form10q-91462_cnmd.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended
|
Commission
File Number 0-16093
|
March
31, 2008
|
|
CONMED
CORPORATION
(Exact
name of registrant as specified in its charter)
New
York
(State
or other jurisdiction of
incorporation
or organization)
|
16-0977505
(I.R.S.
Employer
Identification
No.)
|
525
French Road, Utica, New York
(Address
of principal executive offices)
|
13502
(Zip
Code)
|
(315)
797-8375
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ý No
o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “accelerated filer”, “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check
one).
Large
accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No
ý
The
number of shares outstanding of registrant's common stock, as of April 30, 2008
is 28,649,446 shares.
QUARTERLY
REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED MARCH 31, 2008
Item
Number
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Page
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1
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-
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2
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-
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3
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-
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4
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14
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26
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26
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26
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27
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28
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PART
I FINANCIAL INFORMATION
CONMED
CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited,
in thousands except per share amounts)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
171,014 |
|
|
$ |
190,773 |
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
85,789 |
|
|
|
93,009 |
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
85,225 |
|
|
|
97,764 |
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expense
|
|
|
59,805 |
|
|
|
68,646 |
|
|
|
|
|
|
|
|
|
|
Research
and development expense
|
|
|
7,594 |
|
|
|
8,078 |
|
|
|
|
|
|
|
|
|
|
Other
expense (income)
|
|
|
(5,414 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
61,985 |
|
|
|
76,724 |
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
23,240 |
|
|
|
21,040 |
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
4,516 |
|
|
|
3,174 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
18,724 |
|
|
|
17,866 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
6,802 |
|
|
|
6,856 |
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
11,922 |
|
|
$ |
11,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.43 |
|
|
$ |
.38 |
|
Diluted
|
|
|
.42 |
|
|
|
.38 |
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
|
|
|
|
|
|
Basic
|
|
|
27,987 |
|
|
|
28,625 |
|
Diluted
|
|
|
28,559 |
|
|
|
29,006 |
|
See notes
to consolidated condensed financial statements.
CONMED
CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited,
in thousands except share and per share amounts)
|
|
December
31,
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,695 |
|
|
$ |
13,408 |
|
Accounts
receivable, net
|
|
|
80,642 |
|
|
|
98,937 |
|
Inventories
|
|
|
164,969 |
|
|
|
164,613 |
|
Income
taxes receivable
|
|
|
1,425 |
|
|
|
- |
|
Deferred
income taxes
|
|
|
11,697 |
|
|
|
12,004 |
|
Prepaid
expenses and other current assets
|
|
|
8,594 |
|
|
|
10,666 |
|
Total
current assets
|
|
|
279,022 |
|
|
|
299,628 |
|
Property,
plant and equipment, net
|
|
|
123,679 |
|
|
|
127,269 |
|
Goodwill
|
|
|
289,508 |
|
|
|
289,435 |
|
Other
intangible assets, net
|
|
|
191,807 |
|
|
|
199,255 |
|
Other
assets
|
|
|
9,935 |
|
|
|
9,263 |
|
Total
assets
|
|
$ |
893,951 |
|
|
$ |
924,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$ |
3,349 |
|
|
$ |
3,349 |
|
Accounts
payable
|
|
|
38,987 |
|
|
|
40,054 |
|
Accrued
compensation and benefits
|
|
|
19,724 |
|
|
|
18,342 |
|
Income
taxes payable
|
|
|
- |
|
|
|
1,833 |
|
Accrued
interest
|
|
|
695 |
|
|
|
1,610 |
|
Other
current liabilities
|
|
|
14,529 |
|
|
|
23,099 |
|
Total
current liabilities
|
|
|
77,284 |
|
|
|
88,287 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
219,485 |
|
|
|
219,360 |
|
Deferred
income taxes
|
|
|
71,188 |
|
|
|
77,503 |
|
Other
long-term liabilities
|
|
|
20,992 |
|
|
|
20,450 |
|
Total
liabilities
|
|
|
388,949 |
|
|
|
405,600 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $.01 per share;
|
|
|
|
|
|
|
|
|
authorized
500,000 shares; none outstanding.
|
|
|
- |
|
|
|
- |
|
Common
stock, par value $.01 per share;
|
|
|
|
|
|
|
|
|
100,000,000
shares authorized; 31,299,203 shares
|
|
|
|
|
|
|
|
|
issued
in 2007 and 2008, respectively
|
|
|
313 |
|
|
|
313 |
|
Paid-in
capital
|
|
|
287,926 |
|
|
|
288,849 |
|
Retained
earnings
|
|
|
284,850 |
|
|
|
295,793 |
|
Accumulated
other comprehensive income (loss)
|
|
|
(505 |
) |
|
|
1,570 |
|
Less:
2,684,163 and 2,671,995 shares of common stock
|
|
|
|
|
|
|
|
|
in
treasury, at cost in 2007 and 2008, respectively
|
|
|
(67,582 |
) |
|
|
(67,275 |
) |
Total
shareholders’ equity
|
|
|
505,002 |
|
|
|
519,250 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
893,951 |
|
|
$ |
924,850 |
|
See notes
to consolidated condensed financial statements.
CONMED
CORPORATION
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited,
in thousands)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
11,922 |
|
|
$ |
11,010 |
|
Adjustments
to reconcile net income
|
|
|
|
|
|
|
|
|
to
net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,059 |
|
|
|
3,305 |
|
Amortization
|
|
|
4,573 |
|
|
|
4,524 |
|
Stock-based
compensation
|
|
|
852 |
|
|
|
942 |
|
Deferred
income taxes
|
|
|
6,177 |
|
|
|
5,779 |
|
Gain
on legal settlement
|
|
|
(6,072 |
) |
|
|
- |
|
Sale
of accounts receivable
|
|
|
3,000 |
|
|
|
3,000 |
|
Increase
(decrease) in cash flows
|
|
|
|
|
|
|
|
|
from
changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(2,665 |
) |
|
|
(3,482 |
) |
Inventories
|
|
|
(4,638 |
) |
|
|
1,326 |
|
Accounts
payable
|
|
|
(3,523 |
) |
|
|
164 |
|
Income
taxes receivable (payable)
|
|
|
(1,102 |
) |
|
|
1,841 |
|
Accrued
compensation and benefits
|
|
|
(2,989 |
) |
|
|
(1,573 |
) |
Accrued
interest
|
|
|
1,259 |
|
|
|
915 |
|
Other
assets
|
|
|
1,021 |
|
|
|
(1,719 |
) |
Other
liabilities
|
|
|
342 |
|
|
|
(5,278 |
) |
Net
cash provided by operating activities
|
|
|
11,216 |
|
|
|
20,754 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Payments
related to business acquisitions
|
|
|
(883 |
) |
|
|
(14,758 |
) |
Purchases
of property, plant and equipment
|
|
|
(3,868 |
) |
|
|
(5,975 |
) |
Net
cash used in investing activities
|
|
|
(4,751 |
) |
|
|
(20,733 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
proceeds from common stock issued under
|
|
|
|
|
|
|
|
|
employee
plans
|
|
|
3,268 |
|
|
|
221 |
|
Payments
on long term debt
|
|
|
(7,791 |
) |
|
|
(125 |
) |
Net
change in cash overdrafts
|
|
|
(1,694 |
) |
|
|
- |
|
Net
cash provided by(used in)
|
|
|
|
|
|
|
|
|
financing
activities
|
|
|
(6,217 |
) |
|
|
96 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes
|
|
|
|
|
|
|
|
|
on
cash and cash equivalents
|
|
|
458 |
|
|
|
1,596 |
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
706 |
|
|
|
1,713 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
3,831 |
|
|
|
11,695 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
4,537 |
|
|
$ |
13,408 |
|
See notes
to consolidated condensed financial statements.
