UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 28, 2007
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 0-26224 51-0317849
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
311 Enterprise Drive
Plainsboro, NJ 08536
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 275-0500
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On February 28, 2007, Integra LifeSciences Holdings Corporation issued a press
release announcing financial results for the quarter and year ended December 31,
2006. A copy of the press release is attached as Exhibit 99.1 to this Current
Report on Form 8-K and is incorporated by reference into this Item.
The information contained in Item 2.02 of this Current Report on Form 8-K
(including the press release) is being furnished and shall not be deemed "filed"
for the purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or otherwise subject to the liabilities of that
Section. The information contained in Item 2.02 of this Current Report on Form
8-K (including the press release) shall not be incorporated by reference into
any registration statement or other document pursuant to the Securities Act of
1933, as amended, or the Exchange Act, except as shall be expressly set forth by
specific reference in any such filing.
DISCUSSION OF ADJUSTED FINANCIAL MEASURES
In addition to our GAAP results, we provide adjusted net income and adjusted
earnings per diluted share. Adjusted net income consists of net income excluding
equity-based compensation charges, acquisition-related charges, charges incurred
in connection with the Company's exchange offer of convertible notes and the
termination of the Company's interest rate swap agreement, facility
consolidation, manufacturing transfer and system integration charges, certain
employee termination and related costs, charges associated with discontinued
product lines, and, on a quarterly basis, an income tax expense adjustment
related to significant changes in the effective income tax rate during the year.
Adjusted earnings per diluted share is calculated by dividing adjusted net
income for diluted earnings per share by adjusted diluted weighted average
shares outstanding. Because all equity-based compensation expense is added back
in the calculation of adjusted net income, the calculation of diluted weighted
average shares outstanding is adjusted to exclude the benefits of unearned
equity-based compensation costs attributable to future services and not yet
recognized in the financial statements. These unearned equity-based compensation
costs are treated as proceeds assumed to be used to repurchase shares, based on
the average trading price of Integra common stock during the period reported, in
the calculation of GAAP diluted weighted average shares outstanding.
Integra believes that the presentation of adjusted net income and adjusted
earnings per diluted share provides important supplemental information to
management and investors regarding non-cash expenses and financial and business
trends relating to the Company's financial condition and results of operations.
Management uses non-GAAP financial measures in the form of adjusted net income
and adjusted earnings per diluted share when evaluating operating performance
because we believe that the inclusion or exclusion of the items described below,
for which the amounts and/or timing may vary significantly depending upon the
Company's acquisition and restructuring activities, provides a supplemental
measure of our operating results that facilitates comparability of our operating
performance from period to period, against our business model objectives, and
against other companies in our industry. We have chosen to provide this
information to investors so they can analyze our operating results in the same
way that management does and use this information in their assessment of our
core business and the valuation of our Company.
Internally, adjusted net income and adjusted earnings per diluted share are
significant measures used by management for purposes of:
o supplementing the financial results and forecasts reported to the Company's
board of directors;
o evaluating, managing and benchmarking the operating performance of the
Company;
o establishing internal operating budgets;
o determining compensation under bonus or other incentive programs;
o enhancing comparability from period to period;
o comparing performance with internal forecasts and targeted business models;
and
o evaluating and valuing potential acquisition candidates.
Adjusted net income reflects net income adjusted for the following items:
o EQUITY-BASED COMPENSATION. Equity-based compensation relates primarily to
stock options and restricted stock issued by the Company. Although recurring in
nature, equity-based compensation expense is heavily influenced by management
decisions regarding equity-based awards that were granted at a time when
different accounting rules applied to such awards and is a non-cash expense that
varies in amount from period to period and is affected by market forces that are
difficult to predict and are not within the control of management, such as the
price of our common stock. Accordingly, management excludes this item from its
internal operating forecasts and models and as it assesses the Company's
performance. Management believes that its presentation and disclosure of this
non-GAAP disclosure is consistent with the guidance included within Staff
Accounting Bulletin No. 107 and exclusion of this item is consistent with the
guidance in Staff Accounting Bulletin No. 107.
o ACQUISITION-RELATED CHARGES. Acquisition-related charges include in-process
research and development charges, charges related to discontinued research and
development projects for product technologies that were made redundant by an
acquisition and inventory fair value purchase accounting adjustments. Inventory
fair value purchase accounting adjustments consist of the increase to cost of
goods sold that occur as a result of expensing the "step up" in the fair value
of inventory that we purchased in connection with acquisitions as that inventory
is sold during the financial period. Although recurring given the ongoing
character of our acquisition program, these acquisition-related charges are not
factored into the evaluation of our performance by management after completion
of acquisitions because they are of a temporary nature, they are not related to
our core operating performance and the frequency and amount of such charges vary
significantly based on the timing and magnitude of our acquisition transactions
as well as the level of inventory on hand at the time of acquisition.
o FACILITY CONSOLIDATION, MANUFACTURING TRANSFER AND SYSTEM INTEGRATION CHARGES.
