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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, 1999
Commission file number 0-16093
CONMED CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0977505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 Broad Street, Utica, New York 13501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (315) 797-8375
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ X]
The aggregate market value of the shares of the voting stock held by
non-affiliates of the Registrant was approximately $405,669,235 based upon the
closing price of the Company's common stock, which was $26.50 on February 25,
2000.
The number of shares of the Registrant's $0.01 par value common stock
outstanding as of February 25, 2000 was 15,308,273.
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement, scheduled to be mailed on
or about April 10, 2000 for the annual meeting of stockholders to be held May
16, 2000, are incorporated by reference into Part III.
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-K
Part I
Item Number Page
Item 1. Business 2
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Part II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
Part III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management 26
Item 13. Certain Relationships and Related Transactions 26
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 27
Signatures 28
Exhibit Index 29
1
PART I
CONMED CORPORATION
Item 1. Business
Forward Looking Statements
This Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1999 ("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"--references to
"CONMED" or the "Company" shall be deemed to include the Company's subsidiaries)
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 introduction of new products; the integration of any
acquisition; 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; the possibility
that the United States or foreign regulatory and/or administrative agencies
might initiate enforcement actions against the Company, its subsidiaries or
distributors; the risk of litigation, especially patent litigation; changes in
regulatory requirements that could have an impact on the Company's business; 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
CONMED Corporation is a medical technology company specializing in
instruments and implants for arthroscopic sports medicine, and powered surgical
instruments, such as drills and saws, for orthopaedic, ENT and neurosurgery. The
Company is also a leading developer, manufacturer and supplier of advanced
medical devices, including electrosurgical systems, ECG electrodes for heart
monitoring, and minimally invasive surgical devices. 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.
The Company has used strategic business acquisitions to broaden its
product offerings, to increase its market share in certain product lines and to
realize economies of scale. During the last five years, the Company has
completed seven acquisitions. The completed acquisitions, together with internal
growth, have resulted in a compound annual growth rate in net sales of 39%
between 1995 and 1999.
2
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 increased at a compound annual growth rate of 5% from 25.1 million in
1989 to 40.7 million in 1999. 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.
Additionally, as people are living longer, more active lives, they are engaging
in contact sports and activities such as running, skiing, rollerblading, golf
and tennis which result in injuries with greater frequency and at an earlier age
than ever before. According to MDI, it is expected that the $1.0 billion sports
medicine industry will grow 20% in the next few years in categories such as
implantable devices. Sales of surgical products represented over 80% of the
Company's total 1999 sales. See "Item 1: Business-Product Sales".
In response to rising health care costs, managed care companies and
other payers 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. To reduce costs, health care providers use minimally-invasive
techniques, which generally reduce patient trauma, recovery time and ultimately
the length of hospitalization. Many of the Company's products are designed for
use in minimally invasive surgical procedures. See "Item 1: Business-Products
Sales." Health care providers are also 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.
Approximately 75% of the Company's sales are derived from single-use disposable
products.
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, which 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 their 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. See "Item 1: Business-Business Strategy".
The Company believes that foreign markets offer growth opportunities
for its 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 is
expected to grow at a compound annual growth rate of 17% to $65 billion in 2005.
The Company currently distributes its products through its own sales
subsidiaries or through local dealers in over 100 foreign countries.
International sales represent approximately 25% of total sales in 1999.
Product sales
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 surgical lines include products for
arthroscopy, powered surgical instruments, electrosurgery and minimal access
surgery markets. Surgical products represented over 80% of the Company's 1999
sales. The balance of the Company's 1999 sales were in a variety of non-surgery
markets and are included under "Patient Care" in the following discussion.
3
Arthroscopy
The Company offers a broad line of devices and products for use in
arthroscopic surgery. Net sales attributable to arthroscopy products represented
36% and 39% of the Company's 1998 and 1999 net sales, respectively.
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 the
knee, although arthroscopic procedures are increasingly performed on smaller
joints and shoulders.
The Company's arthroscopy products include powered resection
instruments, arthroscopes, reconstructive systems, tissue repair sets, fluid
management systems, imaging products, implants and related disposable products.
It is the Company's standard practice to transfer some of these capital
products, such as shaver consoles and pumps, to certain customers at no charge.
These capital "placements" allow for and accommodate the use of a variety of
disposable products, such as shaver blades, burs and pump tubing. The Company
has benefited from the introduction of new products and new technologies in the
arthroscopic area, such as bioabsorbable screws, "push-in" suture anchors,
resection shavers and cartilage repair implants.
- --------------------------------------------------------------------------------------------------------------------
Arthroscopy
- --------------------------------------------------------------------------------------------------------------------
Product Description Brand Name
- ---------------------------------------------------------------------------------------------------------------------
Resection Shavers Shaver consoles and handpieces, disposable blades to Apex(R)
resect and remove soft tissue and bone; used in knee, XtraSharp(R)
shoulder and small joint surgery, as well as Merlin(R)Polyblade(TM)
endoscopic sinus surgery. Sterling(R)
Knee Reconstructive Products used in cruciate reconstructive surgery; Paramax(R)
Systems includes instrumentation, screws, pins and drill bits. Pinn-ACL(R)
GraFix(TM)
Soft Tissue Repair Systems Instrument systems designed to attach specific torn or Spectrum(R)
damaged soft tissue to bone or other soft tissue in the Inteq(R)
knee, shoulder and wrist; includes instrumentation,
guides, hooks and suture devices.
Fluid Management Systems Disposable tubing sets, disposable and reusable inflow Apex(R)
devices, pumps and suction/waste management systems for Quick-Flow(R)
use in arthroscopic and general surgeries. Quick-Connect(R)
Imaging Surgical video systems for endoscopic procedures; Apex(R)
includes autoclavable single-chip digital and three-chip 8180 Series
camera consoles, heads, endoscopes, light
sources, monitors, VCRs and printers.
4
- --------------------------------------------------------------------------------------------------------------------
Arthroscopy
- --------------------------------------------------------------------------------------------------------------------
Product Description Brand Name
- ---------------------------------------------------------------------------------------------------------------------
Implants Products including bioabsorbable and metal interference BioScrew(R)
screws and suture anchors for attaching soft tissue to BioStinger(R)
bone in the knee, shoulder and wrist. Ultrafix(R)
Revo(R)
Other Instruments and Accessories Forceps, graspers, punches, probes, sterilization Shutt(R)
cases and other general instruments for arthroscopic Concept(R)
procedures. TractionTower(R)
Powered Surgical Instruments
The Company offers a broad line of powered instruments which
represented 21% and 23% of the Company's 1998 and 1999 net sales, respectively.
