AUSTIN, Texas--(BUSINESS WIRE)--Feb. 16, 2012--
ArthroCare Corp. (NASDAQ: ARTC), a leader in developing
state-of-the-art, minimally invasive surgical products, announced its
financial results for the fourth quarter and year ended December 31,
2011, as follows:
FOURTH QUARTER 2011 SUMMARY
-
Total revenue of $92.4 million from continuing operations
-
Product margin of 69.3 percent
-
Operating loss of $51.4 million, which includes a $74.0 million charge
for the proposed settlement of the consolidated securities class action
-
Net loss attributable to common stockholders of $29.3 million or $1.06
per share
FULL YEAR 2011 SUMMARY
-
Total revenue of $354.9 million from continuing operations
-
Product margin of 69.5 percent
-
Operating loss of $15.5 million
-
Net loss attributable to common stockholders of $4.3 million or $0.16
per share
REVENUE
Total revenue for the fourth quarter of 2011 was $92.4 million, compared
to $92.6 million for the fourth quarter of 2010. Product sales in the
fourth quarter increased 1.0 percent from $87.6 million to $88.5 million.
Sports Medicine product sales increased $2.5 million or 4.2 percent for
the fourth quarter of 2011 compared to the same quarter of 2010.
Contract manufactured product sales increased $4.5 million to $8.0
million in the fourth quarter of 2011, a result of higher volume
pursuant to the Company’s existing supply and distribution agreement
with Smith & Nephew as well as the initial deliveries under the
Company’s new distribution agreement with Wright Medical. Proprietary
product sales in the Americas declined $1.2 million, or 3.4 percent,
while International product sales declined $0.8 million, or 3.6 percent
in the fourth quarter of 2011 compared to the fourth quarter of 2010.
ENT product sales decreased $0.8 million, or 3.1 percent, in the fourth
quarter of 2011 compared to the fourth quarter of 2010, as problems
obtaining raw material supply related to the Company’s Rapid Rhino
product line persisted during the fourth quarter.
Other product sales declined $0.9 million in the fourth quarter of 2011
compared to the same period of 2010 and royalties, and fees and other
revenues declined $1.1 million. Royalties were higher in the fourth
quarter of 2010 due primarily to catch-up payments received relating to
prior periods. In the fourth quarter of 2011 the Company also had lower
royalties from third parties who license the Company’s radio frequency
technology than during the same quarter of 2010.
Changes in foreign currency rates did not have a material effect on the
comparison of product sales in the fourth quarter of 2011 to the fourth
quarter of 2010.
Total revenue from continuing operations for the full year 2011 was
$354.9 million, compared to $355.4 million for 2010. After adjusting for
$6.6 million of product sales recognized in the first quarter of 2010
that had been deferred pending the outcome of certain contract matters,
worldwide Sports Medicine product sales increased $3.0 million or 1.3
percent. Americas’ Sports Medicine product sales decreased $5.2 million,
or 3.4 percent in 2011 compared to 2010 as proprietary product sales
decreased $3.1 million and contract manufactured product sales decreased
$2.1 million in 2011 compared to 2010. International Sports Medicine
product sales increased $8.2 million in 2011 compared to 2010.
Worldwide ENT product sales increased $6.0 million, or 6.3 percent in
2011 compared to 2010. ENT product sales in the Americas increased 3.5
percent and International ENT product sales increased 20.7 percent in
2011 compared to 2010.
Other product sales, primarily spine products, declined $2.8 million in
2011 compared to the same period of 2010 and represented approximately 3
percent of total product sales during 2011.
Had the same foreign currency rates been in effect for the whole year of
2011 as were in effect in 2010, the U.S. dollar reported value of
product sales would have been lower by $5.7 million.
GROSS PRODUCT MARGIN
Gross product margin was 69.3 percent for the fourth quarter of 2011
compared to 69.0 percent for the fourth quarter of 2010. The increase in
gross product margin in the fourth quarter of 2011 was due to lower
inventory obsolescence charges partially offset by a higher mix of
contract manufactured product sales.
