UTICA, N.Y., Feb. 9 /PRNewswire-FirstCall/ -- CONMED Corporation 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.
CONMED Corporation
CONTACT: Robert Shallish, Chief Financial Officer, CONMED Corporation,+1-315-624-3206; or Julie Huang or Theresa Kelleher, both of FinancialDynamics, +1-212-850-5600, for CONMED Corporation
Web site: http://www.conmed.com/
