was
$31,672,000. Additions to property, plant and equipment for 1996 amounted to
$4,946,000. During 1995, cash used for the Master Medical acquisition amounted
to $9,500,000 and additions to property, plant and equipment amounted to
$5,195,000.
Cash flows from financing activities were $29,344,000 for 1996.
In connection with the NDM acquisition on February 23, 1996, the Company
borrowed $32,660,000 bringing aggregate borrowings under its credit facility to
$65,000,000. On March 20, 1996, the Company completed an offering of common
stock which raised $61,735,000. Proceeds relating to the 1996 exercise of stock
options and a warrant to purchase the Company's common stock amounted to
$1,218,000 and $3,000,000, respectively. Subsequent to the Company's equity
offering, all indebtedness under the Company's credit agreement was repaid.
Payments on long-term debt and other obligations included $3,133,000 to
liquidate NDM obligations assumed on connection with the acquisition.
The Company's credit facility consists of a $60,000,000 secured
revolving line of credit which expires in March 2001. This facility carries an
interest rate of 0.5%-1.25% over LIBOR depending on defined cash flow
performance ratios. Nothing was outstanding under the credit agreement at
December 31, 1996.
Management believes that cash generated from operations, its
current cash resources and funds available under its credit agreement will
provide sufficient liquidity to ensure continued working capital for operations
and funding of capital expenditures in the foreseeable future.
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 1996 Financial Statements, together with the report
thereon of Price Waterhouse LLP dated February 7, 1997, are 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
21, 1997 for the annual meeting of shareholders to be held on May 20, 1997.
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 21, 1997
for the annual meeting of shareholders to be held on May 20, 1997.
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 21, 1997 for the annual meeting of shareholders to be held on May
20, 1997.
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 21, 1997 for the
annual meeting of shareholders to be held on May 20, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Index to Financial Statements:
(a)(1) List of Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at December 1995 and 1996
Consolidated Statements of Income for the Years
Ended December 1994, 1995 and 1996
Consolidated Statements of Shareholders' Equity
for the Years Ended December 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the
Years Ended December 1994, 1995 and 1996
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
19-20 below are filed as part of this Form 10-K.
(b) Reports on Form 8-K
(1) On December 6, 1996, the Company filed a report on Form 8-K
regarding the change in the Company's year from a 52-53 week
fiscal year ending on the last Friday in December in each year to
a calendar year ending on each December 31.
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 21, 1997
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,
/s/ EUGENE R. CORASANTI President (Principal
- ---------------------------- Executive Officer) and
Eugene R. Corasanti Director March 21, 1997
Vice President-Finance
/s/ ROBERT D. SHALLISH, JR. and Chief Financial Officer
- ---------------------------- (Principal Financial Officer) March 21, 1997
Robert D. Shallish, Jr.
/s/ JOSEPH J. CORASANTI Vice President-Legal Affairs, March 21, 1997
- ---------------------------- General Counsel and Director
Joseph J. Corasanti
/s/ LUKE A. POMILIO Controller March 21, 1997
- ---------------------------- (Principal Accounting Officer)
Luke A. Pomilio
/s/ HARRY CONE Director March 21, 1997
- ----------------------------
Harry Cone
/s/ BRUCE F. DANIELS Director March 21, 1997
- ----------------------------
Bruce F. Daniels
/s/ ROBERT E. REMMELL Director March 21, 1997
- ----------------------------
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.
3.3 - 1996 Amendment to Certificate of Incorporation and
Restated Certificate of Incorporation of CONMED
Corporation.
4.1 - See Exhibit 3.1.
4.2 - See Exhibit 3.2.
4.3 - Amended and Restated Credit Agreement - Revolving
Credit Facility dated March 13, 1996 incorporated
herein by reference to the exhibit in the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 29, 1996.
4.4 - First Amendment of Credit Agreement dated March 13,
1996 - incorporated herein by reference to the exhibit
in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1996.
10.1 - Employment Agreement between the Company and Eugene R.
Corasanti, dated December 16, 1996.
10.2 - 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.
List of Exhibits
Exhibit No. Description of Instrument
- ----------- -------------------------
10.3 (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 10.0(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 10.0(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.
10.4 - 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.
10.5 - Stock Option Plan for Non-Employee Directors of CONMED
Corporation
10.6 - Amendment to 1992 Stock Option Plan.
10.7 - 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)
10.8 - 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.
11 - Computation of weighed average number of shares of
common stock.
