UTICA, N.Y., Feb. 9 /PRNewswire-FirstCall/ -- CONMED Corporation (Nasdaq:
CNMD) today announced financial results for the fourth quarter and twelve
months ended December 31, 2005. Sales for the 2005 fourth quarter were $153.2
million compared to $161.2 million in the fourth quarter of 2004. Net income
equaled $2.8 million, or $0.10 per diluted share for the quarter, compared to
$7.4 million, or $0.25 per diluted share in the fourth quarter of 2004, based
on a weighted average share count of 29.4 million for the quarter ended
December 31, 2005. Total sales for the twelve months ended December 31, 2005
grew 10.5% to $617.3 million compared to $558.4 million in 2004. The
Endoscopic Technologies product line acquired from C.R. Bard in September 2004
contributed $44.4 million to revenue in the first nine months of 2005 prior to
its anniversary in September 2005. Net income for the year was $32.0 million,
or $1.08 per diluted share, compared to $33.5 million, $1.11 per diluted share
in 2004, based on a weighted average share count of 29.7 million for the 2005.
Excluding transition charges related to an acquisition and other unusual
charges (see attached reconciliation for additional information), non-GAAP net
income for 2005 was $41.8 million, or $1.41 per non-GAAP diluted share,
compared to 2004 non-GAAP net income of $50.5 million, or $1.68 per non-GAAP
diluted share. Fourth quarter non-GAAP net income was $5.3 million, or $0.18
per non-GAAP diluted share, compared to fourth quarter 2004 non-GAAP net
income of $14.7 million, or $0.49 per non-GAAP diluted share.
Mr. Joseph J. Corasanti, President and Chief Operating Officer, noted, "As
we previously announced, the Company's revenues in the fourth quarter were
impacted by several market factors including, we believe, lower than
anticipated surgical procedures, extended capital equipment purchasing
decision timelines in certain markets, and foreign currency translation.
Further, our profits during the second half of 2005 were impacted by higher
raw material costs related to petroleum based plastic, higher transportation
charges, legal fees related to litigation against a competitor, and costs
associated with scrap and rework regarding packaging integrity on certain
products of our Powered Surgical Instrument line."
"Most importantly, CONMED has taken action to address these market
challenges. As previously announced, in relation to our manufacturing
expansion, we are actively working to increase our investment in research and
development as well as quality management for enhanced customer satisfaction
and regulatory compliance. These initiatives added $7 million to the
Company's annual cost base and we believe these changes will over the long run
ultimately result in improved product design and customer appreciation of our
medical devices," said Mr. Corasanti.
During 2005, the Company repurchased $45 million of its common stock with
funds provided from operations and from proceeds of stock issued under
employee plans. The Company's debt to total book capitalization ratio at
December 31, 2005 was 40.4%, a slight increase from 39.7% at December 31, 2004
due to the $9.0 million reduction in the accounts receivable securitization
program and the resultant increase in long-term debt.
Sales outside the United States continued at a rapid pace in 2005 growing
17.4% overall, 12.0% excluding the effects of the Endoscopic Technologies
acquisition, and 10.2% on a constant currency basis. In the fourth quarter of
2005, international sales grew 3.3%, reported, and 5.3% in constant currency
due to the strengthening of the U.S. dollar in the last three months of the
year.
While the second half of 2005 had softer sales than the first half of the
year, the Company's business showed overall sales improvement in the year.
Arthroscopy product growth of 3.2% year over year was led by its single- use
sports medicine repair products. Powered Surgical Instruments grew 2.6% as a
result of the effects of the new small bone handpiece, PowerPro Max(TM),
introduced to the market in early 2005. Electrosurgery's growth of 3.0% year
over year was primarily due to a 16% improvement in sales of generators as the
line continues to grow its market share. Endosurgery's growth of 6.8% was due
to a 22% increase in sales outside the U.S. while domestic sales remain flat
due to, we believe, the illegal marketing practices of a competitor. In
Patient Care, the improved sales of the pulse oximetry line were offset by
reductions in the ECG electrode line as a result of the loss of a GPO contract
for electrodes. The Endoscopic Technologies business, acquired on September
30, 2004 generally met the Company's expectations, although pricing pressures
in the second half of 2005 inhibited the line's growth.
