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CNMD » Topics » Nine months ended September 30, 2005 compared to nine months ended September 30, 2004This excerpt taken from the CNMD 10-K filed Mar 10, 2006. 2005 Compared to 2004 Sales for 2005 were $617.3 million, an increase of $58.9 million (10.5%) compared to sales of $558.4 million in 2004. The Bard Endoscopic Technologies acquisition accounted for $43.2 million of the increase and favorable foreign currency exchange rates accounted for $3.6 million. The Bard Endoscopic Technologies acquisition is described more fully in Note 2 to the Consolidated Financial Statements. |
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Arthroscopy sales increased $6.5 million (3.2%) in 2005 to $211.4 million from $204.9 million in 2004, principally as a result of increased sales of our procedure specific, resection and video imaging products for arthroscopy and general surgery, and our integrated operating room systems and equipment. | |
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Powered surgical instrument sales increased $3.4 million (2.6%) in 2005 to $132.0 million from $128.6 million in 2004, principally as a result of increased sales of our PowerPro® line of large bone powered instrument products and our PowerPro Max ® line of small bone powered instrument products. | |
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Patient care sales remained flat at $75.9 in 2005 and 2004 as increased sales of pulse oximetry products and defibrillator pads offset decreased sales of ECG electrodes. | |
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Electrosurgery sales increased $2.6 million (3.0%) in 2005 to $88.5 million from $85.9 million in 2004, principally as a result of increased sales of our System 5000™ electrosurgical generator and Ultraclean™ active electrodes. | |
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Endosurgery sales increased $3.2 million (6.8%) in 2005 to $50.6 million from $47.4 million in 2004, as a result of increased sales of our skin staplers, suction/irrigation products and various laparoscopic instrument products and systems. | |
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Endoscopic Technologies sales increased $43.2 million (275.2%) in 2005 to $58.9 million from $15.7 million in 2004, as a result of the inclusion of a full year of sales in 2005 related to the Bard Endoscopic Technologies acquisition. |
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Cost of sales increased to $304.3 million in 2005 compared to $271.5 million in 2004, primarily as a result of increased sales volumes in each of our principal product lines as described above. Gross profit margins decreased 0.7 percentage points from 51.4% in 2004 to 50.7% in 2005 primarily as a result of significant cost increases with respect to petroleum-based raw materials such as plastic resins and polymers used in the production of many of our products and higher spending related to quality assurance. These higher costs (approximately 1.2 percentage points) more than offset the improvement in margins we experienced as a result of |
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the addition of the higher margin products acquired in the Bard Endoscopic Technologies acquisition (0.5 percentage points). During 2005 and 2004, respectively, we incurred $7.8 million and $4.4 million of acquisition-related expenses which have been included in cost of sales. The $7.8 million of acquisition-related charges included in costs of sales in 2005, consists of the following: $0.5 million of expense which represents a portion of the step-up to fair value recorded relating to the sale of inventory acquired through the Bard Endoscopic Technologies acquisition; and $7.3 million in charges representing the incremental costs we are incurring during a transition period in which we are continuing to purchase the acquired products from C.R. Bard. During 2006, we expect to continue to experience higher incremental costs until manufacturing of the acquired products is fully integrated into our facilities and we have sold all of the higher cost inventory purchased from C.R. Bard. Selling and administrative expense increased to $216.7 million in 2005 as compared to $183.2 million in 2004. Selling and administrative expense as a percentage of net sales increased to 35.1% in 2005 from 32.8% in 2004. This increase of 2.3 percentage points is primarily attributable to increased administrative expenses associated with higher distribution costs (0.4 percentage points) due in part to higher petroleum prices; higher pension costs (0.2 percentage points) due primarily as a result of changes in actuarial assumptions (see “Pension Plan” section of “Critical Accounting Estimates” above); increased spending on corporate quality systems and management (0.2 percentage points) to ensure we continue to maintain appropriate regulatory