EX-99.1 2 ex99-1.htm EXHIBIT 99.1 ex99-1.htm
 
 

 
 
NEWS RELEASE
   
 
CONTACT:
 
CONMED Corporation
 
Robert Shallish
 
Chief Financial Officer
 
315-624-3206
   
 
FD
 
Investors:  Brian Ritchie
 
212-850-5600


FOR RELEASE:   7:00 AM (Eastern)   July 28, 2011

CONMED Corporation Announces Second Quarter 2011 Financial Results
  - GAAP and Non-GAAP EPS Increases of 22% and 20%, Respectively, Achieved Over First Six Months of 2011 -
  - Conference Call to be Held at 10:00 a.m. ET Today -


Utica, New York, July 28, 2011 ----- CONMED Corporation (Nasdaq: CNMD) today announced financial results for the second quarter of 2011.

Sales for the second quarter ended June 30, 2011 were $183.2 million compared to $181.1 million in the same quarter of 2010.  GAAP diluted earnings per share were $0.30 compared to $0.25 in the second quarter of 2010.  Non-GAAP diluted earnings per share equaled $0.35 compared to $0.32 in the second quarter of 2010.  As discussed below under “Use of Non-GAAP Financial Measures,” the Company presents various non-GAAP financial measures in this release.  Investors should consider non-GAAP measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP.  Please refer to the attached reconciliation between GAAP and non-GAAP financial measures.

For the six months ended June 30, 2011, sales were $366.7 million compared to $357.5 million in the first six months of 2010.  GAAP diluted earnings per share were $0.61 for year-to-date June 2011 compared to $0.50 in the same period of 2010.  Non-GAAP diluted earnings per share were $0.72 for the 2011 six-month period compared to $0.60 in 2010.

“The Company’s overall second quarter performance was as we had expected, with sales and earnings within the previously forecasted ranges,” commented Mr. Joseph J. Corasanti, President and Chief Executive Officer.  “The sales results mirrored those of the first quarter of this year with strong single-use product growth, coupled with mixed capital product performance.  As we communicated last quarter, CONMED believes that the world’s economic conditions continue to affect capital purchasing patterns of hospitals.  Nonetheless, we remain optimistic about CONMED’s prospects for growth, especially beyond this year, with anticipated increased sales of core products as economic conditions improve.  Taken together with the expected benefit of newer products and the progress we have made with cost efficiencies, we expect to leverage our structure and to drive increased future earnings.”

International sales in the second quarter of 2011 were $93.4 million, representing 51.0% of total sales, and $184.7 million for the six-months ended June 30, 2011.  Favorable currency exchange rates in 2011 led to an increase in sales of $2.7 million compared to exchange rates in the second quarter of 2010, and $2.6 million for the six-month period of 2011.

Cash provided from operating activities once again outpaced net income in the second quarter of 2011 and amounted to $19.5 million, or 10.7% of sales.  The cash was used to repay debt and increase the Company’s cash balance.  For the first six-months of 2011, cash from operating activities amounted to $40.2 million, or 11.0% of sales.

 
 

 
CONMED News Release Continued
Page 2 of 11
July 28, 2011


 
Gross profit margins declined 1.8 percentage points in the second quarter of 2011 compared to the second quarter of 2010 primarily due to unfavorable manufacturing production variances related to absorbing fixed costs into inventory that arose in the fourth quarter of 2010 when manufacturing production was conducted at lower levels in order to reduce inventory.  In periods where the Company reduces inventory levels to manage inventory carrying costs, the inventory produced is carried at a higher unit cost due to absorbing those fixed costs over lower production levels.  As a result, when that inventory is sold in subsequent periods, as was the case in the second quarter of 2011, the gross profit margin on those sales is lower.   Production levels have returned to normal during 2011 and the Company expects that gross profit margin percentages will return to historically higher values for the remainder of the year.

Outlook

Mr. Corasanti added, “Due to normal seasonal variations, we expect that sales in the third quarter will be slightly less sequentially than those of this just completed second quarter and should range between $178 and $183 million, with non-GAAP diluted earnings per share of $0.29 - $0.33.  For the full-year of 2011, we are reiterating our previously communicated non-GAAP diluted earnings per share guidance of $1.40 - $1.50.  However, with the unfavorable operating conditions impacting capital equipment sales in the first half of the year, we now anticipate full-year 2011 sales to approximate $735 - $740 million.”