CONMED
CORPORATION
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited,
in thousands except share and per share amounts)
Note 1 – Operations and
significant accounting policies
Organization
and operations
CONMED Corporation (“CONMED”, the
“Company”, “we” or “us”) 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.
Note 2 - Interim financial
information
The accompanying unaudited consolidated
condensed financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. Results for the period ended March 31, 2008 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2008.
The consolidated condensed financial
statements and notes thereto should be read in conjunction with the financial
statements and notes for the year-ended December 31, 2007 included in our Annual
Report on Form 10-K.
Note 3 – Other comprehensive
income
Comprehensive
income consists of the following:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
11,922 |
|
|
$ |
11,010 |
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
Pension
liability
|
|
|
145 |
|
|
|
90 |
|
Foreign
currency
|
|
|
|
|
|
|
|
|
translation
adjustment
|
|
|
489 |
|
|
|
1,985 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
12,556 |
|
|
$ |
13,085 |
|
|
Accumulated
other comprehensive income (loss) consists of the
following:
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cumulative
|
|
|
Other
|
|
|
|
Pension
|
|
|
Translation
|
|
|
Comprehensive
|
|
|
|
Liability
|
|
|
Adjustments
|
|
|
Income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$ |
(9,563 |
) |
|
$ |
9,058 |
|
|
$ |
(505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
liability
|
|
|
90 |
|
|
|
- |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
|
- |
|
|
|
1,985 |
|
|
|
1,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2008
|
|
$ |
(9,473 |
) |
|
$ |
11,043 |
|
|
$ |
1,570 |
|
Note 4 – Fair value
measurement
In September 2006, the Financial
Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”), which is effective for fiscal years beginning after
November 15, 2007 and for interim periods within those years. This
statement defines fair value, establishes a framework for measuring fair value
and expands the related disclosure requirements. This statement
applies under other accounting pronouncements that require or permit fair value
measurements. The statement indicates, among other things, that a
fair value measurement assumes that the transaction to sell an asset or transfer
a liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or
liability. SFAS 157 defines fair value based upon an exit price
model.
Relative to SFAS 157, the FASB issued
FASB Staff Positions (“FSP”) 157-1 and 157-2. FSP 157-1 amends SFAS
157 to exclude SFAS No. 13, “Accounting for Leases” (“SFAS 13”) and its related
interpretive accounting pronouncements that address leasing transactions, while
FSP 157-2 delays the effective date of the application of SFAS 157 to fiscal
years beginning after November 15, 2008 for all nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis.
We adopted SFAS 157 as of January 1,
2008 with the exception of the application of the statement to non-recurring
nonfinancial assets and nonfinancial liabilities. Non-recurring
nonfinancial assets and nonfinancial liabilities for which we have not applied
the provisions of SFAS 157 include those measured at fair value in goodwill
impairment testing, indefinite lived intangible assets measured at fair value
for impairment testing, and those initially measured at fair value in a business
combination.
Liabilities carried at fair value and
measured on a recurring basis as of March 31, 2008 consist of a forward foreign
exchange contract and two embedded derivatives associated with our 2.50%
convertible senior subordinated notes (the "Notes"). The value of
these liabilities was determined within Level 2 of the valuation hierarchy and
was not material either individually or in the aggregate to our financial
position, results of operations or cash flows.
Note 5 -
Inventories
Inventories
consist of the following:
|
|
December 31,
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
60,081 |
|
|
$ |
57,134 |
|
|
|
|
|
|
|
|
|
|
Work-in-process
|
|
|
18,669 |
|
|
|
20,753 |
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
|
86,219 |
|
|
|
86,726 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
164,969 |
|
|
$ |
164,613 |
|
Note 6 – Earnings per
share
Basic earnings per share (“basic EPS”)
is computed by dividing net income by the weighted average number of common
shares outstanding for the reporting period. Diluted earnings per
share (“diluted EPS”) gives effect to all dilutive potential shares outstanding
resulting from employee stock options, restricted stock units and stock
appreciation rights during the period. The following table sets forth
the computation of basic and diluted earnings per share for the three month
periods ended March 31, 2007 and 2008.
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
11,922 |
|
|
$ |
11,010 |
|
|
|
|
|
|
|
|
|
|
Basic
– weighted average shares outstanding
|
|
|
27,987 |
|
|
|
28,625 |
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive potential securities
|
|
|
572 |
|
|
|
381 |
|
|
|
|
|
|
|
|
|
|
Diluted
– weighted average shares outstanding
|
|
|
28,559 |
|
|
|
29,006 |
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
.43 |
|
|
$ |
.38 |
|
Diluted
EPS
|
|
|
.42 |
|
|
|
.38 |
|
The shares used in the calculation of
diluted EPS exclude options and SARs to purchase shares where the exercise price
was greater than the average market price of common shares for the
period. Such shares aggregated approximately 0.6 million and 1.0
million for the three months ended March 31, 2007 and 2008,
respectively. Upon conversion of our 2.50% convertible
senior subordinated notes, the holder of each Note will receive the
conversion value of the Note payable in cash up to the
principal amount of the Note and CONMED common stock for the
Note's conversion value in excess of such
principal amount. As of March 31, 2008, our share price
has not exceeded the conversion price of the Notes, therefore the conversion
value was less than the principal amount of the Notes. Under the net
share settlement method and in accordance with Emerging Issues Task Force
(“EITF”) Issue 04-8, “The Effect of Contingently Convertible Debt on Diluted
Earnings per Share”, there were no potential shares issuable under the Notes to
be used in the calculation of diluted EPS. The maximum number of
shares we may issue with respect to the Notes is 5,750,000.
Note 7 – Goodwill and other
intangible assets
The changes in the net carrying amount
of goodwill for the three months ended March 31, 2008 are as
follows:
Balance
as of January 1, 2008
|
|
$ |
289,508 |
|
|
|
|
|
|
Adjustments
to goodwill resulting from
|
|
|
|
|
business
acquisitions finalized
|
|
|
110 |
|
|
|
|
|
|
Foreign
currency translation
|
|
|
(183 |
) |
|
|
|
|
|
Balance
as of March 31, 2008
|
|
$ |
289,435 |
|
|
Goodwill
associated with each of our principal operating units is as
follows:
|
|
|
December
31,
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
CONMED
Electrosurgery
|
|
$ |
16,645 |
|
|
$ |
16,645 |
|
|
|
|
|
|
|
|
|
|
CONMED
Endosurgery
|
|
|
42,439 |
|
|
|
42,439 |
|
|
|
|
|
|
|
|
|
|
CONMED
Linvatec
|
|
|
171,332 |
|
|
|
171,149 |
|
|
|
|
|
|
|
|
|
|
CONMED
Patient Care
|
|
|
59,092 |
|
|
|
59,202 |
|
|
|
|
|
|
|
|
|
|
Balance
|
|
$ |
289,508 |
|
|
$ |
289,435 |
|
Other intangible assets consist
of the following:
|
|
December 31, 2007
|
|
|
March 31, 2008
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
Amortized
intangible assets:
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$ |
118,124 |
|
|
$ |
(28,000 |
) |
|
$ |
126,977 |
|
|
$ |
(29,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
and other intangible assets
|
|
|
39,812 |
|
|
|
(26,473 |
) |
|
|
39,955 |
|
|
|
(26,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
and tradenames
|
|
|
88,344 |
|
|
|
- |
|
|
|
88,344 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
246,280 |
|
|
$ |
(54,473 |
) |
|
$ |
255,276 |
|
|
$ |
(56,021 |
) |
Other intangible assets primarily
represent allocations of purchase price to identifiable intangible assets of
acquired businesses. The weighted average amortization period for
intangible assets which are amortized is 24 years. Customer
relationships are being amortized over a weighted average life of 33
years. Patents and other intangible assets are being amortized over a
weighted average life of 11 years.
Amortization expense related to
intangible assets which are subject to amortization totaled $1,405 and $1,548 in
the three months ended March 31, 2007 and 2008, respectively. These
amounts have been included in selling and administrative expense on the
Consolidated Condensed Statement of Income.
