form10q-93751_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
|
June
30, 2008
|
0-16093
|
CONMED
CORPORATION
(Exact
name of the 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 oNo ý
The number of shares outstanding of
registrant's common stock, as of July 30, 2008 is 28,751,229
shares.
QUARTERLY
REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED JUNE 30, 2008
Item
Number
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
2
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
30
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
30
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
PART
I FINANCIAL
INFORMATION
CONMED
CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited,
in thousands except per share amounts)
|
|
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 |
|
|
|
184,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
85,860 |
|
|
|
100,890 |
|
|
|
171,085 |
|
|
|
198,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expense
|
|
|
58,207 |
|
|
|
69,549 |
|
|
|
118,012 |
|
|
|
138,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expense
|
|
|
7,453 |
|
|
|
8,689 |
|
|
|
15,047 |
|
|
|
16,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense (income)
|
|
|
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 |
|
See notes
to consolidated condensed financial statements.
CONSOLIDATED
CONDENSED BALANCE SHEETS
(Unaudited,
in thousands except share and per share amounts)
|
|
December
31,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,695 |
|
|
$ |
17,850 |
|
Accounts
receivable, net
|
|
|
80,642 |
|
|
|
106,317 |
|
Inventories
|
|
|
164,969 |
|
|
|
161,057 |
|
Income
taxes receivable
|
|
|
1,425 |
|
|
|
- |
|
Deferred
income taxes
|
|
|
11,697 |
|
|
|
11,664 |
|
Prepaid
expenses and other current assets
|
|
|
8,594 |
|
|
|
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 |
|
Accounts
payable
|
|
|
38,987 |
|
|
|
36,111 |
|
Accrued
compensation and benefits
|
|
|
19,724 |
|
|
|
19,144 |
|
Other
current liabilities
|
|
|
15,224 |
|
|
|
17,000 |
|
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 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and
|
|
|
|
|
|
|
|
|
31,299,203
shares issued in 2007 and 2008,
|
|
|
|
|
|
|
|
|
respectively
|
|
|
313 |
|
|
|
313 |
|
Paid-in
capital
|
|
|
287,926 |
|
|
|
289,219 |
|
Retained
earnings
|
|
|
284,850 |
|
|
|
307,997 |
|
Accumulated
other comprehensive income (loss)
|
|
|
(505 |
) |
|
|
2,375 |
|
Less
2,684,163 and 2,616,107 shares of common stock in
|
|
|
|
|
|
|
|
|
treasury,
at cost in 2007 and 2008, respectively
|
|
|
(67,582 |
) |
|
|
(65,868 |
) |
Total
shareholders’ equity
|
|
|
505,002 |
|
|
|
534,036 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
893,951 |
|
|
$ |
938,047 |
|
See notes
to consolidated condensed financial statements.
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited,
in thousands)
|
|
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
|
|
|
6,134 |
|
|
|
6,621 |
|
Amortization
|
|
|
9,266 |
|
|
|
8,908 |
|
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 |
) |
Accrued
compensation and benefits
|
|
|
(2,388 |
) |
|
|
(843 |
) |
Other
assets
|
|
|
619 |
|
|
|
(1,081 |
) |
Other
liabilities
|
|
|
(1,802 |
) |
|
|
(6,399 |
) |
|
|
|
4,531 |
|
|
|
11,621 |
|
Net
cash provided by operating activities
|
|
|
25,798 |
|
|
|
35,086 |
|
|
|
|
|
|
|
|
|
|
Cash
flows 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
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
proceeds from common stock issued
|
|
|
|
|
|
|
|
|
under
employee plans
|
|
|
10,604 |
|
|
|
595 |
|
Payments
on senior credit agreement
|
|
|
(26,326 |
) |
|
|
(675 |
) |
Proceeds
of senior credit agreement
|
|
|
- |
|
|
|
7,000 |
|
Payments
on mortgage notes
|
|
|
(471 |
) |
|
|
(538 |
) |
Net
change in cash overdrafts
|
|
|
(236 |
) |
|
|
- |
|
Net
cash provided by
|
|
|
|
|
|
|
|
|
(used
in) financing activities
|
|
|
(16,429 |
) |
|
|
6,382 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes
|
|
|
|
|
|
|
|
|
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 |
|
See notes
to consolidated condensed financial statements.
CONMED
CORPORATION
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited,
in thousands except 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 June 30, 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
|
|
|
Six
months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
9,345 |
|
|
$ |
12,455 |
|
|
$ |
21,267 |
|
|
$ |
23,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
liability
|
|
|
144 |
|
|
|
90 |
|
|
|
289 |
|
|
|
180 |
|
Foreign
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
adjustment
|
|
|
1,452 |
|
|
|
715 |
|
|
|
1,941 |
|
|
|
2,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
10,941 |
|
|
$ |
13,260 |
|
|
$ |
23,497 |
|
|
$ |
26,345 |
|
Accumulated
other comprehensive income consists of the following:
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Minimum
|
|
|
Cumulative
|
|
|
Other
|
|
|
|
Pension
|
|
|
Translation
|
|
|
Comprehensive
|
|
|
|
Liability
|
|
|
Adjustments
|
|
|
Income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$ |
(9,563 |
) |
|
$ |
9,058 |
|
|
$ |
(505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
liability
|
|
|
180 |
|
|
|
- |
|
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
|
- |
|
|
|
2,700 |
|
|
|
2,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
|
$ |
(9,383 |
) |
|
$ |
11,758 |
|
|
$ |
2,375 |
|
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. Nonrecurring
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 June 30, 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,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
60,081 |
|
|
$ |
53,717 |
|
|
|
|
|
|
|
|
|
|
Work-in-process
|
|
|
18,669 |
|
|
|
21,055 |
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
|
86,219 |
|
|
|
86,285 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
164,969 |
|
|
$ |
161,057 |
|
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 and six month
periods ended June 30, 2007 and 2008.