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 17 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 31, 1996 and December 29, 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, 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
February 7, 1997
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
December 1995 and 1996
(In thousands except share amounts)
1995 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ................................................................ $ 1,539 $ 20,173
Accounts receivable less allowance for doubtful accounts of
$400 in 1995 and $500 in 1996 ......................................................... 22,649 26,336
Income taxes receivable (Note 6) .......................................................... 961 766
Inventories (Notes 1 and 2) ............................................................... 20,943 23,187
Deferred income taxes (Note 6) ............................................................ 2,678 626
Prepaid expenses and other current assets ................................................. 476 740
-------- --------
Total current assets ......................................................... 49,246 71,828
Property, plant and equipment, net (Notes 1 and 3) ............................................ 19,728 26,458
Deferred income taxes (Note 6) ................................................................. 2,907 1,246
Covenant not to compete, net (Note 1) .......................................................... 1,153 713
Goodwill, net (Notes 1 and 10) ................................................................. 41,438 64,283
Patents, trademarks and other assets (Note 1) .................................................. 4,931 5,555
-------- --------
Total assets ................................................................. $119,403 $170,083
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4) ................................................ $ 6,000 $ --
Accounts payable .......................................................................... 2,351 2,433
Accrued payroll and withholdings .......................................................... 2,282 2,037
Accrued pension (Note 9) .................................................................. 274 333
Other current liabilities ................................................................. 989 951
-------- --------
Total current liabilities ................................................... 11,896 5,754
Long-term debt (Note 4) ........................................................................ 26,340 --
Accrued pension (Note 9) ....................................................................... 276 276
Deferred compensation .......................................................................... 868 1,033
Long-term leases (Note 5) ..................................................................... 3,521 2,924
Other long-term liabilities (Note 5) ........................................................... 1,500 1,461
-------- --------
Total liabilities .......................................................... 44,401 11,448
-------- --------
(Continued)
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
December 1995 and 1996
(In thousands except share amounts)
1995 1996
-------- --------
Commitments (Notes 3, 5, 7, 9, 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; 40,000,000 authorized;
11,000,105 and 14,988,783, issued and outstanding in
1995 and 1996, respectively ............................................................ 110 150
Paid-in capital ............................................................................ 44,560 111,867
Retained earnings .......................................................................... 30,332 46,618
-------- --------
Total shareholders' equity ................................................. 75,002 158,635
-------- --------
Total liabilities and shareholders' equity ................................. $119,403 $170,083
======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 1994, 1995 and 1996
(In thousands except per share amounts)
1994 1995 1996
--------- --------- ---------
Net sales (Note 8) ............................................... $ 71,064 $ 99,558 $ 125,630
--------- --------- ---------
Cost of sales .................................................... 38,799 52,402 65,393
Selling and administrative expense ............................... 20,979 25,570 31,620
Research and development expense ................................. 2,352 2,832 2,953
--------- --------- ---------
62,130 80,804 99,966
--------- --------- ---------
Income from operations ........................................... 8,934 18,754 25,664
Interest expense, net (Note 4) ................................... (628) (1,991) (217)
--------- --------- ---------
Income before income taxes ....................................... 8,306 16,763 25,447
Provision for income taxes
(Notes 1 and 6) ................................................ 2,890 5,900 9,161
--------- --------- ---------
Net income ....................................................... $ 5,416 $ 10,863 $ 16,286
========= ========= =========
Weighted average number of common shares
and equivalents outstanding (Note 1) .......................... 9,624 11,613 14,496
========= ========= =========
Earnings per common and
common equivalent share ....................................... $ .56 $ .94 $ 1.12
========= ========= =========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 1994, 1995 and 1996
(In thousands)
Common Stock
----------------------- Paid-in Retained
Number Amount Capital Earnings
------ -------- -------- ---------
Balance at December 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 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 10,863
------ -------- -------- ---------
Balance at December 1995 ......................................... 11,000 110 44,560 30,332
Issuance of shares (Note 7) ..................................... 2,998 30 61,705
Exercise of stock options and a warrant (Note 7) ................ 991 10 4,208
Tax benefit arising from exercise of stock options .............. 1,394 16,286
------ -------- -------- ---------
Balance at December 1996 ......................................... 14,989 $ 150 $111,867 $ 46,618
======== ======== ======== ========
See notes to consolidated financial statements.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 1994, 1995 and 1996
