Attached files
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EX-32.1 - EXHIBIT 32.1 - CONMED Corp | cnmd63017ex321.htm |
EX-31.2 - EXHIBIT 31.2 - CONMED Corp | cnmd63017ex312.htm |
EX-31.1 - EXHIBIT 31.1 - CONMED Corp | cnmd63017ex311.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 quarter ended | Commission File Number |
June 30, 2017 | 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth 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 Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý
The number of shares outstanding of registrant's common stock, as of July 24, 2017 is 27,924,141 shares.
CONMED CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2017
PART I FINANCIAL INFORMATION | ||
Item Number | Page | |
PART II OTHER INFORMATION | ||
PART I FINANCIAL INFORMATION
Item 1.
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands except per share amounts)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net sales | $ | 197,154 | $ | 193,433 | $ | 383,720 | $ | 374,634 | |||||||
Cost of sales | 92,502 | 91,011 | 179,183 | 174,472 | |||||||||||
Gross profit | 104,652 | 102,422 | 204,537 | 200,162 | |||||||||||
Selling and administrative expense | 83,828 | 86,729 | 178,589 | 172,672 | |||||||||||
Research and development expense | 8,041 | 8,009 | 15,659 | 16,267 | |||||||||||
Operating expenses | 91,869 | 94,738 | 194,248 | 188,939 | |||||||||||
Income from operations | 12,783 | 7,684 | 10,289 | 11,223 | |||||||||||
Other expense | — | — | — | 2,942 | |||||||||||
Interest expense | 4,398 | 3,757 | 8,518 | 7,587 | |||||||||||
Income before income taxes | 8,385 | 3,927 | 1,771 | 694 | |||||||||||
Provision for income taxes | 2,246 | 1,043 | 177 | 75 | |||||||||||
Net income | $ | 6,139 | $ | 2,884 | $ | 1,594 | $ | 619 | |||||||
Comprehensive income | $ | 10,144 | $ | 1,345 | $ | 9,220 | $ | 2,132 | |||||||
Per share data: | |||||||||||||||
Net income | |||||||||||||||
Basic | $ | 0.22 | $ | 0.10 | $ | 0.06 | $ | 0.02 | |||||||
Diluted | 0.22 | 0.10 | 0.06 | 0.02 | |||||||||||
Dividends per share of common stock | $ | 0.20 | $ | 0.20 | $ | 0.40 | $ | 0.40 | |||||||
Weighted average common shares | |||||||||||||||
Basic | 27,891 | 27,776 | 27,894 | 27,753 | |||||||||||
Diluted | 28,139 | 27,941 | 28,086 | 27,926 |
See notes to consolidated condensed financial statements.
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CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in thousands except share and per share amounts)
June 30, 2017 | December 31, 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 40,141 | $ | 27,428 | |||
Accounts receivable, net | 145,391 | 148,244 | |||||
Inventories | 136,474 | 135,869 | |||||
Prepaid expenses and other current assets | 18,307 | 18,971 | |||||
Total current assets | 340,313 | 330,512 | |||||
Property, plant and equipment, net | 118,190 | 122,029 | |||||
Goodwill | 401,129 | 397,664 | |||||
Other intangible assets, net | 410,944 | 419,549 | |||||
Other assets | 64,759 | 59,229 | |||||
Total assets | $ | 1,335,335 | $ | 1,328,983 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 12,449 | $ | 10,202 | |||
Accounts payable | 46,462 | 41,647 | |||||
Accrued compensation and benefits | 26,373 | 32,036 | |||||
Other current liabilities | 44,429 | 30,067 | |||||
Total current liabilities | 129,713 | 113,952 | |||||
Long-term debt | 484,032 | 488,288 | |||||
Deferred income taxes | 113,678 | 119,143 | |||||
Other long-term liabilities | 25,557 | 27,024 | |||||
Total liabilities | 752,980 | 748,407 | |||||
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; 31,299,194 shares | |||||||
issued in 2017 and 2016, respectively | 313 | 313 | |||||
Paid-in capital | 330,433 | 329,276 | |||||
Retained earnings | 397,369 | 406,932 | |||||
Accumulated other comprehensive loss | (50,900 | ) | (58,526 | ) | |||
Less: 3,379,950 and 3,471,121 shares of common stock | |||||||
in treasury, at cost in 2017 and 2016, respectively | (94,860 | ) | (97,419 | ) | |||
Total shareholders’ equity | 582,355 | 580,576 | |||||
Total liabilities and shareholders’ equity | $ | 1,335,335 | $ | 1,328,983 |
See notes to consolidated condensed financial statements.
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CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended | |||||||
June 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 1,594 | $ | 619 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | 9,758 | 9,941 | |||||
Amortization | 18,442 | 17,350 | |||||
Stock-based compensation | 4,221 | 4,583 | |||||
Deferred income taxes | (4,275 | ) | (4,342 | ) | |||
Loss on early extinguishment of debt | — | 254 | |||||
Increase in cash flows from changes in assets and liabilities, net of acquired assets: | |||||||
Accounts receivable | 6,298 | 4,929 | |||||
Inventories | 572 | 4,549 | |||||
Accounts payable | 4,393 | (7,633 | ) | ||||
Accrued compensation and benefits | (7,233 | ) | (4,758 | ) | |||
Other assets | (15,005 | ) | (20,409 | ) | |||
Other liabilities | 12,561 | (3,657 | ) | ||||
29,732 | 807 | ||||||
Net cash provided by operating activities | 31,326 | 1,426 | |||||
Cash flows from investing activities: | |||||||
Purchases of property, plant and equipment | (5,525 | ) | (7,667 | ) | |||
Payments related to business acquisitions and asset acquisitions, net of cash acquired | (1,765 | ) | (256,450 | ) | |||
Net cash used in investing activities | (7,290 | ) | (264,117 | ) | |||
Cash flows from financing activities: | |||||||
Payments on term loan | (4,375 | ) | (4,376 | ) | |||
Proceeds from term loan | — | 175,000 | |||||
Proceeds from revolving line of credit | 71,000 | 167,000 | |||||
Payments on revolving line of credit | (68,000 | ) | (88,985 | ) | |||
Payments related to distribution agreement | — | (16,667 | ) | ||||
Payments related to contingent consideration | — | (200 | ) | ||||
Payments related to debt issuance costs | — | (5,556 | ) | ||||
Dividends paid on common stock | (11,138 | ) | (11,088 | ) | |||
Other, net | (1,218 | ) | (1,340 | ) | |||
Net cash provided by (used in) financing activities | (13,731 | ) | 213,788 | ||||
Effect of exchange rate changes on cash and cash equivalents | 2,408 | (306 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 12,713 | (49,209 | ) | ||||
Cash and cash equivalents at beginning of period | 27,428 | 72,504 | |||||
Cash and cash equivalents at end of period | $ | 40,141 | $ | 23,295 | |||
Non-cash financing activities: | |||||||
Dividends payable | $ | 5,584 | $ | 5,561 |
See notes to consolidated condensed financial statements.
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CONMED CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited, in thousands except per share amounts)
Note 1 – Operations
CONMED Corporation (“CONMED”, the “Company”, “we” or “us”) is a medical technology company that provides surgical devices and equipment for minimally invasive procedures. The Company’s products 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. The information herein reflects all normal recurring material adjustments, which are, in the opinion of management, necessary for the fair statements of the results for the periods presented. The consolidated condensed financial statements herein consist of all wholly-owned domestic and foreign subsidiaries with all significant intercompany transactions eliminated. Results for the period ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
The consolidated condensed financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2016 included in our Annual Report on Form 10-K.
