August
18, 2008
Mr. Gary
Todd
Reviewing
Accountant
United
States Securities and Exchange Commission
Division
of Corporate Finance
Mail Stop
6010
Washington,
D.C. 20549-0306
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RE:
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CONMED
Corporation
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Form
10-K for the fiscal year ended December 31, 2007
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Filed
February 26, 2008
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File
No. 000-16093
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Dear Mr.
Todd:
We are in
receipt of your letter dated July 18, 2008 regarding your review and comments on
CONMED Corporation’s filings. Following each of the SEC’s comments is
our response.
Form 10-K for the fiscal
year ended December 31, 2007
Management’s Discussion and
Analysis of Financial Condition and Results of Operations,
Page 34
Critical Accounting
Policies, page 36
Comment
1.
We see
that you report a significant intangible asset for customer lists that is being
amortized over a weighted average life of 36 years. We also see the broad policy
statements about how you periodically evaluate the useful life and fair value of
amortizing intangibles. However, in light of the unusually long life assigned to
the customer relationships asset, in future filings please make disclosure that
specifically addresses your policies and procedures for evaluating the useful
life and fair value of the customer list asset. Also address how
assumptions about customer activity and attrition have compared to that expected
when the components of the asset were recorded and address the factors specific
to this asset that might lead to impairment.
Mr. Gary
Todd
United
States Securities and Exchange Commission
August
18, 2008
Page 2 of
5
Response:
In future
filings, we will expand our disclosure to specifically address: (i) our policies
and procedures for evaluating the useful life and fair value of the customer
relationship asset, (ii) how assumptions about customer activity and attrition
have compared to that expected when the components of the asset were recorded
and (iii) the factors specific to this asset that might lead to
impairment. Please see Exhibit A for a revised disclosure in which we
discuss our practice of evaluating the useful life and remaining period of
amortization of our customer relationship assets by analyzing actual customer
attrition (1.8% in 2007) and comparing it to the 2.6% attrition rate expected
when the customer relationship asset was recorded. We also make
disclosure in Exhibit A of factors specific to this asset that might lead to
impairment such as a significant increase in the annual customer attrition rate
or otherwise significant loss of customers, significant decreases in sales or
current-period operating or cash flow losses or a projection or forecast of
losses associated with our Linvatec business.
Form 8-K Dated April 24,
2008
Comment
2.
We see
that you present non-GAAP measures in the header to the earnings release without
equal or greater presentation of the comparative measures determined according
to GAAP. In future earnings releases please provide the comparative measures
determined according to GAAP with equal or greater prominence or delete the
non-GAAP measures from the header to the release.
Response:
In future
earnings releases, we will either eliminate non-GAAP measures from press release
headers or provide equal or greater prominence to measures determined according
to GAAP. Our second quarter 2008 earnings release, which was filed on
Form 8-K on July 24, 2008 and is attached as Exhibit B, reflects consideration
of this comment.
Comment
3.
As a
related matter, we refer to the disclosures of non-GAAP operating margin and
non-GAAP EBITDA margin under the caption “Year over Year Quarterly Highlights.”
Tell us how your presentation of disclosures about these measures are complete
under 10(e)(i) of Regulation S-K.
Response:
Our
disclosures relative to non-GAAP operating margin and non-GAAP EBITDA margin
under caption “Year over Year Quarterly Highlights” did not include a complete
reconciliation to the comparable GAAP operating measures. In future
earnings releases, we will either not include such non-GAAP operating measures
or ensure that any such disclosures comply with Item 10(e)(i) of Regulation
S-K.
Mr. Gary
Todd
United
States Securities and Exchange Commission
August
18, 2008
Page 3 of
5
Our
second quarter 2008 earnings release, which was filed with a Form 8-K dated July
24, 2008 and is attached as Exhibit B to this response, includes appropriate
disclosure relative to this comment.
Comment
4.
Please
provide us the calculations of non-GAAP EBITDA margin and non-GAAP operating
margin. It appears that these measures may eliminate recurring items.
Accordingly, please also tell us how your presentations consider the guidance
from Question 8 to the Frequently Asked Questions Regarding the Use of Non-GAAP
Financial Measures.
Response:
We strive
to provide useful financial information to users. The calculations of non-GAAP
EBITDA margin and non-GAAP operating margin are attached as Exhibit
C. We have provided the following considerations on Question 8 to the
Frequently Asked Questions Regarding the Use of Non-GAAP Financial
Measures:
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1.
