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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, 1997 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 $340,769,693 based upon
the average bid and asked prices of stock, which was $23.50 on February 12,
1998.
The number of shares of the Registrant's $0.01 par value common stock
outstanding as of February 12, 1998 was 15,061,538.
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE
CONMED Corporation's Current Report on Form 8-K/A filed February 17, 1998 is
incorporated by reference into Part II.
Portions of the Definitive Proxy Statement, scheduled to be mailed on or about
April 3, 1998 for the annual meeting of stockholders to be held May 19, 1998,
are incorporated by reference into Part III.
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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
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PART I
CONMED CORPORATION
Item 1: Business
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1997
("Form 10-K") contains certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) and information
relating to CONMED Corporation ("CONMED" or the "Company") that is based on the
beliefs of the management of the Company, as well as assumptions made by and
information currently available to the management of the Company. When used in
this Form 10-K, the words "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements involve known and unknown risks,
uncertainties and other factors, including those identified under the caption
"Item 1: Business -- Risk Factors" and elsewhere in this Form 10-K that may
cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions; changes in customer preferences; competition; changes
in technology; the integration of any acquisitions, including the Linvatec
Acquisition (as defined herein); changes in business strategy; the indebtedness
of the Company; quality of management, business abilities and judgment of the
Company's personnel; the availability, terms and deployment of capital; and
various other factors referenced in this Form 10-K. See "Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 1: Business." Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
does not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
GENERAL
The Company is a leading developer, manufacturer and supplier of a broad
range of medical instruments and systems used in surgical and other medical
procedures. The Company's product offerings include electrosurgical systems,
electrocardiogram ("ECG") electrodes and accessories, surgical suction
instruments, intravenous ("IV") therapy accessories and wound care products. In
addition, through its recent acquisition of Linvatec Corporation ("Linvatec"),
the Company has broadened its product offerings to include arthroscopic surgery
devices and products, powered surgical instruments and imaging products for
minimally-invasive surgery. The Company's products are used in a variety of
clinical settings, such as operating rooms, surgery centers, physicians' offices
and critical care areas of hospitals. On a pro forma basis after giving effect
to the Company's acquisition of Linvatec (the "Linvatec Acquisition"),
approximately 75% of the Company's revenues in 1997 were derived from the sale
of single-use, disposable products. In addition, on a pro forma basis after
giving effect to the Linvatec Acquisition, approximately 22% of the Company's
revenues in 1997 were derived from sales outside of the United States.
The Company has used strategic business acquisitions to broaden its product
offerings, increase its market share in certain product lines and realize
economies of scale. During the last five years, the Company has completed seven
business acquisitions, including the recent acquisition of Linvatec. The
completed acquisitions, together with internal growth, have resulted in a
compound annual growth rate in net sales of 27% between 1993 and 1997 (57% on a
pro forma basis after giving effect to the Linvatec Acquisition).
On December 31, 1997, the Company acquired Linvatec and certain related
assets from Bristol-Myers Squibb Company ("BMS"). The Company expects the
Linvatec Acquisition to provide significant strategic benefits, including
providing the Company with expanded product lines, enhanced technological
capabilities and increased access to international markets. In addition, the
Company has identified opportunities to generate efficiencies in manufacturing
and overhead functions resulting from the Linvatec Acquisition, which it
believes could generate annual cost savings beyond those reflected in the
Company's pro forma financial statements. See "Unaudited Pro Forma Consolidated
Financial Information" in the Company's Current Report on Form 8-K/A filed
February 17, 1998. On a pro forma basis after giving effect to the Linvatec
Acquisition, the Company's net sales for 1997 were $327.4 million.
The Company was founded in 1970 by Eugene R. Corasanti, the Company's
Chairman of the Board, Chief Executive Officer and President. The Company's
principal offices are located at 310 Broad Street, Utica, New York 13501, and
the Company's telephone number is (315) 797-8375.
INDUSTRY
The number of surgical procedures performed in the United States is
increasing. According to SMG Marketing Group, the total number of U.S. surgical
procedures was approximately 32 million in 1996, and, according to SMG Marketing
Group, is expected to increase to 36 million in 2001. In addition, the number of
outpatient surgical procedures performed in the United States increased at a
compound annual growth rate of 7% from 16 million in 1991 to 20 million in 1995
and, according to SMG Marketing Group, is projected to grow at a compound annual
growth rate of 6% to 29 million in 2001. This growth in surgical procedures
reflects demographic trends, such as the aging of the population, and
technological advancements which result in safer and less invasive surgical
procedures. These less invasive surgical procedures are increasingly being
performed in outpatient surgical centers and physician offices rather than in
hospitals. According to SMG Marketing Group, outpatient surgery centers and
physician offices represented 15% and 10%, respectively, of the total surgeries
performed in 1996, and, according to SMG Marketing Group, are projected to
increase to 19% and 15%, respectively, in 2001.
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In response to rising health care costs, managed care companies and other
payors have placed pressures on health care providers to reduce costs. As a
result, health care providers have focused on the high cost areas such as
surgery, both operative and recovery. To reduce costs, health care providers use
minimally-invasive techniques, which generally reduce patient trauma, recovery
time and ultimately the length of hospitalization. According to Dorland's
Biomedical, the total number of minimally-invasive surgical procedures performed
in the United States increased at a compound annual growth rate of 14%, from 1.8
million in 1990 to an estimated 3.9 million in 1996.
In addition, health care providers are increasingly purchasing single-use,
disposable products, which reduce the costs associated with sterilizing surgical
instruments and products following surgery. The single-use nature of disposable
products lowers the risk of incorrectly sterilized instruments spreading
infection into the patient and increasing the cost of post-operative care.
Furthermore, in the United States, the pressure on health care providers to
contain costs has altered their purchasing patterns for general surgical
instruments and disposable medical products. Many health care providers have
entered into comprehensive purchasing contracts with fewer suppliers, who offer
a broader array of products at lower prices. In addition, many health care
providers have aligned themselves with group purchasing organizations ("GPOs").
GPOs aggregate the purchasing volume of its members in order to negotiate
competitive pricing with suppliers, including manufacturers of surgical
products. The Company believes that these trends will favor entities that offer
a broad product portfolio.
The Company believes that foreign markets offer growth opportunities for
manufacturers of surgical products. As economic conditions improve in developing
countries, expenditures on health care are expected to rise; according to
Dorland's Biomedical, expenditures on surgical products in developing countries
increased 15% from $14 billion in 1995 to $16 billion in 1996 and are projected
to grow at a compounded growth rate of 17% to $65 billion in 2005.
COMPETITIVE STRENGTHS
The Company attributes its strong position in certain markets to the
following competitive factors:
LEADING MARKET POSITION IN KEY PRODUCT AREAS. The Company is a leading
provider of arthroscopic surgery devices, electrosurgical systems, powered
surgical instruments and ECG electrodes. The Company's product breadth has
enhanced its ability to market to hospitals, surgery centers, GPOs and other
customers, particularly as institutions seek to reduce costs and minimize the
number of suppliers. In addition, many of the Company's products are sold under
leading brand names, including CONMED(R), Linvatec(R), Aspen Labs(R) and Hall(R)
Surgical.
BROAD PRODUCT OFFERING IN KEY PRODUCT AREAS. The Company offers a broad
product line in its key product areas. For example, the Company offers a
complete set of the electrosurgical products a surgeon requires for most
electrosurgery procedures, including pencils, ground pads, generators and
related disposables. The Company's product offerings have enabled it to meet a
wide range of customer requirements and preferences. In addition, the Company's
customers are increasingly dealing with fewer vendors and demanding a broader
product offering from vendors in order to reduce administrative costs.
MARKETING AND DISTRIBUTION NETWORK. The Company's national sales force
consists of approximately 170 sales representatives who seek to maintain close
relationships with end-users. The Company's sales representatives are trained
and educated in the applications for the products they sell and call directly on
hospital departments, outpatient surgery centers and physician offices. In
January 1997, CONMED realigned its 90 person sales force to provide the full
range of CONMED's products to each salesperson, thereby permitting them to focus
greater attention on accounts and eliminating duplicative calling efforts.
Linvatec's 80 person sales force and 13 service associates will continue their
focus on the Company's arthroscopic products calling on orthopedic surgeons. In
addition, in connection with the Linvatec Acquisition, the Company entered into
agreements with Zimmer Inc. ("Zimmer"), a subsidiary of BMS, pursuant to which
Zimmer has agreed to continue to distribute certain of Linvatec's products for
periods ranging from six months to three years. The Company also maintains
distributor relationships domestically and in numerous countries worldwide.
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VERTICALLY-INTEGRATED MANUFACTURING. The Company manufactures most of its
products. The Company's vertically integrated manufacturing process have allowed
it to provide quality products, react to changes in demand and generate
manufacturing efficiencies, including purchasing raw materials used in a variety
of disposable products in bulk. The Company believes that its manufacturing
capabilities allow it to contain costs, control quality control and maintain
security of proprietary processes. The Company continually evaluates its
manufacturing processes with the objective of increasing automation,
streamlining production and enhancing efficiency in order to achieve cost
savings.
RESEARCH AND DEVELOPMENT CAPABILITIES. Both CONMED and Linvatec have
utilized their research and development capabilities to introduce new products,
product enhancements and new technologies. On a pro forma basis after giving
effect to the Linvatec Acquisition, research and development expenditures
were $11.3 million in 1997. Recent new product introductions include Universal
Plus(R) suction and irrigation systems, TroGARD(R) Finesse(TM) trocars, the
Apex(R) irrigation system, BioScrew(R) bioresorbable interference screws,
autoclavable imaging cameras and MicroChoice(R) powered handpieces.
INTEGRATING ACQUISITIONS. Since 1993, the Company has completed seven
acquisitions and is in the process of integrating the recently-completed
Linvatec Acquisition. These acquisitions have enabled the Company to broaden its
product categories, expand its sales and distribution capabilities and increase
its international presence. The Company's experienced management team has
demonstrated an historical ability to identify complementary acquisitions and
integrate acquired companies into the Company's operations.
BUSINESS STRATEGY
The Company intends to implement the following business strategies:
REALIZE MANUFACTURING AND OPERATING EFFICIENCIES. The Company expects to
continue to review opportunities for consolidating product lines and
streamlining production. The Company believes its vertically integrated
manufacturing process should produce further opportunities to reduce overhead
and increase operating efficiencies and capacity utilization.
INCREASE INTERNATIONAL SALES. The Company believes there are significant
sales opportunities for its surgical products outside the United States. The
Linvatec Acquisition increased the Company's access to international markets.
The Company intends to seek to expand its international presence and increase
its penetration in international markets by utilizing Linvatec's relationships
with foreign surgeons, hospitals and third-party payers, as well as foreign
distributors. The Company also intends to utilize Linvatec's sales relationships
to introduce Linvatec's customers to CONMED's products.
PROVIDE BROAD PRODUCT OFFERING IN KEY PRODUCT AREAS. As a result of
competitive pressures in the health care industry, many health care providers
have aligned themselves with GPOs, which are increasingly dealing with fewer
vendors and demanding a broader product offering from their vendors in order to
reduce administrative costs. The Company believes that its broad product line is
a positive factor in the Company's efforts to meet such demands. In addition,
the Company has a corporate sales department that markets the Company's broad
product offering to GPOs.
INTRODUCE NEW PRODUCTS AND PRODUCT ENHANCEMENTS. The Company's research
and development program is focused on the development of new surgical products,
as well as the enhancement of existing products. In addition to its own research
and development, the Company benefits from the dialogue and suggestions for
product innovations from its relationships with surgeons and other users of the
Company's products.
PURSUE STRATEGIC ACQUISITIONS. The Company believes that strategic
acquisitions represent a cost-effective means of broadening its product line.
The Company has historically targeted companies with proven technologies,
established brand names and a significant portion of sales from single-use,
disposable products. Since 1993, the Company has completed seven acquisitions,
expanding its product line to include surgical suction instruments, wound care
products and most recently arthroscopic products and powered surgical
instruments. The Credit Facility contains certain restrictive covenants which
will affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company to engage in mergers and acquisitions. These
covenants may prevent the Company from pursuing acquisitions, which would result
in lower levels of growth for the Company in the future.