Gross product margin for the full year of 2011 was 69.5 percent compared
to 67.3 percent in 2010. Inventory obsolescence charges were $5.3
million lower in 2011 when compared to 2010. In 2011, $0.4 million of
costs were incurred relating to accelerated depreciation and other costs
associated with the relocation of our Sunnyvale, California activities
that did not qualify to be separately reported as exit costs.
INCOME / LOSS FROM OPERATIONS
Loss from operations for the fourth quarter of 2011 was $51.4 million
compared to income from operations of $14.8 million for the same period
in 2010. The loss from operations for the fourth quarter of 2011
includes a charge of $74.0 million for the proposed settlement of
securities class actions, partially offset by net proceeds of $7.8
million received in the fourth quarter to settle the derivative actions.
These items are reported as part of investigation and
restatement-related costs in operating expenses.
In the fourth quarter of 2011, the Company also incurred exit costs of
approximately $3.0 million related to the closure and relocation of its
Sunnyvale, California facilities and operations.
For the full year of 2011, loss from operations was $15.5 million
compared to income from operations of $54.3 million for 2010. The 2011
loss from operations includes $80.8 million for investigation and
restatement expenses, of which $74.0 million was a charge for the
proposed settlement of the private securities class actions against the
Company offset by the net proceeds of $7.8 million from the settlement
of the derivative actions.
NET INCOME / LOSS AVAILABLE TO COMMON STOCKHOLDERS
Net loss attributable to common stockholders was $29.3 million or $1.06
per share in the fourth quarter of 2011, compared to net income of $10.1
million, or $0.30 per diluted share, in the fourth quarter of 2010.
For the year ended December 31, 2011, net loss attributable to common
stockholders was $4.3 million, or a loss of $0.16 per share, compared to
net income applicable to common stockholders of $33.8 million, or $1.02
per diluted share, for the year ended December 31, 2010.
BALANCE SHEET AND CASH FLOWS
Cash and cash equivalents increased $87.1 million to $219.6 million as
of December 31, 2011 from December 31, 2010. Cash flows provided by
operating activities for the year ended December 31, 2011 was $84.6
million compared to $82.6 million for the year ended December 31, 2010.
Accrued liabilities increased $72.4 million as a result of the charge of
$74.0 million recorded in the fourth quarter for the proposed securities
class actions settlement. The Company anticipates funding the proposed
settlement in the first quarter of 2012.
CONFERENCE CALL
ArthroCare will hold a conference call with the financial community to
present these results at 4:30 p.m. ET/1:30 p.m. PT on Thursday, February
16, 2012. To participate in the live conference call dial 800-950-3502.
A live and on-demand webcast of the call will be available on
ArthroCare’s Web site at www.arthrocare.com.
A telephonic replay of the conference call can be accessed by dialing
800-633-8284 and entering pass code number 21576468. The replay will
remain available through March 1, 2012.
ABOUT ARTHROCARE
ArthroCare develops and manufactures surgical devices, instruments, and
implants that strive to enhance surgical techniques as well as improve
patient outcomes. Its devices improve many existing surgical procedures
and enable new minimally invasive procedures. Many of ArthroCare’s
devices use its internationally patented Coblation®
technology. This technology precisely dissolves target tissue and limits
damage to surrounding healthy tissue. ArthroCare also develops surgical
devices utilizing other patented technology including its OPUS®
line of fixation products as well as re-usable surgical instruments.
ArthroCare is leveraging these technologies in order to offer a
comprehensive line of surgical devices to capitalize on a multi-billion
dollar market opportunity across several surgical specialties, including
its two core product areas consisting of Sports Medicine and Ear, Nose,
and Throat as well as other areas such as spine, wound care, urology and
gynecology.
FORWARD-LOOKING STATEMENTS
The information provided herein includes forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Statements that are not historical facts are
forward-looking statements. Forward-looking statements are based on
beliefs and assumptions by management and on information currently
available to management. Forward-looking statements speak only as of the
date they are made, and the Company undertakes no obligation to update
any of them publicly in light of new information or future events.
