- 4Q Sales Exceed Guidance -
- Organic Sales Increase 7.1% from 2003 Fourth Quarter -
- Non-GAAP EPS Equals $0.49 -
UTICA, N.Y., Feb. 10 /PRNewswire-FirstCall/ -- CONMED Corporation
(Nasdaq: CNMD) announced today its financial results for the fourth quarter
and full year ended December 31, 2004.
Mr. Joseph J. Corasanti, President and Chief Operating Officer, commented,
"CONMED achieved the highest quarterly revenue in our Company's history. This
resulted from a combination of strong organic growth and the fine performance
of our newest acquired product line, Endoscopic Technologies. Our growth
continues to be fueled by the success of new products, such as our enhanced
definition video camera system in Arthroscopy and the continued performance of
our focused sales forces for Arthroscopy, Electrosurgery and Patient Care. We
look forward to unveiling our new orthopaedic products for 2005 at the
American Academy of Orthopaedic Surgeons later this month."
Total sales for the fourth quarter increased 20.5% to $161.2 million
($159.0 million at constant exchange rates) compared to $133.8 million in the
fourth quarter of 2003. The previously announced acquisition of the
Endoscopic Technologies business on September 30, 2004 added $15.7 million to
sales for the fourth quarter of 2004. Excluding acquisition, financing and
other charges (please see attached reconciliation for full explanation),
non-GAAP net income for the fourth quarter grew to $14.7 million, or $0.49 per
diluted share, compared to $13.5 million (non-GAAP), or $0.46 per diluted
share, in last year's fourth quarter. GAAP net income, including acquisition
and transition charges, for the three months ended December 2004 was
$7.4 million, or $0.25 per diluted share, compared to $12.9 million or
$0.44 per diluted share in the fourth quarter of 2003.
Following is a summary of fourth quarter sales by product line in millions
of dollars:
Three Months
Ended December, Percent
2003 2004 Increase
Orthopaedic Surgery
Arthroscopy $49.1 $54.7 11.4%
Powered Surgical Instruments 32.0 33.5 4.7%
Integrated Systems 1.7 0.1 --
82.8 88.3 6.6%
General Surgery, Endoscopic
Technologies and Patient Care
Electrosurgery 21.0 23.9 13.8%
Patient Care 17.9 20.8 16.2%
Endosurgery 12.1 12.5 3.3%
Endoscopic Technologies -- 15.7 --
51.0 72.9 42.9%
Total $ 133.8 $161.2 20.5%
Arthroscopy product growth of 11.4% was led by a 25% increase in sales of
minimally-invasive surgery camera systems. The enhanced definition camera,
introduced early in 2004, has superior resolution capabilities, enabling it to
compete effectively for not only arthroscopy applications, but also general
surgical applications. Powered Surgical Instruments had continued strong
growth of the large bone products with a 10% increase while the small bone and
specialty products were flat compared to the prior year's fourth quarter, as
expected. The Integrated Systems line had a number of installation projects
pushed-out to future periods based on customer requests and therefore had
little revenue in the fourth quarter of 2004.
Electrosurgery and Patient Care had very good growth rates due to improved
sales of single use products. The pulse oximetry line introduced in 2004
continued to progress in the fourth quarter, achieving sales of approximately
$0.9 million for the three months. The Endoscopic Technologies business
exceeded the Company's sales goals for the quarter by generating over $15
million for the first full quarter of its affiliation with CONMED.
Mr. Corasanti continued, "The cash flow of CONMED continues to be
exceptionally strong. Cash provided from operations was $24.0 million in the
fourth quarter of 2004 and $81.9 million for the full year 2004. Considering
our 30 million diluted common shares outstanding, this is equivalent to $0.80
per share for the quarter and $2.72 per share for the year. These operating
cash flows demonstrate the strength of the Company and its cash generating
ability."
Full-Year Results
For the year ended December 31, 2004, the Company's revenues increased
12.3% to $558.4 million ($548.7 in constant currency) compared to
$497.1 million for 2003. Non-GAAP net income grew to $50.5 million, a 14.5%
increase from the $44.1 million non-GAAP net income for 2003 excluding charges
(please see attached reconciliation for full explanation). Non-GAAP diluted
earnings per share increased 11.3% to $1.68 in 2004 compared to $1.51 per
share in 2003 on a 2.9% increase in diluted shares outstanding. GAAP net
income for 2004 was $33.5 million equivalent to diluted earnings per share of
$1.11, compared to $32.1 million of net income in 2003 with diluted earnings
per share of $1.10.