compliance; increased selling and marketing costs associated with the Endoscopic Technologies business (0.3 percentage points); other increases in selling and administrative costs (1.2 percentage points) including the Johnson & Johnson litigation (see Note 11 to the Consolidated Condensed Financial Statements). Research and development expense was $25.5 million in 2005 compared to $20.2 million in 2004. As a percentage of net sales, research and development expense increased to 4.1% in 2005 from 3.6% in 2004. The increase in research and development expense as a percentage of sales is principally a result of increased spending on the development of our Pro2® reflectance pulse oximetry system and ECOM endotracheal cardiac output monitor for our Patient Care business and the addition of the Endoscopic Technologies business in September 2004. As discussed in Note 2 to the Consolidated Financial Statements, we wrote-off $16.4 million of purchased in-process research and development assets associated with the Bard Endoscopic Technologies acquisition in 2004. This technology is currently in a variety of phases ranging from the concept phase to being introduced in the marketplace. As discussed in Note 12 to the Consolidated Financial Statements, other expense in 2005 consisted of $1.5 million of expenses associated with the termination of our surgical lights product offering, $4.1 million of acquisition transition and integration expenses related to the Bard Endoscopic Technologies acquisition, $0.7 million in environmental settlement costs and $0.8 million of expense related to the loss on an equity investment. Other expense in 2004 consisted primarily of $2.4 million of expenses associated with the termination of our surgical lights product offering and $1.5 million of expenses related to the Bard Endoscopic Technologies acquisition. During 2004, we recorded $0.8 million in losses on the early extinguishment of debt related to the refinancing of a portion of the term loans under our senior credit agreement through the issuance of 2.50% convertible senior subordinated |
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notes. See additional discussion under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources and Note 6 to the Consolidated Financial Statements. Interest expense in 2005 was $15.6 million compared to $12.8 million in 2004. The increase in interest expense is primarily a result of higher weighted average borrowings outstanding in 2005 as compared to 2004 and higher weighted average interest rates on our borrowings (4.69% in 2005 as compared to 4.17% in 2004) inclusive of the finance charge on our accounts receivable sale facility. The increase in weighted average interest rates on our borrowing is primarily a result of our increased borrowings against our revolving credit facility coupled with overall increases in interest rates on our variable rate debt. A provision for income taxes was recorded at an effective rate of 33.6% in 2005 and 32.5% in 2004. The effective rate for 2005 was higher than 2004 because the 2004 effective tax rate reflected an adjustment to the estimated benefit to be realized from the Extraterritorial Income Exclusion tax rules on foreign sales. A reconciliation of the United States statutory income tax rate to our effective tax rate is included in Note 7 to the Consolidated Financial Statements. This excerpt taken from the CNMD 10-Q filed Nov 4, 2005. Nine months ended September 30, 2005 compared to nine months ended September 30, 2004Sales for the nine months ended September 30, 2005 were $464.1 million, an increase of $66.9 million (16.8%) compared to sales of $397.2 million in the same period a year ago. The Bard Endoscopic Technologies acquisition accounted for $44.4 million of the above increase and favorable foreign currency exchange rates accounted for $4.6 million. Arthroscopy sales increased $8.9 million (5.9%) in the nine months ended September 30, 2005 to $159.0 million from $150.1 million in the same period a year ago, principally as a result of increased sales of our procedure specific, resection and video imaging products for arthroscopy and general surgery, and our integrated operating room systems and equipment. Powered surgical instrument sales increased $4.8 million (5.0%) in the nine months ended September 30, 2005 to $99.9 million from $95.1 million in the same period a year ago, principally as a result of increased sales of our PowerPro® line of large bone powered instrument products and our PowerPro Max® line of small bone powered instrument products. Patient care sales increased $1.7 million (3.1%) in the nine months ended September 30, 2005 to $56.8 million from $55.1 million in the same period a year ago, principally as a result of increased sales of our vital signs products. Electrosurgery sales increased $3.9 million (6.3%) in the nine months ended September 30, 2005 to $65.9 million