The sales and earnings forecasts have been developed using July 2011 currency exchange rates and take into account the currency hedges entered into by the Company.  We estimate that 70% of the currency exposure is hedged for the remainder of 2011 and approximately 50% of the exposure for 2012.

The non-GAAP estimates for the year and the third quarter exclude the additional non-cash interest expense required by Financial Accounting Standards Board (“FASB”) guidance, and all of the manufacturing and administrative restructuring costs expected to be incurred in 2011.

Restructuring costs

During the first half of 2011, the Company continued the consolidation of certain administrative functions and continued the transfer of additional product lines to its Mexican manufacturing facility.  Expenses associated with these activities, including severance and relocation costs, amounted to $1.1 million in the second quarter of 2011 and $2.5 million for the six months ended June 30, 2011.  These charges are included in the GAAP earnings per share set forth above and are excluded from the non-GAAP results.  CONMED expects restructuring charges in 2011 to approximate $4.0 - $5.0 million; these costs are excluded from non-GAAP earnings estimates.

Convertible note interest expense

As previously disclosed, and in accordance with guidance issued by the FASB, the Company is now required to record non-cash interest expense related to its convertible notes to bring the effective interest rate to a level approximating that of a non-convertible note of similar size and tenor.  In the second quarters of 2011 and 2010, CONMED recorded additional non-cash pre-tax interest charges of $1.1 million in each quarter.  For the first six-months of 2011 and 2010, such charges amounted to $2.2 million and $2.1 million, respectively.  These charges are included in the GAAP earnings per share set forth above, and excluded from the non-GAAP amounts.

Use of Non-GAAP Financial Measures

Management has disclosed financial measurements in this press announcement that present financial information that is not in accordance with Generally Accepted Accounting Principles (“GAAP”).  These measurements are not a substitute for GAAP measurements, although Company management uses these measurements as aids in monitoring the Company’s on-going financial performance from quarter-to-quarter and year-to-year on a regular basis, and for benchmarking against other medical technology companies.  Non-GAAP net income and non-GAAP earnings per share measure the income of the Company excluding unusual credits or charges that are considered by management to be outside of the normal on-going operations of the Company.  Management uses and presents non-GAAP net income and non-GAAP earnings per share because management believes that in order to properly understand the Company’s short and long-term financial trends, the impact of unusual items should be eliminated from on-going operating activities.  These adjustments for unusual items are derived from facts and circumstances that vary in frequency and impact on the Company’s results of operations.  Management uses non-GAAP net income and non-GAAP earnings per share to forecast and evaluate the operational performance of the Company as well as to compare results of current periods to prior periods on a consistent basis.  Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.  Investors should consider non-GAAP measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP.

 
 

 
CONMED News Release Continued
Page 3 of 11
July 28, 2011


 
Conference call

The Company will webcast its second quarter 2011 conference call live over the Internet at 10:00 a.m. Eastern Time on Thursday, July 28, 2011.   This webcast can be accessed from CONMED’s web site at www.conmed.com.  Replays of the call will be made available through August 5, 2011.


CONMED Profile

CONMED is a medical technology company with an emphasis on surgical devices and equipment for minimally invasive procedures and patient 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 3,400 employees distribute its products worldwide from several 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, 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, 2010; (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 new acquisition 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 News Release Continued
Page 4 of 11
July 28, 2011




CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 (in thousands except per share amounts)
(unaudited)

 
 
Three months ended
   
Six months ended
 
 
 
June 30,
   
June 30,
 
 
 
2010
   
2011
   
2010
   
2011
 
                         
Net sales
  $ 181,086     $ 183,236     $ 357,451     $ 366,686  
                                 
Cost of sales
    86,411       90,795       170,414       177,775  
Cost of sales, other – Note A
    992       986       1,559       1,740  
                                 
Gross profit
    93,683       91,455       185,478       187,171  
                                 
Selling and administrative
    71,494       67,862       142,046       137,940  
Research and development
    6,441       6,797       14,123       14,478  
Other expense– Note B
    970       98       970       792  
 