Additional factors that could cause actual results to differ materially
from those contained in any forward-looking statement include, without
limitation: the resolution of litigation pending against the Company;
the impact upon the Company’s operations of legal compliance matters
which may require improvement and remediation; the ability of the
Company to control expenses relating to legal or compliance matters; the
Company’s ability to remain current in its periodic reporting
requirements under the Exchange Act and to file required reports with
the Securities and Exchange Commission on a timely basis; the results of
the investigation being conducted by the United States Department of
Justice; the impact on the Company of additional civil and criminal
investigations by state and federal agencies and civil suits by private
third parties involving the Company’s financial reporting and its
previously announced restatement and its insurance billing and
healthcare fraud-and-abuse compliance practices; the results of the
civil investigation by the Department of Justice related to the Civil
Investigative Demand we received arising under the False Claims Act; the
possibility that the Department of Justice could institute civil
proceedings against us, based on the results of the investigation
related to the Civil Investigative Demand; the risk that we could be
subject to qui tam suits involving the False Claims Act; the possibility
that the Department of Justice could institute a criminal enforcement
action against us based on the results of the civil investigation
related to the Civil Investigative Demand; the resolution of any
litigation related to the civil investigation; the ability of the
Company to attract and retain qualified senior management and to prepare
and implement appropriate succession planning for its Chief Executive
Officer; general business, economic and political conditions;
competitive developments in the medical devices market; changes in
applicable legislative or regulatory requirements; the Company’s ability
to effectively and successfully implement its business strategies, and
manage the risks in its business; and the reactions of the marketplace
to the foregoing.
|
|
|
ARTHROCARE CORPORATION
|
|
Condensed Consolidated Balance Sheets - Unaudited
|
|
(in thousands, except par value data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
219,605
|
|
|
$
|
132,536
|
|
|
|
Accounts receivable, net of allowances of $2,251 and $2,445 at 2011
and 2010, respectively
|
|
|
51,350
|
|
|
|
48,870
|
|
|
|
Inventories, net
|
|
|
35,761
|
|
|
|
34,087
|
|
|
|
Deferred tax assets
|
|
|
40,622
|
|
|
|
24,661
|
|
|
|
Prepaid expenses and other current assets
|
|
|
5,532
|
|
|
|
4,424
|
|
|
|
Assets held for sale
|
|
|
-
|
|
|
|
3,081
|
|
|
|
|
Total current assets
|
|
|
352,870
|
|
|
|
247,659
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
35,769
|
|
|
|
41,582
|
|
|
Intangible assets, net
|
|
|
5,457
|
|
|
|
10,733
|
|
|
Goodwill
|
|
|
|
119,159
|
|
|
|
119,020
|
|
|
Deferred tax assets
|
|
|
18,159
|
|
|
|
16,019
|
|
|
Other assets
|
|
|
1,587
|
|
|
|
4,182
|
|
|
|
|
Total assets
|
|
$
|
533,001
|
|
|
$
|
439,195
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND STOCKHOLDERS'
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
15,258
|
|
|
$
|
13,819
|
|
|
|
Accrued liabilities
|
|
|
112,586
|
|
|
|
40,197
|
|
|
|
Deferred tax liabilities
|
|
|
-
|
|
|
|
149
|
|
|
|
