Adjusted Earnings per diluted share up 27% to $0.69; GAAP Earnings
per diluted share down 6% including specified items to $0.54 per diluted
share
LEWISVILLE, Texas--(BUSINESS WIRE)--
Orthofix International N.V. (NASDAQ:OFIX) today announced its results
for the second quarter ended June 30, 2011.
Reported net sales were $143.6 million, reported net income was $10.0
million, or $0.54 per diluted share, and adjusted net income was $12.8
million, or $0.69 per diluted share, for the second quarter ended June
30, 2011.
Robert Vaters, President and Chief Executive Officer Elect, commented,
"The investments and focus in Spinal Implants and Biologics, as well as
renewed efforts and added capabilities in Sports Medicine have produced
solid results. Although I am encouraged by quarterly sequential growth
in stimulation we continue to face challenges in this franchise."
Mr. Vaters further added, "We are driving earnings improvement by
delivering operating margin expansion and are benefiting from lower
financing costs."
Sales Performance
Reported net sales were $143.6 million in the second quarter of 2011, up
slightly from $142.8 million in the second quarter of the prior year.
Foreign currency positively impacted the second quarter net sales by
approximately $3.0 million. Revenues from our strategic products were up
2% on a reported basis and flat on a constant currency basis when
compared to the prior year.
|
|
|
|
|
|
|
|
|
|
External net sales by market sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
Currency
|
|
(USD in millions)
|
|
2011
|
|
2010
|
|
Growth
|
|
Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spine products
|
|
|
|
|
|
|
|
|
|
|
Implants and Biologics
|
|
$
|
36.9
|
|
$
|
33.7
|
|
9
|
%
|
|
9
|
%
|
|
|
Stimulation
|
|
|
39.7
|
|
|
45.0
|
|
-12
|
%
|
|
-12
|
%
|
|
Total Spine products
|
|
|
76.5
|
|
|
78.6
|
|
-3
|
%
|
|
-3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orthopedics products
|
|
|
40.1
|
|
|
37.4
|
|
7
|
%
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sports Medicine products
|
|
|
25.2
|
|
|
23.1
|
|
9
|
%
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Strategic products
|
|
|
141.9
|
|
|
139.2
|
|
2
|
%
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divested products
|
|
|
1.7
|
|
|
3.6
|
|
-53
|
%
|
|
-53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
143.6
|
|
$
|
142.8
|
|
0
|
%
|
|
-2
|
%
|
Note: Some calculations may be impacted by rounding. The Divested
products line above includes sales from the divested vascular business
of $1.7 million and $1.6 million in the second quarter of 2011 and 2010,
respectively and sales from the exited anesthesia product line of $2.0
million in the second quarter of 2010.
Second quarter sales performance in our spine market sector included a
9% increase in implants and biologics revenue. The stimulation products
used in spine applications decreased 12%, primarily as a result of the
disruption from the ongoing industry wide investigation of the bone
growth stimulation business along with continued reimbursement
challenges affecting the number of surgeries. Second quarter net sales
in the Company's total spine market sector were down 3% to $76.5 million.
Second quarter net sales in the Company's orthopedics market sector were
$40.1 million for the second quarter of 2011, which reflects a 7%
reported increase, but remained flat on a constant currency basis
compared to the prior year. This market sector was led by hardware and
the increased use of Trinity® Evolution™ in orthopedic applications but
was offset by the reduction in stimulation products used in long-bone
applications.
Second quarter net sales in the Company's sports medicine market sector
were $25.2 million, up 8% on a constant currency basis compared to the
same period of the prior year. The second quarter of 2011 includes
revenue from a recently acquired billing capability that was acquired
during the first quarter of 2011.
Earnings Performance
Reported net income for the second quarter was $10.0 million and net
income per diluted share was $0.54. During the second quarter of 2011,
the Company recorded $3.5 million ($2.7 million net of tax), or ($0.15)
per diluted share, of senior management succession and restructuring
charges.