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RISK FACTORS
Investors should carefully consider the specific factors set forth below
as well as the other information included or incorporated by reference in this
Form 10-K. See "Item 1: Business -- Forward Looking Statements" relating to
certain forward-looking statements in this Form 10-K.
The Credit Facility contains certain restrictive covenants which will
affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company to engage in mergers and acquisitions. These
covenants may prevent the Company from pursuing acquisitions, which would result
in lower levels of growth for the Company in the future.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
The Company has indebtedness which is substantial in relation to its
shareholders' equity, as well as interest and debt service requirements that
are significant compared to its cash flow from operations. As of December 31,
1997, the Company had $365.0 million of debt outstanding, which represented
69.2% of total capitalization. In addition, on December 31, 1997, the Company
had approximately $85.0 million available for borrowing under the revolving
portion of the Company's principal bank credit agreement (the "Credit
Facility").
The degree to which the Company is leveraged could have important
consequences to investors, including but not limited to the following: (i) a
substantial portion of the Company's cash flow from operations must be
dedicated to debt service and will not be available for operations, capital
expenditures, acquisitions and other purposes; (ii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; and
(iii) certain of the Company's borrowings, including its borrowings under the
Credit Facility, are and will continue to be at variable rates of interest,
which exposes the Company to the risk of increased interest rates.
The Company's ability to satisfy its obligations will depend upon the
Company's future operating performance, which will be affected by the Company's
ability to effectively integrate acquired businesses, including Linvatec, with
the Company's operations and by prevailing economic conditions and financial,
business and other factors, many of which are beyond the Company's control. See
"-- Ability to Integrate Linvatec" below. There can be no assurance that the
Company's operating results will be sufficient for the Company to meet its
obligations. If the Company is unable to service its indebtedness, it will be
forced to adopt an alternative strategy that may include actions such as
forgoing acquisitions, reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness or seeking additional
equity capital. There can be no assurance that any of these strategies could be
implemented on terms acceptable to the Company, if at all. See "Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ABILITY TO INTEGRATE LINVATEC
The Company's success is dependent in part upon its ability to effectively
integrate Linvatec with the Company's operations. In the Linvatec Acquisition,
which represents the Company's largest acquisition to date, the Company acquired
products not previously manufactured or sold by the Company and substantially
increased its international presence. The Company has entered into arrangements
with Zimmer for distribution of the Company's small bone, large bone and
specialty powered instruments in the United States. The integration and
consolidation of the Linvatec Acquisition will require substantial management
time and other resources and may pose risks with respect to production, sales,
customer service and market share. While the Company believes that it has
sufficient management and other resources to accomplish the integration of the
Linvatec Acquisition, there can be no assurance in this regard or that the
Company will not experience difficulties with customers, suppliers, personnel or
others. In addition, there can be no assurance that the Company will be able to
achieve any cost savings from the Linvatec Acquisition. Although the Company
believes that the Linvatec Acquisition will enhance the competitive position and
business prospects of the Company, there can be no assurance that such benefits
will be realized, that the distribution arrangements with Zimmer will be
sufficient and not be terminated or that the combination of CONMED and Linvatec
will be more successful than both such companies would have been if they had
remained independent. See "Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General" and "Item 1:
Business -- Strategy."
As a result of the Linvatec Acquisition, the Company's international sales
increased from 14% of total 1997 sales to 22% of total 1997 sales on a pro forma
basis. The Company has entered into distribution and transitional agreements
with respect to Linvatec's international business with affiliates of BMS, the
former parent of Linvatec. See "Item 1: Business -- Marketing." The Company
intends to replace such transitional services with its own operations and other
distribution arrangements. There can be no assurance that the transitional
services will be sufficient to maintain the Company's international business
acquired in the Linvatec Acquisition, that the Company will be able to
successfully replace the transitional services and distribution arrangements
provided by BMS affiliates with its own services and arrangements or that the
Company will be able to expand its international business during or following
the transition.
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EFFECTS OF ACQUISITIONS GENERALLY
An important element of the Company's business strategy has been to expand
through acquisitions and the Company may seek to pursue acquisitions in the
future. Most recently, in July 1997, the Company acquired a surgical suction
instrument and tubing product line from Davol (the "Davol Acquisition") and, in
December 1997, acquired Linvatec. The success of the Company is dependent in
part upon its ability to effectively integrate acquired operations with the
Company's operations. While the Company believes that it has sufficient
management and other resources to accomplish the integration of its past and
future acquisitions, there can be no assurance in this regard or that the
Company will not experience difficulties with customers, suppliers, personnel or
others. In addition, there can be no assurance that the Company will be able to
identify and make acquisitions on acceptable terms or that the Company will be
able to obtain financing for such acquisitions on acceptable terms. In addition,
the financial performance of the Company is now and will continue to be subject
to various risks associated with the acquisition of businesses, including the
financial effects associated with the integration of such businesses.
The Credit Facility contains certain restrictive covenants which will
affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company to engage in mergers and acquisitions. These
covenants may prevent the Company from pursuing acquisitions, which would result
in lower levels of growth for the Company in the future.
LIMITATIONS IMPOSED BY CERTAIN INDEBTEDNESS
The Credit Facility contains certain restrictive covenants which will
affect, and in many respects significantly limit or prohibit, among other
things, the ability of CONMED and its subsidiaries to incur indebtedness, make
prepayments of certain indebtedness, make investments, engage in transactions
with affiliates, sell assets, engage in mergers and acquisitions and realize
important elements of its business strategy. The Credit Facility also requires
the Company to meet certain financial ratios and tests. These covenants may
prevent the Company from integrating its acquired businesses, pursuing
acquisitions, significantly limit the operating and financial flexibility of
the Company and limit its ability to respond to changes in its business or
competitive activities. The ability of the Company to comply with such
provisions may be affected by events beyond its control. In the event of any
default under the Credit Facility, the Credit Facility leaders could elect to
declare all amounts borrowed under the Credit Facility, together with accrued
interest, to be due and payable. If the Company were unable to repay such
borrowings, the lenders thereunder could proceed against the collateral
securing the Credit Facility, which consists of substantially all of the
property and assets of CONMED and its subsidiaries.
SIGNIFICANT COMPETITION AND OTHER MARKET CONSIDERATIONS
The market for the Company's products is highly competitive. Many of these
competitors offer a range of products in areas other than those in which the
Company competes, which may make such competitors more attractive to GPOs,
hospitals and others. In addition, many of the Company's competitors are larger
and have greater financial resources than the Company and offer a range of
products broader than the Company's. 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. 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. See "Item 1: Business -- Competition."
Demand for and use of the Company's products may fluctuate as a result of
changes in surgeon preferences, the introduction of new 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 recent years, the health care industry has undergone
significant change driven by various efforts to reduce costs, including efforts
at national health care reform, trends toward managed care, cuts in Medicare,
consolidation of health care distribution companies and collective purchasing
arrangements by office-based health care practitioners. There can be no
assurance that demand for the Company's products will not be adversely affected
by such fluctuations and trends.
PATENTS AND PROPRIETARY TECHNOLOGY
Much of the technology used in the markets in which the Company competes is
covered by patents. The Company has numerous U.S. patents and corresponding
foreign patents on products expiring at various dates from 1998 through 2015 and
has additional patent applications pending. See "Item 1: Business -- Research
and Development Activities." Although the Company does not rely solely on its
patents to maintain its competitive position, the loss of the Company's patents
could reduce the value of the related products and any related competitive
advantage. Competitors may also be able to design around the Company's patents
and effectively compete with the Company's products. In addition, the cost to
prosecute infringements of the Company's patents or the cost to defend the
Company against patent infringement actions by others could be substantial.
There can be no assurance that pending patent applications will result in issued
patents, that patents issued to or licensed by the Company will not be
challenged by competitors or that such patents will be found to be valid or
sufficiently broad to protect the Company's technology or provide the Company
with a competitive advantage.
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GOVERNMENT REGULATION OF PRODUCTS
All of the Company's products are classified as medical devices subject to
regulation by the Food and Drug Administration (the "FDA"). As a manufacturer of
medical devices, the Company's manufacturing processes and facilities are
subject to on-site inspection and continuing review by the FDA to insure
compliance with "Good Manufacturing Practices," as defined by the FDA. Failure
to comply with applicable requirements can result in fines, recall or seizure of
products, total or partial suspension of production, withdrawal of existing
product approvals or clearances, refusal to approve or clear new applications or
notices and criminal prosecution. Many of the Company's products are also
subject to industry-set standards.
Foreign sales are also subject to substantial government regulation. For
example, the Company's European Community sales are subject to government
regulations known as the "CE" mark certification. Although a majority of the
Company's products have received "CE" mark certification and the Company
believes its products meet all applicable requirements for "CE" mark
certification, there can be no assurance that all of the Company's products will
receive a "CE" mark certification prior to the date that such certification is
required to continue to market such products.
The Company is subject to product recall. The Company's product lines have
experienced a number of product recalls. The Company has completed actions to
close all these recalls except one which the Company is currently addressing.
See "Item 1: Business -- Government Regulation." Although no recall or
production matter has had a material adverse effect on the Company's financial
condition, there can be no assurance to this effect in the future.
RISKS RELATING TO INTERNATIONAL OPERATIONS
A portion of the Company's operations are conducted outside the United
States, with 22% of the Company's pro forma 1997 net sales constituting foreign
sales. As a result of its international operations, the Company is subject to
risks associated with operating in foreign countries, including devaluations
and fluctuations in currency exchange rates, imposition of limitations on
conversions of foreign currencies into dollars or remittance of dividends and
other payments by foreign subsidiaries, imposition or increase of withholding
and other taxes on remittances and other payments by foreign subsidiaries,
trade barriers, political risks, including political instability,
hyperinflation in certain foreign countries and imposition or increase of
investment and other restrictions by foreign governments. There can be no
assurance that such risks will not have a material adverse effect on the
Company's business and results of operations.
RISK OF PRODUCT LIABILITY ACTIONS
The nature of the Company's products as medical devices and today's
litigious environment in the United States should be regarded as potential
risks that could significantly and adversely affect the Company's financial
condition and results of operations. The Company maintains insurance to protect
against claims associated with the use of its products, but there can be no
assurance that its insurance coverage would adequately cover the amount or
nature of any claim asserted against the Company. See "Item 3: Legal
Proceedings."
ENVIRONMENTAL MATTERS
The Company's operations are subject to various environmental laws and
regulations governing among other things, air emissions, wastewater discharges,
hazardous substances and waste disposal. Certain environmental laws can impose
liability for the entire cost of environmental remediation upon current or
former property owners and operators without regard to fault. While the Company
does not believe that the present costs of environmental compliance and
remediation are material, there can be no assurance that future compliance or
remedial obligations could not have a material adverse effect on the Company's
financial condition or results of operations. See "Item 1: Business--Legal
Proceedings."
SURGERY PRODUCTS
The Company is a leading developer, manufacturer and supplier of a broad
range of medical instruments and systems used in surgical and other medical
procedures. The Company's surgery products include arthroscopic surgery devices
and products, electrosurgical systems, powered surgical instruments and, to a
lesser extent, surgical suction instruments and imaging products used in
minimally invasive surgery. These products are sold to hospitals, outpatient
surgery centers and physician offices primarily in the United States.
Additionally, the Company provides repairs and services for its surgical
products. On a pro forma basis after giving effect to the Linvatec Acquisition,
surgical products represented 82% of 1997 sales.
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ARTHROSCOPIC SURGERY DEVICES AND PRODUCTS
As a result of the Linvatec Acquisition, the Company offers a broad line of
devices and products for use in arthroscopic surgery. On a pro forma basis
after giving effect to the Linvatec Acquisition, net sales attributable to
arthroscopy products represented 33% of the Company's 1997 net sales.
Arthroscopy refers to diagnostic and therapeutic surgical procedures
performed on joints with the use of minimally-invasive endoscopes and related
instruments. Minimally-invasive arthroscopy procedures enable surgical repairs
to be completed with less trauma to the patient, resulting in shorter recovery
times and cost savings. Approximately 75% of all arthroscopy is performed on
knee joints, although arthroscopic procedures are increasingly being done on
smaller joints and shoulders.
The Company's arthroscopy products include arthroscopes, reconstructive
systems, tissue repair sets, fluid management systems, imaging products,
implants and related disposable products. It is the Company's ordinary practice
to transfer some of these products, such as arthroscopic resection shavers, to
customers at no charge and benefits by obtaining customers' disposables
business. The Company has benefited from the introduction of new products and
new technologies in the arthroscopic area, such as bioresorbable screws,
"push-in" suture anchors and Apex(R) resection shavers.