Powered instruments are used to perform orthopaedic, 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.
Speciality powered instruments include surgical applications other than
orthopaedics, such as neurosurgical, otolaryngological (ENT), and cardiothoracic
applications.
The Company's line of powered instruments are sold principally under
the Hall(R) Surgical brand name, for use in large and small bone orthopaedic,
arthroscopic, oral/maxillofacial, otolaryngologic, neurological, spine and
cardiothoracic surgeries. Large bone, neurosurgical, spine and cardiothoracic
powered instruments are sold primarily to hospitals while small bone
arthroscopic, otolarygological and oral/maxillofacial powered instruments are
sold to hospitals, outpatient facilities and physician offices. The Company's
Linvatec subsidiary has devoted substantial resources to developing a new
technology base for small bone, arthroscopic and otolaryngological instruments
that can be easily adapted and modified for new procedures.
- --------------------------------------------------------------------------------------------------------------------
Powered Surgical Instruments
- --------------------------------------------------------------------------------------------------------------------
Product Description Brand Name
- --------------------------------------------------------------------------------------------------------------------
Small Bone Powered saws, drills and related disposable accessories Hall(R)Surgical
for small bone and joint surgical procedures. E9000(R)
MiniDriver(TM)
MicroChoice(R)
Micro 100(TM)
Large Bone Powered saws, drills and related disposable accessories Hall(R)Surgical
for use primarily in total knee and hip joint MaxiDriver(TM)
replacements and trauma surgical procedures. VersiPower(R)Plus
Series 4(R)
5
- --------------------------------------------------------------------------------------------------------------------
Powered Surgical Instruments
- --------------------------------------------------------------------------------------------------------------------
Product Description Brand Name
- --------------------------------------------------------------------------------------------------------------------
Otolaryngology Specialty powered saws, drills and related disposable UltraPower(R)
Neurosurgery accessories for use in neurosurgery, spine, and Hall Osteon(R)
Spine otolaryngologic procedures. Hall Ototome(R)
E9000(R)
Cardiothoracic Powered sternum saws, drills, and related disposable Hall(R)Surgical
Oral/maxillofacial accessories for use by cardiothoracic and E9000(R)
oral/maxillofacial surgeons. UltraPower(R)
Micro 100
Versipower(R)Plus
Electrosurgery and Minimal Access Surgery
During 1997, 1998 and 1999, net sales attributable to electrosurgery
and minimal access surgery products represented 47%, 20%, and 18% respectively,
of the Company's net sales.
Electrosurgery
Electrosurgery is the technique of using a high-frequency electric
current which, when applied to tissue through special instruments, can be used
to cut tissue, coagulate, or cut and coagulate simultaneously. An
electrosurgical system consists of a generator, an active electrode in the form
of a pencil or other instrument which the surgeon uses to apply the current from
the generator to the target tissue and a ground pad to safely return the current
to the generator. Electrosurgery is routinely used in most forms of surgery,
including general, dermatologic, thoracic, orthopaedic, 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) technology 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
electrical 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.
Minimal Access Surgery
Minimal Access Surgery (MAS) is surgery performed without a major
incision, which results in less trauma for the patient and produces important
cost savings as a result of reduced hospitalization and therapy. Laparoscopic
surgery is an MAS procedure performed on organs in the abdominal cavity such as
the gallbladder, appendix and female reproductive organs. During a laparoscopic
procedure, devices called "trocars" are used to puncture the abdominal wall and
then are removed, leaving in place a trocar cannula. The trocar cannula provides
access into the abdomen for camera systems and surgical instruments.
6
The Company's MAS products include the UNIVERSAL S/I(TM)
(suction/irrigation) and UNIVERSAL PLUS(R) laparoscopic instruments,
specialized, suction/irrigation electrosurgical instrument systems for use in
laparoscopic surgery and the TroGARD Finesse(R) which incorporates a
blunt-tipped version of a trocar. The TroGARD Finesse(R) dilates access through
the body wall rather than cutting with the sharp, pointed tips of conventional
trocars. This results in smaller wounds, and less bleeding. The Company also
markets electrosurgical pencils, suction/irrigation accessories, laparoscopic
scissors, active electrodes, insufflation needles and ABC(R) handpieces for use
in laparoscopic surgery.
Electrosurgery and Minimal Access Surgery
- --------------------------------------------------------------------------------------------------------------------
Product Description Brand Name
- --------------------------------------------------------------------------------------------------------------------
Pencils Disposable and reusable instruments designed to deliver Hand-trol(R)
high-frequency electric current to cut and/or coagulate Gold Line(R)
tissue. Clear Vac(R)
Ground Pads Disposable ground pads to safely return the current to Macrolyte(R)
the generator; available in adult, pediatric and infant Bio-gard(R)
sizes.
Generators Monopolar and bipolar generators for surgical EXCALIBUR(R)Plus PC
procedures performed in a physician's office or clinic SABRE(R)
setting. Hyfrecator(R)2000
Argon Beam Coagulation Systems Specialized electrosurgical generators, disposable hand ABC(R)
pieces and ground pads for non-contact cutting and Beamer Plus(R)
coagulation of tissue. System 7500(R)
ABC Flex(R)
Laparoscopic Instruments Specialized trocars, suction/irrigation UNIVERSAL Plus(R)
electrosurgical instrument systems for use in TroGard(R)
laparoscopic surgery; includes disposable handles, Finesse(TM)
valve/control assemblies with disposable accessories
and monopolar and bipolar scissors, graspers and
loops.
Patient Care Products
During 1997, 1998 and 1999 net sales attributable to patient care
products represented 53%, 23% and 20% 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
7
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 cables, lead CONMED(R)
wire products and accessories designed to transmit ECG Ultratrace(R)
signals from the heart to an ECG monitor or recorder. Cleartrace(R)
Wound Care Disposable transparent wound dressings comprising ClearSite(R)
proprietary hydrogel; able to absorb 2 1/2 times its weight Hydrogauze(R
in wound exudate.
