Restatement Set Forth in Amended Annual and Quarterly Reports Filed
with SEC
Company to Host Conference Call on Thursday, March 27 in Connection
With Full-Year 2013 Results
LEWISVILLE, Texas--(BUSINESS WIRE)--
Orthofix International N.V. (NASDAQ:OFIX) ("Orthofix" or the "Company")
today announced that it has completed the filing of its previously
announced financial statement restatement. The restatement is described
in an amendment to the Company's annual report on Form 10-K/A for the
fiscal year ended December 31, 2012 (the "Form 10-K/A") and an amendment
to the Company's quarterly report on Form 10-Q for the fiscal quarter
ended March 31, 2013 (the "Form 10-Q/A," and collectively with the Form
10-K/A, the "Amendments"), each of which have been filed today with the
Securities and Exchange Commission (the "SEC").
Contemporaneously with the filing of the Amendments, the Company has
today filed its Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2013. The Company expects to file with the SEC its
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2013 on March 25, 2014. Additionally, the Company plans to release
earnings results for the year ended December 31, 2013 on the morning of
March 27, 2014. The Company currently expects to file its Annual Report
on Form 10-K for the year ended December 31, 2013 by March 31, 2014.
"The Audit Committee, with the assistance of independent outside
professionals, has conducted a thorough review of these matters," said
Davey S. Scoon, Chairman of the Audit Committee of the Company's Board
of Directors. "The Audit Committee has concluded its review and is
confident that the Company is appropriately addressing the matters,
including the internal control over financial reporting weaknesses that
led to the restatement."
The restated financial statements were prepared by the Company's
management in conjunction with the previously announced independent
review (the "Independent Review") into these matters conducted by the
Audit Committee. The scope of the Independent Review, which was
determined by the Audit Committee in consultation with outside
professionals engaged by the Audit Committee, focused primarily on
revenue recognition related to distributor arrangements and inventory
reserve adjustments. In conjunction with the Independent Review,
management concluded that errors existed in the Company's previously
issued consolidated financial statements with respect to fiscal years
2012, 2011 and 2010, and the first quarter of 2013.
In addition, similar types of errors were identified in the Company's
previously issued consolidated financial statements of 2009, 2008 and
2007, for which the Company has included restated financial information
for 2009 and 2008 in the "Selected Financial Data" table of the Form
10-K/A. Adjustments prior to 2010 are recognized as a cumulative
adjustment to beginning retained earnings as of January 1, 2010 in the
consolidated statements of changes in shareholders' equity included in
the audited consolidated financial statements contained in the Form
10-K/A. In addition to the matters that were the subject of the
Independent Review, certain other adjustments identified by the
Company's management, including revisions to inventory reserves and
royalties, were made to the consolidated financial statements in
connection with the restatement.
Effects of the Restatement
The restatement of the Company's previously issued consolidated
financial statements resulted in, among others, the following changes:
-
a reduction in net sales for the years ended December 31, 2012 and
2011 of $14.7 million and $28.2 million, respectively, and an increase
in net sales for the year ended December 31, 2010 of $1.9 million;
-
a decrease in net income from continuing operations for the years
ended December 31, 2012 and 2011 of $8.9 million and $14.5 million,
and an increase in net income from continuing operations for the year
ended December 31, 2010 of $3.2 million; and
-
a decrease in opening retained earnings and total stockholders' equity
at January 1, 2010 of $8.3 million and $7.6 million, respectively.
Remedial Action
The Company is committed to maintaining an effective control environment
and making changes necessary to enhance effectiveness. This commitment
has been, and will continue to be, communicated to and reinforced
throughout the Company. As part of this commitment, the Company is
implementing an internal audit program that will take into account the
nature of the Company's business and the geographies in which the
Company conducts it. The Company is also updating its code of conduct,
and all its employees will be required to annually acknowledge their
commitment to adhering to its provisions. The Company also will inform
all new employees and regularly remind all existing employees of the
availability of its compliance hotline, through which employees at all
levels can anonymously submit information or express concerns regarding
accounting, financial reporting and other irregularities they may have
become aware of or observed.
The Company is in the process of developing a plan for remediation of
its internal control over financial reporting. In addition, it has
designed and plans to implement, and in some cases has already
implemented, the specific remediation initiatives described below.
