Contact: | Dan Yarbrough, Director of Investor Relations |
704-948-2617
danyarbrough@orthofix.com
Orthofix Makes Tax Adjustment to Non-Cash Purchase Accounting Related to 3rd Quarter 2006 Earnings
| | · | Reported GAAP loss per diluted share increases by $1.00, to $2.17, due to revised tax treatment of purchase accounting associated with Blackstone acquisition |
| | · | Adjusted net income for 3rd quarter of 2006 is unchanged from previous announcement, at $0.52 per diluted share |
HUNTERSVILLE, N.C., November 3, 2006- Orthofix International N.V., (NASDAQ:OFIX) (the Company) announced today that it is adjusting its previously reported third quarter 2006 net loss as a result of the revised tax treatment of purchase accounting related to in-process research and development costs written off in association with the acquisition of Blackstone Medical, Inc.
In its earnings release on October 26th, the Company reported a net loss of $19.0 million, or $1.17 per diluted share, for the third quarter of 2006 as calculated in accordance with generally accepted accounting principles (GAAP). This net loss included $40.3 million ($23.8 million, net of tax, or $1.46 per diluted share) in non-operating, non-cash purchase accounting charges, substantially all of which related to purchased in-process research and development. The Company has subsequently determined that, in accordance with GAAP, reported net income should include the full amount of in-process research and development written off without any tax benefit. As such, Orthofix’s third quarter GAAP net loss, including the appropriate purchase accounting treatment for the write-off of in-process research and development, was $35.4 million, or $2.17 per diluted share.
This change does not impact the Company’s adjusted net income of $0.52 per diluted share as previously reported. Additionally, the change has no impact on the Company’s cash flows.
The table below presents the revised reconciliation between net income calculated in accordance with generally accepted accounting principles (GAAP) and a non-GAAP financial measure, referred to as “adjusted net income”, that excludes from net income the items specified in the table. Management believes it is important to provide investors with the same adjusted net income metric which it uses to supplement information regarding the performance and underlying trends of Orthofix’s business operations, facilitate comparisons to its historical operating results and internally evaluate the effectiveness of the Company’s operating strategies.
Reconciliation of Non-GAAP Performance Measure | | | | | | | | | |
| | | Q306 | | Q305 | |
| | | ($000's) | | EPS | | ($000's) | | EPS | |
| | | | | | | | | | |
Reported net income/(loss) | | $ | (35,417 | ) | $ | (2.17 | ) | $ | 46,020 | | $ | 2.81 | |
| | | | | | | | | | | | | | |
Specified Items: | | | | | | | | | | | | | |
Legal settlement proceeds, net of litigtion costs | | | --- | | | --- | | $ | (38,200 | ) | $ | (2.33 | ) |
Blackstone purchase accounting entries | | $ | 40,193 | | $ | 2.46 | | | --- | | | --- | |
Accelerated accrual of monthly Danek marketing fees | | $ | 2,944 | | $ | 0.18 | | | --- | | | --- | |
Taxes related to European restructuring | | $ | 330 | | $ | 0.02 | | | --- | | | --- | |
Interest expense on Blackstone debt | | $ | 501 | | $ | 0.03 | | | --- | | | --- | |
| | | | | | | | | | | | | | |
Adjusted net income | | $ | 8,551 | | $ | 0.52 | | $ | 7,820 | | $ | 0.48 | |
| | | | | | | | | | | | | | |
Adoption of FAS 123R, w/ impact of lower share count | | $ | 938 | | $ | 0.06 | | | --- | | | --- | |
| | | | | | | | | | | | | | |
Adjusted net income, excluding impact of FAS 123R | | $ | 9,489 | | $ | 0.58 | | $ | 7,820 | | $ | 0.48 | |
NOTE: Some calculations may be impacted by rounding
About Orthofix
Orthofix International, N.V., a global diversified orthopedic products company, offers a broad line of minimally invasive surgical, and non-surgical, products for the Spine, Reconstruction, and Trauma market sectors that address the lifelong bone-and-joint health needs of patients of all ages-helping them achieve a more active and mobile lifestyle. Orthofix’s products are widely distributed around the world to orthopedic surgeons and patients via Orthofix’s sales representatives and its subsidiaries, including BREG, Inc. and Blackstone Medical, Inc., and via partnerships with other leading orthopedic product companies including Kendall Healthcare. In addition, Orthofix is collaborating in R&D partnerships with leading medical institutions such as the Orthopedic Research and Education Foundation, Rutgers University, the Cleveland Clinic Foundation, and National Osteoporosis Institute. For more information about Orthofix, please visit www.orthofix.com.