Surgical Suction Instruments and Disposable surgical suction instruments and connecting CONMED(R)
Tubing tubing, including Yankauer, Poole, Frazier and Sigmoidoscopic
instrumentation, for use by physicians in the majority of
open surgical procedures.
Intravenous Therapy Disposable IV drip rate gravity controller and VENI-GARD(R)
disposable catheter stabilization dressing designed MasterFlow(R)
to hold and secure an IV needle or catheter for use in IV
Stat 2(R) therapy.
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 its products to surgeons, hospitals, surgery
centers, GPOs and other customers, particularly as institutions seek to reduce
costs and to 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 arthroscopy products a surgeon requires for most
arthroscopic procedures, including instrument and repair sets, implants, shaver
consoles and handpieces, video systems 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 230 sales representatives who seek to maintain close
relationships with end-users.
8
The Company's sales representatives are trained and educated in the
applications for the products they sell and call directly on surgeons, hospital
departments, outpatient surgery centers and physician offices. Additionally, the
Company has an international presence through sales subsidiaries and branches
located in key international markets. The Company also maintains distributor
relationships domestically and in numerous countries worldwide.
Vertically-integrated Manufacturing. The Company manufactures most of
its products. The Company's vertically-integrated manufacturing allows it to
provide quality products, to react quickly to changes in demand and to 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 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. CONMED has utilized its research
and development capabilities to introduce new products, product enhancements and
new technologies. Research and development expenditures were $12.1 million in
1999. Recent new product introductions include the E9000(R) drive console,
BioStinger(R) miniscal repair device, UltrAblator(TM) for the ablation and
thermal modification of soft tissue, the System 7500 electrosurgical unit with
argon beam coagulation and ABCFlex(TM) for the repair of digestive tract
lesions.
Integrating Acquisitions. Since 1995, the Company has completed seven
acquisitions including the 1997 acquisition of Linvatec Corporation which more
than doubled the size of the Company. 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 management
team has demonstrated a historical ability to identify complementary
acquisitions and to integrate acquired companies or product lines into the
Company's operations.
Business Strategy
The Company is implementing the following business strategies:
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.
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 is expanding its international presence and increasing its
penetration into international markets by utilizing Linvatec's relationships
with foreign surgeons, hospitals and third-party payers, as well as foreign
distributors. The Company is also utilizing Linvatec's sales relationships to
introduce Linvatec's customers to CONMED's products. In 1999, the Company's
sales outside the United States grew 30%.
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 1995, the Company has completed seven acquisitions,
9
expanding its product line to include surgical suction instruments, wound care
products and most recently arthroscopic products and powered surgical
instruments.
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 contracting 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.
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 to increase operating efficiencies and capacity utilization.
Marketing
CONMED markets its products domestically through a sales force
consisting of approximately 230 sales people. In order to provide a high level
of expertise to medical specialties served, the Company's overall sales force is
separated into dedicated groups for 1) arthroscopy, 2) powered surgical
instruments, 3) electrosurgery and minimal access surgery and 4) patient care
products. Each sales representative has a defined geographic area and is
compensated on a commission basis or through a combination of salary and
commission. The sales force is supervised and supported by area directors. Home
office sales and marketing management provide the overall direction for the
sales of the Company's products.
CONMED's salespeople call on surgeons, hospitals, outpatient surgery
centers and physician offices. The Company also has a corporate sales department
that is responsible for interacting with GPOs. The Company has contracts with
many such organizations and believes 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 is accompanied by initial
and ongoing in-service training of the end-user. The field sales force is
trained in the technical aspects of the Company's products and their uses, and
provides surgeons and medical personal with information relating to the
technical features and benefits of the Company's products. For hospital
inventory management purposes, at the hospital's 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.
The Company's international sales accounted for approximately 25% of
total revenues in 1999. Products are sold in over 100 foreign countries.
International sales efforts are coordinated through local country dealers or
with direct sales efforts. CONMED distributes its products through sales
subsidiaries and branches with offices located in Australia, Belgium, Canada,
France, Germany, Korea, Spain and the United Kingdom.
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 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.
Research and Development Activities
During the three years, 1997, 1998 and 1999, the Company spent
approximately $3.0 million, $12.0 million and $12.1 million, respectively, for
research and development. The Company's research and development departments
consist of 99 employees.
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 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.
Competition
The markets for the Company's 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 Arthrex, Arthrocare Corporation, Johnson & Johnson, Medtronic,
Inc., Minnesota Mining and Manufacturing Company, Smith & Nephew plc, Stryker
Corporation, and Tyco International Ltd.
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.
11
Government Regulation
Most if not all of the Company's products are classified as medical
devices subject to regulation by the FDA and foreign regulatory agencies. The
Company's new products generally 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 which was on the market prior to 1976 or which 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 generally are 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
approximately 120 employees that is tasked with monitoring compliance with
design specifications and relevant government regulations for all of the
Company's products. 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, and similar foreign regulations.
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 Quality System
Regulations as specified in Title 21, Code of Federal Regulation (CFR) part 820.
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.
See Item 1: Business-Risk Factors: Government Regulation of Products. 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 believes that its products currently meet applicable
standards for the countries in which they are marketed.
The Company is subject to product recall. The Company initiated three
recalls during 1998 and 1999. Corrective actions were taken to address the cause
of the recalls. No recall or production matter has had a material effect on the
Company's business or financial condition, but there can be no assurances that
there could not be such a material effect in the future.
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
business, financial condition or results of operations.
Employees
As of December 31, 1999, the Company had 2,454 full-time employees, of
whom 1,652 were in manufacturing, 99 in research and development, and the
balance were in sales, marketing, executive and administrative positions. 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.
12
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.
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, 1999,
the Company had $394.7 million of debt outstanding, which represented 65.1% of
total capitalization. In addition, on December 31, 1999, the Company had
approximately $70.0 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 limited or 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 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. 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."
Effects of Acquisitions Generally
An element of the Company's business strategy has been to expand
through acquisitions and the Company may seek to pursue acquisitions in the
future. 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, distributors, governmental authorities, personnel or
others. In addition, the Company is generally entitled to customary
indemnification from sellers of businesses for any difficulties that may have
arisen prior to the Company's acquisition of each business, but the amount and
time for claiming under these indemnification provisions is limited. 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. As a result, 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 described
above.