ARTHROSCOPIC SURGERY DEVICES AND PRODUCTS
- -------------------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION BRAND NAME
- -------------------------------------------------------------------------------------------------------------
Resection Shavers Reusable shavers and disposable blades to Apex(R)
resect and remove soft tissue and bone;
used in knee, shoulder and small joint
surgery, as well as endoscopic sinus
surgery.
Reconstructive Systems Products used in knee reconstructive Paramax(R)
surgery; includes instrumentation, screws, Pinn-ACL(R)
pins, rasps and curettes.
Tissue Repair Sets Sets of instruments designed to attach Spectrum(R)
specific torn or damaged soft tissue to Revo(R)
bone or other tissue in the knee, shoulder Bio-Anchor(R)
and wrist; includes guides, hooks, suture Inteq(R)
devices and anchors.
Fluid Management Disposable tubing sets, disposable and Apex(R)
Systems reusable inflow devices, pumps and PuddleVac(R)
suction/waste management systems for use in Quick-Flow(R)
arthroscopic and general surgeries.
9
10
PRODUCT DESCRIPTION BRAND NAME
- -------------------------------------------------------------------------------------
Imaging Surgical video systems for endoscopic Apex(R)
procedures; includes single-chip digital 8180 Series
and three-chip camera consoles, heads,
endoscopes, light sources, monitors, VCRs
and printers.
Implants Products including bioresorbable and metal BioScrew(R)
interference screws, anchors and staples Guardsman(R)
for attaching tissue to bone in the knee
and shoulder.
Other Instruments and Forceps, graspers, suction punches, probes, Shutt(R)
Accessories cases and other general instruments for TractionTower(R)
arthroscopic procedures.
ELECTROSURGICAL SYSTEMS
During 1995, 1996 and 1997 and for pro forma 1997, net sales attributable
to electrosurgery products represented 53%, 49%, 45% and 19%, respectively, of
the Company's net sales.
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
general dermatologic, thoracic, orthopedic, urologic, neurosurgical,
gynecological, laparoscopic, arthroscopic and other endoscopic procedures.
The Company's electrosurgical products include electrosurgical pencils,
ground pads, generators, the argon-beam coagulation system, ABC(R), and related
disposable products. ABC(R) 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(R) over traditional electrosurgical
coagulation in certain clinical situations, including open-heart, liver, spleen
and trauma surgery.
ELECTROSURGICAL SYSTEMS
- ----------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION BRAND NAME
- ----------------------------------------------------------------------------------------------
Pencils Disposable and resuseable instruments designed Hand-trol(R)
to deliver high-frequency electric current to
cut and/or coagulate tissue.
Ground Pads Disposable ground pads to safely return the Macrolyte(R)
current to the generator; available in adult, Bio-gard(R)
pediatric and infant sizes.
Generators Monopolar and bipolar generators for surgical EXCALIBUR
procedures performed in a physician's office or Plus PC(R)
clinic setting. SABRE(R)
Hyfrecator Plus(R)
Argon Beam Coagulation Specialized electrosurgical generators, ABC(R)
Systems disposable hand pieces and ground pads for Beamer Plus(R)
non-contact cutting and coagulation of tissue.
Accessories Disposable products such as blades, forceps, CONMED(R)
adapters and cables. Aspen Labs(R)
10
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POWERED INSTRUMENTS
As a result of the Linvatec Acquisition, the Company offers a broad line of
powered instruments. On a pro forma basis after giving effect to the Linvatec
Acquisition, net sales attributable to powered instruments represented 25% of
the Company's 1997 net sales.
Powered instruments are used to perform orthopedic, arthroscopic and other
surgical procedures, such as cutting, drilling or reaming and are driven by
electric, battery or pneumatic power. Each instrument consists of one or more
handpieces and related accessories as well as disposable and limited reuse items
(e.g., burs, saw blades, drills and reamers). Powered instruments are generally
categorized as either small bone, large bone or specialty powered instruments.
The Company's line of powered instruments are sold principally under the
Hall(R) Surgical brand name, for use in orthopedic, oral/maxillofacial,
podiatric, plastic and to a limited extent, neurological and thoracic surgeries.
Large bone powered instruments and specialty powered instruments are sold
primarily to hospitals while small bone powered instruments are sold to
hospitals, outpatient facilities and physician offices. Linvatec has devoted
substantial resources to developing a new technology base for small bone
instruments that can be easily adapted and modified for new procedures. In 1996,
Linvatec introduced its first product line using this new technology,
MicroChoice(R).
- ----------------------------------------------------------------------------------------------
POWERED INSTRUMENTS
- ----------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION BRAND NAME
- ----------------------------------------------------------------------------------------------
Small Bone Powered saws, drills and related disposable Hall(R) Surgical
accessories for small bone and joint surgical MicroChoice(R)
procedures. Surgairtome(R)
Large Bone Powered saws, drills and related disposable Hall(R) Surgical
accessories for use primarily in total knee and VersiPower(R)
hip joint replacements and trauma surgical Series 4(R)
procedures.
Specialty Procedure-specific powered saws, drills and UltraPower(R)
related disposable accessories for use in Hall Osteon(R)
oral/maxillofacial, otolaryngology and thoracic Orthairtome(R)
procedures.
Other Powered Powered sternum saw handpieces and disposable Hall(R) Surgical
Instruments saw blades for use by cardiothoracic surgeons UltraPower(R)
during open-heart procedures. Micro 100
- ----------------------------------------------------------------------------------------------
OTHER GENERAL SURGICAL PRODUCTS
The Company's other general surgical products include a variety of products
used in surgical settings. On a pro forma basis after giving effect to the
Linvatec Acquisition, other general surgical products represented 5% of the
Company's 1997 net sales.
- ----------------------------------------------------------------------------------------------
OTHER GENERAL SURGICAL PRODUCTS
- ----------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION BRAND NAME
- ----------------------------------------------------------------------------------------------
Laparoscopic Specialized trocars, suction/irrigation UNIVERSAL Plus(R)
Instruments electrosurgical instrument systems for use in TroGard(R)
laparoscopic surgery; includes disposable TroGard
handles, valve/control assemblies with Finesse(TM)
disposable accessories and monopolar and
bipolar scissors, graspers and loops.
Surgical Suction Disposable surgical suction instruments and CONMED(R)
Instruments and connecting tubing, including Yankauer, Poole,
Tubing Frazier and Sigmoidoscopic instrumentation, for
use by physicians in the majority of open
surgical procedures.
- ----------------------------------------------------------------------------------------------
11
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PATIENT CARE PRODUCTS
During 1995, 1996 and 1997 and for pro forma 1997, net sales attributable
to patient care products represented 44%, 48%, 43% and 18%, respectively, of the
Company's net sales.
The Company manufactures a variety of patient care products for use in
monitoring cardiac rhythms, wound care management and IV therapy. These products
include ECG electrodes and cables, wound dressings and catheter stabilization
dressings. These products are sold to hospitals, outpatient surgery centers and
physician offices primarily in the United States. The majority of the Company's
sales in this category are derived from the sale of ECG electrodes. Although
wound management and intravenous therapy product sales are comparatively small,
the application of these products in the operating room complements the
Company's surgery business.
- ----------------------------------------------------------------------------------------------
PATIENT CARE PRODUCTS
- ----------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION BRAND NAME
- ----------------------------------------------------------------------------------------------
ECG Monitoring Line of disposable electrodes, monitoring CONMED(R)
cables, lead wire products and accessories Ultratrace(R)
designed to transmit ECG signals from the heart
to an ECG monitor or recorder.
Wound Care Disposable transparent wound dressings ClearSite(R)
comprising proprietary hydrogel; able to absorb Hydrogauze(R)
2 1/2 times its weight in wound exudate;
manufactured for CURAD.
Intravenous Therapy Disposable IV drip rate gravity controller and VENI-GARD(R)
disposable catheter stabilization dressing MasterFlow(R)
designed to hold and secure an IV needle or Stat 2(R)
catheter for use in IV therapy.
- ----------------------------------------------------------------------------------------------
MARKETING
CONMED markets its products domestically through a direct sales and
marketing force of approximately 90 persons. Linvatec markets its arthroscopy
products domestically principally through a direct sales force of approximately
80 sales representatives and 13 service associates. Both the CONMED and Linvatec
sales forces will continue to be separately maintained by the Company. Linvatec
historically marketed its powered instruments domestically through Zimmer, a
subsidiary of BMS specializing in orthopedic implant products. In connection
with the Linvatec Acquisition, Zimmer agreed to continue distribution of the
Company's large bone powered instruments in the United States for three years.
Additionally, Zimmer has agreed to distribute all brands of the Company's small
bone and specialty powered instruments in the United States for up to one year
while the Company establishes a domestic sales force to sell these particular
products to physicians and hospitals.
Prior to January 1, 1997, CONMED's domestic sales force was principally
structured into two groups, Electrosurgical Systems and Patient Care, with each
group responsible for selling only the products in its category. While this
structure had been effective in maintaining business associated with recent
acquisitions, it was not efficient as CONMED had multiple sales people calling
on individual customers. Accordingly, effective January 1, 1997, the two groups
were combined into one sales force where each territory manager now markets both
product lines. The Company believes that this new structure permits greater
attention to accounts and facilitates focused selling of CONMED's products.
CONMED has located its salespeople in key metropolitan areas. They are
supervised and supported by district managers and regional managers. Home office
sales and marketing management provide the overall direction for the sales of
the Company's products. Each CONMED sales person is compensated with a
combination of salary and commission. For hospital inventory management
purposes, at the hospitals' request, some products are sold to hospitals through
distributors. The sales force is required to work closely with distributors
where applicable and to maintain close relationships with end-users.
Domestically, CONMED's products are sold through local, regional and national
hospital distributors and directly to hospitals.
12
13
Each Linvatec sales representative has a defined geographic territory and
is compensated on a commission basis. This direct sales force covers virtually
every state in the United States. Linvatec's global marketing effort is managed
from Largo, Florida, where a product management team provides strategic product
direction. Additional marketing support functions such as new business planning,
market development and other marketing services are also based in Largo.
Internationally, CONMED's products have historically been sold primarily
through distributors in over 60 countries. Linvatec historically distributed
both arthroscopy and powered instruments products, depending on the country,
either directly through Zimmer or through distributors affiliated with Zimmer.
In connection with the Linvatec Acquisition, Zimmer has agreed to continue to
distribute Linvatec's arthroscopic and powered instrument products in Japan and
certain Eastern European countries for up to three years. Zimmer will also
continue to distribute Linvatec's large bone powered instruments in eight
countries where it has an established direct sales force. Zimmer has also agreed
to direct the distribution of the Linvatec product line for up to six months in
all other areas of the world while the Company transitions to its own
distribution methodology. In general, the Company plans to contract with the
same independent country distributors who now sell the Linvatec line on Zimmer's
behalf, although in certain countries, such as the United Kingdom, Germany,
Italy, Canada, Korea and Australia, the Company may establish its own direct
sales force.
The Company focuses on keeping its salespeople highly trained and educated
in the applications for its products. CONMED's salespeople call on hospitals,
outpatient surgery centers and physician offices. Linvatec's salespeople call on
orthopedic surgeons and hospital surgery departments. The Company also has a
corporate sales department that is responsible for interacting with GPOs. The
Company believes that it has contracts with most such organizations and that the
lack of any individual group purchasing contract will not adversely impact the
Company's competitiveness in the marketplace. The sale of the Company's products
are accompanied by initial and ongoing in-service training of the end user. The
Company requires that its sales force possess the ability to train doctors and
nursing staff on the techniques needed to take full advantage of the Company's
products. 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
During the three years, 1995, 1996 and 1997 and for pro forma 1997, the
Company spent approximately $2.8 million, $3.0 million, $3.0 million and $11.3
million, respectively, for research and development. The Company's research and
development department consists of approximately 94 employees, including 59
employees as a result of the recent Linvatec Acquisition.