- Financial tables follow -
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, U.S. Dollars, in thousands, except per share and share data)
| | | For the three months | | For the nine months | |
| | | ended September 30, | | ended September 30, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | | |
| Net sales | | $ | 83,368 | | $ | 75,812 | | | 249,219 | | $ | 233,040 | |
| Cost of sales | | | 21,007 | | | 20,193 | | | 63,665 | | | 61,864 | |
| Gross profit | | | 62,361 | | | 55,619 | | | 185,554 | | | 171,176 | |
| | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | |
| Sales and marketing | | | 36,277 | | | 29,148 | | | 98,985 | | | 85,373 | |
| General and administrative | | | 11,747 | | | 8,431 | | | 36,337 | | | 25,706 | |
| Research and development | | | 42,865 | | | 2,595 | | | 48,550 | | | 8,677 | |
| Amortization | | | 1,929 | | | 1,635 | | | 5,408 | | | 4,923 | |
| | | | 92,818 | | | 41,809 | | | 189,280 | | | 124,679 | |
| | | | | | | | | | | | | | |
| Operating income | | | (30,457 | ) | | 13,810 | | | (3,726 | ) | | 46,497 | |
| | | | | | | | | | | | | | |
| Interest income (expense), net | | | (482 | ) | | (1,160 | ) | | 164 | | | (3,721 | ) |
| Other income/(loss), net | | | (508 | ) | | 73 | | | (753 | ) | | 1,508 | |
| KCI settlement, net of litigation costs | | | 0 | | | 40,860 | | | 1,093 | | | 40,355 | |
| Income before income tax | | | (31,447 | ) | | 53,583 | | | (3,222 | ) | | 84,639 | |
| | | | | | | | | | | | | | |
| Income tax expense | | | (3,970 | ) | | (7,563 | ) | | (11,221 | ) | | (18,434 | ) |
| Net income | | $ | (35,417 | ) | $ | 46,020 | | | (14,443 | ) | $ | 66,205 | |
| | | | | | | | | | | | | | |
| Net income per common share - basic | | $ | (2.19 | ) | $ | 2.88 | | $ | (0.90 | ) | $ | 4.17 | |
| | | | | | | | | | | | | | |
| Net income per common share - diluted | | $ | (2.17 | ) | $ | 2.81 | | $ | (0.89 | ) | $ | 4.07 | |
| | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding - basic | | | 16,193,086 | | | 15,986,599 | | | 16,084,388 | | | 15,881,902 | |
| | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding - diluted | | | 16,322,827 | | | 16,384,106 | | | 16,229,221 | | | 16,279,724 | |
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, U.S. Dollars, in thousands)
| | | As of | | As of | |
| | | September 30, | | December 31, | |
| | | 2006 | | 2005 | |
| | | | | | |
Assets | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | | $ | 37,114 | | $ | 63,786 | |
| Restricted cash | | | 19,524 | | | 13,762 | |
| Trade accounts receivable | | | 102,248 | | | 80,745 | |
| Inventory | | | 63,925 | | | 32,853 | |
| Deferred income taxes | | | 5,405 | | | 4,511 | |
| Prepaid expenses and other | | | 18,880 | | | 11,618 | |
| Total current assets | | | 247,096 | | | 207,275 | |
| | | | | | | | |
| Securities and other investments | | | 4,082 | | | 4,082 | |
| Property, plant and equipment, net | | | 22,917 | | | 18,987 | |
| Intangible assets, net | | | 591,520 | | | 240,323 | |
| Other long-term assets | | | 16,287 | | | 3,194 | |
| Total assets | | $ | 881,902 | | $ | 473,861 | |
| | | | | | | | |
Liabilities and shareholders' equity | | | | | | | |
| Current liabilities: | | | | | | | |
| Bank borrowings | | $ | 3,109 | | $ | 79 | |
| Current portion of long-term debt | | | 3,301 | | | 15,187 | |
| Trade accounts payable | | | 19,699 | | | 11,602 | |
| Other current liabilities | | | 40,510 | | | 51,208 | |
| Total current liabilities | | | 66,619 | | | 78,076 | |
| | | | | | | | |
| Long-term debt | | | 326,868 | | | 21 | |
| Deferred income taxes | | | 109,608 | | | 25,652 | |
| Other long-term liabilities | | | 1,370 | | | 1,227 | |
| Total liabilities | | | 504,465 | | | 104,976 | |
| | | | | | | | |
| Shareholders' equity | | | | | | | |
| Common shares | | | 1,639 | | | 1,602 | |
| Additional paid-in capital | | | 122,867 | | | 106,746 | |
| | | | 124,506 | | | 108,348 | |
| Retained earnings | | | 241,031 | | | 255,475 | |
| Accumulated other comprehensive income | | | 11,900 | | | 5,062 | |
| Total shareholders' equity | | | 377,437 | | | 368,885 | |
| | | | | | | | |
| Total liabilities and shareholders' equity | | $ | 881,902 | | $ | 473,861 | |
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, U.S. Dollars, in thousands)
| | | For the nine months ended September 30, | |
| | | 2006 | | 2005 | |
| | | | | | |
| Net cash (used in) provided by operating activities | | $ | (9,395 | ) | $ | 94,788 | |
| | | | | | | | |
| Cash flows from investing activities: | | | | | | | |
| Investment in subsidiaries and affiliates | | | (336,808 | ) | | - | |
| Capital expenditure | | | (6,769 | ) | | (8,928 | ) |
| Net cash used in investing activities | | | (343,577 | ) | | (8,928 | ) |
| | | | | | | | |
| Cash flows from financing activities: | | | | | | | |
| Net (repayment) proceeds of loans and borrowings | | | 318,009 | | | (24,060 | ) |
| Proceeds from issuance of common stock | | | 11,172 | | | 6,367 | |
| Payment of debt issuance costs | | | (5,708 | ) | | - | |
| Tax benefit on non-qualified stock options | | | 2,048 | | | - | |
| Net cash provided by (used in) financing activities | | | 325,521 | | | (17,693 | ) |
| | | | | | | | |
| Effect of exchange rate changes on cash | | | 779 | | | (637 | ) |
| | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (26,672 | ) | | 67,530 | |
| Cash and cash equivalents at the beginning of the period | | | 63,786 | | | 25,944 | |
| Cash and cash equivalents at the end of the period | | $ | 37,114 | | $ | 93,474 | |
NOTE: In order to be consistent with its past practice, the Company has reclassified changes in restricted cash from an investing activity, as originally reported, to an operating activity for purposes of its treatment on the Statement of Cash Flows for the period ended September 30, 2006.
