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): October 24, 2012
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 Identification No.) incorporation or organization) |
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 October 24, 2012, Integra LifeSciences Holdings Corporation (the “Company”) issued a press release announcing financial results for the quarter ended September 30, 2012 (the “Press Release”). 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. In the financial statements portion of the Press Release, the Company has included a reconciliation of GAAP revenues to adjusted revenues for the quarter ended September 30, 2012, and GAAP net income to adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA excluding stock-based compensation, 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 ended September 30, 2012 and 2011, as well as GAAP net income to adjusted net income and GAAP earnings per diluted share to adjusted earnings per diluted share used by management for guidance for the year ending December 31, 2012. In addition, the Company included a supplemental disclosure of revenue by reporting segments in the financial statements portion of the Press Release.
The information contained in Item 2.02 of this Current Report on Form 8-K (including the Press Release and selected historical financial information) 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 and selected historical financial information) 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 revenues, adjusted EBITDA, adjusted EBITDA excluding stock-based compensation, adjusted net income and adjusted earnings per diluted share. Adjusted revenues consist of growth in total revenues excluding the effects of currency exchange rates on the current period's revenues. The various measures of adjusted EBITDA consist of GAAP net income, excluding: (i) depreciation and amortization, (ii) other income (expense), net, (iii) interest income and expense, (iv) income taxes, (v) those operating expenses also excluded from adjusted net income and, as appropriate (vi) stock-based compensation expense. The measure of adjusted net income consists of GAAP net income, excluding: (i) Plainsboro, New Jersey manufacturing facility remediation costs; (ii) global enterprise resource planning (“ERP”) implementation charges; (iii) facility optimization charges; (iv) certain employee termination charges; (v) discontinued product lines charges; (vi) acquisition-related charges; (vii) impairment charges; (viii) European entity restructuring charges; (ix) certain executive compensation charges; (x) financing charges; (xi) convertible debt non-cash interest; (xii) intangible asset amortization expense; and (xiii) income tax impact from adjustments and other items. The adjusted earnings per diluted share measure is calculated by dividing adjusted net income attributable to diluted shares by diluted weighted average shares outstanding. Reconciliations of GAAP revenues to adjusted revenues for the quarter ended September 30, 2012 and GAAP net income to adjusted EBITDA, adjusted EBITDA excluding stock-based compensation and adjusted net income, and GAAP earnings per diluted share to adjusted earnings per diluted share for the quarters ended September 30, 2012 and 2011 appear in the financial tables in the Press Release.
The Company believes that the presentation of adjusted revenues and the various adjusted EBITDA, adjusted net income and adjusted earnings per diluted share measures provides important supplemental information to management and investors regarding 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 revenues, adjusted EBITDA, adjusted EBITDA excluding stock-based compensation, 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, integration, and restructuring activities, for which the amounts are non-cash in nature, or for which the amounts are not expected to recur at the same magnitude as we implement certain tax planning strategies, 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.
Adjusted revenues, adjusted EBITDA, adjusted EBITDA excluding stock-based compensation, adjusted net income and adjusted earnings per diluted share are significant measures used by management for purposes of:
supplementing the financial results and forecasts reported to the Company's board of directors; | |||
evaluating, managing and benchmarking the operating performance of the Company; | |||
establishing internal operating budgets; | |||
determining compensation under bonus or other incentive programs; | |||
enhancing comparability from period to period; | |||
comparing performance with internal forecasts and targeted business models; and | |||
evaluating and valuing potential acquisition candidates. | |||
The measure of adjusted revenues that we report reflects the growth in total revenues for the quarter ended September 30, 2012 adjusted for the effects of currency exchange rates on current period revenues. We provide this measure because changes in foreign currency exchange rates can distort our revenue growth favorably or unfavorably, depending upon the strength of the U.S. dollar in relation to the various foreign currencies in which we generate revenues. We generate significant revenues outside the United States in multiple foreign currencies including euros, British pounds, Swiss francs and Australian and Canadian dollars. We believe this measure provides useful information to determine the success of our international selling organizations in increasing sales of products in their local currencies without regard to fluctuations in currency exchanges rates, for which we have no control over.