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We
believed it important for investors to understand, as management did, that
the comparison to the prior year’s quarterly performance should recognize
that $6.1 million of the prior year’s $23.2 million in pre-tax income from
operations was from a one-time litigation gain. On the one
hand, we recognize that excluding the one-time litigation gain from the
prior year’s results to arrive at a non-GAAP measurement has the impact of
increasing growth rates in the current quarter, but, on the other hand, we
also reported prior year’s earnings both with GAAP and non-GAAP
figures to highlight for investors the gain associated with the litigation
was an unusual event that should not be expected as part of the on-going
operation of the business.
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2.
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It
is our belief that users of our financial statements and investors who
follow our earnings releases prefer to understand and analyze our
performance both with and without the impact of certain unusual financial
matters.
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3.
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In
relation to whether any matters that we have identified as unusual for
purposes of non-GAAP financial measures are recurring in nature, we
believe that the users of our financial statements and investors who
follow our earnings releases are focused on understanding on-going
operating performance and potential of our business and are less concerned
with unusual adjustments. For example, a
manufacturing restructuring plan might involve a definite plant
consolidation schedule which could occur over a period greater than a year
or two. While expense such as severance and lease termination
costs associated with multiple plant consolidations could occur over an
extended period of time, it is our belief that the users of our financial
statements would expect that our financial results be reported both with
and without these unusual
expenses.
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Mr. Gary
Todd
United
States Securities and Exchange Commission
August
18, 2008
Page 4 of
5
Comment
5.
In the
paragraph beginning “CONMED has started 2008 with an exceptional first quarter…”
there is discussion of a non-GAAP measure without equal or greater prominent
discussion of the comparable GAAP measure. Please revise the
narratives in future earnings releases to comply with item 10(e)(i)(A) of
Regulation S-K.
Response:
To the
extent that a non-GAAP measure is included in a future earnings narrative, we
will also include a presentation with equal or greater prominence, of the most
directly comparable financial measure or measures calculated and presented in
accordance with GAAP. Our second quarter 2008 earnings release, which
was filed with a Form 8-K dated July 24, 2008 and is attached as
Exhibit B, includes appropriate disclosure relative to this
comment.
Comment
6.
We refer
to the reconciliation of reported net income before unusual items. In future
earnings releases please expand the paragraph at the bottom of the disclosure to
state why management believes the non-GAAP measures provide a “useful
presentation of operating performance.” Refer to Item 10(e)(i)(C) of Regulation
S-K.
Response:
In future
earnings releases, we will expand the paragraph at the bottom of the disclosure
to state why management believes that presentation of non-GAAP financial
measures provides useful information to investors regarding our operating
performance. Our second quarter 2008 earnings release, which
was filed with a Form 8-K dated July 24, 2008 and is attached as
Exhibit B, includes revised disclosure which addresses this comment
on page 4 under the subheading "Use of Non-GAAP Financial
Measures".
In
connection with this response, CONMED Corporation acknowledges
that:
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the
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
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·
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staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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·
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the
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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Thank you
for your consideration. Please feel free to contact me at (315)
624-3202 (email luke_pomilio@mail.conmed.com) or Robert D. Shallish, Jr. at
(315) 624-3206
Mr. Gary
Todd
United
States Securities and Exchange Commission
August
18, 2008
Page 5 of
5
(email
robert_shallish@mail.conmed.com) should you have any questions or comments
relative to this response or any other matters.
Best
regards,
/s/ Luke A.
Pomilio
Luke A.
Pomilio
Vice
President, Corporate Controller
Enclosures:
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Exhibit
A
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Proposed
Form 10-K Disclosure for Customer
Relationships
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Exhibit
B
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Form
8-K dated July 24, 2008
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Exhibit
C
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Non-GAAP
EBITDA margin and non-GAAP operating Margin
Calculations
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cc:
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Brian
Cascio
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Praveen
Kartholy
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(Division
of Corporation Finance)
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Exhibit
A –
Form
10-K for the fiscal year ended December 31, 2007
Management’s
Discussion and Analysis of Financial condition and Results of Operations, page
34
Critical
Accounting Policies, page 36, Revised
Business
Acquisitions
We have a
history of growth through acquisitions. Assets and liabilities of
acquired businesses are recorded under the purchase method of accounting at
their estimated fair values as of the date of acquisition. Goodwill
represents costs in excess of fair values assigned to the underlying net assets
of acquired businesses. Other intangible assets primarily represent
allocations of purchase price to identifiable intangible assets of acquired
businesses. We have accumulated goodwill of $289.5 million and other
intangible assets of $191.8 million at December 31, 2007.