The estimated amortization expense for
the year ending December 31, 2008, including the quarterly period ended March
31, 2008, and for each of the five succeeding years, is as follows:
2008
|
|
|
6,242 |
|
2009
|
|
|
6,242 |
|
2010
|
|
|
6,082 |
|
2011
|
|
|
5,491 |
|
2012
|
|
|
5,426 |
|
2013
|
|
|
5,193 |
|
Note 8 —
Guarantees
We provide warranties on certain of our
products at the time of sale. The standard warranty period for our
capital and reusable equipment is generally one year. Liability under
service and warranty policies is based upon a review of historical warranty and
service claim experience. Adjustments are made to accruals as claim
data and historical experience warrant.
Changes in the carrying amount of
service and product warranties for the three months ended March 31, 2008 are as
follows:
Balance
as of January 1, 2008
|
|
$ |
3,306 |
|
|
|
|
|
|
Provision
for warranties
|
|
|
635 |
|
|
|
|
|
|
Claims
made
|
|
|
(750 |
) |
|
|
|
|
|
Balance
as of March 31, 2008
|
|
$ |
3,191 |
|
Note 9 – Pension
plan
Net periodic pension costs consist of
the following:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
1,381 |
|
|
$ |
1,536 |
|
|
|
|
|
|
|
|
|
|
Interest
cost on projected
|
|
|
|
|
|
|
|
|
benefit
obligation
|
|
|
737 |
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
Expected
return on plan assets
|
|
|
(683 |
) |
|
|
(845 |
) |
|
|
|
|
|
|
|
|
|
Net
amortization and deferral
|
|
|
229 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
Net
periodic pension cost
|
|
$ |
1,664 |
|
|
$ |
1,676 |
|
We
previously disclosed in our Annual Report on Form 10-K for the year-ended
December 31, 2007 that we expect to make $12.0 million in contributions to our
pension plan in 2008. We made $3.0 million in contributions for the
quarter ended March 31, 2008.
Note 10 — Other expense
(income)
Other
expense (income) consists of the following:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
of product offering
|
|
$ |
90 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Facility
closure costs
|
|
|
568 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Litigation
settlement
|
|
|
(6,072 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
$ |
(5,414 |
) |
|
$ |
- |
|
During 2006, we elected to close our
facility in Montreal, Canada which manufactured products for our CONMED Linvatec
line of integrated operating room systems and equipment. The products
which had been manufactured in the Montreal facility are now purchased from a
third party vendor. The closing of this facility was completed in the
first quarter of 2007. We incurred a total of $2.2 million in costs
associated with this closure, of which $1.3 million related to the write-off of
inventory and was included in cost of goods sold during 2006. The
remaining $0.9 million (including $0.3 million in the first quarter of 2007)
primarily relates to severance expense and the disposal of fixed assets which we
have recorded in other expense (income).
During 2007, we elected to close our
CONMED Endoscopic Technologies sales office in France. We incurred a
total of $1.5 million in costs associated with this closure (including $0.3
million in the first quarter of 2007) primarily related to severance
expense. These facility closure costs were recorded such costs in
other expense (income).
In November 2003, we commenced
litigation against Johnson & Johnson and several of its subsidiaries,
including Ethicon, Inc. for violations of federal and state antitrust laws. In
the lawsuit we claimed that Johnson & Johnson engaged in illegal and
anticompetitive conduct with respect to sales of product used in endoscopic
surgery, resulting in higher prices to consumers and the exclusion of
competition. We sought relief including an injunction restraining
Johnson & Johnson from continuing its anticompetitive practices as well as
receiving the maximum amount of damages allowed by law. During the
litigation, Johnson & Johnson represented that the marketing practices which
gave rise to the litigation have been altered with respect to
CONMED. On March 31, 2007, CONMED and Johnson & Johnson settled
the litigation. Under the terms of the final settlement agreement,
CONMED received a payment of $11.0 million from Johnson & Johnson on April
12, 2007 in return for which we terminated the lawsuit. After
deducting legal and other related costs, we recorded a pre-tax gain of $6.1
million related to the settlement which we have recorded in other expense
(income).
Note 11 — Business Segments
and Geographic Areas
CONMED conducts its business through
five principal operating segments, CONMED Endoscopic Technologies, CONMED
Endosurgery, CONMED Electrosurgery, CONMED Linvatec and CONMED Patient
Care. We believe each of our segments are similar in the nature of
their products, production processes, customer base, distribution methods and
regulatory environment. In accordance with Statement of Financial
Accounting Standards No. 131 “Disclosures About Segments of an Enterprise and
Related Information” (“SFAS 131”), our CONMED Endosurgery, CONMED Electrosurgery
and CONMED Linvatec operating segments also have similar economic
characteristics and therefore qualify for aggregation under SFAS
131. Our CONMED Patient Care and CONMED Endoscopic Technologies
operating units do not qualify for aggregation under SFAS 131 since their
economic characteristics do not meet the criteria for aggregation as a result of
the lower overall operating income (loss) in these segments.
CONMED Endosurgery, CONMED
Electrosurgery and CONMED Linvatec consist of a single aggregated segment
comprising a complete line of endo-mechanical instrumentation for minimally
invasive laparoscopic procedures, electrosurgical generators and related
surgical instruments, arthroscopic instrumentation for use in orthopedic surgery
and small bone, large bone and specialty powered surgical
instruments. CONMED Patient Care product offerings include a line of
vital signs and cardiac monitoring products as well as suction instruments &
tubing for use in the operating room. CONMED Endoscopic Technologies
product offerings include a comprehensive line of minimally invasive endoscopic
diagnostic and therapeutic instruments used in procedures which require
examination of the digestive tract.
The following is net sales information
by product line and reportable segment:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthroscopy
|
|
|
62,243 |
|
|
|
75,807 |
|
Powered
Surgical Instruments
|
|
|
37,550 |
|
|
|
40,173 |
|
CONMED
Linvatec
|
|
|
99,793 |
|
|
|
115,980 |
|
CONMED
Electrosurgery
|
|
|
24,026 |
|
|
|
26,784 |
|
CONMED
Endosurgery
|
|
|
13,575 |
|
|
|
15,201 |
|
CONMED
Endosurgery, Electrosurgery
|
|
|
|
|
|
|
|
|
and
Linvatec
|
|
|
137,394 |
|
|
|
157,965 |
|
CONMED
Patient Care
|
|
|
20,361 |
|
|
|
20,311 |
|
CONMED
Endoscopic Technologies
|
|
|
13,259 |
|
|
|
12,497 |
|
Total
|
|
$ |
171,014 |
|
|
$ |
190,773 |
|
Total assets, capital expenditures,
depreciation and amortization information are not available by
segment.
The following is a reconciliation
between segment operating income (loss) and income (loss) before income
taxes:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
CONMED
Linvatec, Electrosurgery
|
|
|
|
|
|
|
and
Endosurgery
|
|
|
18,793 |
|
|
|
27,497 |
|
CONMED
Patient Care
|
|
|
1,027 |
|
|
|
554 |
|
CONMED
Endoscopic Technologies
|
|
|
(1,211 |
) |
|
|
(2,479 |
) |
Corporate
|
|
|
4,631 |
|
|
|
(4,532 |
) |
Income
from Operations
|
|
|
23,240 |
|
|
|
21,040 |
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
4,516 |
|
|
|
3,174 |
|
Income
before income taxes
|
|
$ |
18,724 |
|
|
$ |
17,866 |
|
|
|
|
|
|
|
|
|
|
Note 12 – Legal
proceedings
From time to time, we are a defendant
in certain lawsuits alleging product liability, patent infringement, or other
claims incurred in the ordinary course of business. Likewise, from time to time,
the Company may receive a subpoena from a government agency such as the Equal
Employment Opportunity Commission, Occupational Safety and Health
Administration, the Department of Labor, the Treasury Department, and other
federal and state agencies or foreign governments or government
agencies. These subpoenae may or may not be routine inquiries, or may
begin as routine inquiries and over time develop into enforcement actions of
various types. The product liability claims are generally covered by
various insurance policies, subject to certain deductible amounts and maximum
policy limits. When there is no insurance coverage, as would
typically be the case primarily in lawsuits alleging patent infringement or in
connection with certain government investigations, we establish reserves
sufficient to cover probable losses associated with such claims. We
do not expect that the resolution of any pending claims or investigations will
have a material adverse effect on our financial condition, results of operations
or cash flows. There can be no assurance, however, that future claims
or investigations, or the costs associated with responding to such claims or
investigations, especially claims and investigations not covered by insurance,
will not have a material adverse effect on our future performance.