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
9,345 |
|
|
$ |
12,455 |
|
|
$ |
21,267 |
|
|
$ |
23,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
– weighted average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
28,180 |
|
|
|
28,662 |
|
|
|
27,988 |
|
|
|
28,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive potential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
651 |
|
|
|
401 |
|
|
|
620 |
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
– weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
28,831 |
|
|
|
29,063 |
|
|
|
28,608 |
|
|
|
29,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
.33 |
|
|
$ |
.43 |
|
|
$ |
.76 |
|
|
$ |
.82 |
|
Diluted
EPS
|
|
|
.32 |
|
|
|
.43 |
|
|
|
.74 |
|
|
|
.81 |
|
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. Shares excluded from the calculation of diluted EPS
aggregated 0.3 and 0.6 million for the three and six months ended June 30, 2007,
respectively. Shares excluded from the calculation of diluted EPS aggregated 1.0
million for both the three and six months ended June 30,
2008. Upon conversion of our 2.50% convertible senior
subordinated notes (the "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 June 30, 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 six months ended June 30, 2008 are as follows:
Balance
as of January 1, 2008
|
|
$ |
289,508 |
|
|
|
|
|
|
Adjustments
to goodwill resulting from
|
|
|
|
|
business
acquisitions finalized
|
|
|
441 |
|
|
|
|
|
|
Foreign
currency translation
|
|
|
(182 |
) |
|
|
|
|
|
Balance
as of June 30, 2008
|
|
$ |
289,767 |
|
Goodwill associated with each of our
principal operating units is as follows:
|
|
December
31,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
CONMED
Electrosurgery
|
|
$ |
16,645 |
|
|
$ |
16,645 |
|
|
|
|
|
|
|
|
|
|
CONMED
Endosurgery
|
|
|
42,439 |
|
|
|
42,439 |
|
|
|
|
|
|
|
|
|
|
CONMED
Linvatec
|
|
|
171,332 |
|
|
|
171,150 |
|
|
|
|
|
|
|
|
|
|
CONMED
Patient Care
|
|
|
59,092 |
|
|
|
59,533 |
|
|
|
|
|
|
|
|
|
|
Balance
|
|
$ |
289,508 |
|
|
$ |
289,767 |
|
Other intangible assets consist of
the following:
|
|
December 31, 2007
|
|
|
June 30, 2008
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$ |
118,124 |
|
|
$ |
(28,000 |
) |
|
$ |
127,026 |
|
|
$ |
(30,096 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
and other intangible assets
|
|
|
39,812 |
|
|
|
(26,473 |
) |
|
|
40,231 |
|
|
|
(27,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
and tradenames
|
|
|
88,344 |
|
|
|
- |
|
|
|
88,344 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
246,280 |
|
|
$ |
(54,473 |
) |
|
$ |
255,601 |
|
|
$ |
(57,580 |
) |
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 $1,402 and
$2,557 in the three and six months ended June 30, 2007, respectively, and $1,559
and $3,107 in the three and six months ended June 30, 2008, respectively, and is
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 six month period ended June 30,
2008 and for each of the five succeeding years is as follows:
2008
|
6,286
|
2009
|
6,286
|
2010
|
6,227
|
2011
|
5,596
|
2012
|
5,502
|
2013
|
5,269
|
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 six months ended June 30, 2008 are as
follows:
Balance
as of January 1, 2008
|
|
$ |
3,306 |
|
|
|
|
|
|
Provision
for warranties
|
|
|
1,200 |
|
|
|
|
|
|
Claims
made
|
|
|
(1,446 |
) |
|
|
|
|
|
Balance
as of June 30, 2008
|
|
$ |
3,060 |
|
Note 9 – Pension
plan
Net periodic pension costs consist of
the following:
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
1,381 |
|
|
$ |
1,536 |
|
|
$ |
2,763 |
|
|
$ |
3,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
cost on projected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation
|
|
|
737 |
|
|
|
843 |
|
|
|
1,474 |
|
|
|
1,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
return on plan assets
|
|
|
(683 |
) |
|
|
(845 |
) |
|
|
(1,367 |
) |
|
|
(1,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
amortization and deferral
|
|
|
229 |
|
|
|
142 |
|
|
|
458 |
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic pension cost
|
|
$ |
1,664 |
|
|
$ |
1,676 |
|
|
$ |
3,328 |
|
|
$ |
3,352 |
|
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
$6.0 million in contributions for the six months ended June 30,
2008.