Excluding certain items summarized in the table below, adjusted net
income in the second quarter of 2011 was $12.8 million, or $0.69 per
diluted share, an increase of 27% per diluted share compared with $0.54
per diluted share in the second quarter of the prior year.
The following table reconciles reported net income and net income per
diluted share to adjusted net income and adjusted net income per diluted
share for the quarters ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
Second Quarter Adjusted Net Income and Adjusted Net Income per
Diluted Share
|
|
Q2 2011
|
|
Q2 2010
|
|
% Change
|
|
|
|
($000's)
|
|
EPS
|
|
($000's)
|
|
EPS
|
|
($000's)
|
|
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported GAAP net income and net income per diluted share
|
|
$ 9,958
|
|
$ 0.54
|
|
$ 10,232
|
|
$ 0.57
|
|
-3%
|
|
-6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specified Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss (income)
|
|
135
|
|
|
|
(121)
|
|
|
|
|
|
|
|
Gain on interest rate swap
|
|
-
|
|
|
|
(554)
|
|
|
|
|
|
|
|
Divested vascular business
|
|
-
|
|
|
|
190
|
|
|
|
|
|
|
|
Succession and restructuring charges
|
|
2,738
|
|
|
|
-
|
|
|
|
|
|
|
|
Adjusted net income and adjusted net income per diluted share
|
|
$ 12,831
|
|
$ 0.69
|
|
$ 9,747
|
|
$ 0.54
|
|
32%
|
|
27%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to calculate EPS (in thousands)
|
|
|
|
18,541
|
|
|
|
17,893
|
|
|
|
|
Note: Some calculations may be impacted by rounding. Please refer to the
Non-GAAP Performance measure section at the end of this press release
for more information about the specified items listed above.
The following table reconciles operating income to adjusted operating
income for the quarters ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
Second Quarter Adjusted Operating Income
|
|
Q2 2011
|
|
Q2 2010
|
|
|
|
($000's)
|
|
% of Sales
|
|
($000's)
|
|
% of Sales
|
|
|
|
|
|
|
|
|
|
|
|
Reported GAAP operating income
|
|
$ 18,571
|
|
12.9%
|
|
$ 21,210
|
|
14.8%
|
|
|
|
|
|
|
|
|
|
|
|
Specified Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divested vascular business
|
|
-
|
|
|
|
211
|
|
|
|
Succession and restructuring charges
|
|
3,505
|
|
|
|
-
|
|
|
|
Adjusted operating income
|
|
$ 22,076
|
|
15.4%
|
|
$ 21,421
|
|
15.0%
|
Note: Some calculations may be impacted by rounding. Please refer to the
Non-GAAP Performance measure section at the end of this press release
for more information about the specified items listed above.
The second quarter reported and adjusted results for 2011 also included
approximately $2.0 million ($1.2 million net of tax) or $0.06 per
diluted share of additional product liability insurance costs and
approximately $1.6 million ($1.0 million net of tax ) or $0.05 per
diluted share of legal expenses associated with the DOJ investigation of
the bone growth stimulation industry and the Company's internal
investigation into compliance with the Foreign Corrupt Practices Act at
its distribution subsidiary in Mexico.
2011 Outlook Update
The Company is reiterating its net sales guidance, which is expected to
be between $580-590 million for the full year 2011. Including the six
month year-to-date specified items, reported net income for 2011 is
expected to be between a loss of ($0.09) to income of $0.01 per diluted
share. Adjusted net income for 2011 is expected to be between $2.60 -
$2.70 per diluted share.
|
|
|
|
|
|
|
Reported and Adjusted EPS - 2011 Outlook
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported GAAP EPS Range
|
|
$ (0.09) - $ 0.01
|
|
|
|
|
|
|
|
Specified Items:
|
|
|
|
|
|
Charges related to U.S. Government inquiries
|
|
$2.53
|
|
Succession and restructuring charges
|
|
$0.14
|
|
Foreign exchange loss
|
|
$0.02
|
|
|
|
|
|
|
|
Adjusted EPS Range
|
|
$ 2.60 - $ 2.70
|
Conference Call
Orthofix will host a conference call today at 4:30 PM Eastern time to
discuss the Company's financial results for the second quarter of 2011.