    78,905       74,757       157,139       153,210  
                                 
Income from operations
    14,778       16,698       28,339       33,961  
                                 
Loss on early extinguishment
                               
          of debt
    79       -       79       -  
                                 
Amortization of debt discount
    1,056       1,113       2,108       2,207  
                                 
Interest expense
    1,771       1,707       3,520       3,512  
 
                               
Income before income taxes
    11,872       13,878       22,632       28,242  
                                 
Provision for income taxes
    4,566       5,198       8,007       10,567  
                                 
Net income
  $ 7,306     $ 8,680     $ 14,625     $ 17,675  
                                 
Per share data:
                               
                                 
  Net Income
                               
     Basic
  $ .25     $ .31     $ .50     $ .62  
     Diluted
    .25       .30       .50       .61  
                                 
  Weighted average common shares
                               
     Basic
    29,100       28,448       29,125       28,356  
     Diluted
    29,295       28,883       29,342       28,820  

Note A –Included in cost of sales, other in the three and six months ended June 30, 2010 are $1.0 million and $1.6 million, respectively, related to the moving of additional product lines to the manufacturing facility in Chihuahua, Mexico.  Included in cost of sales, other in the three and six months ended June 30, 2011 are $1.0 million and $1.7 million, respectively, related to the moving of additional product lines to the manufacturing facility in Chihuahua, Mexico.

Note B –Included in other expense in the three and six months ended June 30, 2010 is $1.0 million related to the consolidation of various administrative functions in our CONMED Linvatec division. For the three and six months ending June 30, 2011, we incurred $0.1 million and $0.8 million, respectively, related to consolidating certain administrative functions at our Utica, New York facility.

 
 

 
CONMED News Release Continued
Page 5 of 11
July 28, 2011



CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS

   
December 31,
   
June 30,
 
   
2010
   
2011
 
Current assets:
           
Cash and cash equivalents
  $ 12,417     $ 24,331  
Accounts receivable, net
    145,350       152,695  
Inventories
    172,796       169,254  
Deferred income taxes
    8,476       8,824  
Other current assets
    11,153       13,078  
Total current assets
    350,192       368,182  
                 
Property, plant and equipment, net
    140,895       140,792  
Deferred income taxes
    2,009       2,354  
Goodwill
    295,068       294,874  
Other intangible assets, net
    190,091       186,868  
Other assets
    7,518       7,095  
Total assets
  $ 985,773     $ 1,000,165  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
                 
Current liabilities:
               
Current portion of long-term debt
  $ 110,433     $ 144,065  
Other current liabilities
    69,433       66,282  
Total current liabilities
    179,866       210,347  
                 
Long-term debt
    85,182       30,644  
Deferred income taxes
    106,046       114,671  
Other long-term liabilities
    28,116       27,794  
Total liabilities
    399,210       383,456  
                 
Shareholders' equity:
               
Capital accounts
    248,404       256,054  
Retained earnings
    354,020       371,365  
Accumulated other comprehensive loss
    (15,861 )     (10,710 )
Total shareholders’ equity
    586,563       616,709  
                 
Total liabilities and shareholders' equity
  $ 985,773     $ 1,000,165  



 
 

 
CONMED News Release Continued
Page 6 of 11
July 28, 2011



CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

   
Six months ended
June 30,
 
   
2010
   
2011
 
Cash flows from operating activities:
           
Net income
  $ 14,625     $ 17,675  
Adjustments to reconcile net income
               
to net cash provided by operating activities:
               
 Depreciation and amortization
    20,581       21,047  
 Stock-based compensation expense
    2,082       2,232  
 Deferred income taxes
    7,239       8,981  
 Loss on early extinguishment of debt
    79       -  
 Sale of accounts receivable to (collections for) purchaser
    (29,000 )     -  
 Increase (decrease) in cash flows from changes in assets and liabilities:
               
Accounts receivable
    8,718       (4,541 )
Inventories
    (16,167 )     78  
Accounts payable
    6,100       2,309  
Income taxes payable
    (125 )     143  
Accrued compensation and benefits
    90       (5,684 )
Other assets
    (2,884 )     (2,226 )
Other liabilities
    (5,815 )     209  
Net cash provided by operating activities
    5,523       40,223  
                 
Cash flows from investing activities:
               
Purchases of property, plant, and equipment
    (7,163 )     (8,576 )
Payments related to business acquisitions
    (5,157 )     (72 )
Net cash used in investing activities
    (12,320 )     (8,648 )
                 
Cash flows from financing activities:
               