In
accordance with Statement of Financial Accounting Standards No. 142, “Goodwill
and Other Intangible Assets,” (“SFAS 142”), goodwill and intangible assets
deemed to have indefinite lives are not amortized, but are subject to at least
annual impairment testing. It is our policy to perform our annual
impairment testing in the fourth quarter. The identification and
measurement of goodwill impairment involves the estimation of the fair value of
our businesses. Estimates of fair value are based on the best
information available as of the date of the assessment, which primarily
incorporate management assumptions about expected future cash flows and
contemplate other valuation techniques. Future cash flows may be
affected by changes in industry or market conditions or the rate and extent to
which anticipated synergies or cost savings are realized with newly acquired
entities.
Intangible
assets with a finite life are amortized over the estimated useful life of the
asset. SFAS 142 requires that intangible assets which continue to be
subject to amortization be evaluated each reporting period to determine whether
events and circumstances warrant a revision to the remaining period of
amortization. SFAS 142 also requires that intangible assets subject
to amortization be reviewed for impairment in accordance with Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” (“SFAS 144”). SFAS 144 requires that
intangible assets subject to amortization be tested for recoverability whenever
events or changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of an intangible asset subject to
amortization is not recoverable if it exceeds the sum of the undiscounted cash
flows expected to result from the use of the asset. An impairment
loss is recognized by reducing the carrying amount of the intangible asset to
its current fair value.
Customer
relationship assets arose principally as a result of the 1997 acquisition of
Linvatec Corporation and in aggregate are amortized over a weighted average life
of 36 years. These assets represented the fair value of existing
customer relationships based on the after-tax income expected to be derived
during their estimated remaining useful life. The useful lives of
these customer relationships were not and are not limited by contract or any
economic, regulatory or other known factors. The estimated useful
life of the Linvatec customer relationship assets was determined as of the date
of the acquisition as a result of a study of the observed pattern of historical
revenue attrition during the 5 years immediately preceding the acquisition of
Linvatec Corporation. This observed attrition pattern was then
applied to the existing customer relationships to derive the future expected
retirement of the customer relationships. This analysis, which was
performed with the assistance of an independent valuation firm, indicated an
annual attrition rate of 2.6%. Assuming an exponential attrition
pattern, this equated to an average remaining useful life of approximately 36
years for the Linvatec customer relationship assets.
SFAS
142 requires that we evaluate the remaining useful life of our customer
relationship intangible assets each reporting period in order to determine
whether events and circumstances warrant a revision to the remaining period of
amortization. In order to evaluate the remaining useful life of our
customer relationship intangible assets, we perform an annual analysis, with the
assistance of an independent valuation firm, of actual customer
attrition. Based upon our analysis, actual average annual customer
attrition for the period 1998 to 2007 was approximately 1.8%. Since
the actual average annual attrition rate observed in our analysis is less than
that anticipated in the original customer relationship valuation, we believe the
use of a 36 year life for the Linvatec customer relationship assets remains
reasonable. In the event that our analysis of actual attrition rates
indicated a level of attrition that was in excess of the 2.6% originally
contemplated in the 36 year useful life, we would change the estimated useful
life of the customer relationship asset with the remaining carrying amount
amortized prospectively over the revised remaining useful life.
SFAS
144 requires that we test our customer relationship assets for recoverability
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Factors specific to our customer relationship
assets which might lead to an impairment charge include a significant increase
in the annual customer attrition rate or otherwise significant loss of
customers, significant decreases in sales or current-period operating or cash
flow losses or a projection or forecast of losses associated with the Linvatec
business. We do not believe that there have been events or changes in
circumstances which would indicate the carrying amount of our customer
relationship assets might not be recoverable.
During
the fourth quarter of 2006, after completing our annual goodwill impairment
analysis, we determined that the goodwill of our CONMED Endoscopic Technologies
business was impaired and consequently we recorded a goodwill impairment charge
of $46.7 million.
See Note
4 to the Consolidated Financial Statements for further discussion of goodwill
and other intangible assets.