Note 3 - Business Acquisition
On January 4, 2016, we acquired all of the stock of SurgiQuest, Inc. ("SurgiQuest") for $257.7 million in cash (based on an aggregate purchase price of $265 million as adjusted pursuant to the merger agreement governing the acquisition). SurgiQuest develops, manufactures and markets the AirSeal® System, the first integrated access management technology for use in laparoscopic and robotic procedures. This proprietary and differentiated access system is complementary to our current advanced surgical offering. The acquisition was funded through a combination of cash on hand and long-term borrowings.
The unaudited pro forma information for the three and six months ended June 30, 2016, assuming SurgiQuest occurred as of January 1, 2015 are presented below. This information has been prepared for comparative purposes only and does not purport to be indicative of the results of operations which actually would have resulted had the SurgiQuest acquisition occurred on the dates indicated, or which may result in the future.
Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | ||||||
Net sales | $ | 193,433 | $ | 374,634 | |||
Net income | 6,337 | 12,659 |
These pro forma results include certain adjustments, primarily due to increases in amortization expense due to fair value adjustments of intangible assets, increases in interest expense due to additional borrowings incurred to finance the acquisition, and acquisition related costs including transaction costs such as legal, accounting, valuation and other professional services as well as integration costs such as severance and retention.
Acquisition related costs excluded from the determination of pro forma net income for the three and six months ended June 30, 2016 totaled $5.0 million and $14.0 million, respectively.
Net sales associated with SurgiQuest of $18.5 million and $31.2 million have been recorded in the consolidated condensed statements of comprehensive income for the three and six months ended June 30, 2016. It is impracticable to determine the earnings recorded in the consolidated condensed statements of comprehensive income associated with the SurgiQuest acquisition for the three and six months ended June 30, 2016 as these amounts are not separately measured.
On July 3, 2017, the Company completed an acquisition with a total cash purchase price of $4.4 million. We are currently assessing the accounting implications.
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Note 4 – Comprehensive Income
Comprehensive income consists of the following:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 6,139 | $ | 2,884 | $ | 1,594 | $ | 619 | |||||||
Other comprehensive income: | |||||||||||||||
Pension liability, net of income tax (income tax expense of $293 and $257 for the three months ended June 30, 2017 and 2016, respectively, and $586 and $514 for the six months ended June 30, 2017 and 2016, respectively) | 501 | 438 | 1,001 | 876 | |||||||||||
Cash flow hedging gain (loss), net of income tax (income tax expense (benefit) of ($1,026) and $666 for the three months ended June 30, 2017 and 2016, respectively, and ($1,522) and ($633) for the six months ended June 30, 2017 and 2016, respectively) | (1,751 | ) | 1,137 | (2,598 | ) | (1,080 | ) | ||||||||
Foreign currency translation adjustment | 5,255 | (3,114 | ) | 9,223 | 1,717 | ||||||||||
Comprehensive income | $ | 10,144 | $ | 1,345 | $ | 9,220 | $ | 2,132 |
Accumulated other comprehensive loss consists of the following:
Cash Flow Hedging Gain (Loss) | Pension Liability | Cumulative Translation Adjustments | Accumulated Other Comprehensive Income (Loss) | ||||||||||||
Balance, December 31, 2016 | $ | 1,546 | $ | (26,458 | ) | $ | (33,614 | ) | $ | (58,526 | ) | ||||
Other comprehensive income (loss) before reclassifications, net of tax | (2,247 | ) | — | 9,223 | 6,976 | ||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) before taxa | (556 | ) | 1,587 | — | 1,031 | ||||||||||
Income tax | 205 | (586 | ) | — | (381 | ) | |||||||||
Net current-period other comprehensive income (loss) | (2,598 | ) | 1,001 | 9,223 | 7,626 | ||||||||||
Balance, June 30, 2017 | $ | (1,052 | ) | $ | (25,457 | ) | $ | (24,391 | ) | $ | (50,900 | ) |
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Cash Flow Hedging Gain (Loss) | Pension Liability | Cumulative Translation Adjustments | Accumulated Other Comprehensive Income (Loss) | ||||||||||||
Balance, December 31, 2015 | $ | 1,201 | $ | (25,982 | ) | $ | (29,113 | ) | $ | (53,894 | ) | ||||
Other comprehensive income (loss) before reclassifications, net of tax | (750 | ) | — | 1,717 | 967 | ||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) before taxa | (524 | ) | 1,390 | — | 866 | ||||||||||
Income tax | 194 | (514 | ) | — | (320 | ) | |||||||||
Net current-period other comprehensive income (loss) | (1,080 | ) | 876 | 1,717 | 1,513 | ||||||||||
Balance, June 30, 2016 | $ | 121 | $ | (25,106 | ) | $ | (27,396 | ) | $ | (52,381 | ) |
(a) The cash flow hedging gain (loss) and pension liability accumulated other comprehensive income (loss) components are included in sales or cost of sales and as a component of net periodic pension cost, respectively. The amounts recorded in the charts above are for the six months ended June 30, 2017 and 2016. For the three months ended June 30, 2017, $0.2 million of the cash flow hedging gain and $0.8 million of the pension liability were reclassified from accumulated other comprehensive loss to the statement of income. For the three months ended June 30, 2016, $0.0 million of the cash flow hedging gain and $0.7 million of the pension liability were reclassified from accumulated other comprehensive loss to the statement of income. Refer to Note 5 and Note 10, respectively, for further details.
Note 5 – Fair Value of Financial Instruments
We enter into derivative instruments for risk management purposes only. We operate internationally and in the normal course of business are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use forward contracts, a type of derivative instrument, to manage certain foreign currency exposures.
By nature, all financial instruments involve market and credit risks. We enter into forward contracts with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.
Foreign Currency Forward Contracts. We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts. We account for these forward contracts as cash flow hedges. To the extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings but are included in accumulated other comprehensive loss. These changes in fair value will be recognized into earnings as a component of sales or cost of sales when the forecasted transaction occurs. The notional contract amounts for forward contracts outstanding at June 30, 2017 which have been accounted for as cash flow hedges totaled $104.3 million. Net realized gains recognized for forward contracts accounted for as cash flow hedges approximated $0.2 million and $0.0 million for the three months ended June 30, 2017 and 2016, respectively. Net realized gains recognized for forward contracts accounted for as cash flow hedges approximated $0.6 million and $0.5 million, respectively, for the six months ended June 30, 2017 and 2016. Net unrealized losses on forward contracts outstanding, which have been accounted for as cash flow hedges and which have been included in accumulated other comprehensive income, totaled $1.1 million at June 30, 2017. It is expected these unrealized losses will be recognized in the consolidated condensed statement of comprehensive income in 2017 and 2018.