13
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 lenders 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
surgeons, hospitals, GPOs 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 2000
through 2017 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 to compete effectively 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
14
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.
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") and are subject to
similar regulations in foreign countries. 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 "Quality
System Regulations," as defined by the FDA. Failure to comply with applicable
domestic and/or foreign 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. The failure to comply with Quality System
Regulations or industry-set standards could have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company is subject to product recall. The Company's product lines have
experienced a number of product recalls. See "Item 1: Business-Government
Regulation". Although no recall or production matter has had a material adverse
effect on the Company's business, financial condition or results of operations,
there can be no assurance to this effect in the future. The Company has been
expending significant resources to improve the quality of its regulatory status.
There can be no assurance that these expenditures will not increase, or that
regulatory agencies will be satisfied with these efforts.
Risks Relating to International Operations
A portion of the Company's operations are conducted outside the United States,
with approximately 25% of the Company's 1999 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 such insurance coverage is subject
to numerous deductibles and policy limitations and 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."
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.
Lease
Location Square Feet Own or Lease Expiration
-------- ----------- ------------ ----------
Utica, NY (two facilities) 650,000 Own --
Largo, FL 213,000 Lease 2009
Rome, NY 120,000 Own --
Englewood, CO 65,000 Own --
Irvine, CA 31,000 Lease August 2001
El Paso, TX 29,000 Lease April 2002
Juarez, Mexico 25,000 Lease December 2002
Santa Barbara, CA 18,000 Lease December 2001
Item 3. Legal Proceedings
From time to time the Company is a defendant in certain lawsuits
alleging product liability, patent infringement, or other claims incurred in the
ordinary course of business. While patent infringement claims are not subject to
insurance, the product liability, and many other claims are generally covered by
various insurance policies, subject to certain deductible amounts and maximum
policy limits. When there is no insurance coverage, the Company establishes
sufficient reserves to cover probable losses associated with such claims. 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.
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.
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, 1999.
17
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 Stock Market (symbol - CNMD). At December 31, 1999, there were 1,238
registered holders of the Company's Common Stock and, in addition, the Company
has been notified that, on such date, there were approximately 7,074 accounts
held in "street name".
The following table shows the high-low last sales prices for the years
ended December 31, 1998 and 1999, as reported by the Nasdaq Stock Market. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down and commission and may not necessarily represent actual
transactions.
--------------------------------------
1998
Period High Low
--------------------------------------
First Quarter $25.75 $21.50
Second Quarter 26.00 21.13
Third Quarter 24.88 20.31
Fourth Quarter 33.00 21.88
--------------------------------------
1999
Period High Low
--------------------------------------
First Quarter $33.62 $27.09
Second Quarter 34.25 28.12
Third Quarter 33.18 24.50
Fourth Quarter 27.62 22.37
The Company has never paid cash dividends on its Common Stock. The
Board of Directors presently intends to retain future earnings to service
indebtedness and finance the development of the Company's business and does not
presently intend to declare cash dividends. Should this policy change, the
declaration of dividends will be determined by the Board in light of conditions
then existing, including the Company's financial requirements and condition and
the prohibition on the declaration and payment of cash dividends contained in
debt agreements.
18
Item 6. Selected Financial Data
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
Years Ended December
---------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
Statements of Operations Data(1):
Net sales ...................................... $ 99,558 $ 125,630 $ 138,270 $ 336,442 $ 372,617
Cost of sales (2) .............................. 52,402 65,393 74,220 169,599 178,480
Selling and administrative expense (3) ......... 25,570 31,620 35,299 93,647 107,233
Research and development expense .............. 2,832 2,953 3,037 12,029 12,108
Unusual items (3) ............................. -- -- 37, 242 -- --
--------- --------- --------- --------- ---------
Income (loss) from operations ................. 18,754 25,664 (11,528) 61,167 74,796
--------- --------- --------- --------- ---------
Interest income (expense), net ................. (1,991) (217) 823 (30,891) (32,360)
Income (loss) before income taxes
and extraordinary item ....................... 16,763 25,447 (10,705) 30,276 42,436
Provision (benefit) for income taxes ........... 5,900 9,161 (3,640) 10,899 15,277
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item ........ 10,863 16,286 (7,065) 19,377 27,159
Extraordinary item, net of income taxes (4) -- -- -- (1,569) --
Net income (loss) .......................... $ 10,863 $ 16,286 $ (7,065) $ 17,808 $ 27,159
========= ========= ========= ========= =========
Earnings (Loss) Per Share Before Extraordinary Item:
Basic .......................................... $ 1.03 $ 1.16 $ (0.47) $ 1.28 $ 1.78
========= ========= ========= ========= =========
Diluted ........................................ $ 0.94 $ 1.12 $ (0.47) $ 1.26 $ 1.76
========= ========= ========= ========= =========
Earnings (Loss) Per Share:
Basic ....................................... $ 1.03 $ 1.16 $ (0.47) $ 1.18 $ 1.78
========= ========= ========= ========= =========
Diluted ..................................... $ 0.94 $ 1.12 $ (0.47) $ 1.16 $ 1.76
========= ========= ========= ========= =========
Weighted Average Number of Common Shares
In Calculating:
Basic earnings (loss) per share ................ 10,517 14,045 14,997 15,085 15,241
========= ========= ========= ========= =========
Diluted earnings (loss) per share ............. 11,613 14,496 14,997 15,321 15,430
========= ========= ========= ========= =========
Other Financial Data:
Depreciation and amortization .................. $ 5,015 $ 6,410 $ 6,954 $ 23,601 $ 25,749
EBITDA(5) ...................................... 23,769 32,074 32,668 86,576 99,568
Capital expenditures ........................... 5,195 4,946 8,178 12,924 9,352
Ratio of earnings to fixed charges (6) ......... 8.84x 79.30x (6) 1.95 2.27
December
----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
Balance Sheet Data(7):
Cash and cash equivalents ........................... $ 1,539 $ 20,173 $ 13,452 $ 5,906 $ 3,747
Total assets ........................................ 119,403 170,083 561,637 628,784 662,161
Long-term debt (including current portion) ......... 32,340 -- 365,000 384,872 394,669
Total shareholders' equity .......................... 75,002 158,635 162,736 182,168 211,261
(footnotes on following page)
19
(1) Includes, based on the purchase method of accounting, the results of (i)
Birtcher Medical Systems, Inc. from March 1995; (ii) the IV controller
product line acquired from Master Medical Corporation from May 1995; (iii)
NDM, Inc., the subsidiary formed as a result of the product lines acquired
from New Dimensions in Medicine, Inc., from February 1996; (iv) the
surgical suction product line acquired from the Davol subsidiary of C.R.