from $62.0 million in the same period a year ago, principally as a result of increased sales of our System 5000™ electrosurgical generator, Ultraclean™ and disposable ground pads. Endosurgery sales increased $3.2 million (9.2%) in the nine months ended September 30, 2005 to $38.1 million from $34.9 million in the same period a year ago. This increase is principally due to increased sales of our skin staplers, suction/irrigation products and various laparoscopic instrument products and systems. Endoscopic Technologies sales in the nine months ended September 30, 2005 were $44.4 million representing the results of the Bard Endoscopic Technologies acquisition. Cost of sales increased $35.0 million in the nine months ended 2005 to $225.6 million from $190.6 million in the same period a year ago on increased sales volumes in each of our principal product lines as described above. Gross profit margins decreased 0.7% in the nine months ended September 30, 2005 to 51.4% from 52.0% in the same period a year ago. We incurred $6.0 million in charges related to the Bard Endoscopic Technologies acquisition in the nine months ended September 30, 2005 which have been included in cost of sales. The $6.0 million in Bard Endoscopic Technologies acquisition charges consist of $0.5 million related to the step-up to fair value of inventory acquired as a result of the Bard Endoscopic Technologies acquisition and $5.5 million of costs relating to inventory purchased from C.R. Bard 23 under a transition agreement and sold at a cost higher than we expect to incur when we begin manufacturing the products ourselves. As a result, we expect the costs of these sales to decrease when the Bard Endoscopic Technologies transition is complete. The transition of the manufacturing of these products from C.R. Bard facilities to CONMED facilities is currently underway and is expected to be completed in 2006. The decrease in gross margin percentage in the nine months ended September 30, 2005 as compared to the same period a year ago is due to these acquisition-related charges. Selling and administrative expense increased $29.8 million in the nine months ended September 30, 2005 to $158.7 million from $128.9 million in the same period a year ago. As a percentage of sales, selling and administrative expense was 34.2% in the nine months ended September 30, 2005 as compared to 32.5% in the same period a year ago. This increase of 1.7 percentage points is primarily attributable to increased administrative expenses associated with the litigation against Johnson & Johnson (see Note 10 to the Consolidated Condensed Financial Statements), higher selling and administrative expenses associated with the business acquired as a result of the Bard Endoscopic Technologies acquisition, higher distribution costs due in part to higher petroleum prices and higher pension costs due mostly to changes in actuarial assumptions (see “Pension Plan” section of “Critical Accounting Estimates” above). Research and development expense totaled $18.6 million in the nine months ended September 30, 2005 as compared to $14.3 million in the same period a year ago. As a percentage of net sales, research and development expense increased to 4.0% in the nine months ended September 30, 2005, as compared to 3.6% in the same period a year ago. This increase of 0.4 percentage points is due to higher research and development expenses associated with the business acquired as a result of the Bard Endoscopic Technologies acquisition as well as additional costs incurred related to the development of the Pro2® product. As discussed in Note 9 to the Consolidated Condensed Financial Statements, other expense in the nine months ended September 30, 2005 consisted of $1.1 million in charges related to the termination of a product line, $3.5 million in Bard Endosocopic Technologies acquisition-related costs, and $0.7 million in environmental settlement costs. In the same period a year ago we recorded $0.9 million in charges to other expense related primarily to the Bard Endoscopic Technologies acquisition. As discussed in Note 12 to the Consolidated Condensed Financial Statements, during the nine months ended September 30, 2004 we wrote-off $13.7 million of tax-deductible purchased in-process research and development assets associated with the Bard Endoscopic Technologies acquisition. Interest expense in the nine months ended September 30, 2005 was $11.4 million compared to $9.1 million in the same period a year ago. The increase in interest expense is due primarily to higher weighted average borrowings outstanding in the nine months ended September 30, 2005 as compared to the same period a year ago. The increase in weighted average borrowings outstanding is primarily due to our financing of the Bard Endoscopic Technologies acquisition in September 2004. The weighted average interest rates on our borrowings (inclusive of the implicit finance charge on our accounts receivable sale facility) increased to 4.76% in the nine months ended September 30, 2005 as compared to 4.13% in the same period a year ago. 24 A provision for income taxes has been recorded at an effective tax rate of 34.5% for the nine months ended September 30, 2005 and 2004. The effective rate for the first nine months of 2005 is consistent with that recorded in the same period a year ago. It is lower than the United States statutory rate of 35.0% as a result of an increase in the estimated benefits to be realized from the Extraterritorial Income Exclusion tax rules on foreign sales. 