Exhibit
B
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NEWS
RELEASE
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CONTACT:
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CONMED
Corporation
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Robert
Shallish
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Chief
Financial Officer
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315-624-3206
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FD
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Investors: Brian
Ritchie/Theresa Kelleher
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212-850-5600
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FOR
RELEASE: 7:00 AM (Eastern) July 24,
2008
CONMED
Corporation Announces Second Quarter 2008 Financial Results
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EPS Equals
$0.43 - Exceeds Expectations
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Record
Quarterly Sales of $192.8 Million – 13.9%
Growth
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Increasing
2008 Sales and EPS Guidance
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Conference
Call to be Held at 10:00 a.m. ET
Today
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Utica, New York, July 24, 2008 -----
CONMED Corporation (Nasdaq: CNMD) today announced that it had better than expected
second quarter 2008 sales growth of 13.9% over the second quarter of
2007. These sales drove a 34% expansion of earnings per share when
compared to GAAP EPS in the second quarter 2007 and 23% when compared to
non-GAAP adjusted EPS. 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 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.
“CONMED’s
focus on execution of our plan to expand our profitability at a rate
faster than the top-line growth was the driving force behind our successful
second quarter. The sales growth this quarter was a result of
stronger worldwide sales across our product portfolio with particular strength
internationally. Given the strong financial performance for the first
half of 2008 and our confidence in the remainder of the year, we have increased
our guidance for the full year 2008,” commented Mr. Joseph J. Corasanti,
President and Chief Executive Officer.
Year-Over-Year Quarterly
Highlights
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GAAP
EPS grew to $0.43
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o
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34%
increase vs. 2Q 2007 GAAP EPS of
$0.32
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23%
increase vs. 2Q 2007 non-GAAP EPS of
$0.35
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·
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Quarterly
Sales Increase to $192.8 million – a new quarterly
record
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o
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13.9%
increase vs. 2Q 2007 reported
revenues
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o
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10.9%
increase in constant currency
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CONMED
News Release Continued
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Page 2
of 10
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July
24, 2008
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Year-Over-Year Six Months’
Highlights
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GAAP
EPS grew 9% to $0.81 compared to $0.74 (2007 first half includes a
non-recurring litigation gain)
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Non-GAAP
EPS grew 28% to $0.83 compared to
$0.65
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Six-month
sales increase to $383.5 million
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o
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12.7%
increase vs. 1st
Half 2007 reported revenues
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o
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9.4%
increase in constant currency
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Sales
within the United States for the quarter ended June 2008 increased to $104.3
million, a growth of 5.5% compared to the same quarter in 2007. Sales
outside the United States were $88.5 million in the second quarter of 2008,
growing 25.7% overall and 18.4% on a constant currency basis compared to the
second quarter of 2007. International sales in the June 2008 quarter
were 45.9% of the Company’s total sales compared to 41.6% of sales in the second
quarter last year. Foreign currency exchange rates were favorable to
the Company in the second quarter 2008 compared to exchange rates in effect
during the second quarter of 2007. As a result, sales were higher by
$5.1 million than would have been the case had currency rates remained
constant.
In
January 2008, the Company completed the purchase of the Italian distributor of
CONMED’s products for a purchase price of approximately $21.6
million. In connection with the acquisition, in the first quarter of
2008, the Company recorded a $1.0 million fair value adjustment to inventory
acquired as a result of the acquisition; the inventory was subsequently sold in
the first quarter of 2008.
CONMED’s
cash flow for the first half of 2008 was strong with cash from operations
totaling $35.1 million compared to $25.8 million in the first half of
2007. This cash was used to purchase the Italian distributor, fund
capital expenditures and increase the Company’s cash balance by $6 million since
the end of 2007.
Over the
past twelve months the Company has embarked on a number of initiatives to
improve manufacturing efficiency, including the use of lean manufacturing
techniques. This efficiency program, together with the beneficial
effects of foreign currency exchange rates and the effects of the purchase of
the Italian distributor, has improved the Company’s gross margin percentage to
52.3% of sales from 50.7% of sales in the second quarter of
2007. Further, the Company has developed an operational restructuring
plan to be carried out over the next 18 months including the
following:
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Construction
and operation of a 170,000 square foot manufacturing facility in
Chihuahua, Mexico
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Closure
of two of the Company’s manufacturing facilities in the Utica, New York
area with the related operational transfer to either our headquarters
location in Utica or to the new facility in
Chihuahua.