Bard, Inc., from July 1997; (v) Linvatec Corporation from December 31,
1997; (vi) the arthroscopy product line acquired from Minnesota Mining and
Manufacturing (3M) from November 1998; and (vii) the powered instrument
product line acquired from 3M from August 1999; in each such case from the
date of acquisition.
(2) Includes for 1998, $3,000,000 of incremental expense related to the excess
of the fair value at the acquisition date of Linvatec inventory over the
cost to produce; includes for 1999, $1,600,000 of incremental expense
related to the excess of the fair value at the acquisition date over the
cost to produce inventory related to the powered instrument produce line
acquired from 3M.
(3) Included in unusual items for 1997, a $34,000,000 non-cash acquisition
charge for the write-off of all of the in-process research and development
products (comprised of products in the development stage) acquired in the
Linvatec acquisition, $914,000 write-off of deferred financing fees
resulting from refinancing the Company's loan agreements in connection with
the Linvatec acquisition, and $2,328,000 charge for the closing of the
Company's Dayton, Ohio manufacturing facility. Included in selling and
administrative expense for 1999, a $1,256,000 benefit related to a
previously recorded litigation accrual which was settled on favorable
terms.
(4) In March 1998, the Company recorded an extraordinary item of $1,569,000 net
of income taxes related to the write-off of deferred financing fees.
(5) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, (except amortization of deferred financing
fees included in interest expense) 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.
(6) The ratio of earnings to fixed charges is calculated by dividing fixed
charges into income before income taxes and extraordinary items plus fixed
charges. Fixed charges include interest expense, amortization of deferred
financing fees and the estimated interest component of rent expense. In
1997, the Company had a deficiency of earnings to cover fixed charges of
$10,558,000.
(7) 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 $34,000,000.
20
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 which are included elsewhere or incorporated by reference
in this Form 10-K.
General
CONMED Corporation (the "Company") is a medical technology company
specializing in instruments and implants for arthroscopic sports medicine, and
powered surgical instruments, such as drills and saws, for orthopaedic, ENT and
neurosurgery. The Company is also a leading developer, manufacturer and supplier
of advanced medical devices, including electrosurgical systems, ECG electrodes
for heart monitoring, and minimally invasive surgical devices. 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.
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
----------------------------------------
1997 1998 1999
---- ---- ----
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of sales................................................. 53.7 50.4 47.9
----- ----- -----
Gross margin............................................... 46.3 49.6 52.1
Selling and administrative expense............................ 25.5 27.8 28.8
Research and development expense.............................. 2.2 3.6 3.3
Unusual items................................................. 26.9 - -
----- ----- -----
Income (loss) from operations................................. (8.3) 18.2 20.0
Interest income (expense), net................................ .6 (9.2) (8.6)
----- ----- -----
Income (loss) before income taxes and extraordinary item...... (7.7) 9.0 11.4
Provision (benefit) from income taxes......................... (2.6) 3.2 4.1
----- ----- -----
Income (loss) before extraordinary item.................. (5.1)% 5.8% 7.3%
===== ===== =====
Years Ended December 1999 and December 1998
Sales for 1999 were $372,617,000, an increase of 10.8% compared to
sales of $336,442,000 in 1998. Arthroscopy sales grew 19.4% in 1999 to
$144,000,000, with 10.3% of the increase due to internal growth and 9.1% due to
the Company's acquisition of an arthroscopy product line from Minnesota Mining
and Manufacturing Company (3M) in November 1998 (the "Arthroscopy
acquisition"--Note 2). Powered surgical instrument sales grew 20.5% in 1999 to
$84,700,000 with 7.3% due to internal growth and 13.2% due to the Company's
acquisition of the powered instrument business from 3M in August 1999 (the
"Powered Instrument acquisition"--Note 2). Electrosurgery, patient care and
other surgical product lines declined 1.2% in 1999 to $143,900,000.
Approximately 2% of the total sales growth in 1999 as compared to 1998 reflects
the pricing impact of changes in distribution from 1999 as compared to the first
six months of 1998. In connection with the December 1997 acquisition of Linvatec
Corporation (the "Linvatec acquisition"--Note 2) from Bristol-Meyers Squibb
("BMS"), the Company entered into fixed price distribution agreements with
Zimmer, Inc., a wholly-owned subsidiary of BMS, to distribute certain of the
Company's products in selected geographic markets. Beginning in the third
quarter of 1998, most of the products formerly distributed by Zimmer were sold
and distributed directly by the Company, resulting in improved pricing for the
affected products.
21
Cost of sales increased to $178,480,000 in 1999 compared to
$169,599,000 in 1998. In connection with the August 1999 Powered Instrument
acquisition, the Company increased the acquired value of inventory by
$1,600,000; this inventory was sold during the quarter ended September 1999 and
served to increase cost of sales in 1999 by $1,600,000. Similarly, in connection
with purchase accounting for the Linvatec acquisition, the Company increased the
acquired value of inventory by $3,000,000 over its production cost; this
inventory was sold during the quarter ended March 1998 and served to increase
cost of sales in 1998 by $3,000,000. Excluding the impact of these non-recurring
adjustments, cost of sales increased to $176,859,000 in 1999 from $166,606,000
in 1998, as a result of increased sales volumes as described above. Excluding
the nonrecurring adjustments, the Company's gross margin percentage for 1999 was
52.5% compared to 50.5% for 1998. The increase in gross margin percentage is
primarily attributable to higher sales volumes in the Company's orthopaedic
product lines which carry higher gross margins than certain of the Company's
other product lines as well as improved pricing resulting from the elimination
of most of the fixed price product distribution agreements with Zimmer discussed
previously.