The Company's research and development programs focus on the development of
new products, as well as the enhancement of existing products with the latest
technology and updated designs. The Company is continually seeking to develop
new technologies to improve durability, performance and usability of existing
products. In addition to its own research and development, the Company receives
new product and technology disclosures, especially in procedure-specific areas,
from surgeons, inventors and operating room personnel. For disclosures that the
Company deems promising from a clinical and commercial perspective, the Company
seeks to obtain rights to these ideas by negotiating agreements, which typically
compensate the originator of the idea through royalty payments based on a
percentage of net sales of licensed products.
The Company has rights to numerous U.S. patents and corresponding foreign
patents, covering a wide range of its products. The Company owns a majority of
these patents and has licensed rights to the remainder, both on an exclusive and
non-exclusive basis. In addition, certain Linvatec patents are currently
licensed to third parties on a non-exclusive basis. Due to technological
advancements, the Company does not rely on its patents to maintain its
competitive position, and believes that development of new products and
improvement of existing ones is and will continue to be more important than
patent protection in maintaining its competitive position.
13
14
COMPETITION
The markets for the Company's surgical systems products and patient care
products are highly competitive, and many of the Company's competitors are
substantially larger and stronger financially than the Company. However, the
Company does not believe that any one competitor competes with the Company
across all its product lines. Major competitors of the Company include Valleylab
(a subsidiary of United States Surgical Corporation), Minnesota Mining and
Manufacturing Company, Smith & Nephew plc and Stryker Corporation.
The Company believes that product design, development and improvement,
customer acceptance, marketing strategy, customer service and price are critical
elements to compete in its industry. Other alternatives, such as medical
procedures or pharmaceuticals, could at some point prove to be interchangeable
alternatives to the Company's products.
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 has a quality control/regulatory compliance group of 34
employees that is tasked with assuring that all of the Company's products comply
with design specifications and relevant government regulations. The Company and
substantially all of its products are subject to the provisions of the Federal
Food, Drug and Cosmetic Act of 1938, as amended by the Medical Device Amendments
of 1976, and the Safe Medical Device Act of 1990, as amended in 1992.
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. Although a majority of the Company's
products have received "CE" mark certification and the Company believes its
products meet all applicable requirements for "CE" mark certification, there can
be no assurances that all of the Company's products will receive a "CE" mark
certification prior to the date that such certification is required to continue
to market such products. The Company believes that its products currently meet
applicable standards for the countries in which they are marketed.
As a manufacturer of medical devices, the Company's manufacturing processes
and facilities are subject to periodic on-site inspections and continuing review
by the FDA to insure compliance with "Good Manufacturing Practices." Many of the
Company's products are subject to industry-set standards. Industry standards
relating to the Company's products are generally formulated by committees of the
Association for the Advancement of Medical Instrumentation. The Company believes
that its products presently meet applicable standards.
The Company is subject to product recall. In March 1993, the Company
voluntarily recalled certain lots of its TechSwitch(R) electrosurgical pencils
due to a production matter which caused a small percentage of the pencils in the
affected lots to function in an inconsistent manner. Since 1990, the Linvatec(R)
and Hall(R) Surgical product lines have experienced 14 and 5 product recalls,
respectively. Corrective actions were taken to address the causes of the
recalls, and the Company has completed actions to close all these recalls except
one which the Company is currently addressing. No recall or production matter
has had a material effect on the Company's financial condition.
Any change in existing federal, state or foreign laws or regulations, or in
the interpretation or enforcement thereof, or the promulgation or any additional
laws or regulations could have an adverse effect on the Company's financial
condition or results of operations.
EMPLOYEES
As of December 31, 1997, the Company had 2,161 full-time employees, of whom
1,462 were in manufacturing, 94 were in research and development, and the
balance were in sales, marketing, executive and administrative positions. These
employees include 876 employees who joined the Company on December 31, 1997 as a
result of the Linvatec Acquisition. None of the Company's employees are
represented by a union, and the Company considers its employee relations to be
excellent. The Company has never experienced any strikes or work stoppages.
14
15
Item 2. Properties
FACILITIES
The Company manufactures most of its products. Substantially all of the
Company's property and assets are pledged as collateral under the Credit
Facility. The following table provides information regarding the Company's
facilities. The Company believes its facilities are adequate in terms of space
and suitability for its needs over the next several years. The Company is
currently in the process of moving one of its manufacturing operations from a
leased facility in Lawrence, Kansas to a Company-owned facility in Utica, New
York. The leased facility in Lawrence is approximately 100,000 square feet, and
the lease may be terminated by the Company without cause upon 60 days' notice to
the lessor.
LEASE
LOCATION SQUARE FEET OWN OR LEASE EXPIRATION
- ----------------------------- ----------- ------------ --------------
Utica, NY (three facilities) 650,000 Own --
Largo, FL 213,000 Lease 2009
Rome, NY 120,000 Own --
Englewood, CO 65,000 Own --
San Dimas, CA 32,000 Lease 2002
Juarez, Mexico 25,000 Lease June 1998
Santa Barbara, CA 18,000 Lease December 1998
El Paso, TX 29,000 Lease 1999
MANUFACTURING
The Company manufactures most of its products. The Company believes its
vertically integrated manufacturing process allows it to provide quality
products and generate manufacturing efficiencies, including by purchasing raw
materials for its disposable products in bulk. The Company also believes that
its manufacturing capabilities allow it to contain costs, control quality and
maintain security of proprietary processes. The Company uses various manual and
automated equipment for fabrication and assembly of its products and is
continuing to further automate its facilities.
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 of unfilled orders is not significant to an understanding of
the Company's business.
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 does not
expect that the resolution of any pending claims will have a material adverse
effect on the Company's financial condition or results of operations.
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
$25,000,000 per incident and $25,000,000 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.
The Company's operations are subject to a number of environmental laws and
regulations governing, among other things, air emissions, wastewater discharges,
the use, handling and disposal of hazardous substances and wastes, soil and
groundwater remediation and employee health and safety. In some jurisdictions
environmental requirements may be expected to become more stringent in the
future. In the United States certain environmental laws can impose liability for
the entire cost of site restoration upon each of the parties that may have
contributed to conditions at the site regardless of fault or the lawfulness of
the party's activities. The Company has contributed to investigation and
remediation costs at certain sites, including a facility formerly operated by
Birtcher and located in an area of regional groundwater contamination which has
been designated as the San Gabriel Valley Superfund Site. See Note 6 to the
Company's Financial Statements.
While the Company does not believe that the present costs of environmental
compliance and remediation are material, there can be no assurance that future
compliance or remedial obligations could not have a material adverse effect on
the Company's financial condition or results of operations.
15
16
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, 1997.
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 January 28, 1998, there were 1,471
registered holders of the Company's Common Stock and, in addition the Company
has been notified that, on such date, there were approximately 7,700 accounts
held in "street name", excluding Prudential accounts.
The following table shows the high-low last sales prices for the years ended
December 31, 1996 and 1997, as reported by the Nasdaq National Market System.
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
1997
------------------------------------------
Period High Low
------------------------------------------
First Quarter 21.63 14.38
Second Quarter 19.25 12.25
Third Quarter 21.50 16.38
Fourth Quarter 29.75 18.50
The Company did not pay cash dividends on its Common Stock during 1996 and 1997.
The Credit Facility prohibits the payment of cash dividends on the Company's
Common Stock. The Company's Board of Directors presently intends to retain
future earnings to finance the development of the Company's business.
16
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Item 6. Selected Financial Data
FIVE - YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
YEARS ENDED DECEMBER
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENTS OF OPERATIONS DATA(1):
Net sales................................... $ 53,641 $ 71,064 $ 99,558 $125,630 $138,270
Cost of sales............................... 30,218 38,799 52,402 65,393 74,220
Selling and administrative expense.......... 17,402 20,979 25,570 31,620 35,299
Research and development expense............ 2,222 2,352 2,832 2,953 3,037
Unusual items(2)............................ 5,700 -- -- -- 37,242
-------- -------- -------- -------- --------
Income (loss) from operations............... (1,901) 8,934 18,754 25,664 (11,528)
Interest income (expense), net.............. (214) (628) (1,991) (217) 823
-------- -------- -------- -------- --------
Income (loss) before income taxes........... (2,115) 8,306 16,763 25,447 (10,705)
Provision (benefit) for income taxes........ (719) 2,890 5,900 9,161 (3,640)
-------- -------- -------- -------- --------
Net income (loss)........................... $ (1,396) $ 5,416 $ 10,863 $ 16,286 $ (7,065)
======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE(3):
Basic....................................... $ (0.16) $ 0.60 $ 1.03 $ 1.16 $ (0.47)
======== ======== ======== ======== ========
Diluted..................................... $ (0.16) $ 0.56 $ 0.94 $ 1.12 $ (0.47)
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED
IN CALCULATING(3):
Basic earnings (loss) per share............. 8,987 9,032 10,517 14,045 14,997
======== ======== ======== ======== ========
Diluted earnings (loss) per share........... 8,987 9,624 11,613 14,496 14,997
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and amortization............... $ 3,262 $ 3,878 $ 5,015 $ 6,410 $ 6,954
EBITDA(4)................................... 7,061 12,812 23,769 32,074 32,668
Capital expenditures........................ 1,506 2,190 5,195 4,946 8,178
Ratio of earnings to fixed charges(5)....... --(5) 11.73x 8.84x 79.41x --(5)
DECEMBER
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA(6):
Cash and cash equivalents................... $ 1,978 $ 3,615 $ 1,539 $ 20,173 $ 13,452
Total assets................................ 57,338 62,104 119,403 170,083 561,637
Long-term debt (including current
portion)................................. 11,905 9,375 32,340 -- 365,000
Total shareholders' equity.................. 37,490 43,061 75,002 158,635 162,736
- ---------------
(1) Includes, based on the purchase method of accounting, the results of (i)
CONMED Andover Medical, Inc., the subsidiary formed as a result of the
acquisition of the business and certain assets of Medtronic Andover Medical,
Inc., from July 1993; (ii) an ECG product line from Becton Dickinson
Vascular Access, Inc. from November 1994; (iii) Birtcher Medical Systems,
Inc. ("Birtcher") from March 1995; (iv) the IV controller product line
acquired from Master Medical Corporation ("Master Medical") from May 1995;
(v) NDM, Inc. ("NDM"), the subsidiary formed as a result of the product
lines acquired from New Dimensions in Medicine, Inc., from February 1996;
and (vi) the surgical suction product line acquired from the Davol
subsidiary ("Davol") of C.R. Bard, Inc., from July 1997, in each such
case from the date of acquisition.
(2) Includes for 1993 a litigation charge of $5.0 million relating to a patent
infringement case involving the Company's line of coated electrosurgical
accessory blades and a product restructure charge of $0.7 million for the
write-off of obsolete inventory. Includes for 1997 a $34.0 million non-cash
acquisition charge for the writedown of all of the in-process research and
development products (comprised of products in the development stage)
acquired in the Linvatec Acquisition, $0.9 million of deferred financing
fees resulting from refinancing the Company's loan agreements in connection
with the Linvatec Acquisition, and $2.3 million for the closing of the
Company's Dayton, Ohio manufacturing facility.
(3) All share and per share amounts have been adjusted to give effect to the
Company's three-for-two stock splits in the form of stock dividends paid on
December 27, 1994 and November 30, 1995.
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, unusual items and inventory adjustments
pursuant to purchase accounting. EBITDA is included herein because certain
investors consider it to be a useful measure of a company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations, as defined in generally accepted accounting principles, and
should not be considered in isolation or as a substitute for net income or
cash flow from operations or as a measure of profitability or liquidity.
(5) The ratio of earnings to fixed charges is calculated by dividing fixed
charges into income from operations before income taxes and extraordinary
items plus fixed charges. Fixed charges include interest expense,
amortization of debt issuance cost and the estimated interest component of
rent expense. In 1993 and 1997, the Company had a deficiency of earnings to
cover fixed charges of $1,755,000 and $11,381,000, respectively.
17
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(6) Linvatec is included in the Historical Balance Sheet Data as of December 31,
1997, its date of acquisition, after a one-time non-cash acquisition charge
of $34.0 million.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with Selected
Historical Financial Information (Item 6) and the consolidated financial
statements of CONMED and Linvatec, which are included elsewhere or incorporated
by reference in this Form 10-K.