(In thousands)
1994 1995 1996
-------- -------- --------
Cash flows from operating activities:
Net income ......................................................................... $ 5,416 $ 10,863 $ 16,286
-------- -------- --------
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation .................................................................... 2,457 2,861 3,670
Amortization .................................................................... 1,421 2,154 2,740
Increase (decrease) in cash flows from changes in assets and liabilities,
net of effects from acquisitions (Note 10):
Accounts receivable ......................................................... (1,684) (3,943) (1,552)
Inventories ................................................................. (619) (4,311) 360
Prepaid expenses and other current assets ................................... 58 (25) (264)
Accounts payable ............................................................ 274 452 82
Income tax receivable/payable ............................................... 394 (2,659) 195
Income tax benefit of stock option exercises ................................ 59 1,233 1,394
Accrued payroll and withholdings ............................................ 1,327 (487) (245)
Accrued pension ............................................................. (147) (33) 59
Accrued patent litigation ................................................... (355) (2,360) --
Other current liabilities ................................................... (210) 559 (38)
Deferred income taxes ....................................................... 182 1,398 3,713
Other assets/liabilities (net) .............................................. (313) (643) (492)
-------- -------- --------
2,844 (5,804) 9,622
-------- -------- --------
Net cash provided by operations ......................................... 8,260 5,059 25,908
-------- -------- --------
Cash flows from investing activities:
Acquisitions (Note 10) ........................................................ (2,000) (9,500) (31,672)
Acquisition of property, plant and equipment ................................. (2,190) (5,195) (4,946)
-------- -------- --------
Net cash used by investing activities .................................... (4,190) (14,695) (36,618)
-------- -------- --------
Cash flows from financing activities:
Proceeds of long term debt .................................................... -- 26,590 32,660
Proceeds from issuance of common stock ........................................ 97 3,328 65,953
Payments on long-term debt and other obligations .............................. (2,530) (22,358) (69,269)
-------- -------- --------
Net cash provided (used) by financing activities ......................... (2,433) 7,560 29,344
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .................................. 1,637 (2,076) 18,634
Cash and cash equivalents at beginning of year ........................................ 1,978 3,615 1,539
-------- -------- --------
Cash and cash equivalents at end of year .............................................. $ 3,615 $ 1,539 $ 20,173
======== ======== ========
(Continued)
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 1994, 1995 and 1996
(In thousands)
1994 1995 1996
-------- -------- --------
Supplemental disclosures of cash flow information: Cash paid during the year for:
Interest ..................................................................... $ 641 $ 1,876 $ 941
Income taxes ................................................................. 2,470 2,466 5,347
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
Prior to 1996, the Company's fiscal year ended on the last Friday in
December. Effective in 1996, the Company changed its fiscal year to end on
December 31.
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 $867,000
and $1,123,000 at December 1995 and 1996, respectively.
Goodwill
Goodwill is amortized over periods ranging from 13 to 40 years.
Accumulated amortization of goodwill amounted to $2,171,000 and $4,074,000 at
December 1995 and 1996, respectively.
Covenant not to compete
Covenant not to compete is amortized over a 5 year period. Accumulated
amortization related to this asset amounted to $3,047,000 and $3,487,000 at
December 1995 and 1996, respectively.
Earnings per common and common equivalent share
Earnings per common and common equivalent share was computed by dividing
net income 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):
1995 1996
------- -------
Raw materials .......................... $ 7,209 $ 7,079
Work in process ........................ 5,680 7,541
Finished goods ......................... 8,054 8,567
------- -------
$20,943 $23,187
======= =======
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Details of property, plant and equipment are as follows (in thousands):
1995 1996
------- -------
Land and improvements ............................ $ 495 $ 1,007
Building and improvements ........................ 12,285 14,873
Machinery and equipment .......................... 20,460 27,250
Construction in progress ......................... 702 722
------- -------
33,942 43,852
Less: Accumulated depreciation ............. 14,214 17,394
------- -------
$19,728 $26,458
======= =======
Rental expense on operating leases was approximately $441,000, $445,000
and $327,000 for the years ended December 1994, 1995 and 1996, respectively. The
aggregate future minimum lease commitments for operating leases at December 31,
1996 amounted to $139,000, $79,000 and $26,000 payable in 1997, 1998 and 1999,
respectively.
NOTE 4 - LONG-TERM DEBT
At December 29, 1995, the Company had $32,340,000 outstanding
under its credit facility at interest rates ranging from LIBOR plus 1.50% to
LIBOR plus 1.625% (7.47% to 7.60% at December 29, 1995).
In connection with the February 23, 1996 acquisition of NDM (Note
10), the Company borrowed an additional $32,660,000 bringing aggregate
borrowings under the credit facility to $65,000,000. On March 20, 1996, the
Company completed an offering of common stock (Note 7) and applied the proceeds
to repayment of the Company's indebtedness.
The Company's credit facility consists of a $60,000,000 secured
revolving line of credit which expires in March 2001. This facility carries an
interest rate of 0.5%-1.25% over LIBOR depending on defined cash flow
performance ratios. There were no borrowings against this facility at December
31, 1996.