We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our currency transaction exposures on intercompany receivables denominated in foreign currencies. These forward contracts settle each month at month-end, at which time we enter into new forward contracts. We have not designated these forward contracts as hedges and have not applied hedge accounting to them. The notional contract amounts for forward contracts outstanding at June 30, 2017 which have not been designated as hedges totaled $32.8 million. Net realized gains (losses) recognized in connection with those forward contracts not accounted for as hedges approximated $(0.4) million and $0.0 million for the three months ended June 30, 2017 and 2016, respectively, offsetting gains (losses) on our intercompany receivables of $0.3 million and $(0.3) million for the three months ended June 30, 2017 and 2016, respectively. Net realized losses recognized in connection with those forward contracts not accounted for as hedges approximated $(0.6) million and $(0.2) million for the six months ended June 30, 2017 and 2016, respectively, offsetting gains on our intercompany receivables of $0.3 million and $0.1 million for the six months ended June 30,
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2017 and 2016, respectively. These gains and losses have been recorded in selling and administrative expense in the consolidated condensed statements of comprehensive income.
We record these forward foreign exchange contracts at fair value. The following tables summarize the fair value for forward foreign exchange contracts outstanding at June 30, 2017 and December 31, 2016:
June 30, 2017 | Asset Fair Value | Liabilities Fair Value | Net Fair Value | ||||||||
Derivatives designated as hedged instruments: | |||||||||||
Foreign exchange contracts | $ | 1,290 | $ | (2,958 | ) | $ | (1,668 | ) | |||
Derivatives not designated as hedging instruments: | |||||||||||
Foreign exchange contracts | — | (133 | ) | (133 | ) | ||||||
Total derivatives | $ | 1,290 | $ | (3,091 | ) | $ | (1,801 | ) |
December 31, 2016 | Asset Fair Value | Liabilities Fair Value | Net Fair Value | ||||||||
Derivatives designated as hedged instruments: | |||||||||||
Foreign exchange contracts | $ | 3,962 | $ | (1,510 | ) | $ | 2,452 | ||||
Derivatives not designated as hedging instruments: | |||||||||||
Foreign exchange contracts | 48 | (54 | ) | (6 | ) | ||||||
Total derivatives | $ | 4,010 | $ | (1,564 | ) | $ | 2,446 |
Our forward foreign exchange contracts are subject to a master netting agreement and qualify for netting in the consolidated balance sheets. Accordingly, at June 30, 2017 and December 31, 2016, we have recorded the net fair value of $1.8 million in other current liabilities and $2.4 million in prepaid expenses and other current assets, respectively.
Fair Value Disclosure. FASB guidance defines fair value and establishes a framework for measuring fair value and related disclosure requirements. This guidance applies when fair value measurements are required or permitted. The guidance 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. Fair value is defined based upon an exit price model.
Valuation Hierarchy. A valuation hierarchy was established for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; inputs other than quoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks or inputs that are derived principally from, or corroborated by, observable market data through correlation. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. There have been no significant changes in the assumptions.
Valuation Techniques. Assets and liabilities carried at fair value and measured on a recurring basis as of June 30, 2017 consist of forward foreign exchange contracts and contingent liabilities associated with a business acquisition. The Company values its forward foreign exchange contracts using quoted prices for similar assets. The most significant assumption is quoted currency rates. The value of the forward foreign exchange contract assets and liabilities were valued using Level 2 inputs and are listed in the table above.
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The carrying amounts reported in our consolidated condensed balance sheets for cash and cash equivalents, accounts receivable, accounts payable and long-term debt approximate fair value.
Note 6 - Inventories
Inventories consist of the following:
June 30, 2017 | December 31, 2016 | ||||||
Raw materials | $ | 40,952 | $ | 42,821 | |||
Work-in-process | 13,805 | 13,315 | |||||
Finished goods | 81,717 | 79,733 | |||||
Total | $ | 136,474 | $ | 135,869 |
Note 7 – 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, performance share units and stock appreciation rights ("SARs") during the period. The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2017 and 2016:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 6,139 | $ | 2,884 | $ | 1,594 | $ | 619 | |||||||
Basic – weighted average shares outstanding | 27,891 | 27,776 | 27,894 | 27,753 | |||||||||||
Effect of dilutive potential securities | 248 | 165 | 192 | 173 | |||||||||||
Diluted – weighted average shares outstanding | 28,139 | 27,941 | 28,086 | 27,926 | |||||||||||
Net income (per share) | |||||||||||||||
Basic | $ | 0.22 | $ | 0.10 | $ | 0.06 | $ | 0.02 | |||||||
Diluted | 0.22 | 0.10 | 0.06 | 0.02 |
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 and the effect of the inclusion would be anti-dilutive. Such shares aggregated approximately 1.4 million and 2.0 million for the three and six months ended June 30, 2017, respectively, and approximately 1.7 million and 1.3 million for the three and six months ended June 30, 2016, respectively.
Note 8 – Goodwill and Other Intangible Assets
The changes in the net carrying amount of goodwill for the six months ended June 30, 2017 are as follows:
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Balance as of December 31, 2016 | $ | 397,664 | |
Goodwill resulting from business acquisitions | 2,209 | ||
Foreign currency translation | 1,256 | ||
Balance as of June 30, 2017 | $ | 401,129 |
Assets and liabilities of acquired businesses are recorded 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. During the six months ended June 30, 2017, we entered into a business acquisition and recorded goodwill of $2.2 million.
Other intangible assets consist of the following:
June 30, 2017 | December 31, 2016 | ||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
Amortized intangible assets: | |||||||||||||||
Customer and distributor relationships | $ | 213,654 | $ | (80,551 | ) | $ | 213,259 | $ | (75,164 | ) | |||||
Promotional, marketing and distribution rights | 149,376 | (33,000 | ) | 149,376 | (30,000 | ) | |||||||||
Patents and other intangible assets | 68,802 | (41,372 | ) | 67,509 | (40,335 | ) | |||||||||
Developed technology | 49,600 | (2,109 | ) | 49,600 | (1,240 | ) | |||||||||
Unamortized intangible assets: | |||||||||||||||
Trademarks and tradenames | 86,544 | — | 86,544 | — | |||||||||||
$ | 567,976 | $ | (157,032 | ) | $ | 566,288 | $ | (146,739 | ) |
Customer and distributor relationships, trademarks and tradenames, developed technology and patents and other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses. Promotional, marketing and distribution rights represent intangible assets created under our Sports Medicine Joint Development and Distribution Agreement (the "JDDA") with Musculoskeletal Transplant Foundation (“MTF”).
Amortization expense related to intangible assets which are subject to amortization totaled $5.2 million and $5.0 million in the three months ended June 30, 2017 and 2016, respectively, and $10.3 million and $10.0 million in the six months ended June 30, 2017 and 2016, respectively, and is included as a reduction of revenue (for amortization related to our promotional, marketing and distribution rights) and in selling and administrative expense (for all other intangible assets) in the consolidated condensed statements of comprehensive income. The weighted average amortization period for intangible assets which are amortized is 25 years. Customer and distributor relationships are being amortized over a weighted average life of 29 years. Developed technology is being amortized over a weighted average life of 17 years. Promotional, marketing and distribution rights are being amortized over a weighted average life of 25 years. Patents and other intangible assets are being amortized over a weighted average life of 13 years. Included in patents and other intangible assets at June 30, 2017 is an in-process research and development asset that is not currently amortized.