The measure of adjusted net income reflects GAAP net income adjusted for one or more of the following items, as applicable:
Plainsboro, New Jersey manufacturing facility remediation costs. These costs represent expenses associated with remediation and related unplanned idle time and underutilization at the Plainsboro, NJ manufacturing facility. Management excludes this item when evaluating the Company's operating performance because of the infrequent nature and the magnitude of this item.
Global ERP implementation charges. Systems implementation charges consist of the non-capitalizable portion of internal labor and outside consulting costs related to the implementation of a global ERP system. We have inherited many diverse business processes and different information systems through our numerous acquisitions. Accordingly, we are undertaking this initiative in order to standardize business processes globally and to better integrate all of our existing and acquired operations using one information system. Although recurring in nature given the expected timeframe to complete the implementation for our existing operations and our expectation to continue to acquire new businesses and operations, management excludes these charges 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 implementation activities. In addition, with the global ERP project entering the application development phase, more costs of the project will be capitalized and, therefore, are not comparable to earlier periods.
Facility optimization charges. These charges, which include employee termination and other costs associated with exit or disposal activities, costs related to acquisition integration, costs related to transferring manufacturing and/or distribution activities to different locations, result from rationalizing and enhancing our existing manufacturing, distribution and administrative infrastructure. Some 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.
Certain employee termination charges. Certain employee termination and related charges consist of charges related to senior management level terminations and certain significant reductions in force that are not initiated in connection with facility consolidations or manufacturing or distribution transfers. Management excludes these items when evaluating the Company's operating performance because these amounts do not affect our core operations and because of the infrequent and/or large scale nature of these activities.
Discontinued product lines charges. These charges represent charges taken in connection with product lines that the Company discontinues. Management excludes this item when evaluating the Company's operating performance because discontinued products do not provide useful information regarding the Company's prospects for future performance.
Acquisition-related charges. Acquisition-related charges include up-front fees and milestone payments that are expensed as incurred in connection with acquiring licenses or rights to technology for which no product has been approved for sale by regulatory
authorities and such approval is not reasonably assured at the time such up-front fees or milestone payments are made, and in-process research and development charges when accounting rules require them to be expensed, inventory fair value purchase accounting adjustments, and legal, accounting and other outside consultants expenses directly related to acquisitions. 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 development and acquisition programs, these acquisition and in-licensing related charges are not factored into the evaluation of our performance by management after completion of development programs or 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 development and acquisition transactions as well as the level of inventory on hand at the time of acquisition.
Impairment charges. This represents impairment charges recorded against various intangible assets, including completed or core technology, customer relationships, and tradenames. Such impairments result primarily from management decisions to discontinue or significantly reduce promoting certain product lines or tradenames, the inability to incorporate existing product technologies into product development programs, and other circumstances. Management excludes this item when evaluating the Company's operating performance because of the infrequent and non-cash nature of this activity.
European entity restructuring charges. These amounts represent charges recorded in operating or non-operating expenses such as levies and fees paid to government authorities, legal, tax, accounting and consulting fees, and foreign currency gains and losses related to intercompany loan agreements incurred directly as a result of reorganizing our European entities and transfers of business assets between these legal entities. Management excludes this item when evaluating the Company's operating performance because 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 legal entity restructuring activities.
Certain executive compensation charges. This charge related to extending our former Chief Executive Officer's employment agreement. The charge was recognized in the second quarter of 2011 upon the grant of contract stock units that were fully vested at the time of the grant on May 17, 2011. Management excludes this item when evaluating the Company's operating performance because of the infrequent nature of this item.