Following is a summary of yearly sales by product line in millions of
dollars:
Year
Ended December, Percent
2003 2004 Increase
Orthopaedic Surgery
Arthroscopy $177.4 $203.3 14.6%
Powered Surgical Instruments 122.0 128.6 5.4%
Integrated Systems 4.6 1.6 --
304.0 333.5 9.7%
General Surgery, Endoscopic
Technologies and Patient Care
Electrosurgery 77.3 85.9 11.1%
Patient Care 70.1 75.9 8.3%
Endosurgery 45.7 47.4 3.7%
Endoscopic Technologies -- 15.7 --
193.1 224.9 16.5%
Total $497.1 $558.4 12.3%
Outlook
Joseph Corasanti added, "We are reaffirming the guidance we provided in
October 2004, for total 2005 sales growth of 15% above 2004 levels. Of this
total sales increase, 7% is expected to come from internal growth of our
product lines and 8% is anticipated from the effect of the Endoscopic
Technologies acquisition for the first nine months of 2005 until its revenues
annualize in the fourth quarter of 2005. In addition, we continue to expect
that the Company's operating cash flow for 2005 will approximate $75 - $80
million. Our diluted earnings per share guidance for 2005, however, was
provided prior to the FASB issuing FAS 123R regarding equity based
compensation and expensing the calculated fair value of incentive stock
options. Consequently, we presently expect that our quarterly earnings per
share commencing in the third quarter of 2005, when we will be required to
implement the new standard, will be impacted by $.04 per quarter because of
the non-cash stock option charge. Therefore, we now expect that our diluted
earnings per share for the entire year of 2005 will be reduced by
approximately $0.08 for the two quarters the new standard will be applicable
causing the entire year's EPS to approximate $1.86 - $1.90."
"For the first quarter of 2005, we expect sales to range between
$156 - $160 million and diluted earnings per share to be between $0.46 - $0.48
excluding acquisition and transition expenses associated with the Endoscopic
Technologies product line acquisition, and excluding the costs associated with
a product line termination discussed further in this press release," noted Mr.
Corasanti.
Acquisition, Financing and Other Charges
Acquisition - The Company purchased the Endoscopic Technologies product
line from C.R. Bard, Inc. on September 30, 2004 for a purchase price of
$80.0 million subject to adjustment for a final accounting of assets and
liabilities acquired. Therefore, in the third quarter 2004 financial
statements, in accordance with FASB 141, the Company recorded an estimate of
the value of assets and liabilities acquired, including a charge to expense of
$13.7 million as an estimate of the value of purchased in-process research and
development. In the fourth quarter of 2004, the Company finalized the
allocation of the purchase price, with the assistance of an independent third
party valuation consultant, and recorded an additional $2.7 million charge for
the value of in-process research and development for a total of $16.4 million.
As required by FASB 141, the Company has recorded the fair value of
inventory acquired in the purchase transaction. Since the fair value of the
inventory exceeds the manufacturing cost, as the initial inventory is sold,
cost of sales is higher than what would normally have been the case.
Approximately 80% of the initial inventory was sold in the fourth quarter of
2004. Consequently, 80% of the step-up in inventory value amounting to
$2.3 million has been expensed as cost of sales. Further, during a transition
period, CONMED is purchasing the Endoscopic Technologies finished goods from
C.R. Bard at costs greater than what the Company expects its manufacturing
costs to be once manufacturing is transitioned to CONMED facilities. The
Company expects the transition to extend through the third quarter of 2005.
This difference in cost for fourth quarter 2004 sales is estimated to be
$2.1 million and has been recorded in cost of sales.
Other non-recurring costs in the fourth quarter of 2004 associated with
the Endoscopic Technologies acquisition including severance and other
integration expenses amounted to $0.7 million.
Early extinguishment of debt - The Company issued $150 million of 2.5%
convertible bonds in November 2004 and used $115.5 million of the proceeds to
prepay a portion of its term loan senior debt. The remaining proceeds were
used to purchase 1.1 million shares of CONMED stock and for transactional
expenses. Deferred financing fees of $0.8 million associated with the early
payment of the term loan were written off to expense in the fourth quarter of
2004.
