UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 24, 2003
CONMED CORPORATION
(Exact name of registrant as specified in its charter)
New York 0-16093 16-0977505
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
525 French Road, Utica, New York 13502
(Address of principal executive offices) (Zip Code)
(315) 797-8375
(Registrant's telephone number, including area code)
Item 7. Financial Statements and Exhibits
(c) Exhibits
The following is furnished as an Exhibit to this report:
Exhibit No. Description of Exhibit
99.1 Press Release dated October 24, 2003, issued by
CONMED Corporation
Item 12. Results of Operations and Financial Condition
On October 24, 2003, CONMED Corporation issued a press release announcing third
quarter and first nine months of 2003 results. The press release is attached
hereto as Exhibit 99.1
Signature
Pursuant to the requirements 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.
CONMED CORPORATION
(Registrant)
By:/s/ Robert D. Shallish, Jr.
----------------------------
Vice President-Finance and
Chief Financial Officer
Date: October 28, 2003
EXHIBIT INDEX
Exhibit No. Exhibit Description
99.1 Press Release, dated October 24, 2003, issued by CONMED
Corporation
NEWS RELEASE
Contact:
CONMED Corporation
Robert Shallish
Chief Financial Officer
315-624-3206
Financial Dynamics
Investors: Lanie Fladell / Tiernan Cavanna
Media: Sean Leous
212-850-5600
FOR RELEASE: 7:00 AM (Eastern) October 24, 2003
CONMED Reports Third Quarter Earnings
-- Sales Increase 6.5% (4.7% at Constant Currency) to $120.7 Million --
-- Excluding Charges, Net Income Increases 13% to $10.4 Million,
or $0.36 per Diluted Share --
Utica, New York, October 24, 2003 ----- CONMED Corporation (Nasdaq: CNMD) today
announced financial results for the third quarter and nine months ended
September 30, 2003.
Total sales for the quarter increased 6.5% (4.7% at constant currency) to $120.7
million compared to $113.3 million in last year's third quarter. Excluding a
one-time $3.0 million sale of powered surgical instruments to a distributor in
the third quarter of last year, 2003 third quarter sales grew 9.4% year over
year.
Non-GAAP net income (excluding acquisition and other charges explained below)
grew 13% to $10.4 million, or $0.36 per diluted share, from non-GAAP net income
(excluding financing charge) of $9.2 million, or $0.32 per diluted share, in the
third quarter of last year. Non-GAAP net income and diluted earnings per share
for the 2003 third quarter excludes after-tax charges of $738,000, or $0.03 per
diluted share related to acquisitions and the settlement of certain pension
obligations. Non-GAAP net income and diluted earnings per share for the 2002
third quarter excludes an after tax charge of $944,000 related to debt
refinancing (please see below for full explanation). On a generally accepted
accounting principles (GAAP) basis, including these charges, CONMED reported net
income of $9.7 million and $8.2 million, or $0.33 and $.28 per diluted share in
the third quarters of 2003 and 2002, respectively.
The Company's Arthroscopy sales were $42.2 million, of which $4.0 million came
from Bionx Implants, Inc., which was acquired by CONMED on March 10, 2003,
compared to $38.6 million in the third quarter of last year. Organic sales for
arthroscopy were slightly softer than the prior year's third quarter, due to
modest declines in sales of video systems and fluid management products.
CONMED NEWS RELEASE CONTINUED: Page 2 of 9 October 24, 2003
Excluding the non-recurring $3.0 million powered surgical instrument sale to
DePuy (in conjunction with the Company's co-marketing agreement for the
PowerPro(R) line of products) in last year's third quarter, powered surgical
instruments sales grew 7% to $29.3 million from $27.5 million in the third
quarter of 2002. The PowerPro(R) large bone segment drove the growth with a 20%
improvement, while small bone and specialty products experienced a small
decline.
Electrosurgery reported strong sales growth of 21% to $20.6 million compared to
$17.0 million in the prior year's third quarter, due to increased demand for the
Company's new electrosurgical power generator. Patient Care sales were $17.1
million versus $18.1 million in the 2002 third quarter. Last year's third
quarter Patient Care sales were higher than average due to distributors'
purchases greater than their normalized pattern. For the nine months ended
September 2003, Patient Care sales were consistent with the first nine months of
2002.