Financing charges. These amounts represent expenses incurred in connection with the refinancing of our senior credit facility in the second quarter of 2011. These expenses related to (i) the remaining unamortized balance of previously capitalized issuance costs relating to certain lenders who are no longer parties to our revised senior credit facility and (ii) a portion of the new issuance costs in connection with amending the credit facility. Management excludes this item when evaluating the Company's operating performance because of the infrequent nature of this item.
Convertible debt non-cash interest. The convertible debt accounting requires separate accounting for the liability and equity components of the Company's convertible debt instruments, which may be settled in cash upon conversion, in a manner that reflects an applicable nonconvertible debt borrowing rate at the time that we issued such convertible debt instruments. Management excludes this item when evaluating the Company's operating performance because of the non-cash nature of the expense.
Intangible asset amortization expense. Management excludes this item when evaluating the Company's operating performance because it is a non-cash expense.
Income tax impact from adjustments and other items. Estimated impact on income tax expense related to the following:
(i) | Adjustments to income tax expense for the amount of additional tax expense 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, based on the statutory rate applicable to jurisdictions in which the above non-GAAP adjustments relate. |
(ii) | Adjustments to income tax expense in the current quarter for the cumulative impact in that quarter of changes in income tax rates (statutory and estimated effective tax rates) and certain other infrequently occurring items that relate to prior periods. Management excludes these items when evaluating the Company's current quarter operating performance because the cumulative impact in the current quarter of these items applies to prior periods and thus distorts the Company's adjusted income tax rate in the current quarter. The year-to-date adjusted net income and adjusted diluted earnings per share measures are not adjusted by these items, as the cumulative impact is properly reflected in the year-to-date adjusted results. |
Adjusted revenues, adjusted EBITDA, adjusted EBITDA excluding stock-based compensation, 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 revenues, 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 the Company's results as reported under GAAP. The Company expects to continue to acquire businesses and product lines and to incur expenses of a nature similar to many of the non-GAAP adjustments described above, and exclusion of these items from its adjusted financial measures should not be construed as an inference that all of these revenue adjustments or costs are unusual, infrequent or non-recurring. Some of the limitations in relying on the adjusted financial measures are:
The Company 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. | |||
The Company has initiated a long term effort to implement a global ERP system, and we expect to continue to incur significant systems implementation charges until that effort is completed. These costs can directly impact the amount of the Company's available funds and reduce GAAP net income. | |||
All of the adjustments to GAAP net income have been tax affected at the Company's actual tax rates. Depending on the nature of the adjustments and the tax treatment of the underlying items, the effective tax rate related to adjusted net income could differ significantly from the effective tax rate related to GAAP net income. | |||
In the financial tables portion of the Press Release, the Company has included a reconciliation of GAAP reported revenues to adjusted revenues for the quarter ended September 30, 2012 and GAAP net income to adjusted EBITDA and adjusted EBITDA excluding stock-based compensation, 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 ended September 30, 2012 and 2011. Also included are reconciliations for future periods.
ITEM 7.01 REGULATION FD DISCLOSURE
Attached as Exhibit 99.1, and incorporated into this Item 7.01 by reference, is the Press Release issued on October 24, 2012 by the Company.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
1. | Press release with attachments, dated October 24, 2012, issued by Integra LifeSciences Holdings Corporation |
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: October 24, 2012 By: /s/ John B. Henneman, III
John B. Henneman, III
Title: Executive Vice President,
Finance and Administration,
and Chief Financial Officer
EXHIBIT INDEX
Exhibit No. | Description |
99.1 | Press Release with attachments, dated October 24, 2012, issued by Integra LifeSciences Holdings Corporation |
News Release
Contacts:
Integra LifeSciences Holdings Corporation
John B. Henneman, III Investor Relations:
Executive Vice President, Angela Steinway
Finance and Administration,
and Chief Financial Officer
(609) 275-0500 (609) 936-2268
jack.henneman@integralife.com angela.steinway@integralife.com
Integra LifeSciences Reports Third Quarter 2012 Financial Results
Raises 2012 Full-Year Earnings Guidance
Hosting Investor Day Later Today
Plainsboro, New Jersey, October 24, 2012 - Integra LifeSciences Holdings Corporation (NASDAQ: IART) today reported its financial results for the third quarter ending September 30, 2012. Total revenues for the third quarter were $210.1 million, reflecting an increase of $7.9 million, or 4%, over the third quarter of 2011. Excluding the impact of currency exchange rates, revenues increased 5% over the third quarter of 2011.