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, 2004, Note 7 to the Consolidated Financial Statements. This excerpt taken from the CNMD 10-Q filed Aug 9, 2005. Six months ended June 30, 2005 compared to six months ended June 30, 2004 Sales for the six months ended June 30, 2005 were $314.1 million, an increase of $49.2 million (18.6%) compared to sales of $264.9 million in the same period a year ago. The Bard Endoscopic Technologies acquisition accounted for $29.2 million of the above increase and favorable foreign currency exchange rates accounted for $3.7 million. Arthroscopy sales increased $9.5 million (9.6%) in the six months ended June 30, 2005 to $108.8 million from $99.3 million in the same period a year ago, principally as a result of increased sales of our procedure specific, resection and video imaging products for arthroscopy and general surgery, and our integrated operating room systems and equipment. Powered surgical instrument sales increased $4.5 million (6.9%) in the six months ended June 30, 2005 to $69.4 million from $64.9 million in the same period a year ago, principally as a result of increased sales of our PowerPro® line of large bone powered instrument products and our PowerPro Max® line of small bone powered instrument products. Patient care sales increased $1.6 million (4.4%) in the six months ended June 30, 2005 to $38.0 million from $36.4 million in the same period a year ago, principally as a result of increased sales of our pulse oximetry products. Electrosurgery sales increased $2.7 million (6.6%) in the six months ended June 30, 2005 to $43.5 million from $40.8 million in the same period a year ago, principally as a result of increased sales of our System 5000™ electrosurgical generator and disposable electrosurgical pencils and ground pads. Endosurgery sales increased $1.7 million (7.2%) in the six months ended June 30, 2005 to $25.2 million from $23.5 million in the same period a year ago. This increase is principally due to increased sales of our skin staplers and various laparoscopic instrument products and systems. Endoscopic Technologies sales in the six months ended June 30, 2005 were $29.2 million representing the results of the Bard Endoscopic Technologies acquisition. Cost of sales increased $25.7 million in the six months ended 2005 to $151.5 million from $125.8 million in the same period a year ago on increased sales volumes in each of our principal product lines as described above. Gross profit margins decreased 0.7% in the six months ended June 30, 2005 to 51.8% from 52.5% in the same period a year ago. We incurred $4.2 million in charges related to the Bard Endoscopic Technologies acquisition in the six months ended June 30, 2005 which have been included in cost of sales. The $4.2 million in Bard Endoscopic Technologies acquisition charges consist of $0.5 million related to the step-up to fair value of inventory acquired as a result of the Bard Endoscopic Technologies acquisition and $3.7 million of costs relating to inventory purchased from C.R. Bard under a transition agreement and sold at a cost higher than we expect to incur when we begin manufacturing the products ourselves. As a result, we expect the costs of these sales to decrease when the Bard Endoscopic Technologies transition is complete. The transition of the manufacturing of these products from C.R. Bard facilities to CONMED facilities is currently underway and is expected to be completed in 2006. The decrease in gross margin percentage in the six months ended June 30, 2005 as compared to the same period a year ago is due to these acquisition-related charges. Selling and administrative expense increased $19.9 million in the six months ended June 30, 2005 to $106.1 million from $86.2 million in the same period a year ago. As a percentage of sales, selling and administrative expense was 33.8% in the six months ended June 30, 2005 as compared to 32.6% in the same period a year ago. 23