Note 10 – Other expense
(income)
Other
expense (income) consists of the following:
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
of product offering
|
|
$ |
58 |
|
|
$ |
- |
|
|
$ |
148 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
closure costs
|
|
|
1,254 |
|
|
|
- |
|
|
|
1,822 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation
settlement
|
|
|
- |
|
|
|
- |
|
|
|
(6,072 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense (income)
|
|
$ |
1,312 |
|
|
$ |
- |
|
|
$ |
(4,102 |
) |
|
$ |
- |
|
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 will now be 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
Endoscopic Technologies sales office in France. During the three and
six months ended June 30, 2007, we incurred $1.3 million and $1.5 million in
costs associated with this closure primarily related to severance
expense. We have recorded such costs in other expense (income); no
further expenses are expected to be incurred.
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 had 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 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 units, 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
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 units
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 in the digestive
tract.
The following is net sales information
by product line and reportable segment:
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthroscopy
|
|
|
64,949 |
|
|
|
76,775 |
|
|
|
127,192 |
|
|
|
152,298 |
|
Powered
Surgical Instruments
|
|
|
35,993 |
|
|
|
39,718 |
|
|
|
73,543 |
|
|
|
80,175 |
|
CONMED
Linvatec
|
|
|
100,942 |
|
|
|
116,493 |
|
|
|
200,735 |
|
|
|
232,473 |
|
CONMED
Electrosurgery
|
|
|
22,123 |
|
|
|
25,856 |
|
|
|
46,149 |
|
|
|
52,640 |
|
CONMED
Endosurgery
|
|
|
15,465 |
|
|
|
17,284 |
|
|
|
29,040 |
|
|
|
32,485 |
|
CONMED
Linvatec, Endosurgery,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Electrosurgery
|
|
|
138,530 |
|
|
|
159,633 |
|
|
|
275,924 |
|
|
|
317,598 |
|
CONMED
Patient Care
|
|
|
17,315 |
|
|
|
19,807 |
|
|
|
37,676 |
|
|
|
40,118 |
|
CONMED
Endoscopic Technologies
|
|
|
13,413 |
|
|
|
13,315 |
|
|
|
26,672 |
|
|
|
25,812 |
|
Total
|
|
$ |
169,258 |
|
|
$ |
192,755 |
|
|
$ |
340,272 |
|
|
$ |
383,528 |
|
Total assets, capital expenditures,
depreciation and amortization information are not available by
segment.
The following is a reconciliation
between segment operating income and income before income taxes:
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONMED
Endosurgery, Electrosurgery
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Linvatec
|
|
$ |
24,916 |
|
|
$ |
27,678 |
|
|
$ |
43,709 |
|
|
$ |
55,175 |
|
CONMED
Patient Care
|
|
|
(1,265 |
) |
|
|
589 |
|
|
|
(238 |
) |
|
|
1,143 |
|
CONMED
Endoscopic Technologies
|
|
|
(2,432 |
) |
|
|
(2,366 |
) |
|
|
(3,643 |
) |
|
|
(4,845 |
) |
Corporate
|
|
|
(2,331 |
) |
|
|
(3,249 |
) |
|
|
2,300 |
|
|
|
(7,781 |
) |
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 |
|
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. With discovery essentially
completed, on July 21, 2008, the Company filed motions seeking summary judgment
and to decertify the class. In addition, on July 21, 2008, Plaintiffs
filed a motion seeking summary judgment. These motions are scheduled
to be heard on August 26, 2008, although there is no fixed time frame within
which the Court would then be required to rule on the motions. 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 and interim periods beginning after
November 15, 2008. The Company is currently assessing the impact of SFAS 161 on
its consolidated financial statements.
In May 2008, the FASB issued SFAS No.
162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162).
SFAS No. 162 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements.
SFAS No. 162 is effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles”. The
implementation of this standard will not have a material impact on our
consolidated financial statements.
In May 2008, the FASB issued FASB Staff
Position No. APB 14-1 (FSP). The FSP specifies that issuers of convertible debt
instruments that permit or require the issuer to pay cash upon conversion should
separately account for the liability and equity components in a manner that will
reflect the entity’s nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. The Company will need to apply the guidance
retrospectively to all past periods presented. The FSP is effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. We are currently assessing
the impact the adoption of APB 14-1 will have on our 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 and six month periods ended June 30, 2008.
Note 15 –
Restructuring
During the second quarter of 2008, we
announced a plan to restructure certain of our operations. The
restructuring plan includes the closure of two manufacturing facilities totaling
approximately 200,000 square feet and located in the Utica, New York area with
manufacturing to be transferred either into our Corporate headquarters location
in Utica, New York or into a newly constructed leased manufacturing facility in
Chihuahua, Mexico. In addition, manufacturing presently done by a
contract manufacturing facility in Juarez, Mexico will be transferred in-house
to the Chihuahua facility. Finally, certain domestic distribution
activities will be centralized in a new consolidated distribution center to be
leased in Atlanta, Georgia. We believe our restructuring plan will
reduce our cost base by consolidating our Utica, New York operations into a
single facility as well as expanding our lower cost Mexican operations, and
improve service to our customers by shipping orders from more centralized
distribution centers. The transition of manufacturing operations and
consolidation of distribution activities is scheduled to begin in the fourth
quarter of 2008 and is expected to be largely completed by the fourth quarter of
2009.