Manufacturers of medical products may
face exposure to significant product liability claims. To date, we have not
experienced any product liability claims that are material to our financial
statements or condition, but any such claims arising in the future could have a
material adverse effect on our business or results of operations. We currently
maintain commercial product liability insurance of $25 million per incident and
$25 million in the aggregate annually, which we believe is adequate. This
coverage is on a claims-made basis. There can be no assurance that
claims will not exceed insurance coverage or that such insurance will be
available in the future at a reasonable cost to us.
Our operations are subject, and in the
past have been subject, to a number of environmental laws and regulations
governing, among other things, air emissions, wastewater discharges, the use,
handling and disposal of hazardous substances and wastes, soil and groundwater
remediation and employee health and safety. In some jurisdictions environmental
requirements may be expected to become more stringent in the future. In the
United States certain environmental laws can impose liability for the entire
cost of site restoration upon each of the parties that may have contributed to
conditions at the site regardless of fault or the lawfulness of the party’s
activities. While we do not believe that the present costs of
environmental compliance and remediation are material, there can be no assurance
that future compliance or
remedial
obligations could not have a material adverse effect on our financial condition,
results of operations or cash flows.
On April 7, 2006, CONMED received a
copy of a complaint filed in the United States District for the Northern
District of New York on behalf of a purported class of former CONMED Linvatec
sales representatives. The complaint alleges that the former sales
representatives were entitled to, but did not receive, severance in 2003 when
CONMED Linvatec restructured its distribution channels. The range of
loss associated with this complaint ranges from $0 to $3.0 million, not
including any interest, fees or costs that might be awarded if the five named
plaintiffs were to prevail on their own behalf as well as on behalf of the
approximately 70 (or 90 as alleged by the plaintiffs) other members of the
purported class. CONMED Linvatec did not generally pay
severance during the 2003 restructuring because the former sales representatives
were offered sales positions with CONMED Linvatec’s new manufacturer’s
representatives. Other than three of the five named plaintiffs in the
class action, nearly all of CONMED Linvatec’s former sales representatives
accepted such positions.
The Company’s motions to dismiss and
for summary judgment, which were heard at a hearing held on January 5, 2007,
were denied by a Memorandum Decision and Order dated May 22,
2007. The District Court also granted the plaintiffs’ motion to
certify a class of former CONMED Linvatec sales representatives whose employment
with CONMED Linvatec was involuntarily terminated in 2003 and who did not
receive severance benefits. The Company believes there is no
merit to the claims asserted in the Complaint, and plans to vigorously defend
the case. There can be no assurance, however, that the Company will
prevail in the litigation.
Note 13 – New accounting
pronouncements
In December 2007, the FASB issued
Statement of Financial Accounting Standard No. 141 (revised 2007),
“Business Combinations” (“SFAS 141R”).
SFAS 141R requires the use of "full fair value" to record all the
identifiable assets, liabilities, noncontrolling interests and goodwill acquired
in a business combination. SFAS 141R is effective for fiscal years
beginning on or after December 15, 2008. The Company is
currently assessing the impact of SFAS 141R on its consolidated financial
statements.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133”
(“SFAS 161”). SFAS 161 expands quarterly disclosure
requirements about an entity’s derivative instruments and hedging activities.
SFAS 161 is effective for fiscal years beginning after November 15, 2008. The
Company is currently assessing the impact of SFAS 161 on its consolidated
financial statements.
Note 14 – Business
acquisition
On January 9, 2008, we purchased our
Italian distributor’s business for approximately $21.6 million in cash, of which
an initial installment of $14.6 million was paid in January 2008 with the
balance of $7.0 million paid in April 2008 (the “Italy
acquisition”). Under the terms of the acquisition agreement, we
agreed to pay additional consideration in 2009 based upon the 2008 results of
the acquired business.
The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed as a result of the Italy acquisition. The
allocation of purchase price is preliminary and therefore subject to adjustment
in future periods.
Cash
|
|
$ |
953 |
|
Inventory
|
|
|
3,444 |
|
Accounts
receivable
|
|
|
19,701 |
|
Other
assets
|
|
|
784 |
|
Customer
relationships
|
|
|
8,862 |
|
|
|
|
|
|
Total
assets acquired
|
|
|
33,744 |
|
|
|
|
|
|
Income
taxes payable
|
|
|
(2,443 |
) |
Other
current liabilities
|
|
|
(9,658 |
) |
|
|
|
|
|
Total
liabilities assumed
|
|
|
(12,101 |
) |
|
|
|
|
|
Net
assets acquired
|
|
$ |
21,643 |
|
The Italy acquisition did not have a
material impact on our results of operations or earnings per share in the
quarterly period ended March 31, 2008.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
|
|
Forward-looking
statements
In this Report on Form 10-Q, we make
forward-looking statements about our financial condition, results of operations
and business. Forward-looking statements are statements made by us concerning
events that may or may not occur in the future. These statements may
be made directly in this document or may be “incorporated by reference” from
other documents. Such statements may be identified by the use of words such as
“anticipates”, “expects”, “estimates”, “intends” and “believes” and variations
thereof and other terms of similar meaning.
Forward-looking
statements are not guarantees of future performance
Forward-looking statements involve
known and unknown risks, uncertainties and other factors, including those that
may cause our actual results, performance or achievements, or industry results,
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include those identified under “Risk Factors” in our Annual Report on Form 10-K
for the year-ended December 31, 2007 and the following, among
others:
|
Ÿ
|
general
economic and business conditions;
|
|
Ÿ
|
cyclical
customer purchasing patterns due to budgetary and other
constraints;
|
|
Ÿ
|
changes
in customer preferences;
|
|
Ÿ
|
the
ability to evaluate, finance and integrate acquired businesses, products
and companies;
|
|
Ÿ
|
the
introduction and acceptance of new
products;
|
|
Ÿ
|
changes
in business strategy;
|
|
Ÿ
|
the
availability and cost of materials;
|
|
Ÿ
|
the
possibility that United States or foreign regulatory and/or administrative
agencies may initiate enforcement actions against us or our
distributors;
|
|
Ÿ
|
future
levels of indebtedness and capital
spending;
|
|
Ÿ
|
changes
in foreign exchange and interest
rates;
|
|
Ÿ
|
quality
of our management and business abilities and the judgment of our
personnel;
|
|
Ÿ
|
the
risk of litigation, especially patent litigation as well as the cost
associated with patent and other
litigation;
|
|
Ÿ
|
changes
in regulatory requirements; and
|
|
Ÿ
|
the
availability, terms and deployment of
capital.
|
See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” below and “Risk
Factors” and “Business” in our Annual Report on Form 10-K for the year-ended
December 31, 2007 for a further discussion of these factors. You are cautioned
not to place undue reliance on these forward-looking statements, which
speak
only as
of the date hereof. We do not undertake any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this Quarterly Report on Form 10-Q or to reflect the
occurrence of unanticipated events.