GENERAL
The Company is a leading developer, manufacturer and supplier of a broad
range of medical instruments and systems used in surgical and other medical
procedures. The Company's net sales have increased approximately 158% from $53.6
million in 1993 to $138.3 million in 1997 primarily as a result of the Company's
acquisitions of the businesses and product lines described below.
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 disposable ECG electrodes
from Becton Dickinson Vascular Access, Inc. for approximately $2.0 million.
These acquisitions expanded the ECG product offering 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 for approximately 1.6 million
shares of the Company's 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 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.
In February 1996, the Company acquired substantially all the business and
certain assets of 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.
On July 1, 1997, the Company completed the acquisition of a surgical
suction instrument and tubing product line from Davol for a cash purchase price
of $24.0 million. This 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 December 31, 1997, the Company acquired Linvatec and other related
assets from BMS for a cash purchase price of $370.0 million plus the issuance of
a warrant to purchase 1.0 million shares of the Company's common stock plus the
assumption of net liabilities of approximately $16.6 million. The Linvatec
Acquisition is being accounted for using the purchase method of accounting.
Accordingly, the results of operations of Linvatec are included in the
consolidated results of the Company from the date of acquisition. Goodwill
associated with the Linvatec Acquisition is being amortized on a straight-line
basis over a 40-year period. Linvatec is a leading supplier of
minimally-invasive surgical products for arthroscopic surgery, as well as a
leader in the powered surgical instrument market.
The allocations of the purchase price for the Davol Acquisition and the
Linvatec Acquisition are based on management's preliminary estimates; it is
possible that re-allocations will be required as additional information
18
19
becomes available. Management does not believe that such re-allocations will
have a material effect on the Company's results of operations or financial
position.
The Company has identified measures required to enable its systems to be
Year 2000 compliant. The cost of such measures is not expected to be
significant.
From time to time, the Company explores acquisition opportunities and
conducts discussions and negotiations regarding acquisition proposals. There are
no current acquisition proposals pending and there can be no assurance that any
future acquisitions will result from discussions and negotiations. The Credit
Facility significantly limits the ability of the Company to pursue acquisitions
that have not been approved by the lenders thereunder. See "Risk Factors --
Limitation Imposed by Certain Indebtedness."
CONMED
RESULTS OF OPERATIONS
The following table presents, as a percent of net sales, certain categories
included in CONMED's consolidated statements of income for the periods
indicated:
YEARS ENDED DECEMBER
-------------------------
1995 1996 1997
----- ----- -----
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of sales....................................................... 52.6 52.1 53.7
----- ----- -----
Gross profit........................................................ 47.4 47.9 46.3
Selling and administrative expense.................................. 25.7 25.2 25.5
Research and development expense.................................... 2.9 2.3 2.2
Unusual items....................................................... -- -- 26.9
----- ----- -----
Income (loss) from operations....................................... 18.8 20.4 (8.3)
Interest income (expense), net...................................... (2.0) (0.2) 0.6
----- ----- -----
Income (loss) before income taxes................................... 16.8 20.2 (7.7)
Provision (benefit) for income taxes................................ 5.9 7.3 (2.6)
----- ----- -----
Net income (loss)................................................... 10.9% 12.9% (5.1)%
===== ===== =====
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Sales for 1997 were $138.3 million, an increase of $12.7 million, or 10.1%,
compared to sales of $125.6 million in 1996. The increase was primarily a result
of the Davol product line acquisition effective July 1, 1997, and the NDM
acquisition that was reflected in 1996 results only from February 23, 1996, the
date of acquisition. Offsetting the incremental sales volume associated with the
acquisitions was the effect of realignment of CONMED's domestic sales force
effective January 1, 1997, the effect of discontinuing certain end of quarter
dealer incentives and lower pricing relative to ECG electrode sales.
Prior to 1997, CONMED maintained separate sales forces, each of which sold
only a portion of CONMED's product offerings. With the January 1, 1997
realignment, each of CONMED's territory managers became responsible for selling
its entire product line. While management believes that this change has enhanced
CONMED's sales efforts, management believes that sales for the first six months
of 1997 were negatively impacted by this change due to training and transition
issues. Additionally, during the second quarter of 1997, CONMED announced that
it would immediately discontinue certain end of quarter dealer incentives that
had previously been offered. Management believes that the termination of such
dealer incentives had a negative effect on CONMED's sales in 1997 by as much as
$2.0 million.
19
20
Cost of sales increased to $74.2 million in 1997, an increase of $8.8
million, or 13.5%, compared to cost of sales of $65.4 million in 1996. CONMED's
gross margin percentage was 46.3% in 1997 as compared to 47.9% in 1996. Factors
adversely impacting the gross margin percentage in 1997 include the Davol
product line, which currently has a lower gross margin percentage than CONMED's
overall gross margin percentage, and the effects of lower pricing on ECG
electrodes.
Selling and administrative expenses increased to $35.3 million in 1997, an
increase of $3.7 million, or 11.6%, compared to selling and administrative
expenses of $31.6 million in 1996. As a percent of sales, selling and
administrative expenses increased to 25.5% in 1997 from 25.2% in 1996. Selling
and administrative expenses for the first two quarters of 1997 averaged 28.1% of
net sales and were adversely impacted by incremental costs associated with
CONMED's realignment of its domestic sales force which was completed in the
second quarter of 1997. Selling and administrative expense for the last two
quarters of 1997 declined to an average of 24.4% of net sales reflecting the
completion of the sales force realignment and economies of scale resulting from
the Davol product line acquisition effective July 1, 1997.
Research and development expense was $3.0 million in each of 1997 and 1996.
CONMED continues to conduct research and development activities in all of its
product lines, with a particular emphasis on products for minimally invasive
surgery.
In 1997, CONMED recorded $37.2 million of unusual items, including a $34.0
million non-cash acquisition charge for the write-down of all of the in-process
research and development products (comprised of products in the development
stage) acquired in the Linvatec Acquisition, $0.9 million of deferred financing
fees resulting from the refinancing of the Company's loan agreements in
connection with the Linvatec Acquisition and a $2.3 million charge for the
closing of CONMED's Dayton, Ohio manufacturing facility.
In 1997, CONMED had net interest income of $0.8 million, compared to net
interest expense of $0.2 million in 1996. CONMED repaid all then-outstanding
balances under a predecessor credit agreement in 1996 following the completion
of CONMED's offering of 2,998,000 shares of common stock. No further borrowings
were made under any CONMED credit facilities until December 31, 1997, when
$365.0 million was borrowed under the Credit Facility in connection with the
Linvatec Acquisition.
As a result of the unusual items, CONMED recognized an income tax benefit
of $3.6 million in 1997. CONMED's effective tax rate for 1996 was 36.0%
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 29, 1995
Sales for 1996 were $125.6 million, an increase of 26.2% compared to sales
of $99.6 million in 1995. The increase was 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 $65.4 million in 1996 as compared to $52.4
million in 1995. CONMED'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 inclusion of the NDM product line which generally have lower gross margin
percentages than CONMED's overall gross margin percentage.
Selling and administrative expenses increased to $31.6 million in 1996 as
compared to $25.6 million 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 $3.0 million in 1996 as compared to
$2.8 million in 1995.
Net interest expense was $0.2 million in 1996 as compared to $2.0 million
in 1995. In connection with the 1995 acquisitions of Birtcher and Master
Medical, CONMED borrowed approximately $23.0 million bringing aggregate 1995
20
21
borrowing outstanding under its credit agreement to $32.3 million. While an
additional $32.7 million was borrowed in connection with the February 1996
acquisition of NDM, all then-existing indebtedness of CONMED under its credit
agreement was repaid in March 1996 following CONMED's offering of 2,998,000
shares of common stock.
CONMED's effective tax rate for 1996 was 36.0% as compared to 35.2% in
1995.
LINVATEC
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Net sales for 1997 were $228.4 million, an increase of $9.5 million, or
4.3%, compared to net sales of $218.9 million in 1996. This increase relates
primarily to increased sales of arthroscopic imaging products both domestically
and internationally, and increased sales of Linvatec's other arthroscopic
products in its overseas markets. Offsetting the above volume increases were
slight price declines related primarily to Linvatec's disposable products.
Cost of goods sold was $89.1 million in 1997, an increase of $6.1 million,
or 7.4%, compared to cost of goods sold of $83.0 million in 1996. Linvatec's
gross margin percentage was 61.0% in 1997 as compared to 62.1% in 1996. The
decrease in gross margin percentage from 1996 to 1997 was caused primarily by
the effects of unfavorable foreign exchange and price declines on Linvatec's
disposable products.
Selling and administrative expenses were $92.0 million in 1997, an increase
of $7.3 million, or 8.7%, compared to selling and administrative expenses of
$84.7 million in 1996. As a percentage of net sales, 1997 selling and
administrative expenses were 40.3% as compared to 38.7% in 1996. This increase
relates primarily to incremental expense associated with Linvatec's worldwide
marketing efforts.
Research and development expense was $9.2 million in 1997, as compared with
research and development expense of $8.3 million in 1996, a $0.9 million, or
10.8% increase. In 1997, research and development expense increased primarily as
a result of an acquisition in August 1996.
In 1996 and 1997, Linvatec was accounted for as a division of Zimmer.
Linvatec's Statement of Net Sales and Direct Operating Expenses does not include
interest expense or income tax provision in either period.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Net sales for 1996 were $218.9 million, an increase of $0.2 million
compared to sales of $218.7 million in 1995. Primary factors impacting this
sales increase included favorable international sales growth offset partially by
price declines on Linvatec's powered instrument product line.
Cost of goods sold was $83.0 million in 1996, an increase of $1.4 million,
or 1.7%, compared to cost of goods sold of $81.6 million in 1995. Linvatec's
gross margin percentage was 62.1% in 1996 as compared to 62.7% in 1995. The
decline in gross margin percentage was due to price declines on Linvatec's
powered instrument product line and the impact of foreign exchange.
Selling and administrative expenses were $84.7 million in 1996, an increase
of $6.0 million, or 7.6%, compared to selling and administrative expenses of
$78.7 million in 1995. As a percentage of net sales, 1996 selling and
administrative expenses were 38.7% in 1996 as compared to 36.0% in 1995. The
increase related primarily to increased marketing efforts, including the
expansion of physician consulting arrangements.
Research and development expense was $8.3 million in 1996, as compared with
research and development expense of $8.0 million in 1995, a $0.3 million, or
3.8% increase. In 1996, research and development expense increased primarily as
a result of an acquisition in August 1996.
In 1995 and 1996, Linvatec was accounted for as a division of Zimmer.
Linvatec's Statement of Net Sales and Direct Operating Expenses does not include
interest expense or income tax provision in either period.
21
22
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity are cash flows from operations and
borrowings under its $100 million revolving portion of the Credit Facility, of
which $85 million was available for borrowing on December 31, 1997.
The Company's cash flow from operations for the years 1995, 1996 and 1997
was $5.1 million, $25.9 million and $31.8 million, respectively. Working capital
amounted to $91.3 million at December 31, 1997.
At December 31, 1997, the Company had $85 million available under the
revolving portion of the Credit Facility. The revolving portion of the Credit
Facility expires on December 30, 2002.
On December 31, 1997, the Company borrowed the $350 million in term loans
available under the Credit Facility. Of the term loans, $210 million will be
repayable over a five-year period, commencing March 31, 1998 and $140 million
will be repayable over a seven-year period, commencing March 31, 1998. The
Credit Facility is collateralized by all the Company's personal property. The
Credit Facility contains covenants and restrictions which, among other things,
require maintenance of certain working capital levels and financial ratios,
prohibit dividend payments and restrict the incurrence of indebtedness and
certain other activities, including acquisitions and dispositions. The Company
is also required to make mandatory prepayments from net cash proceeds from any
issue of equity and asset sales and also from any excess cash flow, as defined.
One of the covenants under the Credit Facility requires the Company to complete
by June 30, 1998 a senior subordinated note offering that will generate at least
$125 million of gross proceeds. Such proceeds are required to be applied to
reduce amounts outstanding under the term loans under the Credit Facility. Any
repayments of amounts due under the term loans permanently reduce the term loans
under the Credit Facility.