The Company reported GAAP net income of $13.2 million, or $0.46 per diluted share, for the third quarter of 2012, compared to GAAP net income of $11.2 million, or $0.39 per diluted share, for the third quarter of 2011.
Net income for the third quarter of 2012 computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $24.6 million, or $0.85 per diluted share, compared to adjusted net income of $22.3 million, or $0.77 per diluted share, in the third quarter of 2011.
“We are pleased with our results notwithstanding the challenging environment,” said Peter Arduini, President and Chief Executive Officer. “We executed well in our operations and controlled expenses, resulting in stronger earnings.”
EBITDA for the third quarter of 2012, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $46.0 million, an increase of 11% compared to the third quarter last year. Adjusted EBITDA excluding stock-based compensation for the third quarter of 2012, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $48.3 million, an increase of 9% compared to the third quarter last year.
Integra generated $27.9 million in cash flows from operations and invested $19.7 million in capital expenditures during the quarter.
Outlook for 2012
The Company reiterated its expectations for the full year 2012 revenues of $828 - $838 million. The Company revised its GAAP earnings per diluted share for the full year to between $1.37 and $1.42 and for adjusted earnings per diluted share of between $3.04 and $3.09.
“Our earnings came in stronger than expected, giving us the confidence to raise our adjusted earnings guidance for the year," said Jack Henneman, Chief Financial Officer. “We expect higher expenses than originally planned in the remaining quarter of the year, particularly around our major initiatives. In addition, we plan somewhat lower adjusted gross margins in the fourth quarter because of manufacturing variances that occurred earlier in the year.”
In accordance with our usual practice, expectations for financial performance do not include the impact of acquisitions or other strategic corporate transactions that have not yet closed.
In the future, the Company may record, or expects to record, certain additional revenues, gains, expenses or charges as described in the Discussion of Adjusted Financial Measures below that it will exclude in the calculation of adjusted EBITDA and adjusted earnings per share for historical periods and in providing adjusted earnings per share guidance.
Conference Call
Integra has scheduled a conference call for 8:00 AM ET today, Wednesday, October 24, 2012 to discuss financial results for the third quarter and forward-looking financial guidance. The conference call will be hosted by Integra's senior management team and will be open to all listeners. Additional forward-looking information may be discussed in a question and answer session following the call.
Access to the live call is available by dialing 719-325-2455 and using the passcode 2074291. The call can also be accessed through a webcast via a link provided on the Investor Relations homepage of Integra's website at investor.integralife.com. Access to the replay is available through November 7, 2012 by dialing 719-457-0820 and using the passcode 2074291. The webcast will also be archived on the website.
Investor Meeting
"We advanced our plans against our priorities during the third quarter and look forward to sharing more on our strategy with you later today," said Mr. Arduini.
Integra will host an Investor Meeting today at 10:00 AM ET / 9:00 AM CT, in Dallas, Texas. The meeting will feature presentations by Integra's senior management team, and will be focused on the Company's strategy. A simultaneous webcast of the meeting will be available on the Investor Relations homepage of Integra's website at investor.integralife.com. The webcast will also be archived on this site.
***
Integra LifeSciences, a world leader in medical devices, is dedicated to limiting uncertainty for surgeons, so they can concentrate on providing the best patient care. Integra offers innovative solutions in orthopedics, neurosurgery, spine, reconstructive and general surgery. For more information, please visit www.integralife.com.