Overview:
CONMED Corporation (“CONMED”, the
“Company”, “we” or “us”) is a medical technology company with six principal
product lines. These product lines and the percentage of consolidated
revenues associated with each, are as follows:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2008
|
|
Arthroscopy
|
|
|
36.4 |
% |
|
|
39.7 |
% |
Powered
Surgical Instruments
|
|
|
22.0 |
|
|
|
21.1 |
|
Electrosurgery
|
|
|
14.0 |
|
|
|
14.0 |
|
Patient
Care
|
|
|
11.9 |
|
|
|
10.6 |
|
Endosurgery
|
|
|
8.0 |
|
|
|
8.0 |
|
Endoscopic
Technologies
|
|
|
7.7 |
|
|
|
6.6 |
|
Consolidated
Net Sales
|
|
|
100 |
% |
|
|
100 |
% |
A significant amount of our products
are used in surgical procedures with the majority of our revenues derived from
the sale of disposable products. We manufacture substantially all of
our products in facilities located in the United States, Mexico, and
Finland. We market our products both domestically and internationally
directly to customers and through distributors. International sales
represent a significant portion of our business. During the three
months ended March 31, 2008, sales to purchasers outside of the United States
accounted for 45.3% of total net sales.
Business
Environment and Opportunities
The aging of the worldwide population
along with lifestyle changes, continued cost containment pressures on healthcare
systems and the desire of clinicians and administrators to use less invasive (or
noninvasive) procedures are important trends which are driving the growth in our
industry. We believe that with our broad product offering of high
quality surgical and patient care products, we can capitalize on this growth for
the benefit of the Company and our shareholders.
In order to further our growth
prospects, we have historically used strategic business acquisitions and
exclusive distribution relationships to continue to diversify our product
offerings, increase our market share and realize economies of
scale.
We have a variety of research and
development initiatives focused in each of our principal product lines. Among
the most significant of these efforts is the Endotracheal Cardiac Output Monitor
(“ECOM”). Our ECOM product offering is expected to provide an innovative
alternative to catheter monitoring of cardiac output with a specially designed
endotracheal tube which utilizes proprietary bio-impedance technology. Also of
significance are our research and development efforts in the area of
tissue-sealing for electrosurgery.
Continued innovation and
commercialization of new proprietary products and processes are essential
elements of our long-term growth strategy. In March 2008, we unveiled
several new products at the American Academy of Orthopaedic Surgeons Annual
Meeting which we believe will further enhance our arthroscopy and powered
surgical instrument product offerings. Our reputation as an innovator
is exemplified by these
product
introductions, which include the following: the Spectrum® MVP™ Shoulder Suture
Passer, an innovative suture passing device for arthroscopic shoulder repair;
the Sentinel™ Drill Bits which allows for safe and accurate drilling into the
femoral tunnels during anterior cruciate ligament, or ACL, surgery;
the Shutt® Series 210™ Instruments for Hip Arthroscopy, manual instruments which
allow for working in deep joints such as the hip; EL Microfracture Awls and
Sterilization Tray which allow for easier access in difficult-to-reach areas and
for use in hip arthroscopy; Smart Screw® II, a comprehensive line of
bioabsorbable bone fixation implants; ThRevo® with HiFi, a shoulder anchor that
incorporates the advantage of the HiFi high strength suture; PRO7020 Cordless
Revision Attachment for Battery Handpieces, which are the only cordless revision
attachments on the market and are used for cement removal in orthopedic revision
surgery; Intrex™ Blade Line, a blade system composed of six blade profiles in
seven different thicknesses for a comprehensive system of large bone saw blades;
HD Arthroscope, the first high definition, or HD, arthroscope on the market
ensures maximized transmission of high contrast light from the arthroscope into
the True HD camera head; and the Single Chip Enhanced Definition Camera System,
which incorporates a camera and image capture in the same device; and the HD
Lightsource.
Business
Challenges
Our Endoscopic Technologies operating
segment has suffered from sales declines and operating losses since its
acquisition from C.R. Bard in September 2004. We have corrected the
operational issues associated with product shortages that resulted following the
acquisition of the Endoscopic Technologies business and continue to reduce costs
while also investing in new product development in an effort to increase sales
and ensure a return to profitability.
Our facilities are subject to periodic
inspection by the United States Food and Drug Administration (“FDA”) and foreign
regulatory agencies for, among other things, conformance to Quality System
Regulation and Current Good Manufacturing Practice (“CGMP”)
requirements. We are committed to the principles and strategies of
systems-based quality management for improved CGMP compliance, operational
performance and efficiencies through our Company-wide quality systems
initiative. However, there can be no assurance that our actions will
ensure that we will not receive a warning letter or other regulatory action
which may include consent decrees or fines.
Critical
Accounting Policies
Preparation of our financial statements
requires us to make estimates and assumptions which affect the reported amounts
of assets, liabilities, revenues and expenses. Note 1 to the
consolidated financial statements in our Annual Report on Form 10-K for the
year-ended December 31, 2007 describes significant accounting policies used in
preparation of the consolidated financial statements. The most
significant areas involving management judgments and estimates are described
below and are considered by management to be critical to understanding the
financial condition and results of operations of CONMED
Corporation. There have been no significant changes in our critical
accounting estimates during the quarter ended March 31, 2008.
Revenue
Recognition
Revenue is recognized when title has
been transferred to the customer which is at the time of
shipment. The following policies apply to our major categories of
revenue transactions:
|
Ÿ
|
Sales
to customers are evidenced by firm purchase orders. Title and the risks
and rewards of ownership are transferred to the customer when product is
shipped under our stated shipping terms. Payment by the
customer is due under fixed payment
terms.
|
|
Ÿ
|
We
place certain of our capital equipment with customers in return for
commitments to purchase disposable products over time periods generally
ranging from one to three years. In these circumstances, no
revenue is recognized upon capital equipment shipment and we recognize
revenue upon the disposable product shipment. The cost of the
equipment is amortized over the term of individual commitment
agreements.
|
|
Ÿ
|
Product
returns are only accepted at the discretion of the Company and in
accordance with our “Returned Goods Policy”. Historically the
level of product returns has not been significant. We accrue
for sales returns, rebates and allowances based upon an analysis of
historical customer returns and credits, rebates, discounts and current
market conditions.
|
|
Ÿ
|
Our
terms of sale to customers generally do not include any obligations to
perform future services. Limited warranties are provided for
capital equipment sales and provisions for warranty are provided at the
time of product sale based upon an analysis of historical
data.
|
|
Ÿ
|
Amounts
billed to customers related to shipping and handling have been included in
net sales. Shipping and handling costs are included in selling
and administrative expense.
|
|
Ÿ
|
We
sell to a diversified base of customers around the world and, therefore,
believe there is no material concentration of credit
risk.
|
|
Ÿ
|
We
assess the risk of loss on accounts receivable and adjust the allowance
for doubtful accounts based on this risk
assessment. Historically, losses on accounts receivable have
not been material. Management believes that the allowance for
doubtful accounts of $0.9 million at March 31, 2008 is adequate to provide
for probable losses resulting from accounts
receivable.
|
Inventory
Reserves
We maintain reserves for excess and
obsolete inventory resulting from the inability to sell our products at prices
in excess of current carrying costs. The markets in which we operate
are highly competitive, with new products and surgical procedures introduced on
an on-going basis. Such marketplace changes may result in our
products becoming obsolete. We make estimates regarding the future
recoverability of the costs of our products and record a provision for excess
and obsolete inventories based on historical experience, expiration of
sterilization dates and expected future trends. If actual product
life cycles, product demand or acceptance of new product introductions are less
favorable than projected by management, additional inventory write-downs may be
required. We believe that our current inventory reserves are
adequate.
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 $289.4 million and other intangible assets of $199.3 million
as of March 31, 2008.