The Credit Facility (including the term loans and the revolving credit
facility) is guaranteed (the "Subsidiary Guarantees") on a secured basis by all
of the Company's subsidiaries (the "Subsidiary Guarantors"). The Subsidiary
Guarantees provide that each Subsidiary Guarantor will fully and unconditionally
guarantee the Company's obligations under the Credit Facility on a joint and
several basis. Each Subsidiary Guarantor is wholly-owned by the Company. Under
the Credit Facility, the Company's subsidiaries are subject to the same
covenants and restrictions that apply to the Company (except that the Subsidiary
Guarantors are permitted to make dividend payments and distributions, including
cash dividend payments, to the Company or another Subsidiary Guarantor) and all
of the subsidiaries' personal property is pledged as collateral to secure the
Credit Facility.
Prior to the credit agreement outlined above, the Company's credit facility
consisted of a $60.0 million secured revolving line of credit which was to
expire in March 2001. There were no borrowings against this facility at December
31, 1996.
The Company's cash flow used in investing activities for the years 1995,
1996 and 1997 was $14.7 million, $36.6 million and $403.5 million, respectively.
Acquisitions of businesses and product lines totalled $9.5 million in 1995,
$31.7 million in 1996 and $395.3 million in 1997, with the balance of investing
activities in each year attributed to purchases of property, plant and
equipment.
The Company believes that its sources of liquidity set forth above will be
sufficient to fund its working capital requirements, capital expenditures and
required debt service for the foreseeable future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
22
23
Item 8. Financial Statements and Supplementary Data
The Company's 1997 Financial Statements, together with the report
thereon of Price Waterhouse LLP dated February 10, 1998, are included elsewhere
herein. The Financial Statements of the Linvatec Business Unit, together with
the report thereon of Price Waterhouse LLP dated January 23, 1998, are
incorporated by reference herein from the Company's Current Report on Form 8-K/A
filed on February 17, 1998. 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
3, 1998 for the annual meeting of shareholders to be held on May 19, 1998.
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 3,
1998 for the annual meeting of shareholders to be held on May 19, 1998.
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 3, 1998 for the annual meeting of shareholders to be held on
May 19, 1998.
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 3, 1998 for the
annual meeting of shareholders to be held on May 19, 1998.
23
24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Index to Financial Statements:
(a)(1) List of Financial Statements
CONMED Corporation
Report of Independent Accountants
Consolidated Balance Sheets at December 1996 and 1997
Consolidated Statements of Income for the Years Ended
December 1995, 1996 and 1997
Consolidated Statements of Shareholders' Equity for the
Years Ended December 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 1995, 1996 and 1997
Notes to Consolidated Financial Statements
Linvatec Business Unit (a division of Zimmer, Inc., a wholly
owned subsidiary of Bristol-Myers Squibb Company)
Report of Independent Accountants*
Statement of Net Assets Acquired and Liabilities Assumed as
of December 31, 1997 and 1996*
Statement of Net Sales and Direct Operating Expenses for the
Years Ended December 31, 1995, 1996 and 1997*
Notes to Statements of Net Assets Acquired and Liabilities
Assumed and of Net Sales and Direct Operating Expenses*
(2) List of Financial Statement Schedules
CONMED Corporation
Valuation and Qualifying Accounts (Schedule VIII)
Pro Forma Financial Statements giving effect to the
acquisition of Linvatec Corporation.*
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
page 43 below are filed as part of this Form 10-K.
- -----------
* Incorporated by reference from Exhibit 99.1 of the Company's Current Report on
Form 8-K/A filed on February 17, 1998.
(b) Reports on Form 8-K
(1) On January 8, 1998, the Company filed a report on Form 8-K
regarding the acquisition from Bristol-Myers Squibb of
Linvatec Corporation on December 31, 1997.
(2) On February 17, 1998, the Company filed Form 8-K/A which
amended the report on Form 8-K filed on January 8, 1998,
which included the financial statements of the Linvatec
Business Unit and the pro forma financial statements with
respect to the acquisition of Linvatec Corporation.
24
25
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
February 19, 1998
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
/s/ Eugene R. Corasanti Chairman of the Board
- ----------------------- Chief Executive Officer
Eugene R. Corasanti President (Principal
Executive Officer) and
Director February 19, 1998
/s/ Robert D. Shallish, Jr. Vice President-Finance
- ----------------------- and Chief Financial Officer
Robert D. Shallish, Jr. (Principal Financial Officer) February 19, 1998
/s/ Joseph J. Corasanti Vice President-Legal Affairs,
- ----------------------- General Counsel and Director February 19, 1998
Joseph J. Corasanti
/s/ Luke A. Pomilio Controller
- ----------------------- (Principal Accounting Officer) February 19, 1998
Luke A. Pomilio
/s/ Harry Cone Director February 19, 1998
- -----------------------
Harry Cone
/s/ Bruce F. Daniels Director February 19, 1998
- -----------------------
Bruce F. Daniels
/s/ Robert E. Remmell Director February 19, 1998
- -----------------------
Robert E. Remmell
/s/ William D. Matthews Director February 19, 1998
- -----------------------
William D. Matthews
25
26
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 24 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, 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 10, 1998
F-1
27
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 1996 AND 1997
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
1996 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 20,173 $ 13,452
Accounts receivable, less allowance for doubtful accounts of $500 in
1996 and $2,708 in 1997........................................... 26,336 47,188
Income taxes receivable (Note 7)..................................... 766 245
Inventories (Notes 1 and 3).......................................... 23,187 57,915
Deferred income taxes (Note 7)....................................... 626 1,898
Prepaid expenses and other current assets............................ 740 1,186
-------- --------
Total current assets......................................... 71,828 121,884
-------- --------
Property, plant and equipment, net (Notes 1 and 4)..................... 26,458 59,395
Deferred income taxes (Note 7)......................................... 1,246 10,783
Goodwill, net (Notes 1 and 2).......................................... 64,283 153,360
Patents, trademarks and other assets (Note 2).......................... 6,268 216,215
-------- --------
Total assets................................................. $170,083 $561,637
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5)........................... $ -- $ 11,000
Accounts payable..................................................... 2,433 9,556
Accrued payroll and withholdings..................................... 2,037 7,014
Other current liabilities............................................ 1,284 3,037
-------- --------
Total current liabilities.................................... 5,754 30,607
Long-term debt (Note 5)................................................ -- 354,000
Deferred compensation.................................................. 1,033 1,235
Long-term leases (Note 6).............................................. 2,924 2,651
Other long-term liabilities (Note 6)................................... 1,737 10,408
-------- --------
Total liabilities............................................ 11,448 398,901
-------- --------
Commitments (Notes 4, 6, 8, 10 and 11)
Shareholders' equity (Notes 1 and 8):
Preferred stock, par value $.01 per share; authorized 500,000 shares,
none outstanding..................................................
Common stock, par value $.01 per share; 40,000,000 authorized;
14,988,783 and 15,061,538, issued and outstanding in 1996 and
1997, respectively................................................ 150 151
Paid-in capital...................................................... 111,867 123,451
Retained earnings.................................................... 46,618 39,553
Less 25,000 shares of common stock in treasury, at cost, in 1997..... -- (419)
-------- --------
Total shareholders' equity........................................ 158,635 162,736
-------- --------
Total liabilities and shareholders' equity................... $170,083 $561,637
======== ========
See notes to consolidated financial statements.
F-2
28
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 1995, 1996 AND 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1995 1996 1997
------- -------- --------
Net sales (Note 9).......................................... $99,558 $125,630 $138,270
------- -------- --------
Cost of sales............................................... 52,402 65,393 74,220
Selling and administrative expense.......................... 25,570 31,620 35,299
Research and development expense............................ 2,832 2,953 3,037
Unusual items (Note 12)..................................... -- -- 37,242
------- -------- --------
80,804 99,966 149,798
------- -------- --------
Income (loss) from operations............................... 18,754 25,664 (11,528)
Interest income (expense), net (Note 5)..................... (1,991) (217) 823
------- -------- --------
Income (loss) before income taxes........................... 16,763 25,447 (10,705)
Provision (benefit) for income taxes (Notes 1 and 7)........ 5,900 9,161 (3,640)
------- -------- --------
Net income (loss)........................................... $10,863 $ 16,286 $ (7,065)
======= ======== ========
Earnings (loss) per share (Note 1):
Basic..................................................... $ 1.03 $ 1.16 $ (.47)
------- -------- --------
Diluted................................................... $ .94 $ 1.12 $ (.47)
======= ======== ========
See notes to consolidated financial statements.
F-3
29
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 1995, 1996 AND 1997
(IN THOUSANDS)
COMMON STOCK
----------------- PAID-IN RETAINED TREASURY
NUMBER AMOUNT CAPITAL EARNINGS STOCK
------ ------ -------- -------- --------
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 2).................. 1,590 16 17,739
Net income............................... 10,863
------ ---- -------- ------- -----
Balance at December 1995................... 11,000 110 44,560 30,332
Issuance of shares (Note 8).............. 2,998 30 61,705
Exercise of stock options and a warrant
(Note 8).............................. 991 10 4,208
Tax benefit arising from exercise of
stock options......................... 1,394
Net income............................... 16,286
------ ---- -------- ------- -----
Balance at December 1996................... 14,989 150 111,867 46,618
Exercise of stock options................ 73 1 661
Tax benefit arising from exercise of
stock options......................... 298
Issuance of warrants (Note 2)............ 10,625
Purchase of CONMED common stock (Note
8).................................... $ (419)
Net loss................................. (7,065)
------ ---- -------- ------- -----
Balance at December 1997................... 15,062 $151 $123,451 $ 39,553 $ (419)
====== ==== ======== ======= =====
See notes to consolidated financial statements.
F-4
30
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 1995, 1996 AND 1997
(IN THOUSANDS)
1995 1996 1997
-------- -------- --------
Cash flows from operating activities:
Net income (loss)........................................ $ 10,863 $ 16,286 $ (7,065)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation.......................................... 2,861 3,670 3,880
Amortization.......................................... 2,154 2,740 3,074
Write-off of in-process research and development (Note
2).................................................. -- -- 34,000
Increase (decrease) in cash flows from changes in
assets and liabilities, net of effects from
acquisitions (Note 2):
Accounts receivable................................. (3,943) (1,552) (1,499)
Inventories......................................... (4,311) 360 6,295
Prepaid expenses and other current assets........... (25) (264) (228)
Accounts payable.................................... 452 82 (73)
Income tax receivable/payable....................... (2,659) 195 521
Income tax benefit of stock option exercises........ 1,233 1,394 298
Accrued payroll and withholdings.................... (487) (245) 263
Accrued patent litigation........................... (2,360) -- --
Other current liabilities........................... 526 21 1,627
Deferred income taxes............................... 1,398 3,713 (10,809)
Other assets/liabilities (net)...................... (643) (492) 1,476
-------- -------- --------
(5,804) 9,622 38,825
-------- -------- --------
Net cash provided by operations.................. 5,059 25,908 31,760
-------- -------- --------
Cash flows from investing activities:
Acquisitions (Note 2).................................... (9,500) (31,672) (395,273)
Acquisition of property, plant and equipment............. (5,195) (4,946) (8,178)
-------- -------- --------
Net cash used by investing activities............ (14,695) (36,618) (403,451)
-------- -------- --------
Cash flows from financing activities:
Proceeds of long-term debt............................... 26,590 32,660 365,000
Proceeds from issuance of common stock................... 3,328 65,953 662
Purchase of treasury stock (Note 8)...................... -- -- (419)
Payments on long-term debt and other obligations......... (22,358) (69,269) (273)
-------- -------- --------
Net cash provided by financing activities........ 7,560 29,344 364,970
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... (2,076) 18,634 (6,721)
Cash and cash equivalents at beginning of year............. 3,615 1,539 20,173
-------- -------- --------
Cash and cash equivalents at end of year................... $ 1,539 $ 20,173 $ 13,452
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.............................................. $ 1,876 $ 941 $ 0
Income taxes.......................................... 2,466 5,347 6,079
Supplemental non-cash investing and financing activities:
As more fully described in Note 2, 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, and in a 1997 acquisition issued
warrants for the purchase of 1,000,000 common shares with a value of
$10,625,000.
See notes to consolidated financial statements.
F-5
31
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 a leading developer, manufacturer and
supplier of a range of medical instruments and systems used in surgical and
other medical procedures. The Company's product offerings include
electrosurgical systems, electrocardiogram ("ECG") electrodes and accessories,
surgical suction instruments, intravenous ("IV") therapy accessories and wound
care products. Through its acquisition of Linvatec Corporation (Note 2), the
Company has expanded its arthroscopic surgery product line and broadened its
product offerings to include powered surgical instruments and imaging products
for minimally invasive surgery. The Company's products are used in a variety of
clinical settings, such as operating rooms, surgery centers, physicians' offices
and critical care areas of hospitals.