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties and reflect the Company's judgment as of the date of this release. Forward-looking statements include, but are not limited to, statements concerning future financial performance, including projections for revenues, GAAP and adjusted net income, GAAP and adjusted earnings per diluted share, non-GAAP adjustments such as global enterprise resource planning (“ERP”) system implementation charges, acquisition-related charges, non-cash amortization of imputed interest for convertible debt, intangible asset amortization, and income tax expense (benefit) related to non-GAAP adjustments. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from predicted or expected results. Such risks and uncertainties include, but are not limited to: the Company's ability to execute its operating plan effectively; global macroeconomic conditions; the effects of inventory reduction initiatives by the Company's instruments distributors; continued weakness in sales outside of the U.S.; the Company's ability to
manage its direct sales channels effectively; the Company's ability to maintain relationships with customers of acquired entities; physicians' willingness to adopt and third-party payors' willingness to provide reimbursement for the Company's recently launched and planned products; the Company's ability to manufacture sufficient quantities of its products to meet its customers' demand; initiatives launched by the Company's competitors; downward pricing pressures for customers; the Company's ability to secure regulatory approval for products in development; the Company's ability to remediate quality systems violations; fluctuations in hospital spending for capital equipment; the Company's ability to comply with and obtain approvals for products of human origin and comply with recently enacted regulations regarding products containing materials derived from animal sources; difficulties in controlling expenses, including costs to procure and manufacture our products; the impact of changes in management or staff levels; the Company's ability to integrate acquired businesses; the Company's ability to leverage its existing selling organizations and administrative infrastructure; the Company's ability to increase product sales and gross margins, and control non-product costs; the amount and timing of acquisition and integration related costs; the geographic distribution of where the Company generates its taxable income; the effect of legislation effecting healthcare reform in the United States; fluctuations in foreign currency exchange rates; the amount of our convertible notes and bank borrowings outstanding, and the economic, competitive, governmental, technological and other risk factors and uncertainties identified under the heading “Risk Factors” included in Item 1A of Integra's Annual Report on Form 10-K for the year ended December 31, 2011 and information contained in subsequent filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Discussion of Adjusted Financial Measures
In addition to our GAAP results, we provide adjusted revenues, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA excluding stock-based compensation, adjusted net income and adjusted earnings per diluted share. Adjusted revenues consist of growth in total revenues excluding the effects of currency exchange rates on the current period's revenues. The various measures of adjusted EBITDA consist of GAAP net income, excluding: (i) depreciation and amortization, (ii) other income (expense), net, (iii) interest income and expense, (iv) income taxes, (v) those operating expenses also excluded from adjusted net income and, as appropriate (vi) stock-based compensation expense. The measure of adjusted net income consists of GAAP net income, excluding: (i) Plainsboro, New Jersey manufacturing facility remediation costs; (ii) global ERP implementation charges; (iii) facility optimization charges; (iv) certain employee termination charges; (v) discontinued product lines charges; (vi) acquisition-related charges; (vii) impairment charges; (viii) European entity restructuring charges; (ix) certain executive compensation charges; (x) financing charges; (xi) convertible debt non-cash interest; (xii) intangible asset amortization expense; and (xiii) income tax impact from adjustments and other items. The adjusted earnings per diluted share measure is calculated by dividing adjusted net income attributable to diluted shares by diluted weighted average shares outstanding. Reconciliations of GAAP revenues to adjusted revenues for the quarter ended September 30, 2012 and GAAP net income to adjusted EBITDA, adjusted EBITDA excluding stock-based compensation and adjusted net income, and GAAP earnings per diluted share to adjusted earnings per diluted share for the quarters ended September 30, 2012 and 2011 appear in the financial tables in this release.