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. The identification and measurement of goodwill impairment
involves the estimation of the fair value of our business. 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. Intangible
assets which continue to be subject to amortization are also evaluated to
determine whether events and circumstances warrant a revision to the remaining
period of amortization. An intangible asset is determined to be
impaired when estimated undiscounted future cash flows indicate that the
carrying amount of the asset may not be recoverable. An impairment
loss is recognized by reducing the recorded value to its current fair
value. It is our policy to perform annual impairment tests in the
fourth quarter.
Pension
Plan
We sponsor a defined benefit pension
plan covering substantially all our United States-based
employees. Major assumptions used in accounting for the plan include
the discount rate, expected return on plan assets, rate of increase in employee
compensation levels and expected mortality. Assumptions are
determined based on Company data and appropriate market indicators, and are
evaluated annually as of the plan’s measurement date. A change in any
of these assumptions would have an effect on net periodic pension costs reported
in the consolidated financial statements.
The discount rate was determined by
using the Citigroup Pension Liability Index rate which, we believe, is a
reasonable indicator of our plan’s future benefit payment
stream. This rate, which increased from 5.90% in 2007 to 6.48% in
2008, is used in determining pension expense. This change in
assumption will result in lower pension expense during 2008.
We have used an expected rate of return
on pension plan assets of 8.0% for purposes of determining the net periodic
pension benefit cost. In determining the expected return on pension
plan assets, we consider the relative weighting of plan assets, the historical
performance of total plan assets and individual asset classes and economic and
other indicators of future performance. In addition, we consult with
financial and investment management professionals in developing appropriate
targeted rates of return.
We have estimated our rate of increase
in employee compensation levels at 3.0% consistent with our internal
budgeting.
Based on these and other factors, 2008
pension expense is estimated at approximately $6.7 million compared to $6.9
million in 2007. Actual expense may vary significantly from this
estimate. For the three month period ended March 31, 2008 we recorded $1.7
million in pension expense.
Stock
Based Compensation
In accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”
(“SFAS 123R”) all share-based payments to employees, including grants of
employee stock options, restricted stock units, and stock appreciation rights
are recognized in the financial statements based at their fair
values. Compensation expense is recognized using a straight-line
method over the vesting period.
Income
Taxes
The recorded future tax benefit arising
from net deductible temporary differences and tax carryforwards is approximately
$24.9 million at March 31, 2008. Management believes that earnings
during the periods when the temporary differences become deductible will be
sufficient to realize the related future income tax benefits.
We operate in multiple taxing
jurisdictions, both within and outside the United States. We face
audits from these various tax authorities regarding the amount of taxes
due. Such audits can involve complex issues and may require an
extended period of time to resolve. The Internal Revenue Service
(“IRS”) has completed examinations of our United States federal income tax
returns through 2006. Tax years subsequent to 2006 are subject to
future examination.
We have established a valuation
allowance to reflect the uncertainty of realizing the benefits of certain net
operating loss carryforwards recognized in connection with an
acquisition. Any subsequently recognized tax benefits associated with
the valuation allowance would be allocated to reduce
goodwill. However, upon adoption of Statement of Financial Accounting
Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”) on
January 1, 2009, changes in deferred tax valuation allowances and income tax
uncertainties after the acquisition date, including those associated with
acquisitions that closed prior to the effective date of SFAS 141R, generally
will affect income tax expense. In assessing the need for a valuation allowance,
we estimate future taxable income, considering the feasibility of ongoing tax
planning strategies and the realizability of tax loss
carryforwards. Valuation allowances related to deferred tax assets
may be impacted by changes to tax laws, changes to statutory tax rates and
future taxable income levels.
Results
of operations
Three
months ended March 31, 2008 compared to three months ended March 31,
2007
The following table presents, as a
percentage of net sales, certain categories included in our consolidated
statements of income for the periods indicated:
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of sales
|
|
|
50.2 |
|
|
|
48.8 |
|
Gross profit
|
|
|
49.8 |
|
|
|
51.2 |
|
Selling
and administrative expense
|
|
|
35.0 |
|
|
|
36.0 |
|
Research
and development expense
|
|
|
4.4 |
|
|
|
4.2 |
|
Other
expense (income)
|
|
|
(3.2 |
) |
|
|
- |
|
Income from
operations
|
|
|
13.6 |
|
|
|
11.0 |
|
Interest
expense
|
|
|
2.6 |
|
|
|
1.6 |
|
Income before income
taxes
|
|
|
11.0 |
|
|
|
9.4 |
|
Provision
for income taxes
|
|
|
4.0 |
|
|
|
3.6 |
|
Net income
|
|
|
7.0 |
% |
|
|
5.8 |
% |
Sales for the quarterly period ended
March 31, 2008 were $190.8 million, an increase of $19.8 million (11.6%)
compared to sales of $171.0 million in the comparable 2007 period with increases
in the Arthroscopy, Powered Surgical Instruments, Electrosurgery and Endosurgery
product lines offsetting a flat performance in Patient Care and a decline in the
Endoscopic Technologies line. Favorable foreign currency exchange
rates (when compared to the foreign currency exchange rates in the same period a
year ago) accounted for approximately $5.1 million of the increase as did
the purchase of our Italian distributor (see Note 14 to the
Consolidated Condensed Financial Statements).
Cost of sales increased to $93.0
million in the quarterly period ended March 31, 2008 as compared to $85.8
million in the same period a year ago on overall increases in sales volumes as
described above. Gross profit margins increased 1.4 percentage points
to 51.2% in the quarterly period ended March 31, 2008 as compared to 49.8% in
the same period a year ago. The increase in gross profit margins of
1.4 percentage points is primarily a result of the favorable foreign currency
exchanges rates discussed above.
Selling and administrative expense
increased to $68.6 million in the quarterly period ended March 31, 2008 as
compared to $59.8 million in the same period a year ago. Selling and
administrative expense as a percentage of net sales increased to 36.0% in the
quarterly period ended March 31, 2008 as compared to 35.0% in the same period a
year ago. This increase of 1.0 percentage points is primarily
attributable to higher selling and administrative expense associated with our
newly acquired direct sales operation in Italy.
Research and development expense
totaled $8.1 million in the quarterly period ended March 31, 2008 as compared to
$7.6 million in the same period a year ago. As a percentage of net
sales, research and development expense declined 0.2 percentage points to 4.2%
in the quarterly period ended March 31, 2008 as compared to 4.4% in the same
period a year ago. The decrease in research and development expense
as a percentage of sales is the result of the timing of expenditures with
overall research and development expense expected to remain consistent at 4.0% –
4.5% of sales.
As discussed in Note 10 to the
Consolidated Condensed Financial Statements, other expense (income) in the
quarterly period ended March 31, 2007 consisted of a $0.6 million charge related
to the closing of a manufacturing facility and a sales office, $0.1 million
charge related to the termination of a product offering, and $6.1 million in
income related to the settlement of the antitrust case with Johnson &
Johnson.
Interest expense in the quarterly
period ended March 31, 2008 was $3.2 million as compared to $4.5 million in the
same period a year ago. The decrease in interest expense is due
primarily to lower weighted average borrowings outstanding in the quarterly
period ended March 31, 2008 as compared to the same period a year
ago. The weighted average interest rates on our borrowings (inclusive
of the finance charge on our accounts receivable sale facility) also declined to
4.44% in the quarterly period ended March 31, 2008 as compared to 5.12% in the
same period a year ago.
A provision for income taxes has been
recorded at an effective tax rate of 38.4% for the quarterly period ended March
31, 2008 compared to the 36.3% effective tax rate recorded in the same period a
year ago. The effective tax rate for the quarterly period ended March
31, 2008 is higher than that recorded in the same period a year ago primarily as
a result of the expiration of the research and development tax credit on
December 31, 2007. A reconciliation of the United States statutory
income tax rate to our effective tax rate is included in our Annual Report on
Form 10-K for the year-ended December 31, 2007, Note 6 to the Consolidated
Financial Statements.