Cost associated with termination of a product - CONMED has offered
integrated operating room design and installation for two years following the
acquisition of the line in November 2002. One of the components of the system
had been a proprietary brand of surgical lights distributed for a third-party
supplier. In the fourth quarter of 2004, the Company concluded that it was a
better use of resources to focus research and development efforts on
integrated systems developments. In addition, limiting customers' options for
surgical lights to the Company's proprietary offering was interfering with our
ability to market and sell our integrated systems to customers who preferred
other brands of surgical lights. There are several other brands of surgical
lights, each with specialized features and benefits that, in some cases, were
perceived by customers as better suited to particular uses or surgeon
preferences than the lights offered by the Company. In order to provide a
broader range of choices to customers who preferred the Company's integration
solution, the Company has terminated selling its own brand of surgical lights
and expects to coordinate the installation of the surgical light choice of the
customer when providing CONMED's integration systems.
CONMED will no longer service the installed base of lights purchased from
the Company. In order to maintain customer relationships, and in fairness to
customers who purchased lights from CONMED expecting that CONMED would
maintain its high level of service, the Company has initiated a program to
replace all of its surgical lights currently in use. The cost of the program
is estimated to be approximately $4.0 million including purchase and
installation of other manufacturers' lights as well as write-off of existing
inventory. The Company has expensed $2.4 million of this amount in the fourth
quarter of 2004, and expects additional charges totaling $1.6 million over the
first half of 2005 as the replacement program is completed.
Charges and unusual items related to 2003 - In 2003 the Company recorded a
number of unusual charges and credits as noted on the attached reconciliation
of GAAP to non-GAAP financial information. For a complete description of
these items, please refer to the Company's 2003 financial statements.
Today's Conference Call
CONMED will broadcast its fourth quarter 2004 conference call live over
the Internet today at 10:00 a.m. Eastern Time. This broadcast can be accessed
from CONMED's web site at http://www.conmed.com. Replays of the call will be
made available through February 17, 2005.
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 2,800 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, 2003; (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; and/or (vii) 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,
2003 2004 2003 2004
Net sales $133,809 $161,223 $497,130 $558,388
Cost of sales 63,616 76,462 236,180 267,067
Cost of sales,
nonrecurring-Note A 514 4,429 1,253 4,429
Gross profit 69,679 80,332 259,697 286,892
Selling and administrative 42,359 54,262 157,453 183,183
Research and development 4,738 5,924 17,306 20,205
Write-off of purchased in-process
research and development assets -
Note B -- 2,700 7,900 16,400
Other (income) expense - Note C, D 278 3,076 (2,917) 3,943
47,375 65,962 179,742 223,731
Income from operations 22,304 14,370 79,955 63,161
Loss on early extinguishment
of debt - Note E -- 825 8,078 825
Interest expense - Note F 3,640 3,721 18,868 12,774
Income before income taxes 18,664 9,824 53,009 49,562
Provision for income taxes 5,719 2,389 20,927 16,097
Net income $ 12,945 $7,435 $ 32,082 $ 33,465
Per share data:
Net Income
Basic $.45 $.25 $1.11 $1.13
Diluted .44 .25 1.10 1.11
Weighted average common shares
Basic 28,991 29,234 28,930 29,523
Diluted 29,500 29,900 29,256 30,105
Note A - Included in cost of sales in the three and twelve months ended
December 31, 2003 are $.5 million and $1.3 million in acquisition-related
costs, respectively. Included in cost of sales in the three and twelve months
ended December 31, 2004 are $4.4 million of acquisition related costs.
Note B - During the twelve months ended December 31, 2003, we recorded a
charge of $7.9 million to write-off purchased in-process research and
development assets acquired as a result of an acquisition. No benefit for
income taxes was recorded on the write-off as these costs are not deductible
for income tax purposes. In the 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
$16.4 million.
Note C - Included in other expense in the three months ended December 31,
2003 are $.3 million in acquisition-related costs. 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 terminating a product
offering.
Note D - Included in other expense in the twelve months ended December 31,
2003 are a $9.0 million gain on the settlement of a contractual dispute;
$2.8 million in pension settlement costs; and $3.3 million in acquisition-
related costs. 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 terminating a product offering.
Note E - In the twelve months ended December 31, 2003, we recorded
$8.1 million in losses on the early extinguishment of debt. In the three
months and twelve months ended December 31, 2004, we recorded $.8 million in
losses on early extinguishment of debt.