In conjunction with our restructuring
plan, we considered Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
SFAS 144 requires that long-lived assets be tested for recoverability
whenever events or changes in circumstances indicate that their carrying amount
may not be recoverable. Based on the announced restructuring plan, our
current expectation is that it is more likely than not, that the two
manufacturing facilities located in the Utica, New York area scheduled to be
closed as a result of the restructuring plan, will be sold prior to the end of
their previously estimated useful lives. Even though we expect to sell
these facilities prior to the end of their useful lives, we do not believe that
at present we meet the criteria contained within SFAS 144 to designate these
assets as held for sale and accordingly we have tested them for impairment under
the guidance for long-lived assets to be held and used. We performed our
impairment testing on the two manufacturing facilities scheduled to close under
the restructuring plan by comparing future cash flows expected to be generated
by these facilities (undiscounted and without interest charges) against their
carrying amounts ($2.3 million and $2.9 million, respectively, as of June 30,
2008). Since future cash flows expected to be generated by these
facilities exceeds their carrying amounts, we do not believe any impairment
exists at this time. However, we cannot be certain an impairment charge
will not be taken in the future when the facilities are no longer in
use.
We cannot currently estimate the costs
of the restructuring plan as details of the plan are still being finalized,
however we do not believe such costs will have a material impact on our
financial condition, results of operations or cash flows. During the
execution of our restructuring plan, we will incur certain charges, including
employee termination and other exit costs. However, based on the
criteria contained within Statement of Financial Accounting Standards No. 146
"Accounting for Costs Associated with Exit or Disposal Activities", no accrual
for such costs has been made at this time. The restructuring plan
impacts Corporate manufacturing and distribution facilities which support
multiple reporting segments. As a result, any costs associated with
the restructuring plan will be reflected in the Corporate line within our
business segment reporting.
Item 2.
|
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 “anticipated”, “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:
·
|
general
economic and business conditions;
|
·
|
cyclical
customer purchasing patterns due to budgetary and other
constraints;
|
·
|
changes
in customer preferences;
|
·
|
the
ability to evaluate, finance and integrate acquired businesses, products
and companies;
|
·
|
the
introduction and acceptance of new
products;
|
·
|
changes
in business strategy;
|
·
|
the
availability and cost of materials;
|
·
|
the
possibility that United States or foreign regulatory and/or administrative
agencies may initiate enforcement actions against us or our
distributors;
|
·
|
future
levels of indebtedness and capital
spending;
|
·
|
changes
in foreign exchange and interest
rates;
|
·
|
quality
of our management and business abilities and the judgment of our
personnel;
|
·
|
the
risk of litigation, especially patent litigation as well as the cost
associated with patent and other
litigation;
|
·
|
changes
in regulatory requirements; and
|
·
|
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
June
30,
|
|
|
Six
months ended
June
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthroscopy
|
|
|
38.3 |
% |
|
|
39.7 |
% |
|
|
37.4 |
% |
|
|
39.7 |
% |
Powered
Surgical Instruments
|
|
|
21.2 |
|
|
|
20.7 |
|
|
|
21.6 |
|
|
|
20.9 |
|
Patient
Care
|
|
|
10.3 |
|
|
|
10.3 |
|
|
|
11.1 |
|
|
|
10.5 |
|
Electrosurgery
|
|
|
13.1 |
|
|
|
13.4 |
|
|
|
13.5 |
|
|
|
13.7 |
|
Endosurgery
|
|
|
9.2 |
|
|
|
9.0 |
|
|
|
8.6 |
|
|
|
8.5 |
|
Endoscopic
Technologies
|
|
|
7.9 |
|
|
|
6.9 |
|
|
|
7.8 |
|
|
|
6.7 |
|
Consolidated Net Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
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 and
six months ended June 30, 2008, sales to purchasers outside of the United States
approximated 46% 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 Estimates
Preparation of our financial statements
requires us to make estimates and assumptions that 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 the 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 June 30, 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:
|
·
|
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.
|
|
·
|
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 the individual commitment
agreements.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
We
sell to a diversified base of customers around the world and, therefore,
believe there is no material concentration of credit
risk.
|
|
·
|
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 $0.8 million at June 30, 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 $289.8 million and other
intangible assets of $198.0 million as of June 30, 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.