Operating
Segment Results:
Segment information is prepared on the
same basis that we review financial information for operational decision-making
purposes. We conduct our business through five principal operating
segments: CONMED Endoscopic Technologies, CONMED Endosurgery, CONMED
Electrosurgery, CONMED Linvatec and CONMED Patient Care. Based upon
the aggregation criteria for segment reporting under Statement of Financial
Accounting Standards No. 131 “Disclosures about Segments of an Enterprise and
Related Information” (“SFAS 131”), we have grouped our CONMED Endosurgery,
CONMED Electrosurgery and CONMED Linvatec operating units into a single
segment. The economic characteristics of CONMED Patient Care and
CONMED Endoscopic Technologies do not meet the criteria for aggregation due to
the lower overall operating income (loss) of these segments.
The
following tables summarize the Company’s results of operations by segment for
the quarterly period ended March 31, 2007 and 2008:
CONMED
Endosurgery, CONMED Electrosurgery and CONMED Linvatec
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
137,394 |
|
|
$ |
157,965 |
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
18,793 |
|
|
|
27,497 |
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
|
13.7 |
% |
|
|
17.4 |
% |
Product offerings include a complete
line of endo-mechanical instrumentation for minimally invasive laparoscopic
procedures, electrosurgical generators and related surgical instruments,
arthroscopic instrumentation for use in orthopedic surgery and small bone, large
bone and specialty powered surgical instruments.
|
Ÿ
|
Arthroscopy
sales increased $13.6 million (21.9%) in the quarterly period ended March
31, 2008 to $75.8 million from $62.2 million in the comparable 2007 period
as a result of increased sales of our procedure specific, resection and
video imaging products for arthroscopy and general surgery, and our
integrated operating room systems and
equipment.
|
|
Ÿ
|
Powered
surgical instrument sales increased $2.6 million (6.9%) in the quarterly
period ended March 31, 2008 to $40.2 million from $37.6 million in the
comparable 2007 period, as a result of increased sales of our small bone
powered instrument handpieces.
|
|
Ÿ
|
Electrosurgery
sales increased $2.8 million (11.7%) in the quarterly period ended March
31, 2008 to $26.8 million from $24.0 million in the comparable 2007
period, as a result of increased sales of electrosurgical generators, ABC®
handpieces and related accessories.
|
|
Ÿ
|
Endosurgery
sales increased $1.6 million (11.8%) in the quarterly period ended March
31, 2008 to $15.2 million from $13.6 million in the comparable 2007 period
as a result of increased sales of suction irrigation and hand held
instruments.
|
|
Ÿ
|
Operating
margins as a percentage of net sales increased 3.7 percentage points to
17.4% in 2008 compared to 13.7% in 2007 principally as a result of higher
gross margins due to favorable foreign currency exchanges
rates.
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
20,361 |
|
|
$ |
20,311 |
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
1,027 |
|
|
|
554 |
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
|
5.0 |
% |
|
|
2.7 |
% |
Product offerings include a line of
vital signs and cardiac monitoring products including pulse oximetry equipment
& sensors, ECG electrodes and cables, cardiac defibrillation & pacing
pads and blood pressure cuffs. We also offer a complete line of
reusable surgical patient positioners and suction instruments & tubing for
use in the operating room, as well as a line of IV products.
|
Ÿ
|
Patient
care sales were flat in the quarterly period ended March 31, 2008 when
compared to the same period a year
ago.
|
|
Ÿ
|
Operating
margins as a percentage of net sales decreased 2.3 percentage points to
2.7% in 2008 compared to 5.0% in 2007. The decrease in
operating margins was driven by higher research and development spending
on the development of the ECOM project which is currently undergoing
clinical evaluations (1.6 percentage points) with the remainder of the
increase (0.7 percentage points) generally due to higher sales
force-related expense.
|
CONMED
Endoscopic Technologies
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
13,259 |
|
|
$ |
12,497 |
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(1,211 |
) |
|
|
(2,479 |
) |
|
|
|
|
|
|
|
|
|
Operating
Margin
|
|
|
(9.1 |
%) |
|
|
(19.8 |
%) |
Product offerings include a
comprehensive line of minimally invasive endoscopic diagnostic and therapeutic
instruments used in procedures which require examination of the digestive
tract.
|
Ÿ
|
Endoscopic
Technologies sales decreased $0.8 million (-6.0%) in the quarterly period
ended March 31, 2008 to $12.5 million from $13.3 million in the comparable
2007 period as a result of decreased sales in our forceps, hemostasis and
pulmonary products as a result of strong competition and pricing
pressures.
|
|
Ÿ
|
Operating
margins as a percentage of net sales decreased 10.7 percentage points to
-19.8% in 2008 compared to -9.1% in 2007. This decrease is
principally a result of lower gross margins (-9.8 percentage points) due
to lower sales volumes resulting in unfavorable manufacturing
variances.
|
Liquidity
and capital resources
Our liquidity needs arise primarily
from capital investments, working capital requirements and payments on
indebtedness under the senior credit agreement. We have historically
met these liquidity requirements with funds generated from operations, including
sales of accounts receivable and borrowings under our revolving credit
facility. In addition, we use term borrowings, including borrowings
under our senior credit agreement and borrowings under separate loan facilities,
in the case of real property purchases, to finance our
acquisitions. We also have the ability to raise funds through the
sale of stock or we may issue debt through a private placement or public
offering.
Cash
provided by operations
Our net working capital position was
$211.3 million at March 31, 2008. Net cash provided by operating
activities was $20.8 million in the quarterly period ended March 31, 2008 and
$11.2 million in the quarterly period ended March 31, 2007.
Net cash provided by operating
activities increased by $9.6 million in 2008 as compared to 2007 on slightly
lower net income in the current quarter as compared to the 2007 period primarily
as a result of the non-cash nature of the gain on the settlement of the Johnson
& Johnson litigation as of March 31, 2007. The Johnson &
Johnson settlement monies were not received until the second quarter of 2007
(see Note 10 to the Consolidated Condensed Financial Statements for further
discussion). In addition, improved working capital management
resulted in lower growth in inventories as compared to the same period a year
ago as we expand our lean manufacturing initiatives.
Investing
cash flows
Net cash used in investing activities
in the quarterly period ended March 31, 2008 consisted of capital expenditures
and $14.6 million paid in connection with the purchase of our Italian
distributor (the “Italy acquisition”). See Note 14 to the
Consolidated Condensed Financial Statements for further discussion of the Italy
acquisition. Capital expenditures were $3.9 million and $6.0 million
for the quarterly period ended March 31, 2007 and 2008,
respectively. The increase in capital expenditures in the quarterly
period ended March 31, 2008 as compared to the same period a year ago is
primarily due to the ongoing implementation of an enterprise business software
application as well various other infrastructure improvements.
Financing
cash flows
Net cash provided by financing
activities in the three months ended March 31, 2008 consisted of $0.2 million in
proceeds from the issuance of common stock under our stock
option
plans and employee stock purchase plan and $0.1 million in repayments of
long-term borrowings.
Our $235.0 million senior credit
agreement (the "senior credit agreement") consists of a $100.0 million revolving
credit facility and a $135.0 million term loan. There were no
borrowings outstanding on the revolving credit facility as of March 31,
2008. Our available borrowings on the revolving credit facility at
March 31, 2008 were $94.0 million with approximately $6.0 million of the
facility set aside for outstanding letters of credit. There were
$58.7 million in borrowings outstanding on the term loan at March 31,
2008.
The scheduled principal payments on the
term loan portion of the senior credit agreement are $1.4 million annually
through December 2011, increasing to $53.6 million in 2012 with the remaining
balance outstanding due and payable on April 12, 2013. We may also be
required, under certain circumstances, to make additional principal payments
based on excess cash flow as defined in the senior credit
agreement. Interest rates on the term loan portion of the senior
credit agreement are at LIBOR plus 1.50% (4.18% at March 31, 2008) or an
alternative base rate; interest rates on the revolving credit facility portion
of the senior credit agreement are at LIBOR plus 1.375% or an alternative base
rate. For those borrowings where the Company elects to use the
alternative base rate, the base rate will be the greater of the Prime Rate or
the Federal Funds Rate in effect on such date plus 0.50%, plus a margin of 0.50%
for term loan borrowings or 0.375% for borrowings under the revolving credit
facility.