These charges, which include employee termination and other costs associated
with exit or disposal activities and costs associated with the worldwide
implementation of a single enterprise resource planning system, result from
rationalizing our existing manufacturing, distribution and administrative
infrastructure. Many of these cost-saving and efficiency-driven activities are
identified as opportunities in connection with acquisitions that provide the
Company with additional capacity or economies of scale. Although recurring in
nature given management's ongoing review of the efficiency of our manufacturing,
distribution and administrative facilities and operations, management excludes
these items when evaluating the operating performance of the Company because the
frequency and amount of such charges vary significantly based on the timing and
magnitude of the Company's rationalization activities and are, in some cases,
dependent upon opportunities identified in acquisitions, which also vary in
frequency and magnitude.
o EMPLOYEE TERMINATION AND RELATED COSTS. Employee termination and related costs
consist of charges related to significant reductions in force that are not
initiated in connection with facility consolidations or manufacturing transfers.
Management excludes these items when evaluating Integra's operating performance
because these amounts do not affect our core operations and because of the
infrequent and large-scale nature of these activities.
o CONVERTIBLE NOTE EXCHANGE OFFER CHARGES / SWAP TERMINATION CHARGES. The
convertible note exchange offer charges consist of fees paid in connection with
the exchange offer and the write-off of the unamortized debt issuance costs
associated with the old contingent convertible notes that were exchanged. The
interest rate swap termination charges result from the write-off of the
unamortized mark-to-market fair value adjustment recorded under hedge accounting
against the contingent convertible notes. The Company discontinued hedge
accounting following termination of the interest rate swap. Management excludes
these items when evaluating Integra's operating performance because these
amounts do not affect our core operations and because of the infrequent and
large-scale nature of these activities.
o CHARGES ASSOCIATED WITH DISCONTINUED PRODUCT LINES. This represents a charge
taken in connection with a product line that the Company discontinued.
Management excludes this item when evaluating Integra's operating performance
because this amount does not affect our core operations and because of the
infrequent nature of this activity.
o QUARTERLY ADJUSTMENT TO INCOME TAX EXPENSE RELATED TO SIGNIFICANT CHANGES IN
THE YEAR-TO-DATE EXPECTED EFFECTIVE INCOME TAX RATE. Income tax expense is
adjusted, on a quarterly basis, to eliminate the cumulative effects in the
current quarter of significant adjustments to the year-to-date (full year)
expected effective income tax rate. Neither the year-to-date (full year)
adjusted net income nor adjusted earnings per share amounts are affected by this
latter adjustment.
o INCOME TAX EXPENSE (BENEFIT). Income tax expense is adjusted by the amount of
additional tax expense or benefit that the Company estimates that it would
record if it used non-GAAP results instead of GAAP results in the calculation of
its tax provision. Such additional tax expense or benefit is calculated at the
statutory rate applicable to jurisdictions in which such non-GAAP adjustments
relate.
The calculation of adjusted earnings per diluted share is further adjusted for
the following item:
o As noted above, in calculating adjusted net income, one of the Company's
adjustments is to add back all equity-based compensation expense determined in
accordance with SFAS 123R to be more comparable to prior years. In order to make
the 2006 presentation more comparable to prior years, the calculation of
weighted average shares outstanding on a diluted basis had to be conformed as
well. In calculating diluted earnings per share, the dilutive effect of
restricted stock and stock options on the denominator is determined through
application of the treasury stock method, and unearned equity-based compensation
is one factor that is used to calculate assumed share repurchases under the
treasury stock method. Because the unrecognized equity-based compensation
expense under SFAS 123R is higher than if no equity-based compensation charges
are assumed (which is how we calculate adjusted net income), the number of
shares that are included in the denominator of diluted earnings per share when
applying SFAS 123R is less than the number of shares that are included in our
method of reporting adjusted earnings per diluted share (i.e. in order to be
consistent, since all equity-based compensation expense was added back in the
calculation of adjusted net income, the weighted average shares used to
calculate adjusted earnings per diluted share were also adjusted so that no
unearned equity-based compensation is considered in the treasury stock method).
As a result, our calculation of adjusted earnings per diluted share is based on
a different number of shares than GAAP earnings per share.
Adjusted net income and adjusted earnings per diluted share are not calculated
in accordance with GAAP, and should be considered supplemental to, and not as a
substitute for, or superior to, financial measures calculated in accordance with
GAAP. Non-GAAP financial measures have limitations in that they do not reflect
all of the costs or benefits associated with the operations of the Company's
business as determined in accordance with GAAP. As a result, you should not
consider these measures in isolation or as a substitute for analysis of
Integra's results as reported under GAAP. Integra expects to continue to incur
expenses of a nature similar to the non-GAAP adjustments described above, and
exclusion of these items from its adjusted net income should not be construed as
an inference that all of these costs are unusual,
infrequent or non-recurring. Some of the limitations in relying on adjusted net
income and adjusted earnings per diluted share are:
o Adjusted net income does not include equity-based compensation expense
related to equity awards granted to our workforce or third parties. Our equity
incentive plans are important components of our employee incentive compensation
arrangements and are reflected as expenses in our GAAP results in accordance
with Statement of Financial Accounting Standards No. 123R, Share-Based Payment,
commencing with the first quarter of 2006. While we include the dilutive impact
of such equity awards in weighted average shares outstanding, the expense
associated with equity-based awards is excluded from adjusted net income.
o Integra periodically acquires other companies or businesses, and we expect to
continue to incur acquisition-related expenses and charges in the future. These
costs can directly impact the amount of the Company's available funds or could
include costs for aborted deals which may be significant and reduce GAAP net
income.
o Although the charges related to the restructuring of our operations and
changes to our capital structure occur on a sporadic basis and the charges
relating to the discontinued product line, the convertible note exchange offer
and the interest rate swap termination did not previously occur, they may recur
in the future and they are, in many cases, cash charges that reduce our
available cash. There is no assurance that we will not incur other similar
charges and expenditures in the future.
o All of the adjustments, other than the quarterly income tax expense adjustment
related to significant changes in the expected year-to-date effective income tax
rate, have been tax effected at Integra's actual tax rates. Depending on the
nature of the adjustments and the tax treatment of the underlying items and the
magnitude of changes in the expected year-to-date effective income tax rate from
quarter to quarter, the effective tax rate related to adjusted net income could
differ significantly from the effective tax rate related to GAAP income.