Remediation plan with respect to controls over revenue recognition
practices relating to the Company's distributors:
-
Enhanced revenue recognition training materials for all sales
personnel.
-
In the process of training sales management personnel (including
senior-level management) pursuant to our updated revenue recognition
training materials.
-
Created and implemented an improved sales certification process to
identify any sales with deviations from written sales contracts.
-
Established and hired a new Senior Manager of Revenue position in the
finance department, which the Company believes will bring additional
revenue recognition expertise to address our more complex revenue
transactions to help ensure that our revenue recognition policies are
correctly applied.
-
Working to improve procedures with respect to the proper
communication, approval, documentation and accounting review of
deviations from written sales contracts.
Remediation plan with respect to controls over the computation and
recording of the Company's inventory reserves:
-
Enhanced controls over the model for determining inventory reserves to
ensure that, once reserves are established in a fiscal year,
subsequent write-ups based on demand are not recognized.
-
Implementing additional review of inventory reserve analysis,
including the involvement of both finance and operational executives,
and more analysis of days inventory on hand at the product line level,
which we expect to provide better controls to assess excess and
obsolete inventory based on the current inventory on hand in relation
to the demand forecast and related reserve.
Remediation plan with respect to controls over foreign subsidiary
oversight:
-
Changed structure so that all subsidiaries' accounting functions now
report to the VP, Controller within the corporate accounting function,
which we believe will provide additional corporate-level oversight of
their activities.
-
Established and hired a Director of Controls and Process Improvement,
whose primary duties are the design and implementation of internal
control over financial reporting.
-
Engaged a professional firm to perform testing and evaluation of the
Company's internal controls, and to assist the Company in designing
and implementing additional financial reporting controls and financial
reporting control enhancements.
-
Evaluating accounting systems to determine appropriate enhancements.
Brad Mason, President and Chief Executive Officer, said, "The past year
has presented us with a unique set of challenges, but we are confident
Orthofix is emerging stronger and with a renewed energy to drive our
business forward. We are committed to achieving and maintaining a strong
control environment, high ethical standards and financial reporting
integrity. This commitment has been and will continue to be communicated
to every Orthofix employee. It is accompanied by renewed management
focus on strategies and processes intended to drive long-term
shareholder value."
About Orthofix
Orthofix International N.V. is a diversified, global medical device
company focused on improving patients' lives by providing superior
reconstructive and regenerative orthopedic and spine solutions to
physicians worldwide. Headquartered in Lewisville, TX, the company has
four strategic business units that include BioStim, Biologics, Extremity
Fixation and Spine Fixation. Orthofix products are widely distributed
via the company's sales representatives, stocking distributors and its
subsidiaries. In addition, Orthofix is collaborating on research and
development activities with leading clinical organizations such as the
Musculoskeletal Transplant Foundation, the Orthopedic Research and
Education Foundation and the Texas Scottish Rite Hospital for Children.
For more information, 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 Audit Committee review and financial restatement
described herein and related legal proceedings (including potential
action by the Division of Enforcement of the SEC and pending securities
class action litigation); the Company's review of allegations of
improper payments involving the Company's Brazil-based subsidiary; the
Company's non-compliance with certain NASDAQ Stock Market listing rules,
and related pending hearings proceedings in connection therewith; the
expected sales of the Company's products, including recently launched
products; unanticipated expenditures; changing relationships with
customers, suppliers, strategic partners and lenders; changes to and the
interpretation of governmental regulations; the resolution of pending
litigation matters (including the Company's indemnification obligations
with respect to certain product liability claims against, and the
government investigation of, the Company's former sports medicine global
business unit, as further described in the "Legal Proceedings" section
of the Form 10-K/A, and other subsequent periodic reports filed by the
Company with the SEC); the Company's ongoing compliance obligations
under a corporate integrity agreement with the Office of Inspector
General of the Department of Health and Human Services (and related
terms of probation) and a deferred prosecution agreement with the U.S.
Department of Justice; 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 risks described in Item 1A under the
heading "Risk Factors" in the Form 10-K/A, as well as in other
subsequent periodic reports filed by the Company with the 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.
Orthofix International N.V.
Mark Quick, 214-937-2924
Investor
Relations
markquick@orthofix.com
Source: Orthofix International N.V.
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