Interested parties may access the conference call by dialing (888)
267-2845 in the U.S. and (973) 413-6102 outside the U.S., and entering
the conference ID 87421. A replay of the call will be available for two
weeks by dialing (800) 332-6854 in the U.S. and (973) 528-0005 outside
the U.S., and entering the conference ID 87421. A webcast of the
conference call may be accessed by going to the Company's website at www.orthofix.com,
by clicking on the Investors link and then the Events and Presentations
page.
About Orthofix
Orthofix International N.V. is a global medical device company offering
a broad line of minimally invasive surgical, and non-surgical products
for the spine, orthopedics, and sports medicine 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 via collaborations with other leading
orthopedic product companies. In addition, Orthofix is collaborating on
R&D activities with leading research and clinical organizations such as
the Musculoskeletal Transplant Foundation, the Orthopedic Research and
Education Foundation, Texas Scottish Rite Hospital for Children, and the
Cleveland Clinical Foundation. For more information about Orthofix,
please visit www.orthofix.com.
FORWARD-LOOKING STATEMENTS
This communication contains certain forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements, which may include, but are not limited to, statements
concerning the projections, financial condition, results of operations
and businesses of Orthofix and its subsidiaries and are based on
management's current expectations and estimates and involve risks and
uncertainties that could cause actual results or outcomes to differ
materially from those contemplated by the forward-looking statements.
The forward-looking statements in this release do not constitute
guarantees or promises of future performance. Factors that could cause
or contribute to such differences may include, but are not limited to,
risks relating to the expected sales of our products, including recently
launched products, unanticipated expenditures, the resolution of pending
litigation matters (including the government investigation relating to
our bone growth stimulation business and the possible violations of the
FCPA by our former Mexican orthopedic distribution entity), changing
relationships with customers, suppliers, strategic partners and lenders,
changes to and the interpretation of governmental regulations, risks
relating to the protection of intellectual property, changes to the
reimbursement policies of third parties, the impact of competitive
products, changes to the competitive environment, the acceptance of new
products in the market, conditions of the orthopedic industry, credit
markets and the economy, corporate development and market development
activities, including acquisitions or divestitures, unexpected costs or
operating unit performance related to recent acquisitions, and other
factors described in our annual report on Form 10-K and other periodic
reports filed by the Company with the Securities and Exchange Commission
(SEC). Existing and prospective investors are cautioned not to place
undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to update or
revise the information contained in this press release, whether as a
result of new information, future events or circumstances, or otherwise.
The Company cannot predict the timing or outcome of ongoing litigation
matters and governmental investigations of our businesses which could
result in civil or criminal liability or findings of violations of law
(as further described in the "Legal Proceedings" sections of our annual
report on Form 10-K and quarterly reports on Form 10-Q), that could
materially impact our financial position and/or liquidity.
|
ORTHOFIX INTERNATIONAL N.V.