In the financial statements portion of its earnings press release for the fourth
quarter of 2006, which is attached hereto as Exhibit 99.1, the Company has
included a reconciliation of GAAP net income to adjusted net income and GAAP
earnings per diluted share to adjusted earnings per diluted share used by
management for the quarters and years ended December 31, 2006 and 2005.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
Exhibit Number Description of Exhibit
- ------------------- ---------------------------
99.1 Press release issued February 28, 2007 regarding earnings
for the quarter and year ended December 31, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
DATE: FEBRUARY 28, 2007 BY: /s/ STUART M. ESSIG
-------------------------------------
STUART M. ESSIG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- ---------------- ---------------------------
99.1 Press release issued February 28, 2007 regarding earnings for
the quarter and year ended December 31, 2006
EXHIBIT 99.1
NEWS RELEASE
CONTACTS:
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
MAUREEN B. BELLANTONI JOHN BOSTJANCIC
EXECUTIVE VICE PRESIDENT VICE PRESIDENT, CORPORATE DEVELOPMENT
AND CHIEF FINANCIAL OFFICER AND INVESTOR RELATIONS
(609) 936-6822 (609) 936-2239
maureen.bellantoni@integra-ls.com jbostjancic@integra-ls.com
INTEGRA LIFESCIENCES REPORTS 2006 FINANCIAL RESULTS
REVENUES FOR THE FOURTH QUARTER INCREASE 72% TO $125.4 MILLION
PLAINSBORO, NEW JERSEY, FEBRUARY 28, 2007 - INTEGRA LIFESCIENCES HOLDINGS
CORPORATION (NASDAQ: IART) TODAY REPORTED ITS FINANCIAL RESULTS FOR THE FOURTH
QUARTER ENDING DECEMBER 31, 2006. TOTAL REVENUES IN THE FOURTH QUARTER OF 2006
WERE $125.4 MILLION, REFLECTING AN INCREASE OF $52.4 MILLION, OR 72%, OVER THE
FOURTH QUARTER OF 2005. REVENUES FROM PRODUCTS ACQUIRED IN 2006 WERE $35.6
MILLION FOR THE QUARTER.
THE COMPANY REPORTED GAAP NET INCOME OF $10.1 MILLION, OR $0.34 PER DILUTED
SHARE, FOR THE FOURTH QUARTER OF 2006, COMPARED TO GAAP NET INCOME OF $10.6
MILLION, OR $0.33 PER DILUTED SHARE, IN THE FOURTH QUARTER OF 2005. REPORTED
EARNINGS FOR THE FOURTH QUARTER OF 2006 INCLUDED $3.8 MILLION OF SHARE-BASED
COMPENSATION EXPENSE RELATED TO THE IMPLEMENTATION OF SFAS 123R SHARE-BASED
PAYMENT IN JANUARY 2006. REPORTED EARNINGS FOR THE FOURTH QUARTER OF 2005 DO NOT
REFLECT THE IMPACT OF SHARE-BASED COMPENSATION EXPENSE.
"WE ACHIEVED RECORD REVENUES IN THE FOURTH QUARTER THROUGH STRONG GROWTH IN OUR
EXISTING PRODUCT LINES AND ACQUIRED PRODUCT SALES," SAID STUART M. ESSIG,
INTEGRA'S PRESIDENT AND CHIEF EXECUTIVE OFFICER. "DURING THE QUARTER, WE ALSO
COMPLETED THE INTEGRATION OF KINETIKOS MEDICAL, INC. (KMI) INTO OUR INTEGRA
EXTREMITY RECONSTRUCTION SALES CHANNEL, INITIATED THE PIVOTAL UNITED STATES
CLINICAL TRIAL FOR OUR DURAGEN PLUS(R) ADHESION BARRIER MATRIX -- THE LARGEST
CLINICAL STUDY UNDERTAKEN BY INTEGRA IN ITS HISTORY -- AND LAUNCHED A SALES
ORGANIZATION DEVOTED TO PRODUCTS FOR SPINE SURGERY."
TOTAL REVENUES FOR THE YEAR ENDED DECEMBER 31, 2006 WERE $419.3 MILLION,
REFLECTING AN INCREASE OF $141.4 MILLION, OR 51%, OVER 2005. REVENUES FROM
PRODUCTS ACQUIRED IN 2006 WERE $98.1 MILLION FOR THE YEAR ENDED DECEMBER 31,
2006. THE COMPANY REPORTED NET INCOME OF $29.4 MILLION, OR $0.97 PER DILUTED
SHARE, FOR THE FULL YEAR 2006, COMPARED TO NET INCOME OF $37.2 MILLION, OR $1.15
PER DILUTED SHARE IN 2005.
INTEGRA GENERATED $20.9 MILLION IN CASH FLOWS FROM OPERATIONS IN THE FOURTH
QUARTER OF 2006 AND $71.7 MILLION IN ALL OF 2006.