Selling and administrative costs increased to $107,233,000 in 1999 as
compared to $93,647,000 in 1998. The increase in selling and administrative
expense is primarily a result of additional selling expense associated with the
increase in sales in 1999 as compared to 1998, including increased costs
associated with the direct selling and distribution of products formerly
distributed through Zimmer during the first half of 1998 and increased
intangible amortization resulting from the Powered Instrument acquisition and
the Arthroscopy acquisition. Partially offsetting these increases, during the
fourth quarter of 1999, the Company recognized the benefit amounting to
$1,256,000 of a previously recorded litigation accrual which was settled on
favorable terms and is included in selling and administrative expense. As a
result of these costs, as a percentage of sales, selling and administrative
expense increased to 28.8% in 1999 as compared to 27.8% in 1998.
Research and development expense was $12,108,000 in 1999 as compared to
$12,029,000 in 1998. As a percentage of sales, research and development expense
was 3.3% in 1999 as compared to 3.6% in 1998. The amount of research and
development expense incurred in 1999 is consistent with 1998 representing the
Company's ongoing efforts in this area.
Interest expense for 1999 was $32,360,000 compared to $30,891,000 in
1998. In connection with the Powered Instrument acquisition, the Company's
existing credit facility was amended in the third quarter of 1999 to provide for
an additional $40,000,000 loan commitment which was used to fund the acquisition
purchase price. The increase in interest expense is a result of these higher
term loan borrowings and higher average borrowings under the Company's revolving
credit facility during 1999 as compared to 1998. The Company funded its
Arthroscopy acquisition during the fourth quarter of 1998 through borrowings
under the revolving credit facility which resulted in the higher average
borrowings. Offsetting the interest on these increased borrowings was reduced
interest expense on the Company's term loans as a result of scheduled quarterly
principal payments totaling $23,103,000 in 1999. (See discussion under Liquidity
and Capital Resources section of Management's Discussion and Analysis of
Financial Condition and Results of Operations).
During the first quarter of 1998, the Company completed an offering of
subordinated notes (the "Notes") and used the net proceeds to repay a portion of
the Company's term loans under its credit facility. Deferred financing fees
relating to the portion of the credit facility repaid amounting to $2,451,000
($1,569,000 net of income taxes) were written-off as an extraordinary charge.
(See Note 5 and discussion under Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations).
22
Years Ended December 1998 and December 1997
Sales for 1998 were $336,442,000, an increase of 143% compared to sales
of $138,270,000 in 1997. Approximately 138% of the total sales increase is
related to the Linvatec acquisition. The remaining increase of approximately 5%
is attributable to the July 1997 surgical suction instrument and tubing
acquisition from Davol, Inc. (the "Davol acquisition"--Note 2).
Cost of sales increased to $169,599,000 in 1998 compared to $74,220,000
in 1997. In connection with purchase accounting for the Linvatec acquisition,
the Company increased the acquired value of inventory by $3,000,000 over its
production cost; this inventory was sold during the quarter ended March 1998 and
served to increase cost of sales in 1998 by $3,000,000. Excluding the impact of
this non-recurring adjustment, cost of sales increased to $166,606,000 in 1998
from $74,220,000 in 1997, as a result of increased sales volumes as described
above. Excluding the nonrecurring adjustment, the Company's gross margin
percentage for 1998 was 50.5% compared to 46.3% for 1997. The increase in gross
margin percentage is primarily attributable to sales of the Company's
orthopaedic product lines acquired through the Linvatec acquisition which carry
higher gross margins than certain of the Company's other product lines.
Additionally as discussed above, in connection with the Linvatec acquisition,
the Company entered into fixed price distribution agreements with Zimmer to
distribute certain of the Company's products in selected geographic markets.
Beginning in the third quarter of 1998, most of the products formerly
distributed by Zimmer were sold and distributed directly by the Company. As a
result, the Company's gross margin percentage was 52.0% in the second half of
1998 as compared to 47% in the first half of 1998.
Selling and administrative costs increased to $93,647,000 in 1998 as
compared to $35,299,000 in 1997, primarily as a result of the Linvatec
acquisition. As a percentage of sales, selling and administrative expense was
27.8% in 1998 and 25.5% in 1997. This increase reflects the overall higher
selling and administrative efforts associated with the sales of the orthopaedic
products acquired in connection with the Linvatec acquisition.
Research and development expense was $12,029,000 in 1998 as compared to
$3,037,000 in 1997. The increase reflects expense related to Linvatec research
and development activities.
There were no unusual charges recorded in 1998. As discussed in Note
11, in 1997 CONMED recorded $37,242,000 of unusual items, including a
$34,000,000 non-cash acquisition charge for the write-off of the in-process
research and development (comprised of products in the development stage)
acquired in the Linvatec acquisition, $914,000 of deferred financing fees
resulting from the refinancing of the Company's loan agreements in connection
with the Linvatec acquisition and a $2,328,000 charge for the closing of
CONMED's Dayton, Ohio manufacturing facility.
Interest expense for 1998 was $30,891,000 compared to interest income
of $823,000 in 1997. As discussed under Liquidity and Capital Resources section
of Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Company acquired Linvatec Corporation on December 31, 1997 and
borrowed $365 million under its credit facility. The Company had no borrowings
outstanding during 1997, except the acquisition related borrowings on December
31, 1997. The Company completed an offering of subordinated notes during the
quarter ended March 1998 and used the net proceeds to repay a portion of the
Company's term loans under its credit facility. Deferred financing fees relating
to the portion of the credit facility repaid amounting to $2,451,000 ($1,569,000
net of income taxes) were written-off as an extraordinary item in 1998.
23
Liquidity and Capital Resources
The Company's net working capital position increased $16,102,000 or
17.2% to $109,526,000 at December 1999 compared to $93,424,000 at December 1998.
Net cash provided by operations was $37,030,000 for 1999 compared to $20,962,000
for 1998. Operating cash flow was positively impacted by higher net income,
depreciation, and amortization in 1999 as compared to 1998, as well as the
change in deferred income taxes. Negatively impacting operating cash flow in
1999 were increases in accounts receivable and inventory and decreases in
accounts payable, accrued interest and accrued liabilities. The increase in
accounts receivable is primarily related to the increase in sales; the increase
in inventory is related to the Arthroscopy acquisition and Powered Instrument
acquisition and overall higher levels of inventory on-hand. The decreases in
accounts payable, accrued interest and accrued liabilities are primarily related
to the timing of the payment of these liabilities. Adversely impacting operating
cash flows in 1998 as compared to 1997 was an increase in accounts receivable
and inventories primarily as a result of the timing of the Company's assumption
of Linvatec's international operations previously managed by Zimmer. In
connection with the Linvatec acquisition, the Company assumed responsibility for
the majority of Linvatec's international operations on July 1, 1998.