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
(Unaudited, U.S. Dollars, in thousands, except per share and
share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
143,551
|
|
|
$
|
142,845
|
|
|
$
|
282,716
|
|
|
$
|
281,668
|
|
|
Cost of sales
|
|
|
34,693
|
|
|
|
34,087
|
|
|
|
68,054
|
|
|
|
66,781
|
|
|
Gross profit
|
|
|
108,858
|
|
|
|
108,758
|
|
|
|
214,662
|
|
|
|
214,887
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
58,199
|
|
|
|
57,185
|
|
|
|
113,797
|
|
|
|
113,475
|
|
|
General and administrative
|
|
|
23,949
|
|
|
|
20,372
|
|
|
|
46,909
|
|
|
|
41,841
|
|
|
Research and development
|
|
|
6,766
|
|
|
|
8,370
|
|
|
|
12,818
|
|
|
|
15,898
|
|
|
Amortization of intangible assets
|
|
|
1,373
|
|
|
|
1,410
|
|
|
|
2,628
|
|
|
|
2,857
|
|
|
Net gain on sale of vascular operations
|
|
|
-
|
|
|
|
211
|
|
|
|
-
|
|
|
|
(12,339
|
)
|
|
Charges related to U.S. Government inquiries
|
|
|
-
|
|
|
|
-
|
|
|
|
46,000
|
|
|
|
-
|
|
|
|
|
|
90,287
|
|
|
|
87,548
|
|
|
|
222,152
|
|
|
|
161,732
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
18,571
|
|
|
|
21,210
|
|
|
|
(7,490
|
)
|
|
|
53,155
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(2,198
|
)
|
|
|
(5,445
|
)
|
|
|
(4,614
|
)
|
|
|
(11,290
|
)
|
|
Other income (expense), net
|
|
|
(312
|
)
|
|
|
100
|
|
|
|
(1,385
|
)
|
|
|
(231
|
)
|
|
Gain on interest rate swap
|
|
|
-
|
|
|
|
909
|
|
|
|
-
|
|
|
|
1,254
|
|
|
Other expense, net
|
|
|
(2,510
|
)
|
|
|
(4,436
|
)
|
|
|
(5,999
|
)
|
|
|
(10,267
|
)
|
|
Income (loss) before income taxes
|
|
|
16,061
|
|
|
|
16,774
|
|
|
|
(13,489
|
)
|
|
|
42,888
|
|
|
Income tax expense
|
|
|
(6,103
|
)
|
|
|
(6,542
|
)
|
|
|
(12,354
|
)
|
|
|
(15,164
|
)
|
|
Net income (loss)
|
|
$
|
9,958
|
|
|
$
|
10,232
|
|
|
|
($25,843
|
)
|
|
$
|
27,724
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic
|
|
$
|
0.55
|
|
|
$
|
0.58
|
|
|
|
-$1.43
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - diluted
|
|
$
|
0.54
|
|
|
$
|
0.57
|
|
|
|
-$1.43
|
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
18,110,607
|
|
|
|
17,579,221
|
|
|
|
18,024,913
|
|
|
|
17,534,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
|
|
|
|
|
|
|
|
|
18,541,220
|
|
|
|
17,892,886
|
|
|
|
18,024,913
|
|
|
|
17,825,604
|
|
Note: Share amounts used to calculate basic and diluted net loss per
common share for the six months ended June 30, 2011 are the same because
the effect of including common stock equivalents would be anti-dilutive.
|
ORTHOFIX INTERNATIONAL N.V.