"ONE OF OUR OBJECTIVES IS TO GROW OPERATING CASH FLOWS, WHICH HAVE ACCELERATED
SIGNIFICANTLY IN THE PAST YEAR," SAID MAUREEN B. BELLANTONI, INTEGRA'S EXECUTIVE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. "DURING THE PAST FIVE YEARS, WE HAVE
GENERATED IN EXCESS OF 35% AVERAGE ANNUAL GROWTH IN OUR OPERATING CASH FLOWS.
THIS HAS GREATLY IMPROVED OUR ACCESS TO DEBT CAPITAL, WHICH WE HAVE INCREASINGLY
USED TO SUPPORT OUR GROWTH."
IN ADDITION TO GAAP RESULTS, INTEGRA REPORTS ADJUSTED NET INCOME AND ADJUSTED
DILUTED EARNINGS PER SHARE. A FURTHER DISCUSSION OF THESE NON-GAAP FINANCIAL
MEASURES CAN BE FOUND BELOW, AND
RECONCILIATIONS OF GAAP NET INCOME TO ADJUSTED NET INCOME AND GAAP DILUTED
EARNINGS PER SHARE TO ADJUSTED DILUTED EARNINGS PER SHARE FOR THE QUARTERS AND
YEARS ENDED DECEMBER 31, 2006 AND 2005 APPEAR IN THE FINANCIAL STATEMENTS
ATTACHED TO THIS RELEASE.
ADJUSTED NET INCOME FOR THE FOURTH QUARTER OF 2006, COMPUTED WITH THE
ADJUSTMENTS TO GAAP REPORTING SET FORTH IN THE ATTACHED RECONCILIATION, WAS
$15.0 MILLION, OR $0.50 PER DILUTED SHARE. IN THE FOURTH QUARTER OF 2005
ADJUSTED NET INCOME WAS $12.1 MILLION, OR $0.37 PER DILUTED SHARE. ADJUSTED NET
INCOME WAS $52.5 MILLION, OR $1.67 PER DILUTED SHARE, FOR THE FULL YEAR 2006 AND
$42.1 MILLION, OR $1.29 PER DILUTED SHARE, FOR THE FULL YEAR 2005.
"2006 WAS A YEAR OF SIGNIFICANT PROGRESS FOR INTEGRA," SAID MR. ESSIG. "IN
ADDITION TO OUR FOURTH QUARTER ACCOMPLISHMENTS, WE ALSO INVESTED MORE THAN $220
MILLION TO ACQUIRE STRATEGIC PRODUCT LINES FOR EACH OF OUR THREE MAJOR SALES
CHANNELS, REINVIGORATED SALES GROWTH OF EXISTING PRODUCTS AND LAID THE
FOUNDATION FOR FURTHER GROWTH BY LAUNCHING MORE THAN 20 PRODUCTS, ADDING TO OUR
RICH PRODUCT PIPELINE."
INTEGRA LIFESCIENCES PRESENTS ITS REVENUES IN TWO CATEGORIES: A) NEUROSURGICAL
AND ORTHOPEDIC IMPLANTS AND B) MEDICAL SURGICAL EQUIPMENT.
THE COMPANY'S REVENUES FOR THE PERIODS WERE AS FOLLOWS:
Three Months Year
Ended December 31, Ended December 31,
2006 2005 2006 2005
---- ---- ---- ----
Revenue: ($ in thousands)
Neurosurgical and Orthopedic Implants $47,250 $35,365 $166,028 $134,583
Medical Surgical Equipment and other 78,144 37,620 253,269 143,352
-------- ------- ---------- -- -------
Total Revenue $125,394 $72,985 $419,297 $277,935
SALES OF OUR EXTREMITY RECONSTRUCTION IMPLANTS AND BONE GROWTH PRODUCTS LED
REVENUE GROWTH IN THE NEUROSURGICAL AND ORTHOPEDIC IMPLANTS CATEGORY. HIGHLIGHTS
IN THIS CATEGORY INCLUDED THE FOLLOWING: INTEGRA(TM) DERMAL REPAIR PRODUCT
REVENUES INCREASED 28% OVER THE FOURTH QUARTER OF 2005, NERVE REPAIR PRODUCT
REVENUES INCREASED BY 43% AND BONE GROWTH PRODUCTS INCREASED BY 39% OVER THE
FOURTH QUARTER OF 2005. SALES OF RECENTLY ACQUIRED ORTHOPEDIC IMPLANT PRODUCTS
CONTRIBUTED $2.4 MILLION TO THE INCREASE IN NEUROSURGICAL AND ORTHOPEDIC IMPLANT
SALES.
IN THE MEDICAL SURGICAL EQUIPMENT CATEGORY, ACQUIRED PRODUCTS, SURGICAL
INSTRUMENTS AND ULTRASONIC SURGICAL SYSTEMS PROVIDED MOST OF THE YEAR-OVER-YEAR
GROWTH IN PRODUCT REVENUES FOR THE FOURTH QUARTER. RADIONICS PRODUCTS, MILTEX
PRODUCTS AND PRODUCTS OF OTHER COMPANIES SOLD THROUGH OUR FORMER CANADIAN
DISTRIBUTOR (ALL ACQUIRED IN 2006) CONTRIBUTED $33.2 MILLION OF REVENUES DURING
THE QUARTER.