Integra believes that the presentation of adjusted revenues and the various adjusted EBITDA, adjusted net income, and adjusted earnings per diluted share measures provides important supplemental information to management and investors regarding 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.integralife.com.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended September 30, | |||||||
2012 | 2011 | ||||||
Total revenues | $ | 210,084 | $ | 202,185 | |||
Costs and expenses: | |||||||
Cost of goods sold | 79,548 | 78,651 | |||||
Research and development | 13,105 | 13,187 | |||||
Selling, general and administrative | 93,077 | 87,508 | |||||
Intangible asset amortization | 4,618 | 4,548 | |||||
Total costs and expenses | 190,348 | 183,894 | |||||
Operating income | 19,736 | 18,291 | |||||
Interest income | 100 | 154 | |||||
Interest expense | (5,549 | ) | (7,587 | ) | |||
Other income (expense), net | (31 | ) | 429 | ||||
Income before income taxes | 14,256 | 11,287 | |||||
Income tax expense | 1,045 | 44 | |||||
Net income | 13,211 | 11,243 | |||||
Diluted net income per share | $ | 0.46 | $ | 0.39 | |||
Weighted average common shares outstanding for diluted net income per share | 28,777 | 29,029 | |||||
Listed below are the items included in GAAP revenues and GAAP 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.
Segment revenues and growth in total revenues excluding the effects of currency exchange rates are as follows:
(In thousands)
Three Months Ended September 30, | |||
2012 | 2011 | Change | |
U.S. Neurosurgery | $43,269 | $42,800 | 1.1% |
U.S. Instruments | 41,469 | 41,543 | (0.2)% |
U.S. Extremities | 32,961 | 24,825 | 32.8% |
U.S. Spine & Other | 49,188 | 48,293 | 1.9% |
International | 43,197 | 44,724 | (3.4)% |
Total Revenue | $210,084 | $202,185 | 3.9% |
Impact of changes in currency exchange rates | $2,540 | ||
Total revenues excluding the effects of currency exchange rates | $212,624 | $202,185 | 5.2% |
The International segment revenues reflect sales that are actively managed by our International division. This does not constitute all recorded sales outside the U.S., as some Instrument and Private Label product sales in those regions are managed by their respective U.S. divisions. Therefore, from a geographic perspective, Non-U.S. revenue (see below) exceeds that of our International segment.
Worldwide product category revenues are as follows:
(In thousands)
Three Months Ended September 30, | |||
2012 | 2011 | Change | |
WW Orthopedics* | $94,186 | $85,698 | 9.9% |
U.S. | 82,013 | 72,895 | 12.5% |
Non-U.S. | 12,173 | 12,803 | (4.9)% |
WW Neurosurgery | 69,667 | 69,768 | (0.1)% |
U.S. | 43,121 | 42,778 | 0.8% |
Non-U.S. | 26,546 | 26,990 | (1.6)% |
WW Instruments | 46,231 | 46,719 | (1.0)% |
U.S. | 40,796 | 40,857 | (0.1)% |
Non-U.S. | 5,435 | 5,862 | (7.3)% |
Total Revenue | $210,084 | $202,185 | 3.9% |
*The WW Orthopedics revenue category includes segment revenue from U.S. Extremities, U.S. Spine & Other, and International segment revenue related to those product areas.