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited, U.S. Dollars, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
27,485
|
|
$
|
13,561
|
|
Restricted cash
|
|
|
25,255
|
|
|
22,944
|
|
Trade accounts receivable, net
|
|
|
139,243
|
|
|
134,184
|
|
Inventories, net
|
|
|
97,981
|
|
|
84,589
|
|
Deferred income taxes
|
|
|
20,044
|
|
|
17,422
|
|
Prepaid expenses and other current assets
|
|
|
36,092
|
|
|
39,060
|
|
Total current assets
|
|
|
346,100
|
|
|
311,760
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
49,205
|
|
|
45,535
|
|
Patents and other intangible assets, net
|
|
|
40,252
|
|
|
41,457
|
|
Goodwill
|
|
|
181,633
|
|
|
176,497
|
|
Deferred taxes and other long-term assets
|
|
|
29,836
|
|
|
28,740
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
647,026
|
|
$
|
603,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Bank borrowings
|
|
$
|
2,387
|
|
$
|
3,812
|
|
Current portion of long-term debt
|
|
|
12,500
|
|
|
7,500
|
|
Trade accounts payable
|
|
|
18,443
|
|
|
19,796
|
|
Accrued charges related to U.S. Government inquiries
|
|
46,000
|
|
|
-
|
|
Other current liabilities
|
|
|
53,881
|
|
|
52,418
|
|
Total current liabilities
|
|
|
133,211
|
|
|
83,526
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
201,195
|
|
|
208,695
|
|
Deferred income taxes
|
|
|
7,539
|
|
|
8,102
|
|
Other long-term liabilities
|
|
|
7,171
|
|
|
2,775
|
|
Total liabilities
|
|
|
349,116
|
|
|
303,098
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
Common shares
|
|
|
1,824
|
|
|
1,772
|
|
Additional paid-in capital
|
|
|
213,287
|
|
|
195,402
|
|
Retained earnings
|
|
|
72,484
|
|
|
98,327
|
|
Accumulated other comprehensive income
|
|
|
10,315
|
|
|
5,390
|
|
Total shareholders' equity
|
|
|
297,910
|
|
|
300,891
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
647,026
|
|
$
|
603,989
|
|
ORTHOFIX INTERNATIONAL N.V.
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Unaudited, U.S. Dollars, in thousands)
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net (loss) income
|
|
|
($25,843
|
)
|
|
$
|
27,724
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,324
|
|
|
|
10,345
|
|
|
Net gain on sale of vascular operations
|
|
|
-
|
|
|
|
(12,339
|
)
|
|
Other non-cash adjustments
|
|
|
7,952
|
|
|
|
8,759
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
Charges related to U.S. Government inquiries
|
|
|
46,000
|
|
|
|
-
|
|
|
Changes in working capital
|
|
|
(16,030
|
)
|
|
|
(14,941
|
)
|
|
Net cash provided by operating activities
|
|
|
23,403
|
|
|
|
19,548
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Capital expenditures
|
|
|
(11,298
|
)
|
|
|
(11,881
|
)
|
|
Payment made in connection with acquisition
|
|
|
(5,250
|
)
|
|
|
-
|
|
|
Net proceeds from sale of assets, principally vascular operations
|
|
-
|
|
|
|
24,215
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(16,548
|
)
|
|
|
12,334
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Net proceeds from issuance of common shares
|
|
|
13,453
|
|
|
|
5,996
|
|
|
Repayments of long-term debt
|
|
|
(2,500
|
)
|
|
|
(25,656
|
)
|
|
Payment of refinancing fees
|
|
|
(758
|
)
|
|
|
-
|
|
|
Proceeds from (repayments of) bank borrowings, net
|
|
|
(1,653
|
)
|
|
|
1,023
|
|
|
Restricted cash *
|
|
|
(2,285
|
)
|
|
|
(7,757
|
)
|
|
Cash payment for purchase of minority interest in subsidiary
|
|
(517
|
)
|
|
|
-
|
|
|
Tax benefit on non-qualified stock options
|
|
|
1,004
|
|
|
|
1,792
|
|
|
Net cash provided by (used in) financing activities
|
|
|
6,744
|
|
|
|
(24,602
|
)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
325
|
|
|
|
(914
|
)
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
13,924
|
|
|
|
6,366
|
|
|
Cash and cash equivalents at the beginning of period
|
|
|
13,561
|
|
|
|
13,328
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
27,485
|
|
|
$
|
19,694
|
|
* - The Company has reclassified its restricted cash from operating
activities to financing activities for the periods ended June 30, 2011
and 2010. The Company deemed this as the more appropriate disclosure
since the cash is restricted for use by only those parties included in
the Credit Facilities.