GROSS MARGIN ON TOTAL REVENUES IN THE FOURTH QUARTER OF 2006 WAS 59%. THE
COMPANY'S COST OF PRODUCT REVENUES INCLUDED $0.6 MILLION IN INVENTORY FAIR VALUE
PURCHASE ACCOUNTING ADJUSTMENTS FROM RECENT ACQUISITIONS. THESE CHARGES REDUCED
OUR GROSS MARGIN BY ONE HALF OF A PERCENTAGE POINT.
RESEARCH AND DEVELOPMENT EXPENSE INCREASED $2.5 MILLION IN THE FOURTH QUARTER OF
2006 TO $5.2 MILLION. THE QUARTER'S EXPENSE INCLUDED $1.0 MILLION ASSOCIATED
WITH THE RECENTLY ACQUIRED RADIONICS AND KMI PRODUCT LINES AND AN ADDITIONAL
$0.3 MILLION IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE IN CONNECTION WITH THE
KMI ACQUISITION. IN THE FOURTH QUARTER OF 2006, WE INITIATED THE PIVOTAL UNITED
STATES CLINICAL TRIAL FOR OUR DURAGEN PLUS(R) ADHESION BARRIER MATRIX PRODUCT.
IN 2006, WE INCREASED RESEARCH AND DEVELOPMENT EXPENSES BY $13.8 MILLION, OR
115%, OVER THE PRIOR YEAR. THE 2006 AMOUNT INCLUDES A $5.9 MILLION OF IN-PROCESS
RESEARCH AND DEVELOPMENT CHARGES INCURRED IN THE THIRD AND FOURTH QUARTERS IN
CONNECTION WITH THE KMI ACQUISITION.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE INCREASED BY $20.3 MILLION TO $45.9
MILLION IN THE FOURTH QUARTER OF 2006, OR 37% OF REVENUE, AS COMPARED TO 35% IN
THE FOURTH QUARTER OF 2005. INCLUDED IN THIS INCREASE WAS SHARE-BASED
COMPENSATION EXPENSE OF $3.5 MILLION, OR 3% OF REVENUE, ATTRIBUTABLE TO THE
IMPACT OF ADOPTING FAS 123R.
OPERATING INCOME FOR THE FOURTH QUARTER OF 2006 WAS $20.1 MILLION, A 35%
INCREASE OVER THE PRIOR YEAR PERIOD.
WE REPORTED NET INTEREST EXPENSE OF $2.3 MILLION IN THE FOURTH QUARTER OF 2006.
OUR EFFECTIVE INCOME TAX RATE WAS 39.1% FOR 2006 AND 32.5% IN 2005. THE INCREASE
IN THE EFFECTIVE INCOME TAX RATE FOR 2006 WAS DRIVEN BY THE NONDEDUCTIBLE NATURE
OF THE $5.9 MILLION IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE AND THE CHANGES
IN THE GEOGRAPHIC MIX OF TAXABLE INCOME ATTRIBUTABLE TO RECENTLY ACQUIRED
BUSINESSES. THE $5.9 MILLION IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE
INCREASED OUR EFFECTIVE INCOME TAX RATE FOR 2006 BY 4.2 PERCENTAGE POINTS. WE
EXPECT AN EFFECTIVE INCOME TAX RATE OF APPROXIMATELY 34% FOR 2007.
DURING THE FOURTH QUARTER OF 2006, WE REPURCHASED 920,605 SHARES OF OUR COMMON
STOCK FOR AN AGGREGATE PURCHASE PRICE OF $38.2 MILLION. DURING 2006, WE
REPURCHASED A TOTAL OF 1.8 MILLION SHARES OF OUR COMMON STOCK FOR $70.0 MILLION.
AS OF DECEMBER 31, 2006, THERE WAS $36.8 MILLION AVAILABLE FOR REPURCHASES UNDER
OUR EXISTING SHARE REPURCHASE AUTHORIZATION, WHICH WILL EXPIRE ON DECEMBER 31,
2007.
AT DECEMBER 31, 2006, OUR CASH TOTALED $22.7 MILLION AND WE HAD OUTSTANDING
BORROWINGS OF $100.0 MILLION UNDER OUR CREDIT FACILITY. IN FEBRUARY 2007, WE
INCREASED THE BORROWING CAPACITY UNDER OUR CREDIT FACILITY TO $300 MILLION.
WE ARE UPDATING OUR GUIDANCE FOR THE FULL YEAR 2007 AND PROVIDING OUR INITIAL
GUIDANCE FOR 2008. WE ARE ALSO PROVIDING GUIDANCE FOR EACH QUARTERLY PERIOD OF
2007. OUR ESTIMATES ASSUME FOREIGN CURRENCY EXCHANGE RATES REMAIN UNCHANGED
THROUGHOUT 2007 AND 2008. IN ACCORDANCE WITH OUR USUAL PRACTICE, OUR
EXPECTATIONS FOR 2007 AND 2008 FINANCIAL PERFORMANCE DO NOT INCLUDE THE IMPACT
OF ACQUISITIONS OR OTHER STRATEGIC CORPORATE TRANSACTIONS THAT HAVE NOT YET
CLOSED.