On an annual basis, we perform an
assessment of the useful life and fair value of customer relationships. This
assessment includes a comparison of customer activity since the acquisition date
and review of customer attrition rates. 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. Although no goodwill or other intangible asset impairment has
been recorded in the current year, there can be no assurance that future
impairment will not occur. 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 and six months period ended June 30, 2008 we recorded
$1.7 million and $3.4 million, respectively, 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 June 30, 2008. Management believes that our 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
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
|
|
|
Six
months ended
June
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of sales
|
|
|
49.3 |
|
|
|
47.7 |
|
|
|
49.7 |
|
|
|
48.2 |
|
Gross profit
|
|
|
50.7 |
|
|
|
52.3 |
|
|
|
50.3 |
|
|
|
51.8 |
|
Selling
and administrative expense
|
|
|
34.4 |
|
|
|
36.0 |
|
|
|
34.7 |
|
|
|
36.0 |
|
Research
and development expense
|
|
|
4.4 |
|
|
|
4.5 |
|
|
|
4.4 |
|
|
|
4.4 |
|
Other
expense
|
|
|
0.7 |
|
|
|
0.0 |
|
|
|
(1.2 |
) |
|
|
0.0 |
|
Income
from operations
|
|
|
11.2 |
|
|
|
11.8 |
|
|
|
12.4 |
|
|
|
11.4 |
|
Interest
expense
|
|
|
2.6 |
|
|
|
1.3 |
|
|
|
2.6 |
|
|
|
1.5 |
|
Income before income
taxes
|
|
|
8.6 |
|
|
|
10.5 |
|
|
|
9.8 |
|
|
|
9.9 |
|
Provision
for income taxes
|
|
|
3.1 |
|
|
|
4.0 |
|
|
|
3.5 |
|
|
|
3.8 |
|
Net income
|
|
|
5.5 |
% |
|
|
6.5 |
% |
|
|
6.3 |
% |
|
|
6.1 |
% |
Three
months ended June 30, 2008 compared to three months ended June 30, 2007
–
Sales for the quarter ended June 30,
2008 were $192.8 million, an increase of $23.5 million (13.9%) compared to sales
of $169.3 million in the same period a year ago. Favorable foreign
currency exchange rates (when compared to the foreign currency exchange rates in
the same period a year ago) increased sales by approximately $5.1 million as did
the purchase of our Italian distributor by $3.7 million (see Note 14 to the
Consolidated Condensed Financial Statements).
Cost of sales increased to $91.9
million in the quarter ended June 30, 2008 compared to $83.4 million in the same
period a year ago on overall increases in sales volumes as described
above. Gross profit margins increased to 52.3% in the quarter ended
June 30, 2008 as compared to 50.7% in the same period a year ago. The
increase of 1.6 percentage points is comprised of favorable foreign exchange
rates (1.3 percentage points) and the newly acquired direct sales operation in
Italy (0.9 percentage points) offset by product mix (0.2 percentage points) and
lower gross margins in our Endoscopic Technologies business (0.4 percentage
points) due to pricing pressures and lower production volumes.
Selling and administrative expense
increased to $69.5 million in the quarter ended June 30, 2008 as compared to
$58.2 million in the same period a year ago. Selling and
administrative expense as a percentage of net sales increased 1.6 percentage
points to 36.0% in the quarter ended June 30, 2008 as compared to 34.4% in the
same period a year ago. The increase of 1.6 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 increased to $8.7 million in the quarter ended June 30, 2008 compared to
$7.5 million in the same period a year ago. As a percentage of net sales,
research and development expense increased to 4.5% in the quarter ended June 30,
2008, as compared to 4.4% in the same period a year
ago.
The 0.1
percentage point increase in research and development expense is due to
continued effort on our Endotracheal Cardiac Output Monitor
(“ECOM”).
As discussed in Note 10 to the
Consolidated Condensed Financial Statements, other expense (income) in the
quarter ended June 30, 2007 consisted of $1.3 million in costs related to the
closing of our Endoscopic Technologies sales office in France and $0.1 million
in charges related to the termination of a product line.
Interest expense in the quarter ended
June 30, 2008 was $2.4 million compared to $4.3 million in the same period a
year ago. The decrease in interest expense is due to lower weighted
average borrowings outstanding and lower market interest rates on our variable
rate debt in the quarter ended June 30, 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)
declined to 3.44% in the quarter ended June 30, 2008 as compared to 5.87% 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 quarter ended June 30, 2008,
an increase from 35.8% recorded in the same period a year ago. The
increase in the effective rate is primarily 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 7 to the Consolidated Financial Statements.
Six
months ended June 30, 2008 compared to six months ended June 30,
2007
Sales for the six months ended June 30,
2008 were $383.5 million, an increase of $43.2 million (12.7%) compared to sales
of $340.3 million in the same period a year ago. Favorable foreign
currency exchange rates (when compared to the foreign currency exchange rates in
the same period a year ago) increased sales by approximately $11.3 million as
did the purchase of our Italian distributor by $6.9 million (see Note 14 to the
Consolidated Condensed Financial Statements).
Cost of sales increased $15.7 million
in the six months ended 2008 to $184.9 million from $169.2 million in the same
period a year ago on overall increased sales volumes. Gross profit
margins increased to 51.8% in the six months ended June 30, 2008 from 50.3% in
the same period a year ago. The increase of 1.5 percentage points is
comprised of favorable foreign exchange rates (1.5 percentage points) and the
newly acquired direct sales operation in Italy (0.9 percentage points) offset by
product mix (0.4 percentage points) and lower gross margins in our Endoscopic
Technologies business (0.5 percentage points) due to pricing pressures and lower
production volumes.
Selling and administrative expense
increased $20.2 million in the six months ended June 30, 2008 to $138.2 million
from $118.0 million in the same period a year ago. As a percentage of
sales, selling and administrative expense increased to 36.0% in the six months
ended June 30, 2008 as compared to 34.7% in the same period a year
ago. The increase of 1.3 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 $16.8 million in the six months ended June 30, 2008 as compared to $15.0
million in the same period a year ago. As a percentage of net sales,
research and development expense remained flat at 4.4% in the six months
ended June 30, 2008, as compared to the same period a year ago.