Non-GAAP Performance Measures
The tables in this press release present reconciliations of net sales,
net (loss) income and net (loss) income per diluted share, operating
(loss) income and effective tax rate calculated in accordance with
generally accepted accounting principles (GAAP) to non-GAAP performance
measures, referred to as "Adjusted Constant Currency Net Sales",
"Adjusted Net Income and Adjusted Net Income per Diluted Share" and
"Adjusted Operating Income" that exclude the items specified in the
tables. The Regulation G Supplemental Information Schedule attached to
this release includes additional reconciliations between GAAP measures
and non-GAAP measures referred to as "Adjusted Consolidated EBITDA".
Management believes it is important to provide investors with the same
non-GAAP metrics it uses to supplement information regarding the
performance and underlying trends of Orthofix's business operations in
order to facilitate comparisons to its historical operating results and
internally evaluate the effectiveness of the Company's operating
strategies. A more detailed explanation of the items in the tables below
that are excluded from GAAP net sales and GAAP net (loss) income and net
(loss) income per diluted share, as well as why management believes the
non-GAAP measures are useful to them, is included in the Regulation G
Supplemental Information schedule attached to this press release.
Reconciliations of Non-GAAP Performance Measures
Adjusted Net Income and Adjusted Net Income per Diluted Share
Reconciling Items
Note: The reconciling items were tax affected in the current period at
the prevailing rate within the respective jurisdictions.
-
Foreign exchange loss (income) — due to translation adjustments
resulting from the weakening or strengthening of the U.S. Dollar
against various foreign currencies. A number of Orthofix's foreign
subsidiaries have intercompany and third party trade accounts
receivables and payables that are held in currencies, most notably the
U.S. Dollar, other than their local currency, and movements in the
relative values of those currencies result in foreign exchange gains
and losses.
-
Gain on interest rate swap — the change in the fair market
value of the Company's interest rate swap that required mark-to-market
accounting through the income statement due to its ineffectiveness.
The Company paid off the swap approximately one year early in Q2 10.
-
Divested vascular business — represents the Company's sale of
its vascular business during the first quarter of 2010 along with
final additional settlement obligations associated with that
transaction incurred in the subsequent quarters of 2010.
-
Succession and restructuring charge — In 2011 these costs
relate to the cessation of employment of the Company's Chief Executive
Officer and certain other employees.
Adjusted Operating Income Reconciling Items
-
Divested vascular business — represents the Company's sale of
its vascular business during the first quarter of 2010 along with
final additional settlement obligations associated with that
transaction incurred in the subsequent quarters of 2010.
-
Succession and restructuring charge — In 2011 these costs
relate to the cessation of employment of the Company's Chief Executive
Officer and certain other employees.
|
|
|
|
|
|
|
Adjusted Consolidated EBITDA
|
|
|
|
|
|
|
|
|
|
Q2 2011
|
|
TTM 6/30/11
|
|
|
|
|
|
($000's)
|
|
($000's)
|
|
|
Net Income (Loss)
|
|
$
|
9,958
|
|
$
|
(9,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,985
|
|
|
23,501
|
|
|
|
|
Interest expense
|
|
|
1,838
|
|
|
9,599
|
|
|
|
|
Loss on refinancing of senior secured term loan
|
|
|
-
|
|
|
550
|
|
|
|
|
Tax expense
|
|
|
6,103
|
|
|
25,380
|
|
|
|
|
Share-based compensation
|
|
|
2,488
|
|
|
6,686
|
|
|
|
|
Divested vascular business
|
|
|
-
|
|
|
320
|
|
|
|
|
Other non-cash items
|
|
|
611
|
|
|
2,176
|
|
|
|
|
Charges related to U.S. Government inquiries
|
|
|
-
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Adjusted Consolidated EBITDA
|
|
$
|
26,983
|
|
$
|
108,852
|
|
NOTE: Adjusted Consolidated EBITDA is computed pursuant to the
definition of "Consolidated EBITDA" contained in the Company's credit
agreement, dated August 30, 2010, as amended. The credit agreement was
filed as Exhibit 10.1 to Company's current report on Form 8-K filed on
August 31, 2010 and the amendment was filed on Form 8-K on May 5, 2011.