OUR QUARTERLY AND FULL-YEAR REVENUE AND GAAP EARNINGS PER SHARE EXPECTATIONS ARE
AS FOLLOWS:
Revenue Earnings
Guidance Per Share
Period (in millions) Guidance
- ------------------------------ ---------------- ------------------
First Quarter 2007 $117 - $120 $0.32 - $0.34
Second Quarter 2007 $120 - $123 $0.34 - $0.36
Third Quarter 2007 $129 - $132 $0.46 - $0.49
Fourth Quarter 2007 $142 - $145 $0.58 - $0.61
2007 $508 - $520 $1.70 - $1.80
2008 $570 - $590 $2.05 - $2.25
ON A QUARTERLY BASIS, WE EXPECT TO INCUR APPROXIMATELY $3.7 MILLION, OR $0.08
PER SHARE, OF COMPENSATION EXPENSE ASSOCIATED WITH FAS 123R IN 2007 AND 2008.
THIS NON-CASH COMPENSATION EXPENSE IS INCLUDED IN THE GAAP EARNINGS PER SHARE
GUIDANCE FOR 2007 AND 2008 PROVIDED ABOVE.
ALTHOUGH WE ARE NOT PROVIDING ADJUSTED EARNINGS PER SHARE GUIDANCE FOR 2007 AND
2008, IN THE FUTURE WE MAY RECORD, OR EXPECT TO RECORD, CERTAIN REVENUES, GAINS,
EXPENSES OR CHARGES (SUCH AS ACQUISITION-RELATED CHARGES, FACILITY
CONSOLIDATION, MANUFACTURING TRANSFER AND SYSTEM INTEGRATION CHARGES, AND
CERTAIN EMPLOYEE TERMINATION AND RELATED COSTS) THAT WE WILL EXCLUDE IN THE
CALCULATION OF ADJUSTED EARNINGS PER SHARE FOR HISTORICAL PERIODS OR FOR
PROVIDING ADJUSTED EARNINGS PER SHARE GUIDANCE.
WE HAVE SCHEDULED A CONFERENCE CALL FOR 9:00 AM EST TODAY, FEBRUARY 28, 2007, TO
DISCUSS THE FINANCIAL RESULTS FOR THE FOURTH QUARTER OF 2006 AND FORWARD-LOOKING
FINANCIAL GUIDANCE. THE CALL IS OPEN TO ALL LISTENERS AND WILL BE FOLLOWED BY A
QUESTION AND ANSWER SESSION. ACCESS TO THE LIVE CALL IS AVAILABLE BY DIALING
(913) 312-1235 OR THROUGH A LISTEN-ONLY WEBCAST VIA A LINK PROVIDED ON THE
INVESTOR RELATIONS HOMEPAGE OF INTEGRA'S WEBSITE AT www.integra-ls.com. A REPLAY
OF THE CONFERENCE CALL WILL BE ACCESSIBLE STARTING ONE HOUR FOLLOWING THE LIVE
EVENT. ACCESS TO THE REPLAY IS AVAILABLE THROUGH MARCH 14, 2007 BY DIALING (719)
457-0820 (ACCESS CODE 4583668) OR THROUGH THE WEBCAST ACCESSIBLE ON OUR HOME
PAGE.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION, A WORLD LEADER IN REGENERATIVE
MEDICINE, IS DEDICATED TO IMPROVING THE QUALITY OF LIFE FOR PATIENTS THROUGH THE
DEVELOPMENT, MANUFACTURING, AND MARKETING OF COST-EFFECTIVE SURGICAL IMPLANTS
AND MEDICAL INSTRUMENTS. OUR PRODUCTS, USED PRIMARILY IN NEUROSURGERY, EXTREMITY
RECONSTRUCTION, ORTHOPEDICS AND GENERAL SURGERY, ARE USED TO TREAT MILLIONS OF
PATIENTS EVERY YEAR. INTEGRA'S HEADQUARTERS ARE IN PLAINSBORO, NEW JERSEY, AND
WE HAVE RESEARCH AND MANUFACTURING FACILITIES THROUGHOUT THE WORLD. PLEASE VISIT
OUR WEBSITE AT (http://www.integra-ls.com).
THIS NEWS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS
INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS CONCERNING FUTURE FINANCIAL
PERFORMANCE, INCLUDING PROJECTIONS FOR REVENUES, EFFECTIVE INCOME TAX RATE, AND
GAAP EARNINGS PER DILUTED SHARE, AND THE NUMBER OF NEW PRODUCTS EXPECTED TO BE
LAUNCHED IN 2007. SUCH FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
PREDICTED OR EXPECTED RESULTS. AMONG OTHER THINGS, OUR ABILITY TO MAINTAIN
RELATIONSHIPS WITH CUSTOMERS OF ACQUIRED ENTITIES, PHYSICIANS' WILLINGNESS TO
ADOPT OUR RECENTLY LAUNCHED AND PLANNED PRODUCTS, THIRD-PARTY PAYORS'
WILLINGNESS TO PROVIDE REIMBURSEMENT FOR THESE PRODUCTS, INITIATIVES LAUNCHED BY
OUR COMPETITORS, OUR ABILITY TO SECURE REGULATORY APPROVAL FOR PRODUCTS IN
DEVELOPMENT AND OUR ABILITY TO COMPLY WITH NEWLY-ENACTED REGULATIONS REGARDING
PRODUCTS CONTAINING MATERIALS DERIVED FROM ANIMAL SOURCES MAY ADVERSELY AFFECT
OUR FUTURE PRODUCT REVENUES; THE GEOGRAPHIC MIX OF TAXABLE INCOME MAY AFFECT OUR
OVERALL EFFECTIVE INCOME TAX RATE; OUR ABILITY TO INTEGRATE ACQUIRED BUSINESSES,
INCREASE PRODUCT SALES AND GROSS MARGINS, AND CONTROL NON-PRODUCT COSTS MAY
AFFECT OUR EARNINGS, AND THE SUCCESS OF OUR PRODUCT DEVELOPMENT EFFORTS AND OUR
ABILITY TO SECURE REGULATORY APPROVAL FOR PRODUCTS IN DEVELOPMENT MAY AFFECT THE
NUMBER OF NEW PRODUCTS LAUNCHED IN 2007. IN ADDITION, THE ECONOMIC, COMPETITIVE,
GOVERNMENTAL, TECHNOLOGICAL AND OTHER FACTORS IDENTIFIED UNDER THE HEADING
"FACTORS THAT MAY AFFECT OUR FUTURE PERFORMANCE" INCLUDED IN THE BUSINESS
SECTION OF INTEGRA'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2005 AND INFORMATION CONTAINED IN SUBSEQUENT FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION COULD AFFECT ACTUAL RESULTS.