The estimated intangible asset amortization expense remaining for the year ending December 31, 2017 and for each of the five succeeding years is as follows:
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Amortization included in expense | Amortization recorded as a reduction of revenue | Total | |||||||||
Remaining, 2017 | $ | 7,362 | $ | 3,000 | $ | 10,362 | |||||
2018 | 15,934 | 6,000 | 21,934 | ||||||||
2019 | 15,789 | 6,000 | 21,789 | ||||||||
2020 | 15,810 | 6,000 | 21,810 | ||||||||
2021 | 14,573 | 6,000 | 20,573 | ||||||||
2022 | 13,217 | 6,000 | 19,217 |
Note 9 – Guarantees
We provide warranties on certain of our products at the time of sale and sell extended warranties. The standard warranty period for our capital and reusable equipment is generally one year and our extended warranties can vary in length. 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, are as follows:
2017 | 2016 | ||||||
Balance as of January 1, | $ | 1,954 | $ | 2,509 | |||
Provision for warranties | 1,633 | 1,692 | |||||
Claims made | (1,712 | ) | (1,770 | ) | |||
Balance as of June 30, | $ | 1,875 | $ | 2,431 |
Note 10 – Pension Plan
Net periodic pension cost consists of the following:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Service cost | $ | 151 | $ | 113 | $ | 302 | $ | 226 | |||||||
Interest cost on projected benefit obligation | 693 | 719 | 1,387 | 1,438 | |||||||||||
Expected return on plan assets | (1,325 | ) | (1,297 | ) | (2,650 | ) | (2,594 | ) | |||||||
Net amortization and deferral | 794 | 695 | 1,587 | 1,390 | |||||||||||
Net periodic pension cost | $ | 313 | $ | 230 | $ | 626 | $ | 460 |
We do not expect to make any pension contributions during 2017.
Note 11 – Acquisition, Restructuring and Other Expense
Acquisition, restructuring and other expense consists of the following:
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Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Facility consolidation costs | $ | 303 | $ | 127 | $ | 1,472 | $ | 991 | |||||||
Termination of a product offering | — | 4,546 | — | 4,546 | |||||||||||
Restructuring costs included in cost of sales | $ | 303 | $ | 4,673 | $ | 1,472 | $ | 5,537 | |||||||
Restructuring costs | $ | 26 | $ | 953 | $ | 1,348 | $ | 3,744 | |||||||
Business acquisition costs | 405 | 3,624 | 892 | 11,852 | |||||||||||
Legal matters | 2,465 | 1,372 | 16,714 | 2,189 | |||||||||||
Acquisition, restructuring and other expense included in selling and administrative expense | $ | 2,896 | $ | 5,949 | $ | 18,954 | $ | 17,785 | |||||||
Debt refinancing costs included in other expense | $ | — | $ | — | $ | — | $ | 2,942 |
During the three and six months ended June 30, 2017, we incurred $0.4 million and $0.9 million, respectively, in costs associated with the January 4, 2016 acquisition of SurgiQuest, Inc. as further described in Note 3. During the three and six months ended June 30, 2016, we incurred $3.6 million and $11.9 million in costs, respectively. The costs incurred in 2016 consist of investment banking fees, consulting fees, legal fees associated with the acquisition, costs associated with expensing of unvested options acquired and integration related costs. The costs incurred in 2017 consist of costs associated with expensing of unvested options acquired and integration related costs.
During the six months ended June 30, 2017, we incurred $12.2 million in costs associated with the SurgiQuest, Inc. vs. Lexion Medical litigation verdict whereby SurgiQuest was found liable for $2.2 million in compensatory damages with an additional $10.0 million in punitive damages as further described in Note 13. We have recorded an accrual in other current liabilities at June 30, 2017. In addition, during the three and six months ended June 30, 2017, we incurred $2.5 million and $4.5 million, respectively, in costs associated with this litigation and other legal matters. In the three and six months ended June 30, 2016, we incurred $1.4 million and $2.2 million, respectively, in legal fees associated with the SurgiQuest, Inc. vs. Lexion Medical litigation.
During the six months ended June 30, 2016, we incurred a $2.7 million charge related to commitment fees paid to certain of our lenders, which provided a financing commitment for the SurgiQuest acquisition and recorded a loss on the early extinguishment of debt of $0.3 million in conjunction with the fifth amended and restated senior credit agreement.
During 2017 and 2016, we continued our operational restructuring plan. We incurred $0.3 million and $0.1 million in costs associated with the operational restructuring during the three months ended June 30, 2017 and 2016, respectively, and $1.5 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively. These costs were charged to cost of sales and include severance and other charges.
During 2016, the Company discontinued our Altrus product offering as part of our ongoing restructuring and incurred $4.5 million in non-cash charges primarily related to inventory and fixed assets which were included in cost of sales for the three and six months ended June 30, 2016.
During 2017 and 2016, we restructured certain selling and administrative functions and incurred severance and other related costs in the amount of $0.0 million and $1.0 million for the three months ended June 30, 2017 and 2016, respectively, and $1.3 million and $3.7 million for the six months ended June 30, 2017 and 2016, respectively.
We have recorded an accrual in current and other long term liabilities of $1.5 million at June 30, 2017 mainly related to severance costs associated with the restructuring. Below is a roll forward of the costs incurred and cash expenditures associated with these activities during the six months ended June 30, 2017 and 2016:
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2017 | 2016 | ||||||
Balance as of January 1, | $ | 2,643 | $ | 7,175 | |||
Expenses incurred | 2,820 | 4,735 | |||||
Payments made | (3,917 | ) | (9,755 | ) | |||
Balance at June 30, | $ | 1,546 | $ | 2,155 |
Note 12 — Business Segments
We are accounting and reporting for our business as a single operating segment entity engaged in the development, manufacturing and sale on a global basis of surgical devices and related equipment. Our chief operating decision maker (the executive management team) evaluates the various global product portfolios on a net sales basis and evaluates profitability, investment and cash flow metrics on a consolidated worldwide basis due to shared infrastructure and resources.
We adjusted our product line disclosures to align with the way we review net sales beginning in fiscal year 2017. In doing so, we consolidated our surgical visualization line into our orthopedic surgery product line disclosure. Our product lines consist of orthopedic surgery and general surgery. Orthopedic surgery consists of sports medicine instrumentation and small bone, large bone and specialty powered surgical instruments as well as imaging systems for use in minimally invasive surgery procedures including 2DHD and 3DHD vision technologies and service fees related to the promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. These product lines' net sales are as follows:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Orthopedic surgery | $ | 105,561 | $ | 105,863 | $ | 209,350 | $ | 211,164 | |||||||
General surgery | 91,593 | 87,570 | 174,370 | 163,470 | |||||||||||
Consolidated net sales | $ | 197,154 | $ | 193,433 | $ | 383,720 | $ | 374,634 |
Note 13 – Legal Proceedings
From time to time, we are subject to claims alleging product liability, patent infringement or other claims incurred in the ordinary course of business. These may involve our United States or foreign operations, or sales by foreign distributors. Likewise, from time to time, the Company may receive an information request or subpoena from a government agency such as the Securities and Exchange Commission, Department of Justice, Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, the Department of Labor, the Treasury Department or other federal and state agencies or foreign governments or government agencies. These information requests or subpoenas may or may not be routine inquiries, or may begin as routine inquiries and over time develop into enforcement actions of various types. Likewise, we receive reports of alleged misconduct from employees and third parties, which we investigate as appropriate.