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Centralization
of certain of the Company’s distribution activities in a new North
American distribution center to be located in Atlanta,
Georgia.
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During
the execution of this plan, the Company expects it may incur certain charges
including severance costs associated with the release of approximately 100-150
positions, and the cost of restructuring and relocation activities.
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CONMED
News Release Continued
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Page
3 of 10
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July
24, 2008
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Following
is a summary of the Company’s sales by product line for the three months ended
June 30, 2008:
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Three
Months Ended June 30,
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Constant
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Currency
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2007
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2008
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Growth
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Growth
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(in
millions)
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Arthroscopy
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$ | 64.9 | $ | 76.6 | 18.0 | % | 14.2 | % | ||||||||
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Powered
Surgical Instruments
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36.0 | 39.9 | 10.8 | % | 5.9 | % | ||||||||||
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Electrosurgery
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22.1 | 25.8 | 16.7 | % | 15.3 | % | ||||||||||
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Endoscopic
Technologies
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13.4 | 13.4 | - | % | -1.3 | % | ||||||||||
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Endosurgery
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15.5 | 17.3 | 11.6 | % | 9.6 | % | ||||||||||
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Patient
Care
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17.4 | 19.8 | 13.8 | % | 13.5 | % | ||||||||||
| $ | 169.3 | $ | 192.8 | 13.9 | % | 10.9 | % | |||||||||
The
Company’s sports medicine Arthroscopy line grew 18.0% over second quarter 2007
on strong sales of single-use surgical devices and placements of integrated
operating room systems. Powered Surgical Instruments increased its
sales 10.8% as a result of strong growth in international
markets. Electrosurgery sales growth was led by improved sales of
electrosurgical power units. Endosurgery and Patient Care
double digit growth was fueled by higher sales in both domestic and
international markets. Endoscopic Technologies experienced flat sales growth
when compared to the second quarter of 2007, but demonstrated sequential revenue
improvement from the first quarter of 2008.
Following
is a summary of the Company’s sales by product line for the six months ended
June 30, 2008:
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Six
Months Ended June 30,
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Constant
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Currency
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2007
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2008
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Growth
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Growth
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(in
millions)
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Arthroscopy
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$ | 127.1 | $ | 152.3 | 19.8 | % | 15.4 | % | ||||||||
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Powered
Surgical Instruments
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73.6 | 80.1 | 8.8 | % | 3.6 | % | ||||||||||
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Electrosurgery
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46.1 | 52.5 | 13.9 | % | 12.4 | % | ||||||||||
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Endoscopic
Technologies
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26.6 | 25.9 | -2.6 | % | -4.1 | % | ||||||||||
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Endosurgery
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29.1 | 32.5 | 11.7 | % | 9.6 | % | ||||||||||
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Patient
Care
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37.8 | 40.2 | 6.3 | % | 5.9 | % | ||||||||||
| $ | 340.3 | $ | 383.5 | 12.7 | % | 9.4 | % | |||||||||
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CONMED
News Release Continued
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Page
4 of 10
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July
24, 2008
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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 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.
Outlook
Mr.
Corasanti noted, “As was the case in the first quarter of this year, the Company
has outperformed our original financial expectations for the second
quarter. Further, our outlook for the remainder of 2008 continues to
be positive. For the third quarter of 2008, we anticipate revenues in
the range of $175-$180 million and non-GAAP diluted earnings per share
(excluding unusual charges) of $0.32 - $0.36. For the
full year of 2008, we are again increasing our earnings guidance based on the
better than expected results of the first six months of
2008. Accordingly, we foresee full year 2008 sales of $755-$760
million and non-GAAP diluted earnings per share approximating $1.56 - $1.64,
excluding unusual items.”
At this
time, the Company is unable to provide GAAP diluted earnings per share guidance
for the third quarter of 2008 and for the full year of 2008 because it is unable
to estimate unusual credits or charges that may be recorded in the third or
fourth quarter of 2008.
Conference
Call
The
Company will webcast its second quarter 2008 conference call live over the
Internet on Thursday, July 24, 2008 at 10:00 a.m. Eastern Time. This
broadcast can be accessed from CONMED's web site at www.conmed.com. Replays of
the call will be made available through July 31, 2008.
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
3,200 employees distribute its products worldwide from several manufacturing
locations.
