NEWS RELEASE
| | CONTACT: |
| | CONMED Corporation |
| | Robert Shallish |
| | Chief Financial Officer |
| | 315-624-3206 |
| | |
| | Financial Dynamics |
| | Julie Huang/Theresa Kelleher |
| | 212-850-5600 |
FOR RELEASE: 7:00 AM (Eastern) February 9, 2006
CONMED Corporation Announces Fourth Quarter and Full Year 2005 Results
Utica, New York, February 9, 2006 ----- CONMED Corporation (Nasdaq: CNMD) today announced financial results for the fourth quarter and twelve months ended December 31, 2005. Sales for the 2005 fourth quarter were $153.2 million compared to $161.2 million in the fourth quarter of 2004. Net income equaled $2.8 million, or $0.10 per diluted share for the quarter, compared to $7.4 million, or $0.25 per diluted share in the fourth quarter of 2004, based on a weighted average share count of 29.4 million for the quarter ended December 31, 2005. Total sales for the twelve months ended December 31, 2005 grew 10.5% to $617.3 million compared to $558.4 million in 2004. The Endoscopic Technologies product line acquired from C.R. Bard in September 2004 contributed $44.4 million to revenue in the first nine months of 2005 prior to its anniversary in September 2005. Net income for the year was $32.0 million, or $1.08 per diluted share, compared to $33.5 million, $1.11 per diluted share in 2004, based on a weighted average share count of 29.7 million for the 2005.
Excluding transition charges related to an acquisition and other unusual charges (see attached reconciliation for additional information), non-GAAP net income for 2005 was $41.8 million, or $1.41 per non-GAAP diluted share, compared to 2004 non-GAAP net income of $50.5 million, or $1.68 per non-GAAP diluted share. Fourth quarter non-GAAP net income was $5.3 million, or $0.18 per non-GAAP diluted share, compared to fourth quarter 2004 non-GAAP net income of $14.7 million, or $0.49 per non-GAAP diluted share.
Mr. Joseph J. Corasanti, President and Chief Operating Officer, noted, “As we previously announced, the Company’s revenues in the fourth quarter were impacted by several market factors including, we believe, lower than anticipated surgical procedures, extended capital equipment purchasing decision timelines in certain markets, and foreign currency translation. Further, our profits during the second half of 2005 were impacted by higher raw material costs related to petroleum based plastic, higher transportation charges, legal fees related to litigation against a competitor, and costs associated with scrap and rework regarding packaging integrity on certain products of our Powered Surgical Instrument line.”
CONMED News Release Continued | Page 2 of 9 | February 9, 2006 |
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“Most importantly, CONMED has taken action to address these market challenges. As previously announced, in relation to our manufacturing expansion, we are actively working to increase our investment in research and development as well as quality management for enhanced customer satisfaction and regulatory compliance. These initiatives added $7 million to the Company’s annual cost base and we believe these changes will over the long run ultimately result in improved product design and customer appreciation of our medical devices,” said Mr. Corasanti.
During 2005, the Company repurchased $45 million of its common stock with funds provided from operations and from proceeds of stock issued under employee plans. The Company’s debt to total book capitalization ratio at December 31, 2005 was 40.4%, a slight increase from 39.7% at December 31, 2004 due to the $9.0 million reduction in the accounts receivable securitization program and the resultant increase in long-term debt.
Sales outside the United States continued at a rapid pace in 2005 growing 17.4% overall, 12.0% excluding the effects of the Endoscopic Technologies acquisition, and 10.2% on a constant currency basis. In the fourth quarter of 2005, international sales grew 3.3%, reported, and 5.3% in constant currency due to the strengthening of the U.S. dollar in the last three months of the year.
While the second half of 2005 had softer sales than the first half of the year, the Company’s business showed overall sales improvement in the year. Arthroscopy product growth of 3.2% year over year was led by its single- use sports medicine repair products. Powered Surgical Instruments grew 2.6% as a result of the effects of the new small bone handpiece, PowerPro Max™, introduced to the market in early 2005. Electrosurgery’s growth of 3.0% year over year was primarily due to a 16% improvement in sales of generators as the line continues to grow its market share. Endosurgery’s growth of 6.8% was due to a 22% increase in sales outside the U.S. while domestic sales remain flat due to, we believe, the illegal marketing practices of a competitor. In Patient Care, the improved sales of the pulse oximetry line were offset by reductions in the ECG electrode line as a result of the loss of a GPO contract for electrodes. The Endoscopic Technologies business, acquired on September 30, 2004 generally met the Company’s expectations, although pricing pressures in the second half of 2005 inhibited the line’s growth.