Following is a summary of the Company's sales by product line for the
three months and year ended December, 2005 (in millions):
Three Months Ended Year Ended
December Growth December Growth
2004 2005 2004 2005
Arthroscopy $54.8 $52.4 -4.4% $204.9 $211.4 3.2%
Powered Surgical
Instruments 33.5 32.1 -4.2% 128.6 132.0 2.6%
Electrosurgery 23.9 22.6 -5.4% 85.9 88.5 3.0%
Endosurgery 12.5 12.5 0.0% 47.4 50.6 6.8%
Patient Care 20.8 19.1 -8.2% 75.9 75.9 0.0%
145.5 138.7 -4.7% 542.7 558.4 2.9%
Endoscopic Technologies 15.7 14.5 -7.6% 15.7 58.9
$161.2 $153.2 -5.0% $558.4 $617.3 10.5%
Outlook
In 2006, CONMED believes that a number of factors will have a positive
impact on the Company's sales growth rate, including the anticipated new
product pipeline and the return to normal elective procedure rates. With
these underlying factors, the Company expects to achieve top-line organic
growth of approximately 5% in 2006, an improvement from the 2% organic growth
in 2005. The Company expects continued higher levels of raw material costs,
unfavorable foreign exchange when compared to 2005, and higher costs related
to product quality management and legal matters will impact the full year of
2006 causing operating profit margins to decline approximately $12 million
compared to 2005 amounts.
The Company believes that non-GAAP diluted earnings per share in 2006 will
approximate $1.00 - $1.05. GAAP diluted earnings per share is anticipated to
be $0.88 - $0.93 per share in 2006 and reflects charges for previously
disclosed higher costs of products for the Endoscopic Technology line while
the Company completes the transition to self-manufacturing of this line,
product recall costs and surgical light replacement costs. In addition, the
Company will adopt FAS123R for stock option expensing in 2006 which is
expected to reduce the above earnings per share estimates by $0.10 - $0.15.
Mr. Corasanti concluded, "With 2005 behind us, 2006 forecasts to be a
rebuilding year. We believe that the business is poised for continued long-
term growth, our product franchise remains top-notch, and our management and
employees are dedicated to improvement. Looking beyond 2006, we expect our
operating margin in 2007 will improve to approximately 14% as a percentage of
sales due to revenue growth leveraging the Company's cost base as well as
implementation of profit improvement actions."
The Company anticipates that the second half of 2006 should show greater
improvement over the first half of 2006 when compared to respective 2005
amounts as profit improvement programs continue to be implemented. Further,
comparison to 2005 amounts will be more favorable in the second half of the
2006 year due to the relative softness of the last six months of 2005. For
the first quarter of 2006, the Company expects revenues in the range of $153 -
$158 million and diluted earnings per share on a non-GAAP basis of $0.18 -
$0.22.
CONMED Profile
CONMED is a medical technology company with an emphasis on surgical
devices and equipment for minimally invasive procedures and monitoring. The
Company's products serve the clinical areas of arthroscopy, powered surgical
instruments, electrosurgery, cardiac monitoring disposables, endosurgery and
endoscopic technologies. They are used by surgeons and physicians in a
variety of specialties including orthopedics, general surgery, gynecology,
neurosurgery, and gastroenterology. Headquartered in Utica, New York, the
Company's 3,100 employees distribute its products worldwide from eleven
manufacturing locations.