As discussed in Note 10 to the
Consolidated Condensed Financial Statements, other expense (income) in the six
months ended June 30, 2007 consisted of a $1.8 million charge related to the
closing of a manufacturing facility in Montreal, Canada and a sales office in
France, a $0.1 million charge related to the termination of our surgical lights
product offering, and $6.1 million in income related to the settlement of the
antitrust case with Johnson & Johnson.
Interest expense in the six months
ended June 30, 2008 was $5.6 million compared to $8.8 million in the same period
a year ago. The decrease in interest expense is due to lower weighted
average borrowings outstanding and lower market interest rates on our variable
rate debt in the six months ended June 30, 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)
declined to 3.95% in the six months ended June 30, 2008 as compared to 5.60% 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 six months ended June 30,
2008 as compared to 36.1% for the same period a year ago. The
effective tax rate for the six month period ended June 30, 2008 is higher than
that recorded in the same period a year ago 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 7 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
units: 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 loss of these segments.
The following tables summarize the
Company’s results of operations by segment for the three and six month periods
ended June 30, 2007 and 2008.
CONMED
Linvatec, CONMED Electrosurgery and CONMED Endosurgery
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
138,530 |
|
|
$ |
159,633 |
|
|
$ |
275,924 |
|
|
$ |
317,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
24,916 |
|
|
|
27,678 |
|
|
|
43,709 |
|
|
|
55,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margin
|
|
|
18.0 |
% |
|
|
17.3 |
% |
|
|
15.8 |
% |
|
|
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.
|
·
|
Arthroscopy
sales increased $11.9 million (18.2%) in the quarter ended June 30, 2008
to $76.8 million from $64.9 million in the same period a year
ago. Arthroscopy sales increased $25.2 million (19.8%) in the six
months ended June 30, 2008 to $152.3 million from $127.1 million in the
same period a year ago. These increases are principally a result of
increased sales of our procedure specific, resection and video imaging
products for arthroscopy and general
surgery.
|
|
·
|
Powered
surgical instrument sales increased $3.7 million (10.3%) in the quarter
ended June 30, 2008 to $39.7 million from $36.0 million in the same period
a year ago. Powered surgical instrument sales increased $6.6
million (9.0%) in the six months ended June 30, 2008 to $80.2 million from
$73.6 million in the same period a year ago. These increases
are principally a result of increased sales of our small bone and large
bone powered instrument products.
|
|
·
|
Electrosurgery
sales increased $3.7 million (16.7%) in the quarter ended June 30, 2008 to
$25.8 million from $22.1 million in the same period a year
ago. Electrosurgery sales increased $6.5 million (14.1%) in the
six months ended June 30, 2008 to $52.6 million from $46.1 million in the
same period a year ago. These increases were principally a
result of increased sales of our System 5000™ electrosurgical generator
and ground pads.
|
|
·
|
Endosurgery
sales increased $1.8 million (11.6%) in the quarter ended June 30, 2008 to
$17.3 million from $15.5 million in the same period a year
ago. Endosurgery sales increased $3.4 million (11.7%) in the
six months ended June 30, 2008 to $32.5 million from $29.1 million in the
same period a year ago. These increases are principally a
result of increased sales of our ligation and suction irrigation
products.
|
|
·
|
Operating
margins as a percentage of net sales decreased 0.7 percentage points to
17.3% in the quarter ended June 30, 2008 compared to 18.0% in 2007 while
operating margins increased 1.6 percentage points to 17.4% in the six
months ended June 30, 2008 compared to 15.8% in the same period a year
ago. The decrease in operating margins in the quarter ended
June 30, 2008 is mainly due to higher sales force and marketing expenses
in the current quarter. The increase in operating margins in
the six months ended June 30, 2008 is as a result of higher gross margins
due to favorable foreign currency exchanges rates, higher selling prices
and lower production variances.
|
CONMED
Patient Care
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
17,315 |
|
|
$ |
19,807 |
|
|
$ |
37,676 |
|
|
$ |
40,118 |
|
Income/(loss)
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
(1,265 |
) |
|
|
589 |
|
|
|
(238 |
) |
|
|
1,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margin
|
|
|
(7.3 |
%) |
|
|
3.0 |
% |
|
|
(0.6 |
%) |
|
|
2.8 |
% |
Product offerings include a line of
vital signs and cardiac monitoring products including pulse oximetry equipment
and sensors, ECG electrodes and cables, cardiac defibrillation and pacing pads
and blood pressure cuffs. We also offer a complete line of reusable
surgical patient positioners and suction instruments and tubing for use in the
operating room, as well as a line of IV products.
|
·
|
Patient
care sales increased $2.4 million (13.8%) in the quarter ended June 30,
2008 to $19.8 million from $17.4 million in the same period a year
ago. Patient care sales increased $2.3 million (6.5%) in the
six months ended June 30, 2008 to $40.1 million from $37.8 million in the
same period a year ago. These increases are principally a result of
increased sales of our defibrillator pads and ECG
electrodes.