Items included in GAAP net income and location where each item is recorded are as follows:
(In thousands)
Three Months Ended September 30, 2012
Item | Total Amount | COGS(a) | SG&A(b) | Amort.(c) | Interest Exp(Inc)(d) | Tax(e) | ||
Plainsboro, New Jersey manufacturing facility remediation costs | $3,788 | $3,788 | $— | $— | $— | $— | ||
Global ERP implementation charges | 4,821 | — | 4,821 | — | — | — | ||
Facility optimization charges | 2,861 | 755 | 2,106 | — | — | — | ||
Certain employee termination charges | 638 | 293 | 345 | — | — | — | ||
Discontinued product lines charges | 223 | 223 | — | — | — | — | ||
Acquisition-related charges | 602 | 602 | — | — | — | — | ||
Convertible debt non-cash interest | 1,787 | — | — | — | 1,787 | — | ||
Intangible asset amortization expense | 6,197 | 1,579 | — | — | 4,618 | — | ||
Estimated income tax impact from adjustments and other items | (9,569 | ) | — | — | — | — | — | |
Depreciation expense | 7,117 | — | — | — | — | — | ||
Stock-based compensation expense | 2,276 | — | — | — | — | — | ||
a) | COGS - Cost of goods sold |
b) | SG&A - Selling, general and administrative |
c) | Amort. - Intangible asset amortization |
d) | Interest Inc(Exp) - Interest income (expense), net |
e) | Tax - Income tax expense |
Three Months Ended September 30, 2011
Item | Total Amount | COGS | R&D | SG&A | Amort. | Interest Exp(Inc) | Tax |
Global ERP implementation charges | $6,245 | $— | $— | $6,245 | $— | $— | $— |
Facility optimization charges | 34 | 243 | — | (209) | — | — | — |
Discontinued product lines charges | 485 | 485 | — | — | — | — | — |
Acquisition-related charges | 1,665 | 1,042 | — | 623 | — | — | — |
Plainsboro, New Jersey manufacturing facility remediation costs | 1,748 | 1,748 | — | — | — | — | — |
Certain executive compensation charges | 100 | — | — | 100 | — | — | — |
Convertible debt non-cash interest | 3,417 | — | — | — | — | 3,417 | — |
Intangible asset amortization expense | 6,068 | 1,520 | — | — | 4,548 | — | — |
Estimated income tax impact from adjustments and other items | (8,721) | — | — | — | — | — | (8,721) |
Depreciation expense | 6,784 | — | — | — | — | — | — |
Stock-based compensation expense | 3,034 | — | — | — | — | — | — |
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GAAP NET INCOME TO ADJUSTED EBITDA AND ADJUSTED EBITDA EXCLUDING STOCK BASED COMPENSATION
(UNAUDITED)
(In thousands)
Three Months Ended September 30, | |||||||
2012 | 2011 | ||||||
GAAP net income | $ | 13,211 | $ | 11,243 | |||
Non-GAAP adjustments: | |||||||
Depreciation and intangible asset amortization expense | 13,314 | 12,852 | |||||
Other (income) expense, net | 31 | (429 | ) | ||||
Interest (income) expense, net | 5,449 | 7,433 | |||||
Income tax expense | 1,045 | 44 | |||||
Plainsboro, New Jersey manufacturing facility remediation costs | 3,788 | 1,748 | |||||
Global ERP implementation charges | 4,821 | 6,245 | |||||
Facility optimization charges | 2,861 | 34 | |||||
Certain employee termination charges | 638 | — | |||||
Discontinued product lines charges | 223 | 485 | |||||
Acquisition-related charges | 602 | 1,665 | |||||
Certain executive compensation charges | — | 100 | |||||
Total of non-GAAP adjustments | 32,772 | 30,177 | |||||
Adjusted EBITDA | $ | 45,983 | $ | 41,420 | |||
Stock-based compensation | 2,276 | 3,034 | |||||
Adjusted EBITDA excluding stock-based compensation | $ | 48,259 | $ | 44,454 | |||
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GAAP NET INCOME TO MEASURES OF ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended September 30, | |||||
2012 | 2011 | ||||
GAAP net income | 13,211 | 11,243 | |||
Non-GAAP adjustments: | |||||