Endoscopy sales grew 21% to $11.0 million compared to $9.1 million in the same
quarter a year ago. This increase is a result of the contributions from the Core
Dynamics acquisition, which was completed in the fourth quarter of 2002. The
Integrated Systems product line, which CONMED obtained through its acquisitions
of ValMed and Nortrex in the fourth quarter of 2002, contributed $0.5 million to
total revenue for the 2003 third quarter.
Commenting on the quarter, Mr. Joseph J. Corasanti, President and Chief
Operating Officer, said, "Absent the acquisition and pension settlement charges,
CONMED had all time record quarterly net income. Our performance this quarter
was led by the 21% sales growth of our electrosurgery group and the new System
5000 electrosurgical power generator. We also continued the strong growth of our
PowerPro(R) line of Powered Surgical Instruments with better than 20% sales
increases to end-user clinicians. While organic Arthroscopy revenues were flat
on a quarterly basis, we remain confident that our expanded sales force will
fuel a return to growth in Arthroscopy. On this note we are pleased to say that
since initiating our salesforce expansion in April 2003, our newer sales
representatives have made good progress with forging their physician
relationships and our dealer managers have communicated their confidence in the
potential of the new infrastructure. Additionally, from an expense standpoint,
the refinancing of the 9% senior subordinated bonds last quarter enabled us to
substantially reduce interest expense this quarter."
For the nine months ended September 30, 2003, CONMED reported sales of $363.3
million, up 7.5% from $337.8 million in the first nine months of last year.
Non-GAAP net income for the first three quarters of this year, excluding special
charges and credits, grew to $30.6 million, or $1.05 per diluted share, on a
6.3% increase in diluted shares outstanding, compared to Non-GAAP net income of
$27.2 million, or $0.99 per diluted share, for the nine months ended September
30, 2002 (please see below for full explanation of the special charges and
credits). On a GAAP basis, including these charges and credits, CONMED reported
net income of $19.1 million and $26.2 million, or $0.66 and $0.96 per diluted
share for the nine months ended September 30, 2003 and 2002, respectively.
CONMED NEWS RELEASE CONTINUED: Page 3 of 9 October 24, 2003
Mr. Corasanti concluded, "We are looking forward to the upcoming quarter, as the
fourth quarter typically is our strongest of the year. To this end, for the
fourth quarter, we expect to generate revenues in the range of $125 million to
$129 million, and diluted earnings per share in the range of $0.40 to $0.44,
excluding special charges, if any. For 2004, we expect that the top-line growth
rate mix of our various product lines will result in organic revenue increases
of approximately 6% over 2003 sales levels. At that level of sales growth, we
believe we will generate diluted earnings per share growth of approximately 15%
over 2003 levels through growth in revenues, expansion of margins and reduced
interest costs. (Please see paragraph below on reconciliation of forecasted
earnings per share)."
Explanation of Unusual Charges and Credits
During the third quarter of 2003, CONMED recorded pre-tax acquisition related
charges associated with the acquisition of Bionx and ValMed amounting to
$395,000 for various transitional activities. For the nine months ended
September 30, 2003 acquisition related charges for Bionx, Core Dynamics, ValMed
and Nortrex acquisitions amounted to $11.6 million, including $7.9 million for
the write-off of purchased in-process research and development related to the
Bionx acquisition.
In the second and third quarters of 2003, the Company's pension plan settled
pension obligations with certain terminated employees, primarily with regard to
the sales-force reorganization on April 1, 2003, by lump-sum payment of accrued
benefits. Because Department of Labor rules with respect to lump-sum payment
calculations are different than the pension plan's assumptions regarding
discount rates, a non-cash, pre-tax loss was recorded amounting to $758,000 in
the third quarter and $2.8 million for the nine months ended September 30, 2003.
As previously disclosed, on June 30, 2003, the Company refinanced all of its
outstanding 9% senior subordinated notes with the proceeds of a $160 million
expansion of the term loan component of its senior credit facility. For the nine
months ended September 30, 2003, the Company expensed a total of $8.1 million of
pre-tax costs associated with the refinancing consisting of the call premium on
the notes of $5.9 million and $2.2 million (non-cash) for the unamortized
deferred financing fees associated with original issue of the notes. The current
interest rate on the term loan expansion is equivalent to LIBOR plus 2.75%, for
an approximate total of 4.0%. In the third quarter of 2002, the Company incurred
a pre-tax charge of $1.5 million associated with refinancing its senior credit
agreement.