Total interest costs in 1994 and 1996 were $628,000 and $765,000,
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 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 31, 1996 are as follows (in thousands):
Minimum Minimum
Rental Rental
Payments Income Net
------ ------ ------
1997 $1,444 $ 895 $ 549
1998 1,474 729 745
1999 1,534 590 944
2000 1,081 395 686
------ ------ ------
$5,533 $2,609 $2,924
====== ====== ======
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 in connection with purchase
accounting for Birtcher. This liability is reflected in Other long-term
liabilities in the Consolidated Balance Sheets.
NOTE 6 - FEDERAL AND STATE INCOME TAXES
The provision for income taxes consists of the following (in thousands):
1994 1995 1996
------ ------ ------
Current tax expense:
Federal ............................... $2,416 $4,493 $6,398
State ................................. 292 356 311
------ ------ ------
2,708 4,849 6,709
Deferred income tax expense ................ 182 1,051 2,452
------ ------ ------
Provision for income taxes ........... $2,890 $5,900 $9,161
====== ====== ======
A reconciliation between income taxes computed at the statutory
federal rate and the provision for income taxes follows:
1994 1995 1996
---- ---- ----
Tax provision at statutory rate based
on income before taxes ................ 34.0% 34.7% 35.0%
Foreign sales corporation .................. (1.5) (1.7) (1.3)
State taxes ................................ 2.3 1.4 0.8
Nondeductible intangible amortization ...... 0.2 1.0 1.1
Other, net ................................. (0.2) (0.2) 0.4
---- ---- ----
34.8% 35.2% 36.0%
==== ==== ====
The tax effects of the significant temporary differences which
comprise the deferred tax assets and liabilities at December 1995 and 1996 are
as follows (in thousands):
1995 1996
------- -------
Assets
Receivables ...................................... $ 617 $ 177
Inventory ........................................ 1,860 352
Deferred compensation ............................ 295 361
Employee benefits ................................ 201 218
Other ............................................ 258 439
Leases ........................................... 1,650 1,183
Goodwill and intangible assets ................... 1,304 892
Birtcher net operating losses .................... 6,084 5,529
Valuation allowance for deferred tax assets ...... (5,417) (5,417)
------- -------
6,852 3,734
------- -------
Liabilities
Depreciation .................................... 1,017 1,261
Interest charge DISC ............................ 109 84
Other ........................................... 141 517
------- -------
1,267 1,862
------- -------
$ 5,585 $ 1,872
======= =======
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 carry forwards. Utilization of Birtcher operating loss carry
forwards in excess of the net amount recorded at December 31, 1996 of $112,000
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 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 March 20, 1996, the Company completed a public offering of 2,998,000
shares of its common stock with net proceeds to the Company amounting to
$61,735,000.
Through the Company's 1989 acquisition of Aspen Laboratories, Inc.,
Bristol-Myers Squibb Company received a warrant to purchase 698,470 shares of
the Company's common stock at $4.29 per share. This warrant was exercised in
March 1996 with proceeds to the Company amounting to $3,000,000.
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 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 31, 1996, 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"). Through
December 31, 1996, a total of 1,870,000 of these options had been granted at
$.89 to $30.75 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 beginning
one year from date of grant but for not more than ten years from date of grant.
As of December 31, 1996, 725,000 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 1993 1,155 $ 0.89-15.00 $ 7,913
Granted during 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 1994 1,254 0.89-15.00 8,983
Granted during 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 1995 1,240 0.89-25.00 12,548
Granted during 1996 197 16.50-30.75 4,545
Forfeited (10) 5.11-30.75 (81)
Exercised (292) 0.89-15.00 (1,208)
----- ------------- --------
Outstanding at December 1996 1,135 $ 2.33-30.75 $ 15,804
===== ============= ========
At December 31, 1996, the number of shares exerciseable at less
than $10, between $10 and $20, and greater than $20 were 197,000, 699,000 and
239,000, respectively. The weighted average price per share and remaining life
for options in these categories were $5.56 and 6 years, $12.15 and 7 years, and
$27.08 and 9 years.
respectively.
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 whereby 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 method of
accounting prescribed by Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees", 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. The Company has elected to continue to account
for its stock-based compensation plans under the provisions of APB 25 and,
accordingly, no compensation expense has been recognized in the accompanying
financial statements relative to the Company's stock option plans.
SFAS 123 also calls for the pro forma disclosure of stock-based
compensation expense for those companies which elect to maintain their
accounting policy under APB 25. The Company has calculated the pro forma stock-
based compensation under the guidelines set forth in SFAS 123, and have
determined the effects to be immaterial for disclosure purposes.