Manufacturers of medical devices have been the subject of various enforcement actions relating to interactions with health care providers domestically or internationally whereby companies are claimed to have provided health care providers with inappropriate incentives to purchase their products. Similarly, the Foreign Corrupt Practices Act ("FCPA") imposes obligations on manufacturers with respect to interactions with health care providers who may be considered government officials based on their affiliation with public hospitals. The FCPA also requires publicly listed manufacturers to maintain accurate books and records, and maintain internal accounting controls sufficient to provide assurance that transactions are accurately recorded, lawful and in accordance with management's authorization. The FCPA poses unique challenges both because manufacturers operate in foreign cultures in which conduct illegal under the FCPA may not be illegal in local jurisdictions, and because, in some cases, a United States manufacturer may face risks under the FCPA based on the conduct of third parties over whom the manufacturer may not have complete control.
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Manufacturers of medical products may face exposure to significant product liability claims. To date, we have not experienced any product liability claims that have been material to our financial statements or financial condition, but any such claims arising in the future could have a material adverse effect on our business, results of operations or cash flows. 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, that the carriers will be solvent or that such insurance will be available to us in the future at a reasonable cost.
We establish reserves sufficient to cover probable losses associated with any such pending claims. We do not expect that the resolution of any pending claims, investigations or reports of alleged misconduct 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, investigations or reports of misconduct, especially claims and investigations not covered by insurance, will not have a material adverse effect on our financial condition, results of operations or cash flows.
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 would not have a material adverse effect on our financial condition, results of operations or cash flows.
In September 2013, Lexion Medical ("Lexion") filed suit against SurgiQuest in federal court in the District of Minnesota alleging false advertising under the Lanham Act, as well as various state law claims, including common law trade libel and unfair competition. In March 2014, SurgiQuest’s motion to dismiss for lack of personal jurisdiction was granted and that same day, SurgiQuest filed suit against Lexion in federal court in the District of Delaware seeking, among other claims, a declaratory judgment that SurgiQuest’s actions did not violate the Lanham Act. Lexion filed an answer generally denying SurgiQuest’s claims, and asserted counterclaims that were substantially similar to the claims Lexion brought in the Minnesota action. The underlying claims were that SurgiQuest had engaged in false advertising under the Lanham Act, and had engaged in violations of Delaware state laws, including deceptive trade practices and unfair competition. Lexion sought damages of $22.0 million for alleged lost profits and $18.7 million for costs related to alleged “corrective advertising” as well as an unspecified sum for disgorgement of SurgiQuest’s alleged profit. On January 4, 2016, SurgiQuest became a subsidiary of CONMED as further described in Note 3, and we assumed the costs and liabilities related to the Lexion lawsuit subject to the terms of the merger agreement referenced in Note 3. On April 11, 2017, a jury returned a verdict finding SurgiQuest liable for $2.2 million in compensatory damages with an additional $10.0 million in punitive damages. These costs are recorded in selling and administrative expense as of June 30, 2017. The Court entered judgment on April 13, 2017. We are currently evaluating our plans for an appeal. There can be no assurance an appeal will be successful, if we pursue one.
In 2014, the Company acquired EndoDynamix, Inc. The agreement governing the terms of the acquisition provide that, if various conditions are met, certain contingent payments relating to the first commercial sale of the products (the milestone payment), as well as royalties based on sales (the revenue based payments), are due to the seller. We have notified the seller that there is a need to redesign the product, and that as a consequence, the first commercial sale has been delayed. Consequently, the payment of contingent milestone and revenue-based payments have been delayed. On January 18, 2017, the seller provided notice ("the Notice") seeking $12.7 million, which essentially represents the sum of the projected contingent milestone and revenue-based payments on an accelerated basis. CONMED responded to the Notice denying that there was any basis for acceleration of the payments due under the acquisition agreement. On February 22, 2017, the representative of the former shareholders of EndoDynamix filed a complaint in Delaware Chancery Court claiming breach of contract and seeking the contingent payments on an accelerated basis. We do not believe that there is a legitimate basis for seeking the acceleration of the contingent payments, and expect to defend the claims asserted by the sellers of EndoDynamix in the Delaware Court.
Note 14 – New Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. In March, April and May 2016, the FASB issued ASU 2016-08 related to principal versus agent considerations; ASU 2016-10 related to identifying performance obligations and licensing; and ASU 2016-12 clarifying the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters, respectively. These additional ASUs provide supplemental adoption guidance and clarification to ASU 2014-09. The guidance
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in these ASUs is effective for annual reporting periods beginning after December 15, 2017 and early adoption is permitted as of January 1, 2017. The standard allows the option of either a full retrospective adoption, meaning the standard is applied to all periods presented, or a modified retrospective adoption, meaning the standard is applied only to the most current period. The Company will adopt the new standard on January 1, 2018, and anticipates applying the modified retrospective approach. We have performed an initial assessment of each of the Company’s revenue streams and we do not expect the new guidance to have a material impact on the consolidated financial statements. We are reviewing existing and new contracts on a sample basis to identify any factors that may affect our initial conclusions.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. An entity should measure inventory within the scope of this ASU at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for annual periods beginning after December 15, 2016. We implemented this new guidance during the first quarter of 2017 and it did not have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). This requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. We adopted this new guidance effective January 1, 2017. This ASU requires the following:
• | All tax effects are now recorded in the statement of operations and are accounted for as an operating activity in the statement of cash flows on a prospective basis. Historically, tax benefits in excess of compensation cost were recorded in equity and were accounted for in the financing section of the cash flow. This ASU resulted in a $0.2 million tax benefit during the six months ended June 30, 2017. There can be no assurance it will not have any material impact in future periods. |
• | All cash payments made to taxing authorities on the employee's behalf for withheld shares are to be presented as financing activities in the statement of cash flows on a retrospective basis. As a result, we reclassified a $1.5 million cash outflow from operating activities to financing activities for the six months ended June 30, 2016. |
• | In the diluted net earnings per share calculation, when applying the treasury stock method for shares that could be repurchased, the assumed proceeds no longer include the amount of excess tax benefit. This did not have a material impact on the Company's diluted net earnings per share calculation. |
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the FASB Emerging Issues Task Force). This ASU provides amendments to specific statement of cash flows classification issues. This new guidance is effective for periods beginning after December 15, 2017, however early adoption is permitted. The Company adopted this new guidance effective January 1, 2017 and it did not have a material impact on the consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this ASU require that a statement of cash flows explain the change during the period in total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The ASU is effective for periods beginning after December 15, 2017, however early adoption is permitted. The Company is currently assessing the impact of this guidance on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business. This ASU states when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. In addition, this guidance states in order to be a business, an input and a substantive process must significantly contribute to the ability to produce outputs. This new guidance is effective for periods beginning after December 15, 2017, however early adoption is permitted. The Company is currently assessing the impact of this guidance on our consolidated financial statements.
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In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. This ASU removes Step 2 of the goodwill impairment test, which requires hypothetical purchase price allocation. A goodwill impairment will now be the amount by which the reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This new guidance is effective for periods beginning after December 15, 2019, however early adoption is permitted. The Company is currently assessing the impact of this guidance on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07 Compensation Retirement Benefits (ASC 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires companies to record the service component of net periodic pension cost in the same income statement line as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic pension cost would be presented in the income statement separately from the service cost component and outside the subtotal of income from operations, if one is presented. This guidance is applicable for periods beginning after December 15, 2017 and must be applied retrospectively. Early adoption is permitted. The Company is currently assessing the impact of this guidance on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Based Compensation (ASC 718) - Scope of Modification Accounting. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. This guidance is in line with the Company’s current interpretation of ASC 718, Stock Compensation, and we do not expect this clarification to have a material impact on the consolidated financial statements.