Payments on debt
    (14,012 )     (23,113 )
Proceeds from secured borrowings, net
    31,000       -  
Net proceeds from common stock issued under employee plans
    789       5,495  
Repurchase of treasury stock
    (9,471 )     -  
Other, net
    (2,068 )     (3,148 )
Net cash provided by (used in) financing activities
    6,238       (20,766 )
                 
Effect of exchange rate change
               
on cash and cash equivalents
    (1,049 )     1,105  
                 
Net increase (decrease) in cash and cash equivalents
    (1,608 )     11,914  
                 
Cash and cash equivalents at beginning of period
    10,098       12,417  
                 
Cash and cash equivalents at end of period
  $ 8,490     $ 24,331  


 
 

 
CONMED News Release Continued
Page 7 of 11
July 28, 2011



CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NON-GAAP NET INCOME
BEFORE UNUSUAL ITEMS AND AMORTIZATION OF DEBT DISCOUNT
Three Months Ended June 30, 2010 and 2011
(In thousands except per share amounts)
(unaudited)

   
2010
   
2011
 
             
Reported net income
  $ 7,306     $ 8,680  
                 
New plant / facility consolidation costs included in cost of sales
    992       986  
                 
Administrative consolidation costs included in other expense
    970       98  
                 
Loss on early extinguishment of debt
    79       -  
                 
Amortization of debt discount
    1,056       1,113  
                 
Unusual expense before income taxes
    3,097       2,197  
                 
Provision (benefit) for income taxes on unusual expenses
    (1,125 )     (801 )
                 
Net income before unusual items and amortization of debt discount
  $ 9,278     $ 10,076  
                 
                 
Per share data:
               
                 
Reported net income
               
    Basic
  $ 0.25     $ 0.31  
    Diluted
    0.25       0.30  
                 
Net income before unusual items and amortization of debt discount
               
    Basic
  $ 0.32     $ 0.35  
    Diluted
    0.32       0.35  


Management has provided the above reconciliation of net income before unusual items and amortization of debt discount 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 as discussed in the section “Use of Non-GAAP Financial Measures” above.  We have included the amortization of debt discount in our analysis in order to facilitate comparison with the non-GAAP earnings guidance provided in the “Outlook” section of this and previous releases which exclude such expense.







 
 

 
CONMED News Release Continued
Page 8 of 11
July 28, 2011




CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NON-GAAP NET INCOME
BEFORE UNUSUAL ITEMS AND AMORTIZATION OF DEBT DISCOUNT
Six Months Ended June 30, 2010 and 2011
(In thousands except per share amounts)
(unaudited)

   
2010
   
2011
 
             
Reported net income
  $ 14,625     $ 17,675  
                 
New plant / facility consolidation costs included in cost of sales
    1,559       1,740  
                 
Administrative consolidation costs included in other expense
    970       792  
                 
Loss on early extinguishment of debt
    79       -  
                 
Amortization of debt discount
    2,108       2,207  
                 
Unusual expense before income taxes
    4,716       4,739  
                 
Provision (benefit) for income taxes on unusual expenses
    (1,718 )     (1,727 )
                 
Net income before unusual items and amortization of debt discount
  $ 17,623     $ 20,687  
                 
                 
Per share data:
               
                 
Reported net income
               
Basic
  $ 0.50     $ 0.62  
Diluted
    0.50       0.61  
                 
Net income before unusual items and amortization of debt discount
               
Basic
  $ 0.61     $ 0.73  
Diluted
    0.60       0.72  
                 

Management has provided the above reconciliation of net income before unusual items and amortization of debt discount 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 as discussed in the section “Use of Non-GAAP Financial Measures” above.  We have included the amortization of debt discount in our analysis in order to facilitate comparison with the non-GAAP earnings guidance provided in the “Outlook” section of this and previous releases which exclude such expense.





 
 

 
CONMED News Release Continued
Page 9 of 11
July 28, 2011


CONMED CORPORATION
IMPACT TO STATEMENT OF CASH FLOWS RELATED TO ACCOUNTING
CHANGE APPLIED PROSPECTIVELY
Six Months Ended June 30, 2010 and 2011
(In thousands)
(unaudited)

   
2010
   
2011
 
             
Reported cash flows from operating activities
  $ 5,523     $ 40,223  
                 
Sale of accounts receivable to (collections for) purchaser
               
    accounting change and termination of facility
    29,000       -  
                 
Adjusted cash flows from operating activities
  $ 34,523     $ 40,223  
                 
                 
Reported cash flows provided by (used in) financing activities
  $ 6,238     $ (20,766 )
                 