NOTE 8 - MAJOR CUSTOMERS AND EXPORT SALES
The Company's products are provided to medical professionals and
facilities directly and through medical supply distributors. Sales to one
distributor totaled 10.7%, 12.3% and 12.2% of the Company's sales in 1994, 1995
and 1996, respectively. During 1996, sales to another distributor totaled 14.5%
of the Company's sales and, in 1994, sales to a third distributor totaled 10.7%
of sales.
Sales outside of the United States accounted for approximately
13.6% of the Company's total sales in 1994, 15.5% in 1995 and 14.5% in 1996.
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):
1994 1995 1996
----- ----- -----
Service cost - benefits earned during the period .... $ 583 $ 758 $ 766
Interest cost on projected benefit obligation ....... 286 353 402
Actual (gain) loss on plan assets ................... (327) (959) (442)
Net amortization and deferral ....................... 86 685 138
----- ----- -----
Net pension cost ................................... $ 628 $ 837 $ 864
===== ===== =====
The following tables set forth the plans' funded status and
amounts recognized in the Company's Consolidated Balance Sheets at December 1995
and 1996 (in thousands):
1995 1996
------- -------
Actuarial present value of accumulated benefit obligation
Vested benefits ................................................ $ 3,811 $ 4,057
Non-vested benefits ............................................ 216 241
------- -------
Accumulated benefits obligations ............................... 4,027 4,298
Additional amounts related to projected pay increases .......... 661 1,814
------- -------
Projected benefit obligations for service rendered to date .......... 4,688 6,112
Plan assets at fair value, consisting of debt and
equity securities .............................................. 4,014 4,405
------- -------
Plan benefit obligations in excess of plan assets ................... 674 1,707
Unrecognized net obligation at December 1986
being recognized over 25 years ................................. (80) (76)
Unrecognized prior service cost ..................................... (206) (195)
Unrecognized net gain (loss) from past experience different from that
assumed and effects of changes in assumptions .................. 162 (827)
------- -------
Accrued pension costs recognized in the
balance sheet .................................................. $ 550 $ 609
======= =======
For 1994, 1995 and 1996 actuarial calculation purposes, the weighted
average discount rate was 7.0%, the expected long term rate of return was 8.0%
and the rate of increase in future compensation levels was 4.0%. Common stock of
the Company included in plan assets, at fair value, was approximately $459,000
and $377,000 at December 1995 and 1996, respectively.
NOTE 10 - BUSINESS ACQUISITIONS
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 being 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 February 23, 1996, the Company acquired the business and certain
assets of New Dimensions in Medicine, Inc. ("NDM") for a cash purchase price of
approximately $31.6 million and the assumption of $3.3 million of liabilities.
The acquisition is being accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired business are included in
the consolidated results of the Company from the date of acquisition. Goodwill
associated with the acquisition is being amortized on a straight-line basis over
a 40 year period.
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
1995 1996
--------- --------
Pro forma revenues ............................ $ 132,927 $128,130
========= ========
Pro forma net income .......................... $ 13,323 $ 16,507
========= ========
Pro forma earnings per common
and common equivalent share ............... $ 1.12 $ 1.14
========= ========
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. 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
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 1995 and 1996 are as follows (in
thousands, except per share amounts):
Three Months Ended
----------------------------------------------------------------------
1995 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
Three Months Ended
----------------------------------------------------------------------
1996 March June September December
------- ------- --------- --------
Net sales $29,200 $31,790 $31,432 $33,208
Gross profit 14,033 15,285 14,963 15,956
Net income 3,272 4,224 4,033 4,757
Earnings per share .26 .28 .27 .31
SCHEDULE VIII - Valuation and Qualifying Accounts
(In thousands)
====================================================================================================================================
Column A Column B Column C Column D Column E
Additions
-----------------------------------
Description Balance at (1) (2) Deductions Balance at End
Beginning of Charged to Charged to of Period
Period Costs and Other Accounts
Expenses
====================================================================================================================================
1996
Allowance for
bad debts $ 400 $ 337 $(237) $ 500
Inventory
reserves $ 504 $ 267 $(309) $ 462
Deferred tax
asset valuation
allowance $5,417 $5,417
1995
Allowance for
bad debts $ 343 $ 85 $ (28) $ 400
Inventory
reserves $ 703 $ 245 $(444) $ 504
Deferred tax $5,417
asset valuation
allowance $ -- $5,417
1994
Allowance for $ (4) $ 343
bad debts $ 347
Inventory
reserves $ 559 $ 144 $ 703