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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 “anticipates”, “expects”, “estimates”, “intends” and “believes” and variations thereof and other terms of similar meaning.
Forward-Looking Statements are not Guarantees of Future Performance
Forward-looking statements involve known and unknown risks, uncertainties and other factors, including those that may cause our actual results, performance or achievements or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include those identified under “Risk Factors” in our Annual Report on Form 10-K for the year-ended December 31, 2016 and the following, among others:
• | general economic and business conditions; |
• | changes in foreign exchange and interest rates; |
• | cyclical customer purchasing patterns due to budgetary and other constraints; |
• | changes in customer preferences; |
• | competition; |
• | changes in technology; |
• | the introduction and acceptance of new products; |
• | the ability to evaluate, finance and integrate acquired businesses, products and companies; |
• | 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; |
• | quality of our management and business abilities and the judgment of our personnel; |
• | the availability, terms and deployment of capital; |
• | the risk of litigation, especially patent litigation, as well as the cost associated with patent and other litigation; |
• | the risk of a lack of allograft tissue due to reduced donations of such tissues or due to tissues not meeting the appropriate high standards for screening and/or processing of such tissues; and |
• | compliance with and changes in regulatory requirements. |
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, 2016 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 that provides surgical devices and equipment for minimally invasive procedures. The Company’s products are used by surgeons and physicians in a variety of specialties including orthopedics, general surgery, gynecology, neurosurgery and gastroenterology.
We adjusted our product line disclosures to align with the way we review net sales beginning in fiscal year 2017. In doing so, we consolidated our surgical visualization line into our orthopedic surgery product line disclosure. Our product lines
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consist of orthopedic surgery and general surgery. Orthopedic surgery consists of sports medicine instrumentation and small bone, large bone and specialty powered surgical instruments as well as, imaging systems for use in minimally invasive surgery procedures including 2DHD and 3DHD vision technologies and service fees related to the promotion and marketing of sports medicine allograft tissue. General surgery consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. These product lines as a percentage of consolidated net sales are as follows:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Orthopedic surgery | 53.5 | % | 54.7 | % | 54.6 | % | 56.4 | % | |||
General surgery | 46.5 | % | 45.3 | % | 45.4 | % | 43.6 | % | |||
Consolidated net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
A significant amount of our products are used in surgical procedures with approximately 80% of our revenues derived from the sale of single-use products. Our capital equipment offerings also facilitate the ongoing sale of related disposable products and accessories, thus providing us with a recurring revenue stream. We manufacture substantially all of our products in facilities located in the United States and Mexico. We market our products both domestically and internationally directly to customers and through distributors. International sales approximated 49% during both the three months ended June 30, 2017 and 2016 and 48% during both the six months ended June 30, 2017 and 2016.
Business Environment
On January 4, 2016, we acquired SurgiQuest, Inc. ("SurgiQuest") for $265 million in cash (on a cash-free, debt-free basis). SurgiQuest develops, manufactures and markets the AirSeal® System, the first integrated access management technology for use in laparoscopic and robotic procedures. This proprietary and differentiated access system is complementary to our current general surgery offering. In connection with the SurgiQuest acquisition, we assumed a lawsuit filed in 2013 by Lexion Medical (“Lexion”) against SurgiQuest. On April 11, 2017 the trial for this lawsuit concluded with the jury awarding $2.2 million in compensatory damages with an additional $10.0 million in punitive damages to Lexion. Refer to Note 3 to the consolidated condensed financial statements for further details on this acquisition and Note 13 to the consolidated condensed financial statements for further details on the lawsuit.
We plan to continue to restructure both operations and administrative functions as necessary throughout the organization. We have successfully executed our restructuring plans over the past few years, however, we cannot be certain future activities will be completed in the estimated time period or that planned cost savings will be achieved.
Critical Accounting Policies
Preparation of our financial statements requires us to make estimates and assumptions which affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year-ended December 31, 2016 describes the significant accounting policies used in preparation of the Consolidated Financial Statements. On an ongoing basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements, including, but not limited to, those related to:
• | revenue recognition; |
• | inventory valuation; |
• | goodwill and intangible assets; |
• | pension plan; |
• | stock-based compensation costs; and |
• | income taxes. |
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There have been no material changes in these aforementioned critical accounting policies.
Consolidated Results of Operations
The following table presents, as a percentage of net sales, certain categories included in our consolidated condensed statements of income for the periods indicated:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Cost of sales | 46.9 | 47.1 | 46.7 | 46.6 | |||||||
Gross profit | 53.1 | 52.9 | 53.3 | 53.4 | |||||||
Selling and administrative expense | 42.5 | 44.8 | 46.5 | 46.1 | |||||||
Research and development expense | 4.1 | 4.1 | 4.1 | 4.3 | |||||||
Income from operations | 6.5 | 4.0 | 2.7 | 3.0 | |||||||
Other expense | — | — | — | 0.8 | |||||||
Interest expense | 2.2 | 1.9 | 2.2 | 2.0 | |||||||
Income before income taxes | 4.3 | 2.0 | 0.5 | 0.2 | |||||||
Provision for income taxes | 1.1 | 0.5 | — | — | |||||||
Net income | 3.1 | % | 1.5 | % | 0.4 | % | 0.2 | % |
Sales
The following table presents net sales by product line for the three and six months ended June 30, 2017 and 2016:
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
% Change | % Change | ||||||||||||||||||||||||||
2017 | 2016 | As Reported | Constant Currency | 2017 | 2016 | As Reported | Constant Currency | ||||||||||||||||||||
Orthopedic surgery | $ | 105.6 | $ | 105.8 | -0.3 | % | 0.9 | % | $ | 209.3 | $ | 211.1 | -0.9 | % | 0.1 | % | |||||||||||
General surgery | 91.6 | 87.6 | 4.6 | % | 5.5 | % | 174.4 | 163.5 | 6.7 | % | 7.5 | % | |||||||||||||||
Net sales | $ | 197.2 | $ | 193.4 | 1.9 | % | 3.0 | % | $ | 383.7 | $ | 374.6 | 2.4 | % | 3.3 | % | |||||||||||
Single-use products | $ | 159.5 | $ | 154.2 | 3.4 | % | 4.6 | % | $ | 309.2 | $ | 299.1 | 3.4 | % | 4.3 | % | |||||||||||
Capital products | 37.7 | 39.2 | -4.1 | % | -3.3 | % | 74.5 | 75.5 | -1.3 | % | -0.5 | % | |||||||||||||||
Net sales | $ | 197.2 | $ | 193.4 | 1.9 | % | 3.0 | % | $ | 383.7 | $ | 374.6 | 2.4 | % | 3.3 | % |
Net sales increased 1.9% and 2.4% as reported in the three and six months ended June 30, 2017 mainly due to growth in our General Surgery product line. Foreign exchange had a 110 basis point and 90 basis point unfavorable impact on reported sales growth for the three and six months ended June 30, 2017, respectively. Single-use product sales grew 3.4% in both the three and six months ended June 30, 2017 as reported and 4.6% and 4.3% on a constant currency basis in the three and six months ended June 30, 2017, respectively. These increases were partially offset by 4.1% and 1.3% declines in capital products as reported and 3.3% and 0.5% declines in capital products on a constant currency basis for the same periods.