|
|
·
|
Operating
margins as a percentage of net sales increased 10.3 percentage points to
3.0% for the quarter ended June 30, 2008 compared to -7.3% in 2007 while
operating margins increased 3.4 percentage points to 2.8% for the six
months ended June 30, 2008 compared to -0.6% in the same period a year
ago. The increase in operating margins in the quarter and six
months ended June 30, 2008 is primarily due to the increases in gross
margins of 9.1 and 4.1 percentage points, respectively, compared to the
same period a year ago as a result of higher selling prices and lower
production variances. Lower distribution, selling and
administrative costs (3.2 and 1.1 percentage points, respectively)
accounted for the remaining increase and were offset by increased research
and development spending (2.0 and 1.8 percentage points, respectively)
mainly due to our Endotracheal Cardiac Output Monitor (“ECOM”)
project.
|
CONMED
Endoscopic Technologies
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
13,413 |
|
|
$ |
13,315 |
|
|
$ |
26,672 |
|
|
$ |
25,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
(2,432 |
) |
|
|
(2,366 |
) |
|
|
(3,643 |
) |
|
|
(4,845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margin
|
|
|
(18.1 |
%) |
|
|
(17.8 |
%) |
|
|
(13.7 |
%) |
|
|
(18.8 |
%) |
Product offerings include a
comprehensive line of minimally invasive endoscopic diagnostic and therapeutic
instruments used in procedures which require examination of the digestive
tract.
|
·
|
Endoscopic
Technologies sales remained flat in the quarter ended June 30, 2008
compared to the same period a year ago. Endoscopic Technologies sales
decreased $0.8 million (3.2%) in the six months ended June 30, 2008 to
$25.8 million from $26.6 million in the same period a year
ago. These decreases are principally a result of decreased
sales of forceps and pulmonary products as a result of strong competition
and pricing pressures.
|
|
·
|
Operating
margins as a percentage of net sales increased 0.3 percentage points to
-17.8% in the quarter ended June 30, 2008 compared to -18.1% in the same
period a year ago while operating margins decreased 5.1 percentage points
to -18.8% for the six months ended June 30, 2008 compared to -13.7% in the
same period a year ago. The increase in operating margin in the
quarter is primarily due to the charge in the quarter ended June 30, 2007
associated with the closure of a sales office in France (9.3 percentage
points). This is offset by decreased gross margins (6.6
percentage points) due to competition and pricing pressures as well as
higher selling and administrative expenses as a percentage of sales (2.4
percentage points). The decreased operating margin in the six months ended
June 30, 2008 is primarily due to decreased gross margins (8.2 percentage
points) due to competition and pricing pressures as well as higher
selling, administrative and research and development expenses as a
percentage of sales (2.6 percentage points) offset by the charge in the
six months ended June 30, 2007 associated with the closure of a sales
office in France (5.7 percentage
points).
|
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
$230.8 million at June 30, 2008. Net cash provided by operating
activities was $35.1 million in the six months ended June 30, 2008 and $25.8
million in the same period a year ago.
Net cash provided by operating activities increased by $9.3 million in 2008 as
compared to 2007 as 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 six month period ended June 30, 2008 consisted of capital expenditures
and $21.6 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 $9.6 million and $15.2 million
for the six month period ended June 30, 2007 and 2008,
respectively. The increase in capital expenditures in the six month
period ended June 30, 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 six months ended June 30, 2008 consisted
primarily of the following: $7.0 million in borrowings on our
revolver under our senior credit agreement, $0.6 million in proceeds from the
issuance of common stock under our stock option plans and employee stock
purchase plan, $0.7 million in payments on our term loan under our senior credit
agreement and $0.5 million in payments on our mortgage loan.
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 was $7.0 million outstanding on the revolving credit
facility as of June 30, 2008. Our available borrowings on the
revolving credit facility at June 30, 2008 were $87.0 million with approximately
$6.0 million of the facility set aside for outstanding letters of
credit. There were $58.3 million in borrowings outstanding on the
term loan at June 30, 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% (3.98% at June 30, 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 is 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 0.25% 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 June 30, 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 $2.5
million and $10.8 million, respectively, at June 30, 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.
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 six months 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 June 30, 2008, the undivided
percentage ownership interest in receivables sold by CRC to the purchaser
aggregated $42.0 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 $1.0 million in the six
months ended June 30, 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.
Restructuring
During the second quarter of 2008, we
announced a plan to restructure certain of our operations. The
restructuring plan includes the closure of two manufacturing facilities totaling
approximately 200,000 square feet and located in the Utica, New York area with
manufacturing to be transferred either into our Corporate headquarters location
in Utica, New York or into a newly constructed leased manufacturing facility in
Chihuahua, Mexico. In addition, manufacturing presently done by a
contract manufacturing facility in Juarez, Mexico will be transferred in-house
to the Chihuahua facility. Finally, certain domestic distribution
activities will be centralized in a new consolidated distribution center to be
leased in Atlanta, Georgia. We believe our restructuring plan will
reduce our cost base by consolidating our Utica, New York operations into a
single facility as well as expanding our lower cost Mexican operations, and
improve service to our customers by shipping orders from more centralized
distribution centers. The transition of manufacturing operations and
consolidation of distribution activities is scheduled to begin in the fourth
quarter of 2008 and is expected to be largely completed by the fourth quarter of
2009.