These documents can be found at the SEC's website at www.SEC.gov.
Adjusted Consolidated EBITDA
-
Depreciation and amortization — non-cash depreciation and
amortization expenses.
-
Interest expense — interest expense related to outstanding debt.
-
Loss on refinancing of senior secured term loan — the write-off
of the remaining capitalized debt issuance costs associated with the
Company's prior credit facility.
-
Tax expense — income tax expenses incurred by the Company.
-
Share-based compensation — non-cash equity compensation
expenses.
-
Divested vascular business — represents the Company's sale of
its vascular business during the first quarter of 2010 along with
final additional settlement obligations associated with that
transaction incurred in the subsequent quarters of 2010.
-
Other non-cash items — certain non-cash charges
(credits) including foreign exchange gains and losses and the
amortization of debt issuance costs.
-
Charges related to settlements of U.S. Government inquiries —
charges associated with the potential settlement of the DOJ
investigation of the Company's bone growth stimulation business,
including the first quarter 2011 legal fees related to this matter
incurred by the Company, and the Company's internal investigation into
compliance with the FCPA at its orthopedic distribution entity in
Mexico.
Management use of, and economic substance behind, Non-GAAP
Performance Measures
Management uses non-GAAP measures to evaluate performance period over
period, to analyze the underlying trends in the Company's business, to
assess its performance relative to its competitors and to establish
operational goals and forecasts that are used in allocating resources.
In addition, following the Company's acquisition of Blackstone Medical,
and the related increase in Orthofix's debt, management has increased
its focus on cash generation and debt reduction. Management uses these
non-GAAP measures as the basis for assessing the ability of the
underlying operations to generate cash for use in paying down debt. In
addition, management uses these non-GAAP measures to further its
understanding of the performance of the Company's business units. The
items excluded from Orthofix's non-GAAP measures are also excluded from
the profit or loss reported by the Company's business units for the
purpose of analyzing their performance.
Material Limitations Associated with the Use of Non-GAAP Measures
The non-GAAP measures used in this press release may have limitations as
analytical tools, and should not be considered in isolation or as a
replacement for GAAP performance measures. Some of the limitations
associated with the use of these non-GAAP performance measures are that
they exclude items that reflect an economic cost to the Company and can
have a material effect on cash flows. Similarly, equity compensation
expense does not directly impact cash flows, but is part of total
compensation costs accounted for under GAAP.
Compensation for Limitations Associated with Use of Non-GAAP Measures
Orthofix compensates for the limitations of its non-GAAP performance
measures by relying upon its GAAP results to gain a complete picture of
the Company's performance. The GAAP results provide the ability to
understand the Company's performance based on a defined set of criteria.
The non-GAAP measures reflect the underlying operating results of the
Company's businesses, excluding non-cash items, which management
believes is an important measure of the Company's overall performance.
The Company provides a detailed reconciliation of the non-GAAP
performance measures to their most directly comparable GAAP measures,
and encourages investors to review this reconciliation.
Usefulness of Non-GAAP Measures to Investors
Orthofix believes that providing non-GAAP measures that exclude certain
items provides investors with greater transparency to the information
used by the Company's senior management in its financial and operational
decision-making. Management believes that providing this information
enables investors to better understand the performance of the Company's
ongoing operations and to understand the methodology used by management
to evaluate and measure such performance. Disclosure of these non-GAAP
performance measures also facilitates comparisons of Orthofix's
underlying operating performance with other companies in its industry
that also supplement their GAAP results with non-GAAP performance
measures.
Orthofix International N.V.
Brian McCollum, 214-937-2927
Chief
Financial Officer
brianmccollum@orthofix.com
Source: Orthofix International N.V.
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