Forward Looking Information
This press release contains forward-looking statements based on certain
assumptions and contingencies that involve risks and uncertainties. The
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and relate to the
Company's performance on a going-forward basis. The forward-looking
statements in this press release involve risks and uncertainties which could
cause actual results, performance or trends, including the above mentioned
anticipated revenues and earnings, to differ materially from those expressed
in the forward-looking statements herein or in previous disclosures. The
Company believes that all forward-looking statements made by it have a
reasonable basis, but there can be no assurance that management's
expectations, beliefs or projections as expressed in the forward-looking
statements will actually occur or prove to be correct. In addition to general
industry and economic conditions, factors that could cause actual results to
differ materially from those discussed in the forward-looking statements in
this press release include, but are not limited to: (i) the failure of any one
or more of the assumptions stated above, to prove to be correct; (ii) the
risks relating to forward-looking statements discussed in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2004; (iii)
cyclical purchasing patterns from customers, end-users and dealers; (iv)
timely release of new products, and acceptance of such new products by the
market; (v) the introduction of new products by competitors and other
competitive responses; (vi) the possibility that any acquisition (and its
integration) or other transaction may require the Company to reconsider its
financial assumptions and goals/targets; (vii) increasing costs for raw
material, transportation, or litigation; and/or (viii) the Company's ability
to devise and execute strategies to respond to market conditions.
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended Twelve months ended
December 31, December 31,
2004 2005 2004 2005
Net sales $161,223 $153,200 $558,388 $617,305
Cost of sales 76,462 76,862 267,067 296,438
Cost of sales, nonrecurring -
Note A 4,429 1,870 4,429 7,846
Gross profit 80,332 74,468 286,892 313,021
Selling and administrative 54,262 57,945 183,183 216,685
Research and development 5,924 6,836 20,205 25,469
Write-off of purchased
in-process research and
development assets -
Note B 2,700 - 16,400 -
Other expense - Note C 3,076 1,864 3,943 7,119
65,962 66,645 223,731 249,273
Income from operations 14,370 7,823 63,161 63,748
Loss on early extinguishment
of debt - Note D 825 - 825 -
Interest expense - Note E 3,721 4,214 12,774 15,578
Income before income taxes 9,824 3,609 49,562 48,170
Provision for income taxes 2,389 802 16,097 16,176
Net income $7,435 $2,807 $ 33,465 $ 31,994
Per share data:
Net Income
Basic $.25 $.10 $1.13 $1.09
Diluted .25 .10 1.11 1.08
Weighted average common shares
Basic 29,234 29,127 29,523 29,300
Diluted 29,900 29,407 30,105 29,737
Note A - Included in cost of sales in the three and twelve months ended
December 31, 2004 are $4.4 million in acquisition related costs. Included in
cost of sales in the three and twelve months ended December 31, 2005 are $1.9
million and $7.8 million, respectively, in acquisition related costs.
Note B - During the three and twelve months ended December 31, 2004, we
wrote off the tax-deductible purchased in-process research and development
assets related to the Bard Endoscopic Technologies acquisition amounting to
$2.7 million and $16.4 million, respectively.
Note C - Included in other expense in the three months ended December 31,
2004 are $.7 million in acquisition related costs and $2.4 million of expense
related to the termination of a product offering; Included in other expense
in the twelve months ended December 31, 2004 are $1.5 million in acquisition
related costs and $2.4 million of expense related to the termination of a
product offering. Included in other expense in the three months ended
December 31, 2005 are $.6 million in acquisition related costs, $.5 million of
expense related to the termination of a product offering and $0.8 million
related to a loss on an equity investment; Included in other expense for the
twelve months ended December 31, 2005 are $4.1 million in acquisition related
costs, $1.5 million of expense related to the termination of a product
offering, $.7 million in environmental settlement costs and $.8 million
related to the loss on an equity investment.
Note D - In the three months and twelve months ended December 31, 2004, we
recorded $.8 million in losses on the early extinguishment of debt.
Note E - Interest expense for the twelve months ended December 31, 2004
includes $.3 million of financing costs related to the Bard Endoscopic
Technologies acquisition.