Following is a summary of the Company’s sales by product line for the three months and year ended December, 2005 (in millions):
| | | Three Months Ended | | Year Ended | |
| | | December | | Growth | | December | | Growth | |
| | | 2004 | | 2005 | | | | | 2004 | | 2005 | | | | |
| Arthroscopy | | $ | 54.8 | | $ | 52.4 | | | -4.4% | | | $ | 204.9 | | $ | 211.4 | | | 3.2% | | |
Powered Surgical Instruments | | | 33.5 | | | 32.1 | | | -4.2% | | | | 128.6 | | | 132.0 | | | 2.6% | | |
| Electrosurgery | | | 23.9 | | | 22.6 | | | -5.4% | | | | 85.9 | | | 88.5 | | | 3.0% | | |
| Endosurgery | | | 12.5 | | | 12.5 | | | 0.0% | | | | 47.4 | | | 50.6 | | | 6.8% | | |
| Patient Care | | | 20.8 | | | 19.1 | | | -8.2% | | | | 75.9 | | | 75.9 | | | 0.0% | | |
| | | | 145.5 | | | 138.7 | | | -4.7% | | | | 542.7 | | | 558.4 | | | 2.9% | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Endoscopic Technologies | | | 15.7 | | | 14.5 | | | -7.6% | | | | 15.7 | | | 58.9 | | | | | |
| | | $ | 161.2 | | $ | 153.2 | | | -5.0% | | | $ | 558.4 | | $ | 617.3 | | | 10.5% | | |
CONMED News Release Continued | Page 3 of 9 | February 9, 2006 |
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Outlook
In 2006, CONMED believes that a number of factors will have a positive impact on the Company’s sales growth rate, including the anticipated new product pipeline and the return to normal elective procedure rates. With these underlying factors, the Company expects to achieve top-line organic growth of approximately 5% in 2006, an improvement from the 2% organic growth in 2005. The Company expects continued higher levels of raw material costs, unfavorable foreign exchange when compared to 2005, and higher costs related to product quality management and legal matters will impact the full year of 2006 causing operating profit margins to decline approximately $12 million compared to 2005 amounts.
The Company believes that non-GAAP diluted earnings per share in 2006 will approximate $1.00 - $1.05. GAAP diluted earnings per share is anticipated to be $0.88 - $0.93 per share in 2006 and reflects charges for previously disclosed higher costs of products for the Endoscopic Technology line while the Company completes the transition to self-manufacturing of this line, product recall costs and surgical light replacement costs. In addition, the Company will adopt FAS123R for stock option expensing in 2006 which is expected to reduce the above earnings per share estimates by $.10 - $.15.
Mr. Corasanti concluded, ”With 2005 behind us, 2006 forecasts to be a rebuilding year. We believe that the business is poised for continued long-term growth, our product franchise remains top-notch, and our management and employees are dedicated to improvement. Looking beyond 2006, we expect our operating margin in 2007 will improve to approximately 14% as a percentage of sales due to revenue growth leveraging the Company’s cost base as well as implementation of profit improvement actions.”
The Company anticipates that the second half of 2006 should show greater improvement over the first half of 2006 when compared to respective 2005 amounts as profit improvement programs continue to be implemented. Further, comparison to 2005 amounts will be more favorable in the second half of the 2006 year due to the relative softness of the last six months of 2005. For the first quarter of 2006, the Company expects revenues in the range of $153 - $158 million and diluted earnings per share on a non-GAAP basis of $0.18 - $0.22.
CONMED Profile
CONMED is a medical technology company with an emphasis on surgical devices and equipment for minimally invasive procedures and monitoring. The Company’s products serve the clinical areas of arthroscopy, powered surgical instruments, electrosurgery, cardiac monitoring disposables, endosurgery and endoscopic technologies. They are used by surgeons and physicians in a variety of specialties including orthopedics, general surgery, gynecology, neurosurgery, and gastroenterology. Headquartered in Utica, New York, the Company’s 3,100 employees distribute its products worldwide from eleven manufacturing locations.