In the first quarter of 2003, the Company recorded a special credit to income
that affects the Company's results for the nine months ended September 30, 2003.
In March 2003, the Company received $9.5 million as a settlement of a dispute
related to the 1997 acquisition of its orthopedic subsidiary, Linvatec
Corporation. Accordingly, the Company recorded the settlement, less estimated
legal expenses of $0.5 million, as a pre-tax gain of $9.0 million in the first
quarter of 2003.
Reconciliation of Forecasted Earnings Per Share
The diluted earnings per share forecasted range of $0.40 to $0.44 for the fourth
quarter 2003 excludes any potential additional pension settlement charges and
acquisition related charges for the Bionx acquisition which, if they occur, are
not presently quantifiable.
CONMED NEWS RELEASE CONTINUED: Page 4 of 9 October 24, 2003
CONMED Profile
CONMED is a medical technology company specializing in instruments, implants,
and video equipment for arthroscopic sports medicine, and powered surgical
instruments, such as drills and saws, for orthopedic, ENT, neuro-surgery, and
other surgical specialties. The Company is also a leading developer,
manufacturer and supplier of RF electrosurgery systems used routinely to cut and
cauterize tissue in nearly all types of surgical procedures worldwide, endoscopy
products such as trocars, clip appliers, scissors, and surgical staplers. The
Company offers integrated operating room design and intensive care unit service
managers. The Company also manufactures and sells a full line of ECG electrodes
for heart monitoring and other patient care products. Headquartered in Utica,
New York, the Company's 2,600 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,
2002; (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 5 of 9 October 24, 2003
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2002 2003 2002 2003
---- ---- ---- ----
Net sales ........................................ $113,332 $120,747 $337,806 $363,321
Cost of sales .................................... 54,429 57,516 160,244 172,564
Cost of sales, nonrecurring - Note A ............. -- -- -- 739
-------- -------- -------- --------
Gross profit ..................................... 58,903 63,231 177,562 190,018
-------- -------- -------- --------
Selling and administrative ....................... 34,562 38,596 104,171 115,094
Research and development ......................... 4,253 4,487 12,155 12,568
Write-off of purchased in-process
research and development assets - Note B.......- -- -- 7,900
Other expense - Note C, D ........................ 1,475 1,153 1,475 4,883
-------- -------- -------- --------
40,290 44,236 117,801 140,445
-------- -------- -------- --------
Income from operations ........................... 18,613 18,995 59,761 49,573
Interest expense ................................. 5,765 3,829 18,748 15,228
-------- -------- -------- --------
Income before income taxes ....................... 12,848 15,166 41,013 34,345
Provision for income taxes ....................... 4,625 5,460 14,764 15,208
-------- -------- -------- --------
Net income ....................................... $ 8,223 $ 9,706 $ 26,249 $ 19,137
======== ======== ======== ========
Per share data:
Net Income
Basic ........................................ $ .29 $ .34 $ .98 $ .66
Diluted ...................................... .28 .33 .96 .66
Weighted average common shares
Basic ........................................ 28,613 28,941 26,870 28,909
Diluted ...................................... 29,043 29,391 27,470 29,190
Note A - Included in cost of sales in the nine months ended September 30, 2003
- ------
are $.7 million in acquisition-related costs.
Note B - During the nine months ended September 30, 2003, the Company 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.
CONMED NEWS RELEASE CONTINUED: Page 6 of 9 October 24, 2003
Note C - Included in other expense in the three months ended September 30, 2002
- ------
are $1.5 million in losses on the early extinguishment of debt. These costs were
classified as an extraordinary charge in 2002 but have been reclassified to
operating income as a result of the adoption of FASB Statement No. 145. Included
in other expense in the three months ended September 30, 2003 are $.4 million in
acquisition-related costs and $.8 million in pension settlement costs.
Note D - Included in other expense in the nine months ended September 30, 2002
- ------
are $1.5 million in losses on the early extinguishment of debt. These costs were
classified as an extraordinary charge in 2002 but have been reclassified to
operating income as a result of the adoption of FASB Statement No. 145. Included
in other expense in the nine months ended September 30, 2003 are a $9.0 million
gain on the settlement of a contractual dispute; $8.1 million in losses on the
early extinguishment of debt; $2.8 million in pension settlement costs; and $3.0
million in acquisition-related costs.