Deferred revenue
|
|
|
742
|
|
|
|
-
|
|
|
|
Income tax payable
|
|
|
1,542
|
|
|
|
1,555
|
|
|
|
|
Total current liabilities
|
|
|
130,128
|
|
|
|
55,720
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
-
|
|
|
|
-
|
|
|
Deferred tax liabilities
|
|
|
29
|
|
|
|
213
|
|
|
Other non-current liabilities
|
|
|
18,922
|
|
|
|
13,766
|
|
|
|
|
Total liabilities
|
|
|
149,079
|
|
|
|
69,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A 3% Redeemable Convertible Preferred Stock, par value
$0.001; Authorized: 100 shares;
|
|
|
|
|
|
Issued and outstanding: 75 shares at December 31, 2011 and 2010,
respectively
|
|
|
|
|
|
Redemption value: $87,089
|
|
|
77,184
|
|
|
|
73,768
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
Preferred stock, par value $0.001; Authorized: 4,900 shares;
|
|
|
|
|
|
|
Issued and outstanding: none
|
|
|
-
|
|
|
|
-
|
|
|
|
Common stock, par value, $0.001: Authorized: 75,000 shares; Issued:
31,523 and 30,905;
|
|
|
|
|
|
|
Outstanding: 27,562 and 27,112 shares at December 31, 2011 and 2010,
respectively
|
|
|
28
|
|
|
|
27
|
|
|
|
Treasury stock: 3,968 and 3,997 shares at December 31, 2011 and
2010, respectively
|
|
|
(107,126
|
)
|
|
|
(107,899
|
)
|
|
|
Additional paid-in capital
|
|
|
400,580
|
|
|
|
386,395
|
|
|
|
Accumulated other comprehensive income
|
|
|
4,615
|
|
|
|
4,246
|
|
|
|
Retained earnings
|
|
|
8,641
|
|
|
|
12,959
|
|
|
|
|
Total stockholders' equity
|
|
|
306,738
|
|
|
|
295,728
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and
stockholders' equity
|
|
$
|
533,001
|
|
|
$
|
439,195
|
|
|
|
|
ARTHROCARE CORPORATION
|
|
Condensed Consolidated Statements of Operations - Unaudited
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended December 31,
|
|
Years Ended December 31,
|
|
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
88,455
|
|
|
$
|
87,609
|
|
|
$
|
338,319
|
|
|
$
|
338,757
|
|
|
|
Royalties, fees and other
|
|
|
3,957
|
|
|
|
5,024
|
|
|
|
16,566
|
|
|
|
16,622
|
|
|
|
Total revenues
|
|
|
92,412
|
|
|
|
92,633
|
|
|
|
354,885
|
|
|
|
355,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
27,144
|
|
|
|
27,182
|
|
|
|
103,314
|
|
|
|
110,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
65,268
|
|
|
|
65,451
|
|
|
|
251,571
|
|
|
|
244,628
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
7,472
|
|
|
|
9,309
|
|
|
|
28,932
|
|
|
|
35,846
|
|
|
|
Sales and marketing
|
|
|
27,497
|
|
|
|
27,954
|
|
|
|
108,621
|
|
|
|
107,852
|
|
|
|
General and administrative
|
|
|
8,697
|
|
|
|
9,485
|
|
|
|
35,069
|
|
|
|
35,534
|
|
|
|
Amortization of intangible assets
|
|
|
1,319
|
|
|
|
1,305
|
|
|
|
5,291
|
|
|
|
5,237
|
|
|
|
Exit costs
|
|
|
2,996
|
|
|
|
|
|
8,300
|
|
|
|
-
|
|
|
|
Investigation and restatement-related costs
|
|
|
68,680
|
|
|
|
2,644
|
|
|
|
80,825
|
|
|
|
5,889
|
|
|
|
Total operating expenses
|
|
|
116,661
|
|
|
|
50,697
|
|
|
|
267,038
|
|
|
|
190,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(51,393
|
)
|
|
|
14,754
|
|
|
|
(15,467
|
)
|
|
|
54,270
|
|
|
|
Other income, net
|
|
|
32
|
|
|
|
(61
|
)
|
|
|
14
|
|
|
|
216
|
|
|
|
Interest expense and bank fees
|
|
|
(139
|
)
|
|
|
(206
|
)
|
|
|
(622
|
)
|
|
|
(769
|
)
|
|
|
Foreign exchange gain (loss), net
|
|
|
(563
|
)
|
|
|
(599
|
)
|
|
|
(723
|
)
|
|
|
(3,311
|
)
|
|
|
Total other expense
|
|
|
(670
|
)
|
|
|
(866
|
)
|
|
|
(1,331
|
)
|
|
|
(3,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes
|
|
|
(52,063
|
)
|
|