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CONMED
News Release Continued
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Page
5 of 10
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July
24, 2008
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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, 2007; (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
6 of 10
|
July
24, 2008
|
CONMED
CORPORATION
CONSOLIDATED
STATEMENTS OF INCOME
(in
thousands except per share amounts)
(unaudited)
|
Three
months ended
|
Six
months ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
2007
|
2008
|
2007
|
2008
|
|||||||||||||
|
Net
sales
|
$ | 169,258 | $ | 192,755 | $ | 340,272 | $ | 383,528 | ||||||||
|
Cost
of sales
|
83,398 | 91,865 | 169,187 | 183,863 | ||||||||||||
|
Cost
of sales, acquisition- Note A
|
- | - | - | 1,011 | ||||||||||||
|
Gross
profit
|
85,860 | 100,890 | 171,085 | 198,654 | ||||||||||||
|
Selling
and administrative
|
58,207 | 69,549 | 118,012 | 138,195 | ||||||||||||
|
Research
and development
|
7,453 | 8,689 | 15,047 | 16,767 | ||||||||||||
|
Other
expense (income) – Note B
|
1,312 | - | (4,102 | ) | - | |||||||||||
| 66,972 | 78,238 | 128,957 | 154,962 | |||||||||||||
|
Income
from operations
|
18,888 | 22,652 | 42,128 | 43,692 | ||||||||||||
|
Interest
expense
|
4,329 | 2,439 | 8,845 | 5,613 | ||||||||||||
|
Income
before income taxes
|
14,559 | 20,213 | 33,283 | 38,079 | ||||||||||||
|
Provision
for income taxes
|
5,214 | 7,758 | 12,016 | 14,614 | ||||||||||||
|
Net
income
|
$ | 9,345 | $ | 12,455 | $ | 21,267 | $ | 23,465 | ||||||||
|
Per share
data:
|
||||||||||||||||
|
Net
Income
|
||||||||||||||||
|
Basic
|
$ | .33 | $ | .43 | $ | .76 | $ | .82 | ||||||||
|
Diluted
|
.32 | .43 | .74 | .81 | ||||||||||||
|
Weighted
average common shares
|
||||||||||||||||
|
Basic
|
28,180 | 28,662 | 27,988 | 28,643 | ||||||||||||
|
Diluted
|
28,831 | 29,063 | 28,608 | 29,035 | ||||||||||||
Note A – Included in
cost of sales in the six months ended June 30, 2008 is a $1.0 million fair value
adjustment as a result of purchase accounting for inventory which was
subsequently sold.
Note B – Included in
other expense (income) in the three months ended June 30, 2007 are $1.2 million
in facility closure costs and $0.1 million in costs related to the termination
of a product offering. Included in other expense (income) in the six
months ended June 30, 2007 are $1.8 million in facility closure costs, $0.2
million in costs related to the termination of a product offering and a $6.1
million gain on a legal settlement.
|
CONMED
News Release Continued
|
Page
7 of 10
|
July
24, 2008
|
CONMED
CORPORATION
CONSOLIDATED
CONDENSED BALANCE SHEETS
(in
thousands)
(unaudited)
ASSETS
|
December
31,
|
June
30,
|
|||||||
|
2007
|
2008
|
|||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 11,695 | $ | 17,850 | ||||
|
Accounts
receivable, net
|
80,642 | 106,317 | ||||||
|
Inventories
|
164,969 | 161,057 | ||||||
|
Deferred
income taxes
|
11,697 | 11,664 | ||||||
|
Other
current assets
|
10,019 | 9,971 | ||||||
|
Total
current assets
|
279,022 | 306,859 | ||||||
|
Property,
plant and equipment, net
|
123,679 | 134,805 | ||||||
|
Goodwill
|
289,508 | 289,767 | ||||||
|
Other
intangible assets, net
|
191,807 | 198,021 | ||||||
|
Other
assets
|
9,935 | 8,595 | ||||||
|
Total
assets
|
$ | 893,951 | $ | 938,047 | ||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
portion of long-term debt
|
$ | 3,349 | $ | 3,830 | ||||
|
Other
current liabilities
|
73,935 | 72,255 | ||||||
|
Total
current liabilities
|
77,284 | 76,085 | ||||||
|
Long-term
debt
|
219,485 | 224,791 | ||||||
|
Deferred
income taxes
|