DISCUSSION OF ADJUSTED FINANCIAL MEASURES
ADJUSTED NET INCOME CONSISTS OF NET INCOME EXCLUDING EQUITY-BASED COMPENSATION
CHARGES, ACQUISITION-RELATED CHARGES, CHARGES INCURRED IN CONNECTION WITH THE
EXCHANGE OFFER OF CONVERTIBLE NOTES AND THE TERMINATION OF THE INTEREST RATE
SWAP AGREEMENT, FACILITY CONSOLIDATION, MANUFACTURING TRANSFER AND SYSTEM
INTEGRATION CHARGES, CERTAIN EMPLOYEE TERMINATION AND RELATED COSTS, CHARGES
ASSOCIATED WITH DISCONTINUED PRODUCT LINES, AND, ON A QUARTERLY BASIS, INCOME
TAX EXPENSE ADJUSTMENTS RELATED TO SIGNIFICANT CHANGES IN THE EFFECTIVE INCOME
TAX RATE DURING THE YEAR. ADJUSTED EARNINGS PER DILUTED SHARE ARE CALCULATED BY
DIVIDING ADJUSTED NET INCOME FOR DILUTED EARNINGS PER SHARE BY ADJUSTED DILUTED
WEIGHTED AVERAGE SHARES OUTSTANDING. BECAUSE ALL EQUITY-BASED COMPENSATION
EXPENSE IS ADDED BACK IN THE CALCULATION OF ADJUSTED NET INCOME, THE CALCULATION
OF DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING IS ADJUSTED TO EXCLUDE THE
BENEFITS OF UNEARNED EQUITY-BASED COMPENSATION COSTS ATTRIBUTABLE TO FUTURE
SERVICES AND NOT YET RECOGNIZED IN THE FINANCIAL STATEMENTS. THESE UNEARNED
EQUITY-BASED COMPENSATION COSTS ARE TREATED AS PROCEEDS ASSUMED TO BE USED TO
REPURCHASE SHARES, BASED ON THE AVERAGE TRADING PRICE OF INTEGRA COMMON STOCK
DURING THE PERIOD REPORTED, IN THE CALCULATION OF GAAP DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING.
INTEGRA BELIEVES THAT THE PRESENTATION OF ADJUSTED NET INCOME AND ADJUSTED
EARNINGS PER DILUTED SHARE PROVIDES IMPORTANT SUPPLEMENTAL INFORMATION TO
MANAGEMENT AND INVESTORS REGARDING NON-CASH EXPENSES AND FINANCIAL AND BUSINESS
TRENDS RELATING TO THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FOR FURTHER INFORMATION REGARDING WHY INTEGRA BELIEVES THAT THESE NON-GAAP
FINANCIAL MEASURES PROVIDE USEFUL INFORMATION TO INVESTORS, THE SPECIFIC MANNER
IN WHICH MANAGEMENT USES THESE MEASURES, AND SOME OF THE LIMITATIONS ASSOCIATED
WITH THE USE OF THESE MEASURES, PLEASE REFER TO THE COMPANY'S CURRENT REPORT ON
FORM 8-K REGARDING THIS EARNINGS PRESS RELEASE FILED TODAY WITH THE SECURITIES
AND EXCHANGE COMMISSION. THIS CURRENT REPORT ON FORM 8-K IS AVAILABLE ON THE
SEC'S WEBSITE AT WWW.SEC.GOV OR ON OUR WEBSITE AT WWW.INTEGRA-LS.COM.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
TOTAL REVENUE $125,395 $72,985 $419,297 $277,935
COSTS AND EXPENSES
Cost of product revenues 51,446 28,644 168,314 107,052
Research and development 5,214 2,705 25,732 11,960
Selling, general and administrative 45,936 25,663 157,706 98,273
Intangible asset amortization 2,651 1,059 8,801 4,545
--------------- -------------- -------------- ---------------
Total costs and expenses 105,247 58,071 360,553 221,830
--------------- -------------- -------------- ---------------
Operating income 20,148 14,914 58,744 56,105
Interest income 201 1,087 2,194 3,900
Interest expense (2,503) (1,071) (10,620) (4,165)
Other income (expense), net (178) (101) (2,010) (739)
--------------- -------------- -------------- ---------------
Income before income taxes 17,668 14,829 48,308 55,101
Income tax expense 7,537 4,214 18,901 17,907
--------------- -------------- -------------- ---------------
Net income 10,131 10,615 29,407 37,194
Add back of after tax interest expense 2 608 2,254 2,440
--------------- -------------- -------------- ---------------
Net income for diluted earnings per share $ 10,133 $11,223 $ 31,661 $ 39,634
Diluted net income per share $ 0.34 $ 0.33 $ 0.97 $ 1.15
Weighted average common shares outstanding for
diluted net income per share 30,084 34,081 32,747 34,565
- -----------------------------------------------------------------------------------------------------------------------------
Listed below are the items included in net income that management excludes in
computing the adjusted financial measures referred to in the text of this press
release and further described under Discussion of Adjusted Financial Measures.