Note F - 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,
2003 2004
Current assets:
Cash and cash equivalents $5,986 $4,189
Accounts receivable, net 60,449 74,593
Inventories 120,945 127,935
Other current assets 13,726 13,301
Total current assets 201,106 220,018
Property, plant and equipment, net. 97,383 101,465
Goodwill and other assets, net 506,569 554,143
Total assets $805,058 $875,626
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $4,143 $4,037
Other current liabilities 50,712 58,958
Total current liabilities 54,855 62,995
Long-term debt 260,448 290,485
Other long-term liabilities 56,265 67,605
Total liabilities 371,568 421,085
Shareholders' equity:
Capital accounts 236,948 222,547
Retained earnings 194,473 227,938
Accumulated other comprehensive income 2,069 4,056
Total shareholders' equity 433,490 454,541
Total liabilities and shareholders' equity $ 805,058 $875,626
CONMED CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Twelve months ended
December 31,
2003 2004
Cash flows from operating activities:
Net income $32,082 $33,465
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 24,854 26,868
Deferred income taxes 13,715 13,023
Contributions to pension plans in excess of
net pension cost (11,082) --
Write-off of purchased in-process research
and development asset 7,900 16,400
Write-off of deferred financing costs 2,181 825
Other, net (11,640) (8,651)
Net cash provided by operating activities 58,010 81,930
Cash flow from investing activities:
Payments related to business acquisitions,
net of cash acquired (55,079) (81,645)
Purchases of property, plant, and equipment,
net (9,309) (12,419)
Other investing activities (4,085) --
Net cash used in investing activities (68,473) (94,064)
Cash flow from financing activities:
Redemption of 9% Senior Subordinated Notes (130,000) --
Payments on debt (22,796) (120,069)
Proceeds of debt 160,000 150,000
Net proceeds from common stock issued under
employee plans 3,200 14,319
Repurchase of common stock -- (29,989)
Other, net (1,950) (5,848)
Net cash provided by financing activities 8,454 8,413
Effect of exchange rate change on cash and cash
equivalents 2,369 1,924
Net increase (decrease) in cash and cash
equivalents 360 (1,797)
Cash and cash equivalents at beginning of period 5,626 5,986
Cash and cash equivalents at end of period $5,986 $4,189
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NET INCOME
BEFORE NONRECURRING ITEMS
(In thousands except per share amounts)
(unaudited)
Three months ended
December 31,
2003 2004
Reported net income $ 12,945 $ 7,435
Acquisition-related costs included
in cost of sales 514 4,429
Write-off of purchased in-process research and
development assets -- 2,700
Termination of product offering -- 2,396
Other acquisition-related costs 278 680
Total other expense 278 3,076
Loss on early extinguishment of debt -- 825
Nonrecurring expense before income taxes 792 11,030
Provision (benefit) for income taxes on
nonrecurring expense (285) (3,805)
Net income before nonrecurring items $ 13,452 $14,660
Per share data:
Reported net income
Basic $.45 $.25
Diluted .44 .25
Net income before nonrecurring items
Basic $.46 $.50
Diluted .46 .49
Management has provided the above reconciliation of net income before
nonrecurring 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 NONRECURRING ITEMS
(In thousands except per share amounts)
(unaudited)
Twelve months ended
December, 31,
2003 2004
Reported net income $ 32,082 $ 33,465
Acquisition-related costs included
in cost of sales 1,253 4,429
Write-off of purchased in-process research and
development assets 7,900 16,400
Gain on settlement of a contractual dispute,
net of legal costs (9,000) --
Pension settlement costs 2,839 --
Termination of product offering -- 2,396
Other acquisition-related costs 3,244 1,547
Total other (income) expense (2,917) 3,943
Acquisition-related interest expense -- 360
Loss on early extinguishment of debt 8,078 825
Nonrecurring expense before income taxes 14,314 25,957
Provision (benefit) for income taxes on
nonrecurring expense (2,309) (8,955)
Net income before nonrecurring items. $ 44,087 $ 50,467
Per share data:
Reported net income
Basic $1.11 $1.13
Diluted 1.10 1.11
Net income before nonrecurring items
Basic $1.52 $1.71
Diluted 1.51 1.68
Management has provided the above reconciliation of net income before
nonrecurring 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
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Related links:
http://www.conmed.com
CONTACT:
Robert Shallish, Chief Financial Officer of
CONMED Corporation, +1-315-624-3206; Investors: Julie Huang, or
Lanie Fladell, Media: Sean Leous, all of Financial Dynamics,
+1-212-850-5600, for CONMED Corporation
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