CONMED NEWS RELEASE CONTINUED: Page 7 of 9 October 24, 2003
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
ASSETS
(unaudited)
December 31, Sept. 30,
2002 2003
---- ----
Current assets:
Cash and cash equivalents ............................................. $ 5,626 $ 11,122
Accounts receivable, net .............................................. 58,093 61,206
Inventories ........................................................... 120,443 127,583
Other current assets .................................................. 9,504 9,259
--------- ---------
Total current assets .............................................. 193,666 209,170
Property, plant and equipment, net ........................................ 95,608 96,717
Goodwill and other assets, net ............................................ 452,866 495,599
--------- ---------
Total assets ...................................................... $ 742,140 $ 801,486
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..................................... $ 2,631 $ 4,067
Accrued interest ...................................................... 3,794 1,604
Other current liabilities ............................................. 51,549 51,443
--------- ---------
Total current liabilities ......................................... 57,974 57,114
Long-term debt ............................................................ 254,756 276,883
Other long-term liabilities ............................................... 42,471 54,856
--------- ---------
Total liabilities ................................................. 355,201 388,853
--------- ---------
Shareholders' equity:
Capital accounts ...................................................... 231,701 235,016
Retained earnings ..................................................... 162,391 181,528
Accumulated other comprehensive loss .................................. (7,153) (3,911)
--------- ---------
Total equity ...................................................... 386,939 412,633
--------- ---------
Total liabilities and shareholders' equity ....................... $ 742,140 $ 801,486
========= =========
OTHER FINANCIAL INFORMATION
(unaudited, in thousands)
Three months ended Nine months ended
------------------ -----------------
Sept. 30, Sept. 30,
--------- ---------
2002 2003 2002 2003
---- ---- ---- ----
Depreciation......................................... $ 2,327 $ 2,809 $ 6,731 $ 7,717
Amortization......................................... 3,033 3,655 8,842 10,166
Capital expenditures................................. 2,133 2,340 10,561 6,291
CONMED NEWS RELEASE CONTINUED: Page 8 of 9 October 24, 2003
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NET INCOME
BEFORE NONRECURRING ITEMS
(In thousands except per share amounts)
(unaudited)
Three months ended
Sept. 30,
---------
2002 2003
---- ----
Reported net income ........................................ $ 8,223 $ 9,706
-------- --------
Pension settlement costs ................................... -- 758
Other acquisition-related costs ............................ -- 395
Loss on early extinguishment of debt ....................... 1,475 --
-------- --------
Total other expense ................................ 1,475 1,153
Provision (benefit) for income taxes on nonrecurring expense (531) (415)
-------- --------
Net income before nonrecurring items ....................... $ 9,167 $ 10,444
======== ========
Per share data:
Reported net income
Basic ................................................ $ 0.29 $ 0.34
Diluted............................................... 0.28 0.33
Net income before nonrecurring items
Basic ................................................ $ 0.32 $ 0.36
Diluted............................................... 0.32 0.36
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 NEWS RELEASE CONTINUED: Page 9 of 9 October 24, 2003
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NET INCOME
BEFORE NONRECURRING ITEMS
(In thousands except per share amounts)
(unaudited)
Nine months ended
Sept. 30,
---------
2002 2003
---- ----
Reported net income ........................................ $ 26,249 $ 19,137
-------- --------
Acquisition-related costs included
in cost of sales ................................... -- 739
-------- --------
Write-off of purchased in-process research and
development assets ................................. -- 7,900
-------- --------
Gain on settlement of a contractual dispute,
net of legal costs ................................. -- (9,000)
Pension settlement costs ................................... -- 2,839
Other acquisition-related costs ............................ -- 2,966
Loss on early extinguishment of debt ....................... 1,475 8,078
-------- --------
Total other expense ................................ 1,475 4,883
-------- --------
Provision (benefit) for income taxes on nonrecurring expense (531) (2,024)
-------- --------
Net income before nonrecurring items ....................... $ 27,193 $ 30,635
======== ========
Per share data:
Reported net income
Basic ................................................ $ 0.98 $ 0.66
Diluted............................................... 0.96 0.66
Net income before nonrecurring items
Basic ................................................ $ 1.01 $ 1.06
Diluted............................................... 0.99 1.05
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.