71,188 | 84,512 | ||||||
|
Other
long-term liabilities
|
20,992 | 18,623 | ||||||
|
Total
liabilities
|
388,949 | 404,011 | ||||||
|
Shareholders'
equity:
|
||||||||
|
Capital
accounts
|
220,657 | 223,664 | ||||||
|
Retained
earnings
|
284,850 | 307,997 | ||||||
|
Accumulated
other comprehensive income (loss)
|
(505 | ) | 2,375 | |||||
|
Total
equity
|
505,002 | 534,036 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 893,951 | $ | 938,047 | ||||
|
CONMED
News Release Continued
|
Page
8 of 10
|
July
24, 2008
|
CONMED
CORPORATION
CONSOLIDATED
CONDENSED STATEMENT OF CASH FLOWS
(in
thousands)
(unaudited)
|
Six
months ended
|
||||||||
|
June 30,
|
||||||||
|
2007
|
2008
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income
|
$ | 21,267 | $ | 23,465 | ||||
|
Adjustments
to reconcile net income
|
||||||||
|
to
net cash provided by operating activities:
|
||||||||
|
Depreciation
and amortization
|
15,400 | 15,529 | ||||||
|
Stock-based
compensation expense
|
1,885 | 2,094 | ||||||
|
Deferred
income taxes
|
10,470 | 12,360 | ||||||
|
Sale
of accounts receivable
|
2,000 | (3,000 | ) | |||||
|
Increase
(decrease) in cash flows from changes in
assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(3,924 | ) | (4,768 | ) | ||||
|
Inventories
|
(15,150 | ) | 3,028 | |||||
|
Accounts
payable
|
(2,579 | ) | (5,299 | ) | ||||
|
Income
taxes receivable (payable)
|
(1,809 | ) | 670 | |||||
|
Accrued
compensation and benefits
|
(2,388 | ) | (843 | ) | ||||
|
Accrued interest
|
59 | (132 | ) | |||||
|
Other assets
|
619 | (1,081 | ) | |||||
|
Other liabilities
|
( 52 | ) | (6,937 | ) | ||||
|
Net
cash provided by operating activities
|
25,798 | 35,086 | ||||||
|
Cash
flow from investing activities:
|
||||||||
|
Purchases
of property, plant, and equipment
|
(9,556 | ) | (15,212 | ) | ||||
|
Payments
related to business acquisitions
|
(1,278 | ) | (21,838 | ) | ||||
|
Net
cash used in investing activities
|
(10,834 | ) | (37,050 | ) | ||||
|
Cash
flow from financing activities:
|
||||||||
|
Payments
on debt
|
(26,797 | ) | (1,213 | ) | ||||
|
Proceeds
of debt
|
- | 7,000 | ||||||
|
Net
proceeds from common stock issued under employee plans
|
10,604 | 595 | ||||||
|
Other,
net
|
(236 | ) | - | |||||
|
Net
cash provided by (used in) financing activities
|
(16,429 | ) | 6,382 | |||||
|
Effect
of exchange rate change
|
||||||||
|
on
cash and cash equivalents
|
1,513 | 1,737 | ||||||
|
Net
increase in cash and cash equivalents
|
48 | 6,155 | ||||||
|
Cash
and cash equivalents at beginning of period
|
3,831 | 11,695 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 3,879 | $ | 17,850 | ||||
|
CONMED
News Release Continued
|
Page
9 of 10
|
July
24, 2008
|
CONMED
CORPORATION
RECONCILIATION
OF REPORTED NET INCOME TO NET INCOME
BEFORE
UNUSUAL ITEMS
(In
thousands except per share amounts)
(unaudited)
|
Three
months ended
|
||||||||
|
June 30,
|
||||||||
|
2007
|
2008
|
|||||||
|
Reported
net income
|
$ | 9,345 | $ | 12,455 | ||||
|
Termination
of product offering
|
58 | - | ||||||
|
Facility
closure costs
|
1,254 | - | ||||||
|
Total
other expense
|
1,312 | - | ||||||
|
Unusual
expense before income taxes
|
1,312 | - | ||||||
|
Provision
(benefit) for income taxes on unusual expense
|
(472 | ) | - | |||||
|
Net
income before unusual items
|
$ | 10,185 | $ | 12,455 | ||||
|
Per
share data:
|
||||||||
|
Reported
net income
|
||||||||
|
Basic
|
$ | 0.33 | $ | 0.43 | ||||
|
Diluted
|
0.32 | 0.43 | ||||||
|
Net
income before unusual items
|
||||||||
|
Basic
|
$ | 0.36 | $ | 0.43 | ||||
|
Diluted
|
0.35 | 0.43 | ||||||
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 as discussed in the
section “Use of Non-GAAP Financial Measures” above.