Forward Looking Information
This press release contains forward-looking statements based on certain assumptions and contingencies that involve risks and uncertainties. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and relate to the Company’s performance on a going-forward basis. The forward-looking statements in this press release involve risks and uncertainties which could cause actual results, performance or trends, including the above mentioned anticipated revenues and earnings, to differ materially from those expressed in the forward-looking statements herein or in previous disclosures. The Company believes that all forward-looking statements made by it have a reasonable basis, but there can be no assurance that management’s expectations, beliefs or projections as expressed in the forward-looking statements will actually occur or prove to be correct. In addition to general industry and economic conditions, factors that could cause actual results to differ materially from those discussed in the forward-looking statements in this press release include, but are not limited to: (i) the failure of any one or more of the assumptions stated above, to prove to be correct; (ii) the risks relating to forward-looking statements discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004; (iii) cyclical purchasing patterns from customers, end-users and dealers; (iv) timely release of new products, and acceptance of such new products by the market; (v) the introduction of new products by competitors and other competitive responses; (vi) the possibility that any acquisition (and its integration) or other transaction may require the Company to reconsider its financial assumptions and goals/targets; (vii) increasing costs for raw material, transportation, or litigation; and/or (viii) the Company’s ability to devise and execute strategies to respond to market conditions.
CONMED News Release Continued | Page 4 of 9 | February 9, 2006 |
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CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
| | | Three months ended | | Twelve months ended | |
| | | December 31, | | December 31, | |
| | | 2004 | | 2005 | | 2004 | | 2005 | |
| Net sales | | $ | 161,223 | | $ | 153,200 | | $ | 558,388 | | $ | 617,305 | |
| | | | | | | | | | | | | | |
| Cost of sales | | | 76,462 | | | 76,862 | | | 267,067 | | | 296,438 | |
| Cost of sales, nonrecurring-Note A | | | 4,429 | | | 1,870 | | | 4,429 | | | 7,846 | |
| | | | | | | | | | | | | | |
| Gross profit | | | 80,332 | | | 74,468 | | | 286,892 | | | 313,021 | |
| | | | | | | | | | | | | | |
| Selling and administrative | | | 54,262 | | | 57,945 | | | 183,183 | | | 216,685 | |
| Research and development | | | 5,924 | | | 6,836 | | | 20,205 | | | 25,469 | |
| Write-off of purchased in-process | | | | | | | | | | | | | |
| research and development assets - Note B | | | 2,700 | | | - | | | 16,400 | | | - | |
| Other expense - Note C | | | 3,076 | | | 1,864 | | | 3,943 | | | 7,119 | |
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| | | | 65,962 | | | 66,645 | | | 223,731 | | | 249,273 | |
| | | | | | | | | | | | | | |
| Income from operations | | | 14,370 | | | 7,823 | | | 63,161 | | | 63,748 | |
| | | | | | | | | | | | | | |
| Loss on early extinguishment | | | | | | | | | | | | | |
| of debt - Note D | | | 825 | | | - | | | 825 | | | - | |
| | | | | | | | | | | | | | |
| Interest expense - Note E | | | 3,721 | | | 4,214 | | | 12,774 | | | 15,578 | |
| | | | | | | | | | | | | | |
| Income before income taxes | | | 9,824 | | | 3,609 | | | 49,562 | | | 48,170 | |
| | | | | | | | | | | | | | |
| Provision for income taxes | | | 2,389 | | | 802 | | | 16,097 | | | 16,176 | |
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| Net income | | $ | 7,435 | | $ | 2,807 | | $ | 33,465 | | $ | 31,994 | |
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Per share data: | | | | | | | | | | | | | |
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| Net Income | | | | | | | | | | | | | |
| Basic | | $ | .25 | | $ | .10 | | $ | 1.13 | | $ | 1.09 | |
| Diluted | | | .25 | | | .10 | | | 1.11 | | | 1.08 | |
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| Weighted average common shares | | | | | | | | | | | | | |
| Basic | | | 29,234 | | | 29,127 | | | 29,523 | | | 29,300 | |
| Diluted | | | 29,900 | | | 29,407 | | | 30,105 | | | 29,737 | |
CONMED News Release Continued | Page 5 of 9 | February 9, 2006 |
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Note A - Included in cost of sales in the three and twelve months ended December 31, 2004 are $4.4 million in acquisition related costs. Included in cost of sales in the three and twelve months ended December 31, 2005 are $1.9 million and $7.8 million, respectively, in acquisition related costs.
Note B - During the three and twelve months ended December 31, 2004, we wrote off the tax-deductible purchased in-process research and development assets related to the Bard Endoscopic Technologies acquisition amounting to $2.7 million and $16.4 million, respectively.