This increase of 1.2 percentage points is primarily attributable to increased administrative expenses associated with the litigation against Johnson & Johnson (see Note 10 to the Consolidated Condensed Financial Statements), higher selling and administrative expenses associated with the business acquired as a result of the Bard Endoscopic Technologies acquisition and higher distribution costs as a result of higher petroleum prices. Research and development expense totaled $12.2 million in the six months ended June 30, 2005 as compared to $9.6 million in the same period a year ago. As a percentage of net sales, research and development expense increased to 3.9% in the six months ended June 30, 2005, as compared to 3.6% in the same period a year ago. This increase of 0.3 percentage points is due to higher research and development expenses associated with the business acquired as a result of the Bard Endoscopic Technologies acquisition. As discussed in Note 9 to the Consolidated Condensed Financial Statements, other expense in the six months ended June 30, 2005 consisted of $0.9 million in charges related to the termination of a product line, $2.8 million in Bard Endosocopic Technologies acquisition-related costs, and $0.7 million in environmental settlement costs. In the same period a year ago we did not record a charge to other expense. Interest expense in the six months ended June 30, 2005 was $7.3 million compared to $5.9 million in the same period a year ago. The increase in interest expense is due primarily to higher weighted average borrowings outstanding in the six months ended June 30, 2005 as compared to the same period a year ago. The increase in weighted average borrowings outstanding is primarily due to our financing of the Bard Endoscopic Technologies acquisition in September 2004. The weighted average interest rates on our borrowings (inclusive of the implicit finance charge on our accounts receivable sale facility) increased to 4.37% in the six months ended June 30, 2005 as compared to 3.98% in the same period a year ago. A provision for income taxes has been recorded at an effective tax rate of 34.5% for the six months ended June 30, 2005 and 35% for the same period a year ago. The effective rate for the first six months of 2005 is lower than that recorded in the same period a year ago and the United States statutory rate of 35.0% as a result of an increase in the estimated benefits to be realized from the Extraterritorial Income Exclusion tax rules on foreign sales. 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, 2004, Note 7 to the Consolidated Financial Statements. This excerpt taken from the CNMD 10-Q filed May 9, 2005. Three months ended March 31, 2005 compared to three months ended March 31, 2004 The following table presents, as a percentage of net sales, certain categories included in our consolidated statements of income for the periods indicated: |
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2005
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| Net sales | 100.0 | % | 100.0 | % | ||
| Cost of sales | 47.5 | 48.4 | ||||
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| Gross profit | 52.5 | 51.6 | ||||
| Selling and administrative expense | 32.7 | 33.7 | ||||
| Research and development expense | 3.5 | 3.8 | ||||
| Other expense | — | 1.2 | ||||
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| Income from operations | 16.3 | 12.9 | ||||
| Interest expense | 2.5 | 2.4 | ||||
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| Income before income taxes | 13.8 | 10.5 | ||||
| Provision for income taxes | 4.8 | 3.6 | ||||
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| Net income | 9.0 | % | 6.9 | % | ||
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Sales for the quarterly period ended March 31, 2005 were $155.9 million, an increase of $21.9 million (16.3%) compared to sales of $134.0 million in the comparable 2004 period. The Bard Endoscopic Technologies acquisition accounted for $14.3 million of the above increase and favorable foreign currency exchange rates accounted for $1.8 million. Arthroscopy sales increased $2.7 million (5.3%) in the quarterly period ended March 31, 2005 to $54.0 million from $51.3 million in the comparable 2004 period as a result of increased sales of our procedure specific, resection and video imaging products for arthroscopy and general surgery. This increase was offset in part by reduced sales of integrated operating room systems and equipment. Powered surgical instrument sales increased $2.0 million (6.0%) in the quarterly period ended March 31, 2005 to $35.5 million from $33.5 million in the comparable 2004 period, principally as a result of increased sales of our PowerPro® line of large bone powered instrument products. |