Accordingly, the receivables and inventory of the international operations were
not acquired or funded by the Company until the second half of 1998.
Net cash used by investing activities in 1999 included $40,600,000 paid
related to the Powered Instrument acquisition. Net cash used by investing
activities in 1998 included $17,500,000 paid related to the Arthroscopy
acquisition and $14,400,000 of payments related to the Linvatec and Davol
acquisitions. Components of the Linvatec acquisition related payments include
investment banking and professional fees related to the acquisition
($6,300,000), payments associated with the closure of Linvatec's San Dimas,
California facility ($2,500,000), payments to Zimmer, Inc. to acquire
demonstration equipment ($1,400,000) and other acquisition related payments
($2,500,000). Cash payments related to the Davol acquisition amounted to
$1,700,000, of which $1,200,000 represented severance costs associated with
closure of the Company's Kansas manufacturing operation. Net cash used by
investing activities in 1997 includes $370,000,000 in payments related to the
Linvatec acquisition and $24,000,000 related to the Davol acquisition. Capital
expenditures for 1999, 1998 and 1997 amounted to $9,352,000, $12,924,000 and
$8,178,000, respectively.
Financing activities during 1999 consisted primarily of a $40,000,000
term loan used to fund the Powered Instrument acquisition, scheduled payments of
$23,103,000 on the Company's previously existing term loans and $8,000,000 in
repayments on the Company's revolving credit facility. Financing activities
during 1998 involved the completion of the Notes offering in the aggregate
principal amount of $130,000,000; net proceeds from the offering amounting to
$126,100,000 were used to repay a portion of the Company's term loans under its
credit facility. Additionally, the Company borrowed $23,000,000 under the
revolving credit facility primarily to finance the Arthroscopy acquisition and
made scheduled payments of $7,028,000 on the Company's term loans. Financing
activities during 1997 involved borrowing $350,000,000 in term loans and
$15,000,000 on the revolving credit facility to finance the Linvatec
acquisition.
Management believes that cash generated from operations, its current
cash resources and funds available under its revolving credit facility will
provide sufficient liquidity to ensure continued working capital for operations,
debt service and funding of capital expenditures in the foreseeable future.
Foreign Operations
The Company's foreign operations are subject to special risks inherent
in doing business outside the United States, including governmental instability,
war and other international conflicts, civil and labor
24
disturbances, requirements of local ownership, partial or total expropriation,
nationalization, currency devaluation, foreign exchange controls and foreign
laws and policies, each of which may limit the movement of assets or funds or
result in the deprivation of contract rights or the taking of property without
fair compensation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's principal market risks involve foreign currency exchange
rates and interest rates.
The Company manufactures its products in the United States and
distributes its products throughout the world. As a result, the Company's
financial results could be significantly affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As of December 31, 1999, the Company had not established a foreign
currency-hedging program. The Company has mitigated and will continue to
mitigate its foreign currency exposure by transacting the majority of its
foreign sales in United States dollars. To date, changes in foreign currency
exchange rates have not had a material effect on the Company's financial
conditions or results of operations. The Company will continue to monitor and
evaluate its foreign currency exposure and the need to establish a foreign
currency hedging program.
The Company's exposure to market risk for changes in interest rates
relate to its borrowings. The Company does not use derivative financial
instruments for trading or other speculative purposes. Interest rate swaps, a
form of derivative, are used to manage interest rate risk. Currently, the
Company has entered into two interest rate swaps expiring in June 2001 which
convert $100,000,000 of the approximate $264,000,000 of floating rate borrowings
under the Company's credit facility into fixed rate borrowings at rates ranging
from 7.18% to 8.25%. Provisions in one of the interest rate swaps cancels such
agreement when LIBOR exceeds 7.35%. If market interest rates for similar
borrowings average 1% more in 2000 than they did in 1999, the Company's interest
expense, after considering the effects of its interest rate swaps, would
increase, and income before taxes would decrease by $1,300,000. Comparatively,
if market interest rates averaged 1% less in 2000 than they did during 1999, the
Company's interest expense, after considering the effects of its interest rate
swaps, would decrease, and income before taxes would increase by $1,200,000.
These amounts are determined by considering the impact of hypothetical interest
rates on the Company's borrowing cost and interest rate swap agreements and does
not consider any actions by management to mitigate its exposure to such a
change.
Item 8. Financial Statements and Supplementary Data
The Company's 1999 Financial Statements, together with the report
thereon of PricewaterhouseCoopers LLP dated February 9, 2000, are included
elsewhere herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
The Company and PricewaterhouseCoopers LLP have had no disagreements
which would be required to be reported under this Item 9.
25
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, Executive Officers and Senior
Officers" in CONMED Corporation's definitive Proxy Statement to be mailed on or
about April 10, 2000 for the annual meeting of shareholders to be held on May
16, 2000.
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", "Pension Plans" and "Board of Directors
Interlocks and Insider Participation; Certain Relationships and Related
Transactions" in CONMED Corporation's definitive Proxy Statement to be mailed on
or about April 10, 2000 for the annual meeting of shareholders to be held on May
16, 2000.
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
10, 2000 for the annual meeting of shareholders to be held on May 16, 2000.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
incorporated herein by reference to the section captioned "Board of Directors
Interlocks and Insider Participation; Certain Relationships and Related
Transactions" in CONMED Corporation's definitive Proxy Statement to be mailed on
or about April 10, 2000 for the annual meeting of shareholders to be held on May
16, 2000.
26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Index to Financial Statements:
(a)(1) List of Financial Statements Form 10-K Page
--------------
Report of Independent Accountants F-1
Consolidated Balance Sheets at December 1998 and 1999 F-2
Consolidated Statements of Income for the Years Ended
December 1997, 1998 and 1999 F-3
Consolidated Statements of Shareholders' Equity for the
Years Ended December 1997, 1998 and 1999 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 1997, 1998 and 1999 F-5
Notes to Consolidated Financial Statements F-7
(2) List of Financial Statement Schedules
Valuation and Qualifying Accounts (Schedule VIII) F-24
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 29
below are filed as part of this Form 10-K.
(b) Reports on Form 8-K
None
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the date indicated
below.