(In thousands)
Three Months Ended Year Ended
December 31, December 31,
--------------------------------- ---------------------------------
2006 2005 2006 2005
--------------- -------------- -------------- ---------------
Equity-based compensation $ 3,834 -- 14,116 --
Acquisition-related charges 903 -- 12,093 966
Facility consolidation, manufacturing transfer
and system integration charges -- 1,027 717 2,214
Employee termination and related costs 693 1,120 1,114 3,988
Charges associated with convertible
debt exchange offer -- -- 1,879 --
Charges associated with termination of
interest rate swap -- -- 1,425 --
Charges associated with discontinued product lines -- -- -- 478
Income tax expense (benefit) related to
above adjustments (1,767) (710) (8,256) (2,714)
Quarterly adjustment to income tax expense
related to significant changes in the
year-to-date expected effective income
tax rate (1) 1,246 -- -- --
(1) The above $1,246 reduction to income tax expense during the fourth quarter
of 2006 was made to reflect what the income tax expense would have been ($8,057)
based upon a 34.9% effective income tax rate. The 34.9% effective income tax
rate for the fourth quarter of 2006 approximates the year-to-date (full year)
effective income tax rate that would have been reported after excluding the 4.2
percentage point impact of the $5.9 million in-process research and development
expense recorded in 2006.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - HISTORICAL
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
--------------- -------------- ------------- --------------
GAAP net income $ 10,131 $ 10,615 $ 29,407 $ 37,194
Non-GAAP adjustments:
Equity-based compensation 3,834 -- 14,116 --
Acquisition-related charges 903 12,093 966
Facility consolidation, manufacturing transfer
and system integration charges -- 1,027 717 2,214
Employee termination and related costs 693 1,120 1,114 3,988
Charges associated with convertible debt
exchange offer -- -- 1,879 --
Charges associated with termination of interest
rate swap -- -- 1,425 --
Charges associated with discontinued product
lines -- -- -- 478
Income tax expense (benefit) related to above
adjustments (1,767) (710) (8,256) (2,714)
Quarterly adjustment to income tax expense
related to significant changes in the
year-to-date expected effective income
tax rate (1) 1,246 -- -- --
--------------- -------------- ------------- --------------
Total of non-GAAP adjustments 4,909 1,437 23,088 4,932
--------------- -------------- ------------- --------------
Adjusted net income $ 15,040 $ 12,052 52,495 42,126
Add back of after tax interest expense 2 608 2,254 2,440
--------------- -------------- ------------- --------------
Adjusted net income for diluted earnings per share $ 15,042 $ 12,660 54,749 44,566
=============== ============== ============= ==============
Weighted average common shares
outstanding for diluted net income per share 30,084 34,081 32,747 34,565
Non-GAAP adjustment 86 -- 121 --
--------------- -------------- ------------- --------------
Adjusted weighted average common shares
outstanding for adjusted diluted net income
per share 30,170 34,081 32,868 34,565
=============== ============== ============= ==============
GAAP diluted net income per share $ 0.34 $ 0.33 $ 0.97 $ 1.15
Non-GAAP adjustments detailed
above (per share) $ 0.16 $ 0.04 $ 0.70 $ 0.14
--------------- -------------- ------------- --------------
Adjusted diluted net income per share $ 0.50 $ 0.37 $ 1.67 $ 1.29
=============== ============== ============= ==============
(1) The above $1,246 reduction to income tax expense during the fourth quarter
of 2006 was made to reflect what the income tax expense would have been ($8,057)
based upon a 34.9% effective income tax rate. The 34.9% effective income tax
rate for the fourth quarter of 2006 approximates the year-to-date (full year)
effective income tax rate that would have been reported after excluding the 4.2
percentage point impact of the $5.9 million in-process research and development
expense recorded in 2006.
Condensed Balance Sheet Data (in thousands):
December 31, December 31,
2006 2005
----- ----
Cash and marketable securities,
including non-current portion $ 22,697 $143,384
Accounts receivable, net 85,018 49,007
Inventory, net 94,387 67,476
Bank line of credit 100,000 --
Demand notes (1) 119,542 --
Long term debt (1) 508 118,378
Stockholders' equity 293,124 289,818
(1) The closing price of Integra's common stock on the issuance date of the
new convertible notes, which would be settled on a net share settlement
basis upon conversion, was higher than the market price trigger of the
new notes. Therefore, the new notes are considered demand debt and are
classified as current liabilities on the balance sheet because the
holders have the option to convert the new notes at any time.
SOURCE: INTEGRA LIFESCIENCES HOLDINGS CORPORATION