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Patient care sales increased $0.9 million (5.0%) in the quarterly period ended March 31, 2005 to $18.9 million from $18.0 million in the comparable 2004 period principally as a result of increased sales of our pulse oximetry products. Electrosurgery sales increased $0.7 million (3.5%) in the quarterly period ended March 31, 2005 to $20.9 million from $20.2 million in the comparable 2004 period, principally as a result of increased sales of our System 5000® electrosurgical generator and disposable ground pads. Endosurgery sales increased $1.3 million (11.8%) in the quarterly period ended March 31, 2005 to $12.3 million from $11.0 million in the comparable 2004 period, principally as a result of increased sales of skin staplers and our various laparoscopic instrument products and systems. Endoscopic Technologies sales in the quarterly period ended March 31, 2005 were $14.3 million representing the results of the Bard Endoscopic Technologies acquisition. Cost of sales increased to $75.4 million in the quarterly period ended March 31, 2005 as compared to $63.6 million in the same period a year ago on increased sales volumes in each of our principal product lines as described above. Gross profit margins decreased to 51.6% in the quarterly period ended March 31, 2005 as compared to 52.5% in the same period a year ago. We incurred $2.3 million in charges related to the Bard Endoscopic Technologies acquisition in the quarterly period ended March 31, 2005 which have been included in cost of sales. The $2.3 million in Bard Endoscopic Technologies acquisition charges consist of $0.5 million related to the step-up to fair value of inventory acquired as a result of the Bard Endoscopic Technologies acquisition and $1.8 million of costs relating to inventory purchased from C.R. Bard under a transition agreement and sold at a cost higher than we expect to incur when we begin manufacturing the products ourselves. As a result, we would expect the costs of these sales to decrease when the Bard Endoscopic Technologies transition is complete. The transition of the manufacturing of these products from C.R. Bard facilities to CONMED facilities is currently underway and is expected to be completed in 2006. The decrease in gross margin percentage in the quarterly period ended March 31, 2005 as compared to the same period a year ago is due to these acquisition-related charges. Selling and administrative expense increased to $52.5 million in the quarterly period ended March 31, 2005 as compared to $43.8 million in the same period a year ago. Selling and administrative expense as a percentage of net sales increased to 33.7% in the quarterly period ended March 31, 2005 as compared to 32.7% in the same period a year ago. This increase of 1.0 percentage points is attributable to increased administrative expenses associated with litigation against Johnson & Johnson (see Note 10 to the Consolidated Condensed Financial Statements) and our Sarbanes-Oxley compliance program as well as the addition of the Endoscopic Technologies business in September 2004. Research and development expense totaled $5.8 million in the quarterly period ended March 31, 2005 as compared to $4.7 million in the same period a year ago. As a percentage of net sales, research and development expense increased to 3.8% in the quarterly period ended March 31, 2005, consistent with 3.5% in the same period a year ago. The increase in research and development expense is principally due to the addition of the Endosocopic Technologies business in September 2004. As discussed in Note 9 to the Consolidated Condensed Financial Statements, other expense in the quarterly period ended March 31, 2005 consisted of $0.5 million in charges related to the termination of a product line and $1.4 million in Bard Endosocopic Technologies acquisition-related costs. In the quarterly period ended March 31, 2004 we did not record a charge to other expense. Interest expense in the quarterly period ended March 31, 2005 was $3.8 million as compared to $3.3 million in the same period a year ago. The increase in interest expense is due primarily to higher weighted average borrowings outstanding in the quarterly period ended March 31, 2005 as compared to the same period a year ago. The increase in weighted average borrowings outstanding is due to our financing of the Bard |
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Endoscopic Technologies acquisition in September 2004. The weighted average interest rates on our borrowings (inclusive of the implicit finance charge on our accounts receivable sale facility) increased to 4.39% in the quarterly period ended March 31, 2005 as compared to 4.34% in the same period a year ago. A provision for income taxes has been recorded at an effective tax rate of 34.5% for the quarterly period ended March 31, 2005 as compared to 35.0% in the same period a year ago. The effective rate for the quarterly period ended March 31, 2005 is lower than that recorded in the same period a year ago and the United States statutory rate of 35.0% as a result of an increase in the estimated benefits to be realized from the Extraterritorial Income Exclusion tax rules on foreign sales. 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, 2004, Note 7 to the Consolidated Financial Statements. | EXCERPTS ON THIS PAGE:
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