Note C - Included in other expense in the three months ended December 31, 2004 are $.7 million in acquisition related costs and $2.4 million of expense related to the termination of a product offering; Included in other expense in the twelve months ended December 31, 2004 are $1.5 million in acquisition related costs and $2.4 million of expense related to the termination of a product offering. Included in other expense in the three months ended December 31, 2005 are $.6 million in acquisition related costs, $.5 million of expense related to the termination of a product offering and $0.8 million related to a loss on an equity investment; Included in other expense for the twelve months ended December 31, 2005 are $4.1 million in acquisition related costs, $1.5 million of expense related to the termination of a product offering, $.7 million in environmental settlement costs and $.8 million related to the loss on an equity investment.
Note D - In the three months and twelve months ended December 31, 2004, we recorded $.8 million in losses on the early extinguishment of debt.
Note E - Interest expense for the twelve months ended December 31, 2004 includes $.3 million of financing costs related to the Bard Endoscopic Technologies acquisition.
CONMED News Release Continued | Page 6 of 9 | February 9, 2006 |
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CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
| | | December 31, | |
| | | 2004 | | 2005 | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 4,189 | | $ | 3,454 | |
| Accounts receivable, net | | | 74,593 | | | 83,327 | |
| Inventories | | | 127,935 | | | 152,428 | |
| Deferred income taxes | | | 13,733 | | | 8,334 | |
| Other current assets | | | 2,492 | | | 3,419 | |
| Total current assets | | | 222,942 | | | 250,962 | |
| | | | | | | | |
| Property, plant and equipment, net | | | 101,465 | | | 104,224 | |
| Goodwill and other assets, net | | | 529,717 | | | 527,053 | |
| Other assets | | | 18,701 | | | 16,991 | |
| Total assets | | $ | 872,825 | | $ | 899,230 | |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
| | | | | | | | |
| Current liabilities: | | | | | | | |
| Current portion of long-term debt | | $ | 4,037 | | $ | 4,208 | |
| Other current liabilities | | | 59,024 | | | 57,924 | |
| Total current liabilities | | | 63,061 | | | 62,132 | |
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| Long-term debt | | | 290,485 | | | 302,643 | |
| Deferred income taxes | | | 51,433 | | | 58,001 | |
| Other long-term liabilities | | | 19,863 | | | 23,448 | |
| Total liabilities | | | 424,842 | | | 446,224 | |
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| Shareholders' equity: | | | | | | | |
| Capital accounts | | | 226,444 | | | 202,810 | |
| Retained earnings | | | 227,938 | | | 259,932 | |
| Accumulated other comprehensive income (loss) | | | (6,399 | ) | | (9,736 | ) |
| Total shareholders’ equity | | | 447,983 | | | 453,006 | |
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| Total liabilities and shareholders' equity | | $ | 872,825 | | $ | 899,230 | |
CONMED News Release Continued | Page 7 of 9 | February 9, 2006 |
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CONMED CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
| | | Twelve months ended | |
| | | December 31, | |
| | | 2004 | | 2005 | |
| Cash flows from operating activities: | | | | | | | |
Net income | | $ | 33,465 | | $ | 31,994 | |
Adjustments to reconcile net income | | | | | | | |
to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | | | 26,868 | | | 30,786 | |
Deferred income taxes | | | 4,301 | | | 10,128 | |
Write-off of purchased in-process research and development asset | | | 16,400 | | | - | |
Write-off of deferred financing costs | | | 825 | | | - | |
Loss on equity investment | | | - | | | 794 | |
Sale of accounts receivable | | | 5,000 | | | (9,000 | ) |
Other, net | | | (12,019 | ) | | (22,268 | ) |
Net cash provided by operating activities | | | 74,840 | | | 42,434 | |
| | | | | | | | |
| Cash flow from investing activities: | | | | | | | |
Payments related to business acquisitions, | | | | | | | |
net of cash acquired | | | (81,645 | ) | | (372 | ) |
Purchases of property, plant, and equipment, net | | | (12,419 | ) | | (16,242 | ) |
Other investing activities | | | - | | | - | |
Net cash used in investing activities | | | (94,064 | ) | | (16,614 | ) |
| | | | | | | | |
| Cash flow from financing activities: | | | | | | | |
Payments on debt | | | (120,069 | ) | | (30,671 | ) |
Proceeds of debt | | | 150,000 | | | 43,000 | |
Net proceeds from common stock issued under employee plans | | | 15,200 | | | 16,998 | |
Repurchase of common stock | | | (29,989 | ) | | (45,374 | ) |
Other, net | | | 361 | | | (6,287 | ) |
Net cash provided by financing activities | | | 15,503 | | | (22,334 | ) |
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| Effect of exchange rate change | | | | | | | |
