Oct 22 2009
CONMED Corporation (NASDAQ: CNMD) today announced financial results for the third quarter of 2009.
Sales for the third quarter ended September 30, 2009 were $175.5 million compared to $179.4 million in the same quarter of 2008. GAAP diluted earnings per share were $0.04 compared to $0.33 in the third quarter of 2008. Non-GAAP diluted earnings per share equaled $0.28 compared to non-GAAP diluted earnings per share of $0.37 in the 2008 third quarter. As discussed below under "Use of Non-GAAP Financial Measures," the Company presents various non-GAAP financial measures in this release. Investors should consider non-GAAP measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP. Please refer to the attached reconciliation between GAAP and non-GAAP financial measures.
For the nine months ended September 30, 2009, sales were $504.1 million compared to $562.9 million in the first nine months of 2008. GAAP diluted earnings per share were $0.25 for year-to-date September 2009 compared to $1.09 in the same period of 2008. Non-GAAP diluted earnings per share were $0.63 for the 2009 nine-month period compared to $1.20 in 2008.
"The Company's third quarter financial results, excluding unusual items, were substantially better than we had anticipated due to increased sales volumes and more favorable foreign currency exchange rates. Sequentially, compared to the second quarter of 2009, sales increased approximately $11.0 million, reversing the historical seasonal trend of a decline from the second to the third quarter due to reduced summer surgical activity. Both our single-use and capital equipment sales were considerably stronger in the third quarter as compared to the first half of the year. We believe the sales volume increases we delivered in the third quarter are an indication that the economic trends that adversely impacted our industry late last year and in the first six months of this year, are beginning to moderate," commented Mr. Joseph J. Corasanti, President and Chief Executive Officer.
As previously announced, the Company has taken various cost-cutting actions in response to the current economic environment, including, most recently, consolidating a division's administrative functions within the Corporate headquarters, delaying hiring for certain open positions, reducing production where the Company believes it has sufficient finished goods on hand, freezing the defined benefit pension plan for U.S. employees, and continuing with the previously announced manufacturing restructuring. Our transition to the new manufacturing site in Mexico is now substantially complete, but we expect to incur additional restructuring costs through the end of 2009 as we close two Upstate New York plants, as well as the divisional administrative office. Over the final three months of 2009, we expect that such costs will approximate $2.5 million for the manufacturing sites and $1.8 million for the administrative office (further described below). The Company continues to review its total cost structure for reductions in areas that are not critical to CONMED's long-term growth strategy.
International sales in the third quarter of 2009 were $77.2 million, representing 44.0% of total sales, and $223.8 million for the nine months ended September 30, 2009. Although currency exchange rates have improved compared to those of the first six months of 2009, compared to the rates in 2008, sales were reduced by $4.7 million in the third quarter of 2009, and $27.2 million for the nine months of 2009.
Outlook
Mr. Corasanti added, "As we look to the completion of 2009, we expect that the improving business trends of the third quarter should continue into the last quarter of the year. Consequently, we anticipate that fourth quarter 2009 sales should approximate $178 - $183 million and that non-GAAP earnings per share should approximate $0.30 - $0.35. For 2010, we are basing our expectations on continued measured improvement in the general economy, as well as foreign currency exchange rates similar to those experienced in the third quarter of 2009. Sales in 2010 are anticipated to be $715 - $725 million with non-GAAP diluted earnings per share estimated to be $1.20 - $1.30."
The non-GAAP estimates for the fourth quarter of 2009 exclude the additional amortization of bond discount required by recently issued Financial Accounting Standards Board ("FASB") guidance, the manufacturing restructuring costs and facility consolidation expenses expected to be incurred in 2009. The 2010 non-GAAP estimates exclude the amortization of bond discount and unusual costs, if any.
Endoscopic Technologies division consolidation
In July 2009, the Company began the process of consolidating the administrative functions of the Endoscopic Technologies division from its offices in Massachusetts to the Corporate Headquarters in Utica, New York. The sales force and product portfolio remain unchanged and CONMED Endoscopic Technologies will continue to operate as a separate division of the Company. In connection with this consolidation, we incurred costs of $0.3 million in the third quarter of 2009, including severance and other transitional costs. In the fourth quarter of 2009 we expect to incur similar costs, including lease termination expense, of $1.8 million. The third quarter 2009 costs are included in the GAAP earnings per share set forth above, and are excluded from the non-GAAP amount, as well as from the fourth quarter non-GAAP EPS estimate.
Product recall
During the third quarter of 2009, the Company announced a voluntary recall of certain model numbers of the PRO5 & PRO6 series battery handpieces and certain lots of the MC5057 Universal Cable used with certain of CONMED Linvatec's electric powered handpieces. Current models of products are not affected. We have estimated that the recall costs will total approximately $6.0 million and have recorded this charge in the third quarter. The third quarter 2009 costs are included in the GAAP earnings per share set forth above, and are excluded from the non-GAAP amount.
Convertible bond repurchase
During the first quarter of 2009, the Company repurchased and retired $9.9 million face value of its 2.5% Convertible Notes at a discount of approximately 21%. The repurchase was substantially funded by CONMED's own cash resources. The transaction resulted in a pre-tax gain to the 2009 nine-month financial statements of approximately $1.1 million, which is included in the GAAP earnings per share set forth above, and excluded from the non-GAAP amount.
U.S. pension plan
In March 2009, the Company gave notice that it would freeze the benefits of its defined benefit pension plan for United States employees. As has been widely reported, such plans have become increasingly difficult for companies to maintain because of the volatility in asset performance and required changes in the actuarial determination of plan liabilities. The Company's first quarter 2009 financial statements include a non-cash net pre-tax gain of $1.9 million, comprised of a $4.4 million pension curtailment benefit offset by a $2.5 million first quarter pension charge. This net non-cash pre-tax gain is included in the nine-month GAAP earnings per share set forth above, and is excluded from the non-GAAP amount.
Manufacturing restructuring
As previously disclosed, the Company continues with its plan for restructuring certain of its manufacturing operations by consolidating locations in New York and moving certain production lines to its new manufacturing site in Mexico. Such expenses amounted to $3.3 million in the third quarter of 2009 and $11.2 million for the first nine months of the year. These amounts are included in the GAAP earnings per share set forth above, and excluded from the non-GAAP amounts. In the fourth quarter of 2009 we expect such restructuring costs to approximate $2.5 million and are excluded from the non-GAAP EPS estimate.
Convertible note interest expense
As disclosed in the past, and in accordance with recently issued FASB guidance, beginning in 2009, the Company is required to record the amortization of the bond discount related to its convertible notes to bring the effective interest rate to a level approximating that of a non-convertible note of similar size and tenor. For the third quarter of 2009 and the first nine months of 2009, the Company recorded additional non-cash pre-tax interest charges of $1.0 million and $3.1 million, respectively. The pronouncement also requires that a similar adjustment be made in previously issued financial statements to facilitate comparative analysis. Accordingly, the 2008 financial statements have been adjusted and include additional interest expense of $1.2 million in the third quarter and $3.7 million for the first nine months. These charges are included in the GAAP earnings per share set forth above, and excluded from the non-GAAP amounts.
SOURCE: CONMED Corporation
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