In conjunction with our restructuring
plan, we considered Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
SFAS 144 requires that long-lived assets be tested for recoverability
whenever events or changes in circumstances indicate that their carrying amount
may not be recoverable. Based on the announced restructuring plan, our
current expectation is that it is more likely than not, that the two
manufacturing facilities located in the Utica, New York area scheduled to be
closed as a result of the restructuring plan, will be sold prior to the end of
their previously estimated useful lives. Even though we expect to sell
these facilities prior to the end of their useful lives, we do not believe that
at present we meet the criteria contained within SFAS 144 to designate these
assets as held for sale and accordingly we have tested them for impairment under
the guidance for long-lived assets to be held and used. We performed our
impairment testing on the two manufacturing facilities scheduled to close under
the restructuring plan by comparing future cash flows expected to be generated
by these facilities (undiscounted and without interest charges) against their
carrying amounts ($2.3 million and $2.9 million, respectively, as of June 30,
2008). Since future cash flows expected to be generated by these
facilities exceeds their carrying amounts, we do not believe any impairment
exists at this time. However, we cannot be certain an impairment charge
will not be taken in the future when the facilities are no longer in
use.
We cannot currently estimate the costs
of the restructuring plan as details of the plan are still being finalized,
however we do not believe such costs will have a material impact on our
financial condition, results of operations or cash flows. During the
execution of our restructuring plan, we will incur certain charges, including
employee termination and other exit costs. However, based on the
criteria contained within Statement of Financial Accounting Standards No. 146
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"),
no accrual for such costs has been made at this time. The
restructuring plan impacts Corporate
manufacturing
and distribution facilities which support multiple reporting
segments. As a result, any costs associated with the restructuring
plan will be reflected in the Corporate line within our business segment
reporting.
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 and six month periods ended June 30, 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 June 30, 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 June 30, 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.
Item 4. Submission of Matters to a Vote of Security
Holders
The annual meeting of stockholders of
CONMED Corporation was held on May 15, 2008 (the “Annual
Meeting”). Holders of Common Stock were entitled to elect seven
directors. On all matters which came before the Annual Meeting,
holders of Common Stock were entitled to one vote for each share
held. Proxies for 27,098,537 of the 28,627,208 shares of Common Stock
entitled to vote were received in connection with the Annual
Meeting.
The following table sets forth the
names of the seven persons elected at the Annual Meeting to serve as directors
until the first annual meeting of stockholders following the end of the
Company’s fiscal year ending December 31, 2008 and the
number of
votes cast for, against or withheld with respect to each person.
Election
of Directors
Director
|
Votes
Received
|
Votes
Withheld
|
|
|
|
Eugene
R. Corasanti
|
26,649,660
|
448,877
|
Joseph
J. Corasanti
|
26,651,573
|
446,964
|
Bruce
F. Daniels
|
26,563,880
|
534,657
|
Jo
Ann Golden
|
26,813,776
|
284,761
|
Stephen
M. Mandia
|
24,628,150
|
2,470,387
|
Stuart
J. Schwartz
|
26,709,256
|
389,281
|
Mark
E. Tryniski
|
26,796,975
|
301,562
|
Management
Proposals
|
For
|
Against
|
Abstain
|
Broker Non-votes
|
Approval
of PricewaterhouseCoopers LLP as independent registered public
accounting firm for the Company for the fiscal year ending December 31,
2008;
|
26,836,808
|
256,356
|
5,373
|
-
|
Exhibits
Exhibit
No.
|
|
Description of
Exhibit
|
|
|
|
|
|
|
10.1
|
|
Amended
and Restated Change in Control Severance Agreement for Joseph J.
Corasanti
|
|
|
|
|
|
|
10.2
|
|
Amended
and Restated Change in Control Severance Agreement for Robert D. Shallish,
Jr.
|
|
|
|
|
|
|
10.3
|
|
Change
in Control Severance Agreement for David A. Johnson
|
|
|
|
|
|
|
10.4
|
|
Amended
and Restated Change in Control Severance Agreement for Daniel S.
Jonas
|
|
|
|
|
|
|
10.5
|
|
Amended
and Restated Change in Control Severance Agreement for Luke A.
Pomilio
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
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.
|
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: August
1, 2008
|
|
|
|
|
|
|
|
|
/s/ Robert D. Shallish,
Jr.
|
|
Robert
D. Shallish, Jr.
|
|
Vice
President – Finance and
|
|
Chief
Financial Officer
|
Exhibit
Index
|
|
Sequential
Page
|
Exhibit
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
Amended
and Restated Change in Control Severance Agreement for Joseph J.
Corasanti
|
E-1
|
|
|
|
|
|
|
|
|
|
|
Amended
and Restated Change in Control Severance Agreement for Robert D. Shallish,
Jr.
|
E-15
|
|
|
|
|
|
|
|
|
|
|
Change
in Control Severance Agreement for David A. Johnson.
|
E-29
|
|
|
|
|
|
|
|
|
|
|
Amended
and Restated Change in Control Severance Agreement for Daniel S.
Jonas
|
E-43
|
|
|
|
|
|
|
|
|
|
|
Amended
and Restated Change in Control Severance Agreement for Luke A.
Pomilio
|
E-57
|
|
|
|
|
|
|
|
|
|
|
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-71
|
|
|
|
|
|
|
|
|
|
|
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-72
|
|
|
|
|
|
|
|
|
|
|
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-73
|
|
|
|
34