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.
Goodwill
Goodwill is amortized over periods ranging from 13 to 40 years. Accumulated
amortization of goodwill amounted to $4,074,000 and $6,468,000 at December 1996
and 1997, respectively.
When events and circumstances so indicate, the Company will assess the
recoverability of its goodwill based upon cash flow forecasts (undiscounted and
without interest). No impairment losses have been recognized in any of the
periods presented.
F-6
32
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings (loss) per share
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share. This standard
requires presentation of basic earnings per share ("EPS"), computed based on the
weighted average number of common shares outstanding for the period, and diluted
EPS, which gives effect to all dilutive potential shares outstanding (i.e.,
options and warrants) during the period. Previously presented EPS amounts have
been restated to reflect the method of computation required by SFAS No. 128.
Income used in the EPS calculation is net income (loss) for each year. Shares
used in the calculation of basic and diluted EPS were (in thousands):
1995 1996 1997
------- ------- -------
Shares used in the calculation of Basic EPS
(weighted average shares outstanding).................. 10,517 14,045 14,997
Effect of dilutive potential securities.................. 1,096 451 --
------ ------ ------
Shares used in the calculation of Diluted EPS............ 11,613 14,496 14,997
====== ====== ======
The 1997 calculation of diluted EPS excluded the effect of dilutive
potential securities aggregating 230,000 shares because to give effect thereto
would have been antidilutive given the net loss for the year. The shares used in
the calculation of dilutive EPS exclude warrants and options to purchase shares
where the exercise price was greater than the average market price of common
shares for the year. Such shares aggregated 7,500, 218,000 and 1,395,000 at
December 31, 1995, 1996 and 1997, respectively.
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.
NOTE 2 -- BUSINESS ACQUISITIONS
On March 14, 1995, the Company acquired Birtcher Medical Systems, Inc.
("Birtcher") through an exchange of the Company's common stock for all of the
outstanding common and preferred stock of Birtcher. In connection with this
transaction, the Company issued 1,590,000 shares of common stock valued at
$17,750,000 and assumed approximately $3,500,000 of net liabilities. The
acquisition was accounted for using the purchase method. Accordingly, the
results of operations of the acquired business are included in the consolidated
results of the Company from the date of acquisition. Goodwill associated with
the acquisition is being amortized on a straight-line basis over a 40 year
period.
On May 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 the assumption of $500,000 of net liabilities. The
acquisition was accounted for using the purchase method. Accordingly, the
results of operations of the acquired business are included in the consolidated
results of the Company from the date of acquisition. Goodwill associated with
the acquisition is being amortized on a straight-line basis over a 15-year
period.
On February 23, 1996, the Company acquired the business and certain assets
of New Dimensions in Medicine, Inc. ("NDM") for a cash purchase price of
approximately $31.6 million and the assumption of $3.3 million of net
liabilities. The acquisition is being accounted for using the purchase method.
Accordingly, the results of operations of the acquired business are included in
the consolidated results of the Company from the date of acquisition. Goodwill
F-7
33
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
associated with the acquisition is being amortized on a straight-line basis over
a 40-year period.
On July 1, 1997, the Company completed the acquisition of a product line
from Davol, Inc., a subsidiary of C.R. Bard, Inc., for a cash purchase price of
$24,000,000. This acquisition is being accounted for using the purchase method.
Accordingly, the results of operations of the acquired product line 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 December 31, 1997, the Company acquired the business and certain assets
of Linvatec Corporation, a wholly-owned subsidiary of Bristol-Myers Squibb
Company, for a cash purchase price of $370,000,000 (Note 5) and the assumption
of $16,608,000 of liabilities. Bristol-Myers Squibb Company also received a
warrant to purchase 1,000,000 shares of the Company's common stock at $34.23 per
share. This warrant expires December 31, 2007, and was valued at $10,625,000.
This acquisition is being accounted for using the purchase method. The
allocation of purchase price resulted in identifiable intangible assets,
including patents and technology ($9,500,000), trademarks and tradenames
($96,000,000) and customer relationships ($97,000,000), aggregating
$204,000,000, which will be amortized over periods from 5 to 40 years. Goodwill
associated with the Linvatec acquisition approximated $70,000,000 and will be
amortized on a straight-line basis over a 40-year period. Additionally, a
portion of the purchase price was allocated to purchased in-process research and
development ("R&D"). Purchased in-process R&D includes the value of products in
the development stage and not considered to have reached technological
feasibility. In accordance with applicable accounting rules, purchased
in-process R&D is required to be expensed. Accordingly, $34,000,000 of the
acquisition cost was expensed on December 31, 1997. As the acquisition was not
consummated until December 31, 1997, the Company's consolidated results of
operations for 1997 do not include any Linvatec results of operations.
In connection with the Linvatec acquisition, the Company entered into
agreements with Zimmer, Inc., a wholly-owned subsidiary of Bristol-Myers Squibb
Company, pursuant to which Zimmer has agreed to distribute certain of Linvatec's
products for periods ranging from six months to three years.
The allocation of the purchase price for the Davol and Linvatec
acquisitions are based on management's preliminary estimates. It is possible
that re-allocation will be required as additional information becomes available.
Management does not believe that such re-allocations will have a material effect
on the Company's financial position or results of operations.
On an unaudited pro forma basis, assuming the NDM, Davol and Linvatec
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):
YEAR ENDED DECEMBER
---------------------
1996 1997
-------- --------
Pro forma revenues............................................. $335,805 $341,395
======== ========
Pro forma net income (loss).................................... $ (3,311) $ (8,800)
======== ========
Pro forma earnings (loss) per share:
Basic........................................................ $ (.24) $ (.59)
Diluted...................................................... $ (.24) $ (.59)
======== ========
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.
F-8
34
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVENTORIES
The components of inventory are as follows (in thousands):
1996 1997
------- -------
Raw materials.................................................... $ 7,079 $28,097
Work in process.................................................. 7,541 6,569
Finished goods................................................... 8,567 23,249
------- -------
$23,187 $57,915
======= =======
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Details of property, plant and equipment are as follows (in thousands):
1996 1997
-------- --------
Land and improvements.......................................... $ 1,007 $ 2,011
Building and improvements...................................... 14,873 21,952
Machinery and equipment........................................ 27,250 56,386
Construction in progress....................................... 722 314
-------- --------
43,852 80,663
Less: Accumulated depreciation............................ (17,394) (21,268)
-------- --------
$ 26,458 $ 59,395
======== ========
Rental expense on operating leases was approximately $445,000, $327,000 and
$489,000 for the years ended December 1995, 1996 and 1997, respectively. The
aggregate future minimum lease commitments for operating leases at December 31,
1997 are as follows:
Year ending December 31 (in thousands):
1998........................................... $ 2,581
1999........................................... 2,011
2000........................................... 2,030
2001........................................... 2,100
2002........................................... 2,149
Thereafter..................................... 14,267
-------
$25,138
=======
NOTE 5 -- LONG-TERM DEBT
On December 30, 1997, in connection with the Linvatec acquisition (Note 2),
the Company entered into a credit agreement with several banks providing for a
$450,000,000 credit facility. The $450,000,000 credit facility is comprised of
three sub-facilities: (i) a $210,000,000 five-year term loan with quarterly
principal repayments; (ii) a $140,000,000 seven-year term loan with quarterly
principal repayments; and (iii) a $100,000,000 revolving credit facility. The
revolving credit facility expires on December 30, 2002. During the commitment
period, the Company is obligated to pay a fee of .25% per annum on the unused
portion of the revolving credit facility. At December 31, 1997, $210,000,000 was
borrowed under the five-year term loan facility, $140,000,000 was borrowed under
the seven-year term loan facility, and $15,000,000 was borrowed under the
revolving credit facility.
The interest rates at December 31, 1997 were 7.97%, 8.22% and 7.97% for the
five-year term loan, the seven year term loan and the revolving credit facility,
respectively. The term debt and revolving credit facility are collateralized
F-9
35
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by all the Company's personal property. The agreement contains covenants
and restrictions which, among other things, requires maintenance of certain
working capital levels and financial ratios, prohibit dividend payments and
restrict the incurrence of indebtedness and certain other activities, including
acquisitions and dispositions. The Company is also required to make mandatory
prepayments from net cash proceeds from any issue of equity and asset sales and
also from any excess cash flow, as defined. Mandatory prepayments will first be
applied to the prepayment of the term loans and then to reduce borrowings under
the revolving credit facility.
A covenant under the credit facility requires the Company to complete by
June 30, 1998, a senior subordinated note offering that will generate at least
$125 million of gross proceeds, which are required to be applied to reduce
amounts under the term loans. Upon completion of this transaction, the interest
rate on amounts borrowed under the credit facility will be reduced by .25%. The
scheduled maturities of long-term debt outstanding at December 31, 1997 are as
follows: 1998 -- $11,000,000; 1999 -- $36,000,000; 2000 -- $51,000,000; 2001 --
$56,000,000; 2002 -- $76,000,000; thereafter -- $135,000,000.
The credit facility (including the term loans and the revolving credit
facility) is guaranteed (the "Subsidiary Guarantees") on a secured basis by all
of the Company's subsidiaries (the "Subsidiary Guarantors"). The Subsidiary
Guarantees provide that each Subsidiary Guarantor will fully and unconditionally
guarantee the Company's obligations under the credit facility on a joint and
several basis. Each Subsidiary Guarantor is wholly-owned by the Company.
Separate financial statements and other disclosures concerning the
Subsidiary Guarantors are not presented because management has determined such
financial statements and other disclosures are not material to investors. The
combined condensed financial information of the Company's Subsidiary Guarantors
is as follows (in thousands):
DECEMBER 31,
--------------------
1996 1997
------- --------
Current assets.................................................. $ 4,733 $ 54,799
Non-current assets.............................................. 43,459 327,751
Current liabilities............................................. 1,407 15,339
Non-current liabilities......................................... 5,907 345,826
YEAR ENDED DECEMBER
--------------------------------
1997 1996 1997
------- ------- --------
Revenues............................................. $46,574 $53,015 $ 51,376
Operating Income (Loss).............................. 14,425 16,731 (16,452)
Net Income (Loss).................................... 9,244 10,708 (10,529)
Prior to the Company's entry into the credit agreement outlined above, the
Company's credit facility consisted of a $60,000,000 secured revolving line of
credit which was to expire in March 2001. There were no borrowings against this
facility at December 31, 1996.
NOTE 6 -- LEASES AND OTHER LONG-TERM LIABILITIES
Upon the Company's acquisition of Birtcher (Note 2), use of certain
manufacturing and administrative facilities previously occupied by Birtcher was
discontinued. A liability was established in connection with the purchase
accounting for the Birtcher acquisition representing the aggregate future rental
payments net of committed sublease income at the date of acquisition.
F-10
36
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental commitments, net of sublease income, for such leases
at December 31, 1997 are as follows (in thousands):
MINIMUM MINIMUM
RENTAL RENTAL
PAYMENTS INCOME NET
-------- ------- ------
1998................................................... $1,474 $ 453 $1,021
1999................................................... 1,534 590 944
2000................................................... 1,081 395 686
------ ------ ------
$4,089 $1,438 $2,651
====== ====== ======
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 7 -- FEDERAL AND STATE INCOME TAXES
The provision for income taxes consists of the following (in thousands):
1995 1996 1997
------ ------ --------
Current tax expense:
Federal.............................................. $4,493 $6,398 $ 6,677
State................................................ 356 311 492
------ ------ --------
4,849 6,709 7,169
Deferred income tax expense (benefit).................. 1,051 2,452 (10,809)
------ ------ --------
Provision (benefit) for income taxes................. $5,900 $9,161 $ (3,640)
====== ====== ========
A reconciliation between income taxes computed at the statutory federal
rate and the provision for income taxes follows (in thousands):
1995 1996 1997
------ ------ -------
Tax provision at statutory rate based on income before
taxes................................................. $5,817 $8,906 $(3,747)
Foreign sales corporation............................... (285) (318) (300)
State taxes............................................. 234 202 313
Nondeductible intangible amortization................... 168 280 224
Other, net.............................................. (34) 91 (130)
------ ------ -------
$5,900 $9,161 $(3,640)
====== ====== =======
F-11
37
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities at December 1996 and 1997 are as follows (in
thousands):
1996 1997
------- -------
Assets:
Receivables.................................................... $ 177 $ 315
Inventory...................................................... 352 518
Deferred compensation.......................................... 361 432
Employee benefits.............................................. 218 210
Other.......................................................... 439 682
Leases......................................................... 1,183 928
Goodwill and intangible assets................................. 892 12,168
Birtcher net operating losses.................................. 5,529 5,105
Valuation allowance for deferred tax assets.................... (5,417) (5,105)
------- --------
3,734 15,253
------- --------
Liabilities:
Depreciation................................................... 1,261 1,745
Interest charge DISC........................................... 84 57
Other.......................................................... 517 770
------- --------
1,862 2,572
------- --------
$ 1,872 $12,681
======= ========
Birtcher net operating losses are subject to certain limitations and expire
over the period 2008 to 2010. Management has established a valuation allowance
of $5,105,000 to reflect the uncertainty of realizing the benefit of certain of
these carry forwards. Further utilization of Birtcher operating loss carry
forwards will serve to decrease goodwill associated with the Birtcher
acquisition.