|
13,888
|
|
|
|
(16,798
|
)
|
|
|
50,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
(23,662
|
)
|
|
|
2,904
|
|
|
|
(13,985
|
)
|
|
|
12,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(28,401
|
)
|
|
|
10,984
|
|
|
|
(2,813
|
)
|
|
|
37,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of
taxes
|
|
|
-
|
|
|
|
(66
|
)
|
|
|
1,911
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(28,401
|
)
|
|
|
10,918
|
|
|
|
(902
|
)
|
|
|
37,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividend, beneficial conversion
|
|
|
|
|
|
|
|
|
|
|
feature and accretion charges on Series A
|
|
|
|
|
|
|
|
|
|
|
3% Convertible Preferred Stock
|
|
|
(870
|
)
|
|
|
(830
|
)
|
|
|
(3,416
|
)
|
|
|
(3,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
$
|
(29,271
|
)
|
|
$
|
10,088
|
|
|
$
|
(4,318
|
)
|
|
$
|
33,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
27,525
|
|
|
|
27,059
|
|
|
|
27,382
|
|
|
|
27,006
|
|
|
|
Diluted
|
|
|
27,525
|
|
|
|
27,446
|
|
|
|
27,382
|
|
|
|
27,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations
|
|
|
|
|
|
|
|
|
|
applicable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.06
|
)
|
|
$
|
0.31
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.04
|
|
|
|
Diluted
|
|
$
|
(1.06
|
)
|
|
$
|
0.30
|
|
|
$
|
(0.23
|
)
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share applicable to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.06
|
)
|
|
$
|
0.31
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.03
|
|
|
|
Diluted
|
|
$
|
(1.06
|
)
|
|
$
|
0.30
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.02
|
|
|
|
|
ARTHROCARE CORPORATION
|
|
Supplemental Schedule of Product Sales
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Quarter Ended
|
|
|
|
|
December 31, 2011
|
|
December 31, 2010
|
|
|
|
|
Americas
|
|
International
|
|
Total
Product
Sales
|
|
% Net
Product
Sales
|
|
Americas
|
|
International
|
|
Total
Product
Sales
|
|
% Net
Product
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sports Medicine
|
|
$
|
42,030
|
|
$
|
20,350
|
|
$
|
62,380
|
|
70.5
|
%
|
|
$
|
38,738
|
|
$
|
21,108
|
|
$
|
59,846
|
|
68.3
|
%
|
|
|
ENT
|
|
|
19,077
|
|
|
4,526
|
|
|
23,603
|
|
26.7
|
%
|
|
|
20,029
|
|
|
4,325
|
|
|
24,354
|
|
27.8
|
%
|
|
|
Other
|
|
|
583
|
|
|
1,889
|
|
|
2,472
|
|
2.8
|
%
|
|
|
1,006
|
|
|
2,403
|
|
|
3,409
|
|
3.9
|
%
|
|
|
Total Product Sales
|
|
$
|
61,690
|
|
$
|
26,765
|
|
$
|
88,455
|
|
100.0
|
%
|
|
$
|
59,773
|
|
$
|
27,836
|
|
$
|
87,609
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
|
|
December 31, 2011
|
|
December 31, 2010
|
|
|
|
|
Americas
|
|
International
|
|
Total
Product
Sales
|
|
% Net
Product
Sales
|
|
Americas
|
|
International
|
|
Total
Product
Sales
|
|
% Net
Product
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sports Medicine
|
|
$
|
149,010
|
|
$
|
79,337
|
|
$
|
228,347
|
|
67.5
|
%
|
|
$
|
160,859
|
|
$
|
71,120
|
|
$
|
231,979
|
|
68.5
|
%
|
|
|
ENT
|
|
|
81,810
|
|
|
18,429
|
|
|
100,239
|
|
29.6
|
%
|
|
|
79,019
|
|
|
15,270
|
|
|
94,289
|
|
27.8
|
%
|
|
|
Other
|
|
|
2,785
|
|
|
6,948
|
|
|
9,733
|
|
2.9
|
%
|
|
|
4,122
|
|
|
8,367
|
|
|
12,489
|
|
3.7
|
%
|
|
|
Total Product Sales
|
|
$
|
233,605
|
|
$
|
104,714
|
|
$
|
338,319
|
|
100.0
|
%
|
|
$
|
244,000
|
|
$
|
94,757
|
|
$
|
338,757
|
|
100.0
|
%
|
Source: ArthroCare Corp.
ArthroCare Corp.
Misty Romines, 512-391-3902
|
Investor Information
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