• | Orthopedic surgery sales decreased 0.3% and 0.9% as reported in the three and six months ended June 30, 2017, however increased 0.9% and 0.1% on a constant currency basis as sales of sports medicine single-use products were offset by capital equipment declines. |
• | General surgery sales increased 4.6% and 6.7% as reported and 5.5% and 7.5% on a constant currency basis in the three and six months ended June 30, 2017 driven primarily by single-use sales growth of our AirSeal®, smoke management and endoscopic technologies products. |
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Cost of Sales
Cost of sales increased to $92.5 million in the three months ended June 30, 2017 as compared to $91.0 million in the three months ended June 30, 2016. Cost of sales increased to $179.2 million in the six months ended June 30, 2017 as compared to $174.5 million in the six months ended June 30, 2016. Gross profit margins increased 0.2 percentage points to 53.1% in the three months ended June 30, 2017 as compared to 52.9% in the three months ended June 30, 2016. The increase in gross profit margins of 0.2 percentage points in the three months ended June 30, 2017 was mainly a result of the discontinuation of our Altrus product offering as part of our ongoing restructuring during the three months ended June 30, 2016 offset by the impact of unfavorable foreign currency exchange rates on sales and higher costs related to deferred manufacturing variances in 2017 compared to the same period a year ago. Gross profit margins decreased 0.1 percentage point to 53.3% in the six months ended June 30, 2017 as compared to 53.4% in the six months ended June 30, 2016. The decrease in gross profit margins of 0.1 percentage point in the six months ended June 30, 2017 was mainly due to the impact of unfavorable foreign currency exchange rates on sales and higher costs related to deferred manufacturing variances in 2017 compared to the same period a year ago. These were offset by lower restructuring costs in 2017 mainly driven by the discontinuation of our Altrus product offering during 2016.
Selling and Administrative Expense
Selling and administrative expense decreased to $83.8 million in the three months ended June 30, 2017 as compared to $86.7 million in the three months ended June 30, 2016 and increased to $178.6 million in the six months ended June 30, 2017 as compared to $172.7 million in the six months ended June 30, 2016. Selling and administrative expense as a percentage of net sales decreased to 42.5% in the three months ended June 30, 2017 as compared to 44.8% in the three months ended June 30, 2016 and increased to 46.5% in the six months ended June 30, 2017 as compared to 46.1% in the six months ended June 30, 2016.
The significant factors affecting the $2.9 million decrease in selling and administrative expense in the three months ended June 30, 2017 as compared to the same period a year ago included (1) lower costs associated with the SurgiQuest acquisition in 2016 as further described in Notes 3 and 11 to the consolidated condensed financial statements and (2) a $0.9 million decrease in severance and other related costs from the restructuring of certain of our sales, marketing and administrative functions as further described in Note 11. These decreases were offset by higher legal fees associated with the SurgiQuest, Inc. vs. Lexion Medical litigation as further described in Notes 11 and 13.
The significant factors affecting the $5.9 million increase in selling and administrative expenses in the six months ended June 30, 2017 compared to the same periods a year ago included (1) $12.2 million in costs associated with the SurgiQuest, Inc. vs. Lexion Medical litigation verdict as further described in Notes 11 and 13 in the consolidated condensed financial statements (2) a $2.3 million increase in legal fees associated with this litigation as well as other legal matters as further described in Note 11 and (3) higher selling and administrative expense to support the growth of the Company. These increases were offset by (1) lower costs associated with the SurgiQuest acquisition in 2016 as further described in Notes 3 and 11 to the consolidated condensed financial statements and (2) a $2.4 million decrease in severance and other related costs from the restructuring of certain of our sales, marketing and administrative functions as further described in Note 11.
Research and Development Expense
Research and development expense remained flat at $8.0 million in the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 and decreased to $15.7 million in the six months ended June 30, 2017 as compared to $16.3 million in the six months ended June 30, 2016. As a percentage of net sales, research and development expense remained flat at 4.1% in the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 and decreased 0.2 percentage points to 4.1% in the six months ended June 30, 2017 as compared to 4.3% in the six months ended June 30, 2016 due to the timing of our projects.
Other Expense
Other expense in the six months ended June 30, 2016 related to costs associated with our fifth amended and restated senior credit agreement entered into on January 4, 2016. These costs include a $2.7 million charge related to commitment fees paid to certain of our lenders that provided a financing commitment for the SurgiQuest acquisition and a loss on the early extinguishment of debt of $0.3 million. There were no such costs in 2017.
Interest Expense
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Interest expense increased to $4.4 million in the three months ended June 30, 2017 from $3.8 million in the three months ended June 30, 2016 and increased to $8.5 million in the six months ended June 30, 2017 from $7.6 million in the six months ended June 30, 2016 due to higher interest rates compared to the same period a year ago. The weighted average interest rates on our borrowings increased to 3.43% in the three months ended June 30, 2017 as compared to 2.83% in the three months ended June 30, 2016 and increased to 3.32% in the six months ended June 30, 2017 from 2.87% in the six months ended June 30, 2016.
Provision for Income Taxes
Income tax expense has been recorded at an effective tax rate of 26.8% for the three months ended June 30, 2017 compared to income tax expense recorded at an effective tax rate of 26.6% in the three months ended June 30, 2016. The increase in the effective rate for the three months ended June 30, 2017 was due to a lower proportion of earnings in foreign jurisdictions where the tax rates are lower than the statutory federal rate. This increase was offset in part by the tax benefit recorded for stock options ($0.3 million) in accordance with the recent implementation of ASU 2016-09, Improvement of Employee Share-Based Payment Accounting as further described in Note 14 to the consolidated condensed financial statements. Income tax expense for the six months ended June 30, 2017 has been recorded at an effective tax rate of 10.0% compared to income tax expense recorded at an effective tax rate of 10.8% in the six months ended June 30, 2016. The decrease in the effective rate for the six months ended June 30, 2017 was the result of state tax benefits and stock option benefits ($0.2 million) recorded during this period. There can be no assurance the recording of the tax effects resulting from the implementation of ASU 2016-09 will not have any material impact in future periods. 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, 2016, under Note 7 to the consolidated financial statements.
Non-GAAP Financial Measures
Net sales “on a constant currency basis” is a non-GAAP measure. The Company analyzes net sales on a constant currency basis to better measure the comparability of results between periods. To measure percentage sales growth in constant currency, the Company removes the impact of changes in foreign currency exchange rates that affect the comparability and trend of net sales.
Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with other companies' non-GAAP financial measures having the same or similar names. This adjusted financial measure should not be considered in isolation or as a substitute for reported net sales growth, the most directly comparable GAAP financial measure. This non-GAAP financial measure is an additional way of viewing net sales that, when viewed with our GAAP results, provides a more complete understanding of our business. The Company strongly encourages investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Liquidity and Capital Resources
Our liquidity needs arise primarily from capital investments, working capital requirements and payments on indebtedness under the fifth amended and restated senior credit agreement, described below. We have historically met these liquidity requirements with funds generated from operations and borrowings under our revolving credit facility. In addition, we have historically used term borrowings, including borrowings under the amended and restated 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. Management believes that cash flow from operations, including cash and cash equivalents on hand and available borrowing capacity under our fifth amended and restated 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.
Operating cash flows
Our net working capital position was $210.6 million at June 30, 2017. Net cash provided by operating activities was $31.3 million and $1.4 million in the six months ended June 30, 2017 and 2016, respectively, generated on net income of $1.6 million and $0.6 million for the six months ended June 30, 2017 and 2016, respectively.