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
December 31,
2004 2005
Current assets:
Cash and cash equivalents $4,189 $3,454
Accounts receivable, net 74,593 83,327
Inventories 127,935 152,428
Deferred income taxes 13,733 8,334
Other current assets 2,492 3,419
Total current assets 222,942 250,962
Property, plant and equipment, net 101,465 104,224
Goodwill and other assets, net 529,717 527,053
Other assets 18,701 16,991
Total assets $872,825 $899,230
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $4,037 $4,208
Other current liabilities 59,024 57,924
Total current liabilities 63,061 62,132
Long-term debt 290,485 302,643
Deferred income taxes 51,433 58,001
Other long-term liabilities 19,863 23,448
Total liabilities 424,842 446,224
Shareholders' equity:
Capital accounts 226,444 202,810
Retained earnings 227,938 259,932
Accumulated other comprehensive income (loss) (6,399) (9,736)
Total shareholders' equity 447,983 453,006
Total liabilities and shareholders' equity $ 872,825 $899,230
CONMED CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Twelve months ended
December 31,
2004 2005
Cash flows from operating activities:
Net income $33,465 $31,994
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26,868 30,786
Deferred income taxes 4,301 10,128
Write-off of purchased in-process research
and development asset 16,400 -
Write-off of deferred financing costs 825 -
Loss on equity investment - 794
Sale of accounts receivable 5,000 (9,000)
Other, net (12,019) (22,268)
Net cash provided by operating activities 74,840 42,434
Cash flow from investing activities:
Payments related to business acquisitions,
net of cash acquired (81,645) (372)
Purchases of property, plant, and equipment, net (12,419) (16,242)
Other investing activities - -
Net cash used in investing activities (94,064) (16,614)
Cash flow from financing activities:
Payments on debt (120,069) (30,671)
Proceeds of debt 150,000 43,000
Net proceeds from common stock issued under
employee plans 15,200 16,998
Repurchase of common stock (29,989) (45,374)
Other, net 361 (6,287)
Net cash provided by financing activities 15,503 (22,334)
Effect of exchange rate change on cash and
cash equivalents 1,924 (4,221)
Net decrease in cash and cash equivalents (1,797) (735)
Cash and cash equivalents at beginning of period 5,986 4,189
Cash and cash equivalents at end of period $4,189 $3,454
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NET INCOME
BEFORE UNUSUAL ITEMS
(In thousands except per share amounts)
(unaudited)
Three months ended
December 31,
2004 2005
Reported net income $7,435 $ 2,807
Acquisition-transition related costs included
in cost of sales 4,429 1,870
Write-off of purchased in-process research and
development assets 2,700 -
Termination of product offering 2,396 450
Loss on equity investment - 794
Other acquisition related costs 680 620
Total other expense 3,076 1,864
Loss on early extinguishment of debt 825 -
Unusual expense before income taxes 11,030 3,734
Provision (benefit) for income taxes on unusual expense (3,805) (1,288)
Net income before unusual items $14,660 $5,253
Per share data:
Reported net income
Basic $.25 $.10
Diluted .25 .10
Net income before unusual items
Basic $.50 $.18
Diluted .49 .18
Management has provided the above reconciliation of net income before
unusual items as an additional measure that investors can use to compare
operating performance between reporting periods. Management believes this
reconciliation provides a useful presentation of operating performance.
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NET INCOME
BEFORE UNUSUAL ITEMS
(In thousands except per share amounts)
(unaudited)
Twelve months ended
December 31,
2004 2005
Reported net income $33,465 $31,994
Acquisition-transition related costs included
in cost of sales 4,429 7,846
Write-off of purchased in-process research and
development assets 16,400 -
Termination of product offering 2,396 1,519
Environmental settlement - 698
Loss on equity investment - 794
Other acquisition related costs 1,547 4,108
Total other expense 3,943 7,119
Acquisition-related interest expense 360 -
Loss on early extinguishment of debt 825 -
Unusual expense before income taxes 25,957 14,965
Provision (benefit) for income taxes on unusual expense (8,955) (5,163)
Net income before unusual items $50,467 $41,796
Per share data:
Reported net income
Basic $1.13 $1.09
Diluted 1.11 1.08
Net income before unusual items
Basic $1.71 $1.43
Diluted 1.68 1.41
Management has provided the above reconciliation of net income before
unusual items as an additional measure that investors can use to compare
operating performance between reporting periods. Management believes this
reconciliation provides a useful presentation of operating performance.
SOURCE CONMED Corporation
 back to top
Related links:
http://www.conmed.com
CONTACT:
Robert Shallish, Chief Financial Officer,
CONMED Corporation, +1-315-624-3206; or Julie Huang or Theresa
Kelleher, both of Financial Dynamics, +1-212-850-5600, for CONMED
Corporation
|