|
CONMED
News Release Continued
|
Page
10 of 10
|
July
24, 2008
|
CONMED
CORPORATION
RECONCILIATION
OF REPORTED NET INCOME TO NET INCOME
BEFORE
UNUSUAL ITEMS
(In
thousands except per share amounts)
(unaudited)
|
Six
months ended
|
||||||||
|
June 30,
|
||||||||
|
2007
|
2008
|
|||||||
|
Reported
net income
|
$ | 21,267 | $ | 23,465 | ||||
|
Fair
value inventory adjustment from purchase accounting
|
||||||||
|
included
in cost of sales
|
- | 1,011 | ||||||
|
Termination
of product offering
|
148 | - | ||||||
|
Facility
closure costs
|
1,822 | - | ||||||
|
Gain
on legal settlement
|
(6,072 | ) | - | |||||
|
Total
other expense (income)
|
(4,102 | ) | - | |||||
|
Unusual
expense (income) before income taxes
|
(4,102 | ) | 1,011 | |||||
|
Provision
(benefit) for income taxes on unusual expense
|
1,477 | (364 | ) | |||||
|
Net
income before unusual items
|
$ | 18,642 | $ | 24,112 | ||||
|
Per
share data:
|
||||||||
|
Reported
net income
|
||||||||
|
Basic
|
$ | 0.76 | $ | 0.82 | ||||
|
Diluted
|
0.74 | 0.81 | ||||||
|
Net
income before unusual items
|
||||||||
|
Basic
|
$ | 0.67 | $ | 0.84 | ||||
|
Diluted
|
0.65 | 0.83 | ||||||
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 as discussed in the
section “Use of Non-GAAP Financial Measures” above.
Exhibit
C
CONMED
Corporation
Q1
2008 Earnings Release
Non-GAAP
Operating Margin and EBITDA Margin Calculations
|
Calculation
of non-GAAP Operating Margin
|
||||||||
|
2007
|
2008
|
|||||||
|
Net
sales
|
171,014 | 190,773 | ||||||
|
GAAP
income from operations
|
23,240 | 21,040 | ||||||
|
GAAP
operating margin
|
13.6 | % | 11.0 | % | ||||
|
Adjustments
to GAAP operating margin:
|
||||||||
|
Fair
value inventory adjustment from purchase accounting
|
||||||||
|
included
in cost of sales
|
1,011 | |||||||
|
Termination
of product offering
|
90 | |||||||
|
Facility
closure related costs
|
568 | |||||||
|
Gain
on legal settlement
|
(6,072 | ) | ||||||
| (5,414 | ) | 1,011 | ||||||
|
Adjusted
non-GAAP income from operations
|
17,826 | 22,051 | ||||||
|
Adjusted
non-GAAP operating margin
|
10.4 | % | 11.6 | % | ||||
|
Calculation
of non-GAAP EBITDA Margin
|
||||||||
|
2007
|
2008
|
|||||||
|
Net
sales
|
171,014 | 190,773 | ||||||
|
GAAP
income from operations
|
23,240 | 21,040 | ||||||
|
Add: Depreciation
|
3,059 | 3,510 | ||||||
|
Amortization
|
4,253 | 4,239 | ||||||
|
Stock compensation expense
|
852 | 942 | ||||||
|
GAAP
EBITDA
|
31,404 | 29,731 | ||||||
|
GAAP
operating margin
|
18.4 | % | 15.6 | % | ||||
|
Adjustments
to GAAP operating margin:
|
||||||||
|
Fair
value inventory adjustment from purchase accounting
|
||||||||
|
included
in cost of sales
|
1,011 | |||||||
|
Termination
of product offering
|
90 | |||||||
|
Facility
closure related costs
|
568 | |||||||
|
Gain
on legal settlement
|
(6,072 | ) | ||||||
| (5,414 | ) | 1,011 | ||||||
|
Adjusted
non- GAAP income from operations
|
25,990 | 30,742 | ||||||
|
Adjusted
non-GAAP operating margin
|
15.2 | % | 16.1 | % | ||||