The senior credit agreement is
collateralized by substantially all of our personal property and assets, except
for our accounts receivable and related rights which are pledged in connection
with our accounts receivable sales agreement. The senior credit
agreement contains covenants and restrictions which, among other things, require
the maintenance of certain financial ratios, and restrict dividend payments and
the incurrence of certain indebtedness and other activities, including
acquisitions and dispositions. We were in full compliance with these
covenants and restrictions as of March 31, 2008. We are also
required, under certain circumstances, to make mandatory prepayments from net
cash proceeds from any issue of equity and asset sales.
Mortgage notes outstanding in
connection with the property and facilities utilized by our CONMED Linvatec
subsidiary consist of a note bearing interest at 7.50% per annum with semiannual
payments of principal and interest through June 2009 (the "Class A note"); and a
note bearing interest at 8.25% per annum compounded semiannually through June
2009, after which semiannual payments of principal and interest will commence,
continuing through June 2019 (the "Class C note"). The principal
balances outstanding on the Class A note and Class C note aggregated $3.4
million and $10.6 million, respectively, at March 31, 2008. These
mortgage notes are secured by the CONMED Linvatec property and
facilities.
We have outstanding $150.0 million in
2.50% convertible senior subordinated notes (the “Notes”) due
2024. The Notes represent subordinated unsecured obligations and are
convertible under certain circumstances, as defined in the bond indenture, into
a combination of cash and CONMED common stock. Upon conversion, the
holder of each Note will receive the conversion value of the Note payable in
cash up to the principal amount of the Note and CONMED common stock for the
Note’s conversion value in excess of such principal amount. Amounts
in excess of the principal amount are at an initial conversion rate, subject to
adjustment, of 26.1849 shares per $1,000 principal amount of the Note (which
represents an initial conversion price of $38.19 per share). The
Notes mature on November 15, 2024 and are not redeemable by us prior to November
15, 2011.
Holders
of the Notes will be able to require that we repurchase some or all of the Notes
on November 15, 2011, 2014 and 2019.
The Notes
contain two embedded derivatives. The embedded derivatives are
recorded at fair value in other long-term liabilities and changes in their value
are recorded through the consolidated statements of operations. The
embedded derivatives have a nominal value, and it is our belief that any change
in their fair value would not have a material adverse effect on our business,
financial condition, results of operations or cash flows.
Our Board of Directors has authorized a
share repurchase program under which we may repurchase up to $50.0 million of
our common stock in any calendar year. We did not repurchase any
shares during the first quarter of 2008. We have financed the
repurchases and may finance additional repurchases through the proceeds from the
issuance of common stock under our stock option plans, from operating cash flow
and from available borrowings under our revolving credit facility.
Management believes that cash flow from
operations, including accounts receivable sales, cash and cash equivalents on
hand and available borrowing capacity under our senior credit agreement will be
adequate to meet our anticipated operating working capital requirements, debt
service, funding of capital expenditures and common stock repurchases in the
foreseeable future.
Off-balance
sheet arrangements
We have an accounts receivable sales
agreement pursuant to which we and certain of our subsidiaries sell on an
ongoing basis certain accounts receivable to CONMED Receivables Corporation
(“CRC”), a wholly-owned, bankruptcy-remote, special-purpose subsidiary of CONMED
Corporation. CRC may in turn sell up to an aggregate $50.0 million
undivided percentage ownership interest in such receivables (the “asset
interest”) to a bank (the “purchaser”). The purchaser’s share of
collections on accounts receivable are calculated as defined in the accounts
receivable sales agreement, as amended. Effectively, collections on
the pool of receivables flow first to the purchaser and then to CRC, but to the
extent that the purchaser’s share of collections may be less than the amount of
the purchaser’s asset interest, there is no recourse to CONMED or CRC for such
shortfall. For receivables which have been sold, CONMED Corporation
and its subsidiaries retain collection and administrative responsibilities as
agent for the purchaser. As of March 31, 2008, the undivided
percentage ownership interest in receivables sold by CRC to the purchaser
aggregated $48.0 million, which has been accounted for as a sale and reflected
in the balance sheet as a reduction in accounts receivable. Expenses
associated with the sale of accounts receivable, including the purchaser’s
financing costs to purchase the accounts receivable were $0.6 million in the
three month period ended March 31, 2008 and are included in interest
expense.
There are certain statistical ratios,
primarily related to sales dilution and losses on accounts receivable, which
must be calculated and maintained on the pool of receivables in order to
continue selling to the purchaser. The pool of receivables is in full
compliance with these ratios. Management believes that additional
accounts receivable arising in the normal course of business will be of
sufficient quality and quantity to meet the requirements for sale under the
accounts receivables sales agreement. In the event that new accounts
receivable arising in the normal course of business do not qualify for sale,
then collections on sold receivables will flow to the purchaser rather than
being used to fund new receivable purchases. To the extent that such
collections would not be available to CONMED in the form of new receivables
purchases, we would need to access an alternate source of working capital, such
as our $100 million revolving credit facility. Our accounts
receivable sales agreement, as
amended,
also requires us to obtain a commitment (the “purchaser commitment”) from the
purchaser to fund the purchase of our accounts receivable. The
purchaser commitment was amended effective December 28, 2007 whereby it was
extended through October 31, 2009 under substantially the same terms and
conditions.
New
accounting pronouncements
See Note 13 to the Consolidated
Condensed Financial Statements for a discussion of new accounting
pronouncements.
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
There have been no significant changes
in our primary market risk exposures or in how these exposures are managed
during the three month period ended March 31, 2008. Reference is made
to Item 7A. of our Annual Report on Form 10-K for the year-ended December 31,
2007 for a description of Qualitative and Quantitative Disclosures About Market
Risk.
Item
4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of
the design and operation of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (“Exchange Act”)) was carried out under the supervision and
with the participation of the Company’s management, including the President and
Chief Executive Officer and the Vice President-Finance and Chief Financial
Officer (“the Certifying Officers”) as of March 31, 2008. Based on
that evaluation, the Certifying Officers concluded that the Company’s disclosure
controls and procedures are effective. There have been no changes in
the Company’s internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter
ended March 31, 2008 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
PART
II OTHER INFORMATION
Item
1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the
Company’s Annual Report on Form 10-K for the year-ended December 31, 2007 and to
Note 12 of the Notes to Consolidated Condensed Financial Statements included in
Part I of this Report for a description of certain legal matters.
Exhibit
No.
|
Description of
Exhibit
|
|
|
|
Certification
of Joseph J. Corasanti pursuant to Rule 13a-14(a) or Rule 15d-14(a), of
the Securities Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
Certification
of Robert D. Shallish, Jr. pursuant to Rule 13a-14(a) or Rule 15d-14(a),
of the Securities Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
Certification
of Joseph J. Corasanti and Robert D.Shallish, Jr. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
|
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)
|
|
|
|
|
|
|
|
Date: May
1, 2008
|
|
|
|
|
|
|
/s/
Robert D. Shallish, Jr.
|
|
|
Robert
D. Shallish, Jr.
|
|
|
Vice
President - Finance
|
|
|
(Principal
Financial Officer)
|
|
Exhibit
Index
|
|
Sequential
Page
|
Exhibit
|
|
Number
|
|
|
|
31.1
|
Certification
of Joseph J. Corasanti pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
E-1
|
|
|
|
|
|
|
31.2
|
Certification
of Robert D. Shallish, Jr. pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
E-2
|
|
|
|
32.1
|
Certification
of Joseph J. Corasanti and Robert D. Shallish, Jr. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
E-3
|
29