The increase in cash flows from operating activities for the six months ended June 30, 2017 compared to June 30, 2016 is mainly related to the prior year having significant cash outflows resulting from the SurgiQuest, Inc. acquisition whereby 2017 has a $12.2 million accrual related to the Lexion trial verdict.
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Investing cash flows
Net cash used in investing activities in the six months ended June 30, 2017 consisted of capital expenditures, the purchase of a business and asset acquisitions. Capital expenditures were $5.5 million and $7.7 million in the six months ended June 30, 2017 and 2016, respectively, and are expected to approximate $15.0 million in 2017. The purchase of a business and asset acquisitions totaled $1.8 million. The decrease in cash used in investing activities compared to the same period a year ago is the result of $256.5 million in payments during the six months ended June 30, 2016 associated with the SurgiQuest acquisition.
Financing cash flows
Financing activities in the first six months of 2017 resulted in a use of cash of $13.7 million compared to cash provided of $213.8 million in the same period a year ago. Below is a summary of the significant financing activities:
• | During 2016, we had borrowings of $175.0 million on our term loan under our fifth amended and restated credit agreement as further described below. During 2017 and 2016, we repaid $4.4 million on our term loan in accordance with the agreement. During 2017, we had net borrowings on our revolving line of credit of $3.0 million compared to $78.0 million in borrowings in 2016. |
• | During 2016, we had debt issuance costs of $5.6 million in conjunction with our fifth amended and restated credit agreement. |
• | During 2016, we made our final payment of $16.7 million associated with the distribution and development agreement with Musculoskeletal Transplant Foundation. |
• | Dividend payments were $11.1 million during 2017 and 2016. |
On January 4, 2016, we entered into a fifth amended and restated senior credit agreement consisting of: (a) a $175.0 million term loan facility and (b) a $525.0 million revolving credit facility both expiring on January 4, 2021. The term loan is payable in quarterly installments increasing over the term of the facility. Proceeds from the term loan facility and borrowings under the revolving credit facility were used to repay the then existing senior credit agreement and to finance the acquisition of SurgiQuest. Interest rates are at LIBOR plus 2.00% (3.23% at June 30, 2017). For those borrowings where we elect to use the alternative base rate, the base rate will be the greater of the Prime Rate, the Federal Funds Rate plus 0.50% or the one-month Eurocurrency Rate plus 1.00%.
There were $161.9 million in borrowings outstanding on the term loan as of June 30, 2017. There were $332.0 million in borrowings outstanding under the revolving credit facility as of June 30, 2017. Our available borrowings on the revolving credit facility at June 30, 2017 were $189.0 million with approximately $4.0 million of the facility set aside for outstanding letters of credit.
The fifth amended and restated senior credit agreement is collateralized by substantially all of our personal property and assets. The amended and restated 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, 2017. We are also required, under certain circumstances, to make mandatory prepayments from net cash proceeds from any issuance of equity and asset sales.
We have a mortgage note outstanding in connection with the Largo, Florida property and facilities bearing interest at 8.25% per annum with semiannual payments of principal and interest through June 2019. The principal balance outstanding on the mortgage note aggregated $3.2 million at June 30, 2017. The mortgage note is collateralized by the Largo, Florida property and facilities.
Our Board of Directors has authorized a $200.0 million share repurchase program. Through June 30, 2017, we have repurchased a total of 6.1 million shares of common stock aggregating $162.6 million under this authorization and have $37.4 million remaining available for share repurchases.The repurchase program calls for shares to be purchased in the open market or in private transactions from time to time. We may suspend or discontinue the share repurchase program at any time. We have not purchased any shares of common stock under the share repurchase program during 2017. We have financed the repurchases and may finance additional repurchases through operating cash flow and from available borrowings under our revolving credit facility.
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Management believes that cash flow from operations, including cash and cash equivalents on hand and available borrowing capacity under our fifth amended and restated 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.
Restructuring
During 2017 and 2016, we continued our operational restructuring plan. We incurred $0.3 million and $0.1 million in costs associated with the operational restructuring during the three months ended June 30, 2017 and 2016, respectively, and $1.5 million and $1.0 million during the six months ended June 30, 2017 and 2016. These costs were charged to cost of sales and include severance and other charges.
During 2016, the Company discontinued our Altrus product offering as part of our ongoing restructuring and incurred $4.5 million in non-cash charges which were included in cost of sales for the three and six months ended June 30, 2016.
During 2017 and 2016, we restructured certain sales, marketing and administrative functions and incurred severance and other related costs in the amount of $0.0 million and $1.0 million for the three months ended June 30, 2017 and 2016, respectively, and $1.3 million and $3.7 million for the six months ended June 30, 2017 and 2016, respectively. These costs were charged to selling and administrative expense.
We have reduced our restructuring accrual in current and other long term liabilities to $1.5 million at June 30, 2017 primarily through severance payments.
During recent years we had a number of initiatives to consolidate manufacturing facilities and restructure our sales and administrative functions. Although much of this is complete, we will continue to review our operations and sales and administrative functions to reduce costs and headcount, as necessary. Such cost reductions will likely result in additional charges, including employee termination costs and other exit costs that will be charged to cost of sales and selling and administrative expense, as applicable.
See Note 11 to the consolidated condensed financial statements for further discussions regarding restructuring.
New accounting pronouncements
See Note 14 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 six months ended June 30, 2017. Reference is made to Item 7A. of our Annual Report on Form 10-K for the year ended December 31, 2016 for a description of Qualitative and Quantitative Disclosures About Market Risk.
Item 4. Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out by CONMED Corporation’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended June 30, 2017 that has materially affected, or is reasonably likely to materially affect, our 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, 2016 and to Note 13 of the Notes to Consolidated Condensed Financial Statements included in Part I of this Report for a description of certain legal matters.
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Item 6. Exhibits
Exhibit No. | Description of Exhibit |
31.1 | Certification of Curt R. Hartman 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 Luke A. Pomilio 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 | Certifications of Curt R. Hartman and Luke A. Pomilio pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | The following materials from CONMED Corporation's Quarterly Report on Form 10-Q for the three and six months ended June 30, 2017 formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Condensed Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016, (ii) the Consolidated Condensed Balance Sheets at June 30, 2017 and December 31, 2016, (iii) Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2017 and 2016, and (iv) Notes to Consolidated Condensed Financial Statements for the three and six months ended June 30, 2017. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the date indicated below.
CONMED CORPORATION | ||
By: /s/ Luke A. Pomilio | ||
Luke A. Pomilio | ||
Executive Vice President, Finance and | ||
Chief Financial Officer | ||
Date: | ||
July 27, 2017 |
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Exhibit Index
Sequential Page | ||
Exhibit | Number | |
31.1 | Certification of Curt R. Hartman pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | E-1 |
31.2 | Certification of Luke A. Pomilio pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | E-2 |
32.1 | Certifications of Curt R. Hartman and Luke A. Pomilio pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | E-3 |
101 | The following materials from CONMED Corporation’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2017 formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Condensed Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016, (ii) the Consolidated Condensed Balance Sheets at June 30, 2017 and December 31, 2016, (iii) Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2017 and 2016, and (iv) Notes to Consolidated Condensed Financial Statements for the three and six months ended June 30, 2017. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. |
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