Plainsboro, New Jersey manufacturing facility remediation costs | 3,788 | 1,748 | |||
Global ERP implementation charges | 4,821 | 6,245 | |||
Facility optimization charges | 2,861 | 34 | |||
Certain employee termination charges | 638 | — | |||
Discontinued product lines charges | 223 | 485 | |||
Acquisition-related charges | 602 | 1,665 | |||
Certain executive compensation charges | — | 100 | |||
Convertible debt non-cash interest | 1,787 | 3,417 | |||
Intangible asset amortization expense | 6,197 | 6,068 | |||
Estimated income tax impact from adjustments and other items | (9,569 | ) | (8,721 | ) | |
Total of non-GAAP adjustments | 11,348 | 11,041 | |||
Adjusted net income | 24,559 | 22,284 | |||
Adjusted diluted net income per share | 0.85 | 0.77 | |||
Weighted average common shares outstanding for diluted net income per share | 28,777 | 29,029 | |||
CONDENSED BALANCE SHEET DATA
(UNAUDITED)
(In thousands)
September 30, | December 31, | |||||||
2012 | 2011 | |||||||
Cash and cash equivalents | $ | 125,718 | $ | 100,808 | ||||
Accounts receivable, net | 119,527 | 118,129 | ||||||
Inventory, net | 169,376 | 171,261 | ||||||
Bank line of credit | 321,875 | 179,688 | ||||||
Convertible securities | 195,860 | 352,576 | ||||||
Stockholders' equity | 526,701 | 492,638 | ||||||
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE
(In thousands, except per share amounts)
Recorded Year to Date | Projected Year Ended | ||
September 30, 2012 | December 31, 2012 | ||
Low | High | ||
GAAP net income | $28,418 | $39,066 | $40,973 |
Non-GAAP adjustments: | |||
Plainsboro, New Jersey manufacturing facility remediation costs | 7,193 | 7,730 | 7,730 |
Global ERP implementation charges | 12,097 | 18,270 | 18,270 |
Facility optimization charges | 7,481 | 10,425 | 10,425 |
Certain employee termination charges | 1,139 | 1,390 | 1,390 |
Discontinued product lines charges | 1,058 | 1,058 | 1,058 |
Acquisition-related charges | 2,323 | 2,975 | 2,975 |
Impairment charges | 141 | 141 | 141 |
Convertible debt non-cash interest | 8,284 | 10,100 | 10,100 |
Intangible asset amortization expense | 18,858 | 24,940 | 24,940 |
Estimated income tax impact from adjustments and other items | (21,363) | (29,095) | (29,095) |
Total of non-GAAP adjustments | 37,211 | 47,934 | 47,934 |
Adjusted net income | 65,629 | $87,000 | $88,500 |
GAAP diluted net income per share | $0.99 | $1.37 | $1.42 |
Non-GAAP adjustments detailed above (per share) | $1.30 | $1.67 | $1.67 |
Adjusted diluted net income per share | $2.29 | $3.04 | $3.09 |
Weighted average common shares outstanding for diluted net income per share | 28,629 | 28,650 | 28,650 |
Items included in GAAP net income guidance and location where each item is expected to be recorded is as follows:
(In thousands)
Projected Year Ended December 31, 2012
Item | Total Amount | COGS | SG&A | Amort. | Interest Exp(Inc) | Tax |
Plainsboro, New Jersey manufacturing facility remediation costs | $7,730 | $7,730 | — | — | — | — |
Global ERP implementation charges | 18,270 | — | 18,270 | — | — | — |
Facility optimization charges | 10,425 | 4,020 | 6,405 | — | — | — |
Certain employee termination charges | 1,390 | 390 | 1,000 | — | — | — |
Discontinued product lines charges | 1,058 | 1,058 | — | — | — | — |
Acquisition-related charges | 2,975 | 2,975 | — | — | — | — |
Impairment charges | 141 | 141 | — | — | — | — |
Convertible debt non-cash interest | 10,100 | — | — | — | 10,100 | — |
Intangible asset amortization expense | 24,940 | 6,455 | — | 18,485 | — | — |
Estimated income tax impact from adjustments and other items | (29,095) | — | — | — | — | (29,095) |
Source: Integra LifeSciences Holdings Corporation