CONMED CORPORATION
March 27, 2000
By: /s/ Eugene R. Corasanti
--------------------------
Eugene R. Corasanti
(Chairman of the Board,
Chief Executive Officer)
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 And Director March 27, 2000
/s/ ROBERT D. SHALLISH, JR. Vice President-Finance
- --------------------------- and Chief Financial Officer
Robert D. Shallish, Jr. (Principal Financial Officer) March 27, 2000
/s/ JOSEPH J. CORASANTI President, Chief Operating
- ------------------------ Officer and Director March 27, 2000
Joseph J. Corasanti
/s/ LUKE A. POMILIO Vice President - Corporate
- ------------------- Controller (Principal Accounting
Luke A. Pomilio Officer) March 27, 2000
/s/ BRUCE F. DANIELS Director March 27, 2000
- --------------------
Bruce F. Daniels
/s/ ROBERT E. REMMELL Director March 27, 2000
- ---------------------
Robert E. Remmell
/s/ WILLIAM D. MATTHEWS Director March 27, 2000
- -----------------------
William D. Matthews
/s/ STUART J. SCHWARTZ Director March 27, 2000
- ----------------------
Stuart J. Schwartz
28
EXHIBIT INDEX
Exhibit No. Description of Instrument
- ----------- -------------------------
2.1 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.
2.2 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
2.3 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.
2.4 Asset Purchase Agreement between Linvatec Corporation and Minnesota
Mining & Manufacturing Company dated October 8, 1998-- incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
2.5 The Asset Purchase Agreement, dated June 29, 1999 by and between
Linvatec Corporation and Minnesota Mining and Manufacturing Company,
as amended by an amendment dated August 11, 1999-- incorporated
herein by reference to Exhibit 10.1 of the Company's report on Form
10-Q filed on August 13, 1999.
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 1999 Amendment to Certificate of Incorporation and Restated
Certificate of Incorporation of CONMED Corporation.
4.1 See Exhibit 3.1.
4.2 See Exhibit 3.2.
4.3 Amended and Restated Credit Agreement, dated August 11, 1999, among
CONMED Corporation and the several banks and other financial
institutions or entities from time to time parties thereto, --
incorporated herein by reference to Exhibit 10.2 of the Company's
report on Form 10-Q filed on August 13, 1999.
4.4 Guarantee and Collateral Agreement, dated 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.
29
Exhibit No. Description of Instrument
- ----------- -------------------------
4.5 Indenture, dated as of March 5, 1998, by an among CONMED Corporation,
the Subsidiary Guarantors named therein and First Union National
Bank, as Trustee--incorporated by reference to the exhibit in the
Company's Registration Statement on Form S-8 filed on March 26, 1998
(File No. 333-48693).
4.6 Acknowledgement and Consent, dated August 11, 1999, among CONMED
Corporation and each of its subsidiaries -- incorporated herein by
reference to Exhibit 10.3 of the Company's report on Form 10-Q filed
on August 13, 1999.
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.
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 10.0(c) of the
Company's Registration Statement on Form S-2 (File No. 33-40455).
10.4 Eugene R. Corasanti life insurance plans with Northwestern Mutual
Life Insurance Company dated August 25, 1991-- Statements of Policy
Cost and Benefit Information, Benefits and Premiums, Assignment of
Life Insurance Policy as Collateral -- incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year
ended December 27, 1991.
10.5 1992 Stock Option Plan (including form of Stock Option Agreement). --
incorporated herein by reference to the exhibit in the Company's
Annual Report on Form 10-K for the year ended December 25, 1992.
30
Exhibit No. Description of Instrument
- ----------- -------------------------
10.6 Stock Option Plan for Non-Employee Directors of CONMED Corporation--
incorporated by referenceto the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
10.7 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.
10.8 Transition and Distribution Services Agreement, dated December 31,
1997, among Zimmer, Inc., Linvatec Corporation and CONMED
Corporation- incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
10.9 Distribution Agreement, dated December 31, 1997, among Zimmer, Inc.,
Linvatec Corporation and CONMED Corporation - incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.10 CONMED Corporation 1999 Long-Term Incentive Plan-- incorporated by
reference to the Definitive Proxy Statement for the 1999 annual
meeting as filed on April 16, 1999.
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 March 27, 2000, of PricewaterhouseCoopers LLP,
independent auditors for CONMED Corporation.
27 Financial Data Schedule.
31
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) on Page 27 present fairly, in all material
respects, the financial position of CONMED Corporation and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 27 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States 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.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Syracuse, New York
February 9, 2000
F-1
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
December 1998 and 1999
(In thousands except share amounts)
1998 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 5,906 $ 3,747
Accounts receivable, less allowance for doubtful accounts of $2,213 in 1998
and $1,434 in 1999 .................................................... 66,819 76,413
Income taxes receivable (Note 6) .......................................... 1,441 --
Inventories (Notes 1 and 3) ............................................... 78,058 89,681
Deferred income taxes (Note 6) ............................................ 2,776 1,453
Prepaid expenses and other current assets ................................. 4,620 5,423
--------- ---------
Total current assets ........................................... 159,620 176,717
--------- ---------
Property, plant and equipment, net (Notes 1 and 4) ............................ 60,787 57,834
Deferred income taxes (Note 6) ................................................ 3,900 --
Goodwill, net (Notes 1 and 2) ................................................. 192,947 223,174
Patents, trademarks and other assets (Note 2) ................................. 211,530 204,436
--------- ---------
Total assets ................................................... $ 628,784 $ 662,161
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5) ................................ $ 22,995 $ 32,875
Accounts payable .......................................................... 19,594 16,518
Accrued payroll and withholdings .......................................... 9,665 9,658
Income taxes payable ...................................................... -- 226
Accrued interest .......................................................... 6,069 4,588
Other current liabilities ................................................. 7,873 3,326
--------- ---------
Total current liabilities ...................................... 66,196 67,191
--------- ---------
Long-term debt (Note 5) ....................................................... 361,877 361,794
Deferred income taxes ......................................................... -- 3,330
Other long-term liabilities ................................................... 18,543 18,585
--------- ---------
Total liabilities .............................................. 446,616 450,900
--------- ---------
Commitments (Notes 4, 7, 9, and 10)
1998 1999
--------- ---------
Shareholders' equity (Notes 1 and 7):
Preferred stock, par value $.01 per share; authorized 500,000 shares, non