on cash and cash equivalents | | | 1,924 | | | (4,221 | ) |
| | | | | | | | |
| Net decrease in cash and cash equivalents | | | (1,797 | ) | | (735 | ) |
| | | | | | | | |
| Cash and cash equivalents at beginning of period | | | 5,986 | | | 4,189 | |
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| Cash and cash equivalents at end of period | | $ | 4,189 | | $ | 3,454 | |
CONMED News Release Continued | Page 8 of 9 | February 9, 2006 |
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CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NET INCOME
BEFORE UNUSUAL ITEMS
(In thousands except per share amounts)
(unaudited)
| | | Three months ended | |
| | | December 31, | |
| | | 2004 | | 2005 | |
| Reported net income | | $ | 7,435 | | $ | 2,807 | |
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| Acquisition-transition related costs included | | | | | | | |
| in cost of sales | | | 4,429 | | | 1,870 | |
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| Write-off of purchased in-process research and | | | | | | | |
| development assets | | | 2,700 | | | - | |
| | | | | | | | |
| Termination of product offering | | | 2,396 | | | 450 | |
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| Loss on equity investment | | | - | | | 794 | |
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| Other acquisition related costs | | | 680 | | | 620 | |
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| Total other expense | | | 3,076 | | | 1,864 | |
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| Loss on early extinguishment of debt | | | 825 | | | - | |
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| Unusual expense before income taxes | | | 11,030 | | | 3,734 | |
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| Provision (benefit) for income taxes on unusual expense | | | (3,805 | ) | | (1,288 | ) |
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| Net income before unusual items. | | $ | 14,660 | | $ | 5,253 | |
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Per share data: | | | | | | | |
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| Reported net income | | | | | | | |
| Basic | | $ | .25 | | $ | .10 | |
| Diluted | | | .25 | | | .10 | |
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| Net income before unusual items | | | | | | | |
| Basic | | $ | .50 | | $ | .18 | |
| Diluted | | | .49 | | | .18 | |
Management has provided the above reconciliation of net income before unusual items as an additional measure that investors can use to compare operating performance between reporting periods. Management believes this reconciliation provides a useful presentation of operating performance.
CONMED News Release Continued | Page 9 of 9 | February 9, 2006 |
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CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NET INCOME
BEFORE UNUSUAL ITEMS
(In thousands except per share amounts)
(unaudited)
| | | Twelve months ended | |
| | | December 31, | |
| | | 2004 | | 2005 | |
| Reported net income | | $ | 33,465 | | $ | 31,994 | |
| | | | | | | | |
| Acquisition-transition related costs included | | | | | | | |
in cost of sales | | | 4,429 | | | 7,846 | |
| | | | | | | | |
| Write-off of purchased in-process research and | | | | | | | |
development assets | | | 16,400 | | | - | |
| | | | | | | | |
| Termination of product offering | | | 2,396 | | | 1,519 | |
| | | | | | | | |
| Environmental settlement | | | - | | | 698 | |
| | | | | | | | |
| Loss on equity investment | | | - | | | 794 | |
| | | | | | | | |
| Other acquisition related costs | | | 1,547 | | | 4,108 | |
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Total other expense | | | 3,943 | | | 7,119 | |
| | | | | | | | |
| Acquisition-related interest expense | | | 360 | | | - | |
| | | | | | | | |
| Loss on early extinguishment of debt | | | 825 | | | - | |
| | | | | | | | |
| Unusual expense before income taxes | | | 25,957 | | | 14,965 | |
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| Provision (benefit) for income taxes on unusual expense | | | (8,955 | ) | | (5,163 | ) |
| | | | | | | | |
| Net income before unusual items. | | $ | 50,467 | | $ | 41,796 | |
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Per share data: | | | | | | | |
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| Reported net income | | | | | | | |
Basic | | $ | 1.13 | | $ | 1.09 | |
Diluted | | | 1.11 | | | 1.08 | |
| | | | | | | | |
| Net income before unusual items | | | | | | | |
Basic | | $ | 1.71 | | $ | 1.43 | |
Diluted | | | 1.68 | | | 1.41 | |
Management has provided the above reconciliation of net income before unusual items as an additional measure that investors can use to compare operating performance between reporting periods. Management believes this reconciliation provides a useful presentation of operating performance.