Proceeds of secured borrowings, net
    (31,000 )     -  
                 
Adjusted cash flows provided by (used in) financing activities
  $ (24,762 )   $ (20,766 )



CONMED CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
 (In thousands)
(unaudited)

   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2010
   
2011
   
2010
   
2011
 
                         
                         
Reported income from operations
  $ 14,778     $ 16,698     $ 28,339     $ 33,961  
                                 
New plant/facility consolidation
                               
  costs included in cost of sales
    992       986       1,559       1,740  
                                 
Administrative consolidation
                               
  costs included in other expense
    970       98       970       792  
                                 
Adjusted income from operations
  $ 16,740     $ 17,782     $ 30,868     $ 36,493  
                                 
Operating Margin
                               
   Reported (GAAP)
    8.2 %     9.1 %     7.9 %     9.3 %
                                 
   Adjusted (Non-GAAP)
    9.2 %     9.7 %     8.6 %     10.0 %

Management has provided the above reconciliations as additional measures that investors can use to compare financial results between reporting periods.  Management believes these reconciliations provide a useful presentation of financial measures as discussed in the section “Use of Non-GAAP Financial Measures” above.

 
 

 
CONMED News Release Continued
Page 10 of 11
July 28, 2011


CONMED CORPORATION
Second Quarter Sales Summary
 
   
Three Months Ended June 30,
 
                         
                     
Constant
 
                     
Currency
 
   
2010
   
2011
   
Growth
   
Growth
 
   
(in millions)
             
Arthroscopy
                       
Single-use
  $ 54.4     $ 57.0       4.8 %     2.6 %
Capital
    20.5       13.6       -33.7 %     -34.3 %
      74.9       70.6       -5.7 %     -7.5 %
                                 
Powered Surgical Instruments
                               
Single-use
    19.1       19.8       3.7 %     1.1 %
Capital
    16.6       18.5       11.4 %     9.1 %
      35.7       38.3       7.3 %     4.8 %
                                 
Electrosurgery
                               
Single-use
    18.2       18.1       -0.5 %     -1.1 %
Capital
    5.8       8.0       37.9 %     36.2 %
      24.0       26.1       8.8 %     7.9 %
                                 
Endoscopic Technologies
                               
Single-use
    11.9       12.5       5.0 %     3.4 %
Endosurgery
                               
Single-use and reposable
    17.1       19.1       11.7 %     10.6 %
Patient Care
                               
Single-use
    17.5       16.6       -5.1 %     -4.6 %
                                 
Total
                               
Single-use and reposable
    138.2       143.1       3.5 %     2.0 %
Capital
    42.9       40.1       -6.5 %     -8.0 %
    $ 181.1     $ 183.2       1.2 %     -0.3 %

 
 

 
CONMED News Release Continued
Page 11 of 11
July 28, 2011




CONMED CORPORATION
Six-Month Sales Summary
 
 
   
Six Months Ended June 30,
 
                         
                     
Constant
 
                     
Currency
 
   
2010
   
2011
   
Growth
   
Growth
 
   
(in millions)
             
Arthroscopy
                       
Single-use
  $ 109.3     $ 115.1       5.3 %     4.2 %
Capital
    37.8       30.9       -18.3 %     -18.4 %
      147.1       146.0       -0.7 %     -1.6 %
                                 
Powered Surgical Instruments
                               
Single-use
    39.3       40.2       2.3 %     1.0 %
Capital
    31.4       36.2       15.3 %     14.1 %
      70.7       76.4       8.1 %     6.9 %
                                 
Electrosurgery
                               
Single-use
    35.3       34.8       -1.4 %     -1.7 %
Capital
    11.8       14.9       26.3 %     24.6 %
      47.1       49.7       5.5 %     4.9 %
                                 
Endoscopic Technologies
                               
Single-use
    23.7       24.4       3.0 %     1.7 %
Endosurgery
                               
Single-use and reposable
    34.2       37.0       8.2 %     7.9 %
Patient Care
                               
Single-use
    34.7       33.2       -4.3 %     -3.8 %
                                 
Total
                               
Single-use and reposable
    276.5       284.7       3.0 %     2.3 %
Capital
    81.0       82.0       1.2 %     0.5 %
    $ 357.5     $ 366.7       2.6 %     1.9 %