NOTE 8 -- SHAREHOLDERS' EQUITY
The shareholders have 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, 1997,
no preferred stock had been issued.
In March 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 Linvatec acquisition (Note 2), the Company issued to Bristol-Myers
Squibb Company a ten-year warrant to purchase 1.0 million shares of the
Company's common stock at a price of $34.23 per share.
During 1997, the Company authorized the repurchase of up to $30,000,000 of
its common stock in the open market or in private transactions. The Company
repurchased 25,000 shares of common stock in 1997 at an aggregate price of
$419,000. The new credit agreement (Note 5) prohibits future repurchases of
common stock during its term.
The Company has reserved shares of common stock for issuance to employees
and directors under three Stock Option Plans (the "Plans"). The option price on
all outstanding options is equal to the estimated fair
F-12
38
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The following is a summary of incentive stock option activity under the
Plans (in thousands except per share amounts):
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
------ ---------
Outstanding at December 1994..................................... 1,254 $ 7.16
Granted during 1995............................................ 251 19.79
Forfeited...................................................... (12) 8.67
Exercised...................................................... (253) 5.13
----- ------
Outstanding at December 1995..................................... 1,240 10.12
Granted during 1996............................................ 197 23.07
Forfeited...................................................... (10) 8.10
Exercised...................................................... (292) 4.14
----- ------
Outstanding at December 1996..................................... 1,135 13.92
Granted during 1997............................................ 153 22.99
Forfeited...................................................... (10) 10.09
Exercised...................................................... (73) 9.01
----- ------
Outstanding at December 1997 1,205 $ 15.39
===== ======
Exercisable:
December 1995.................................................. 922 $ 6.42
December 1996.................................................. 559 9.96
December 1997.................................................. 690 11.51
At December 31, 1997, the number of stock options outstanding with exercise
prices less than $10, between $10 and $20, and greater than $20 were 174,000,
701,000 and 330,000, respectively. The weighted average price per share and
remaining life for options in these categories were $5.64 and 5 years, $12.62
and 7 years, and $26.46 and 9 years, respectively. The number of shares
exercisable at December 31, 1997 and the related weighted average price per
share for options in these categories were 155,000 shares at $5.64, 462,000
shares at $11.15 and 73,000 shares at $26.21, respectively.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". SFAS No. 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 No. 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.
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The weighted average fair value of options granted in 1995, 1996 and
1997 was $10.25, $12.95 and $11.87, respectively. The fair value of these
options was estimated at the date of grant using a Black-Scholes options pricing
model with the following weighted-average assumptions for
F-13
39
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options granted in 1995, 1996 and 1997, respectively: Risk-free interest rates
of 6.02%, 6.45% and 5.96%; volatility factors of the expected market price of
the Company's common stock of 51.09%, 54.31% and 51.31%; a weighted-average
expected life of the option of five years; and that no dividends would be paid
on common stock.
For purposes of the pro-forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for earnings per share
information):
1995 1996 1997
------- ------- --------
Net earnings (loss) -- as reported................... $10,863 $16,286 $ (7,065)
Net earnings (loss) -- pro forma..................... 10,389 15,299 (7,427)
EPS -- as reported:
Basic.............................................. 1.03 1.16 (0.47)
Diluted............................................ 0.94 1.12 (0.47)
EPS -- pro-forma:
Basic.............................................. 0.99 1.09 (0.50)
Diluted............................................ 0.89 1.06 (0.50)
The pro-forma disclosures include only options granted after January 1,
1995.
NOTE 9 -- MAJOR CUSTOMERS AND EXPORT SALES
The Company uses medical supply distributors to distribute products to
their end users (Note 1). Sales to one distributor totaled 14.5% and 15.3% of
the Company's sales in 1996 and 1997, respectively. Sales to another distributor
totaled 12.3% and 12.2% of the Company's sales in 1995 and 1996, respectively.
Sales outside of the United States accounted for approximately 15.5% of the
Company's total sales in 1995, 14.5% in 1996 and 12.9% in 1997.
NOTE 10 -- 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 1995, 1996 and 1997 included the following components
(in thousands):
1995 1996 1997
----- ----- ------
Service cost -- benefits earned during the period......... $ 758 $ 766 $ 925
Interest cost on projected benefit obligation............. 353 402 436
Actual gain on plan assets................................ (959) (442) (655)
Net amortization and deferral............................. 685 138 304
----- ----- ------
Net pension cost........................................ $ 837 $ 864 $1,010
===== ===== ======
F-14
40
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 1996 and
1997 (in thousands):
1996 1997
------ ------
Actuarial present value of accumulated benefit obligation
Vested benefits.................................................. $4,057 $5,083
Non-vested benefits.............................................. 241 274
------ ------
Accumulated benefits obligations................................. 4,298 5,357
Additional amounts related to projected pay increases............ 1,814 2,136
------ ------
Projected benefit obligations for service rendered to date......... 6,112 7,493
Plan assets at fair value, consisting of debt and equity
securities....................................................... 4,405 5,962
------ ------
Plan benefit obligations in excess of plan assets.................. 1,707 1,531
Unrecognized net obligation at December 1986 being recognized over
25 years......................................................... (76) (72)
Unrecognized prior service cost.................................... (195) (184)
Unrecognized net loss from past experience different from that
assumed.......................................................... (827) (806)
------ ------
Accrued pension cost recognized in the balance sheet............. $ 609 $ 469
====== ======
For 1995, 1996 and 1997, 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%.
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 -- UNUSUAL ITEMS
The unusual items for the year ended December 31, 1997 consist of the
following (in thousands):
Write-off of purchased in-process R&D (Note 2)............................. $34,000
Facility consolidations.................................................... 2,328
Write-off of deferred financing costs (Notes 2 and 5)...................... 914
-------
$37,242
=======
During the first quarter of 1997, the company recorded a charge of
$2,328,000 related to the closure of the Company's Dayton, Ohio manufacturing
facility. Operations of the Dayton facility, which were acquired in connection
with the 1996 acquisition of NDM (Note 2), were transferred to the Company's
Utica and Rome, New York facilities. The components of the charge consisted
primarily of costs associated with employee severance and termination, and the
impairment of the carrying value of fixed assets.
F-15
41
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1996 and 1997 are as follows (in
thousands, except per share amounts):
THREE MONTHS ENDED
----------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
------- ------- --------- --------
1996
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:
Basic................................... 0.29 0.28 0.27 0.32
Diluted................................. 0.26 0.28 0.27 0.31
MARCH JUNE SEPTEMBER DECEMBER
------- ------- --------- --------
1997
Net sales................................. $31,472 $30,707 $38,581 $ 37,510
Gross profit.............................. 14,997 14,448 16,980 17,625
Unusual item.............................. 2,328 -- -- 34,914
Net income (loss)......................... 2,460 3,473 4,518 (17,516)
Earnings (loss) per share:
Basic................................... 0.16 0.23 0.30 (1.17)
Diluted................................. 0.16 0.23 0.30 (1.17)
F-16
42
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN C
-----------------------------
ADDITIONS
COLUMN B -----------------------------
------------ (1) COLUMN E
COLUMN A BALANCE AT CHARGED TO (2) COLUMN D --------------
- ----------------------------- BEGINNING OF COSTS AND CHARGED TO ---------- BALANCE AT END
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
- ----------------------------- ------------ ---------- -------------- ---------- --------------
1997
Allowance for bad debts.... $ 500 $887 $1,808 $ (487) $2,708
Inventory reserves......... $ 462 $277 $6,672 $7,411
Deferred tax asset
valuation allowance..... $5,417 $ (312) $5,105
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 asset
valuation allowance..... $5,417 $5,417
F-17
43
EXHIBIT INDEX
Exhibit No. Description of Instrument Page Number
- ----------- ------------------------- -----------
2.1 - 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).
2.2 - 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.
2.3 - Purchase Agreement, dated as of May 28, 1997, by and between
Davol, Inc. and CONMED Corporation -- incorporated by reference
to Exhibit 2 in the Company's Current Report on Form 8-K,
filed on July 11, 1997.
2.4 - Stock and Asset Purchase Agreement dated as of
November 26, 1997, between Bristol-Myers Squibb
company and CONMED Corporation, as amended by an
amendment dated as of December 31, 1997 -
incorporated herein by reference to Exhibit 2.1(a) in
the Company's Current Report on Form 8-K, filed on
January 8, 1998.
2.5 - Amendment dated as of December 31, 1997, between
Bristol-Myers Squibb Company and CONMED Corporation,
to the Stock and Asset Purchase Agreement, dated as
of November 26, 1997 between Bristol-Myers Squibb
company and CONMED - incorporated herein by reference
to Exhibit 2.1(b) in the Company's Current Report on
Form 8-K, filed on January 8, 1998.
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 -
incorporated herein by reference to the exhibit in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
4.1 - See Exhibit 3.1.
4.2 - See Exhibit 3.2.
4.3 - Warrant, dated as of December 31, 1997, issued to Bristol-Myers
Squibb Company - incorporated herein by reference to Exhibit
4.1 in the Company's Current Report on Form 8-K, filed on
January 8, 1998.
4.4 - Credit Agreement, dated as of December 29, 1997, among CONMED
Corporation, the several banks and other financial institutions
of entities from time to time parties to the Agreement, Chase
Securities Inc., Salomon Brothers Holding Company, Inc, and The
Chase Manhattan Bank - incorporated herein by reference to
Exhibit 10.1 in the Company's Current Report on Form 8-K, filed
on January 8, 1998.
4.5 - Guarantee and Collateral Agreement, dated as of
December 31, 1997, made by CONMED Corporation and
certain of its subsidiaries in favor of The Chase
Manhattan Bank - incorporated herein by reference to
Exhibit 10.2 in the Company's Current Report on Form
8-K filed on January 8, 1998.
10.1 - Employment Agreement between the Company and Eugene R.
Corasanti, dated December 16, 1996 - incorporated herein by
reference to the exhibit in the Company's Annual Report on
Form 10-K for the year ended December 31, 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 - incorporated herein by
reference to the exhibit in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
44
Exhibit Index
Exhibit No. Description of Instrument Page Number
- ----------- ------------------------- -----------
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 - incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December
31, 1996.
10.6 - Amendment to 1992 Stock Option Plan - incorporated
by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
10.7 - See 4.4.
10.8 - See 4.5.
10.9 - Transition and Distribution Services Agreement, dated
December 31, 1997, among Zimmer, Inc., Linvatec
Corporation and CONMED Corporation.
10.10 - Distribution Agreement, dated December 31, 1997,
among Zimmer, Inc., Linvatec Corporation and
CONMED Corporation.
11 - Statement re: Computation of Per Share Earnings.
12 - Statement re: Computation of Ratios of Earnings to Fixed
Charges.
21 - Subsidiaries of the Registrant.
23 - Consent, dated February 23, 1998, of Price Waterhouse
LLP, independent auditors for CONMED Corporation.
27 - Financial Data Schedule
99.1 - The Registrant's Current Report on Form 8-K/A filed on
February 17, 1998 (incorporated herein by reference
thereto.)