Plans to Restate Prior Periods' Financial Statements
Company to Request NASDAQ Hearings Panel to Stay NASDAQ Delisting
Credit Agreement Waiver Obtained
LEWISVILLE, Texas--(BUSINESS WIRE)--
As previously disclosed, Orthofix International N.V. (NASDAQ: OFIX) (the
"Company") has been evaluating the accounting treatment applied to
certain entries included in the previous restatement of its prior
periods' financial results, as well as related entries in subsequent
periods. As a result of this process, the Company has determined that
certain entries in its previously filed financial statements were not
properly accounted for under U.S. generally accepted accounting
principles ("US GAAP").
Specifically, the Company has determined that a historical method of
accounting for certain revenue adjustments (related to uncollectible
patient co-pay and self-pay amounts) as bad debt expense rather than as
contra-revenue was incorrect. As a result of the foregoing, the Company
expects to reduce equally both its historical net sales and its sales
and marketing expense by approximately $6 million, $9 million, $2
million and $3 million for the fiscal years ended December 31, 2011,
2012 and 2013 and the fiscal quarter ended March 31, 2014, respectively.
These changes are expected to have no effect on pretax income from
continuing operations in those periods.
In addition, the Company has determined that (i) certain bad debt
reserves originally recorded in 2011 and 2012 were reversed in incorrect
periods during the previous restatement in connection with a change to
sell-through accounting for certain distributors, (ii) intercompany
profit in inventory was not fully eliminated in the subsidiary
consolidation process, and (iii) the Company classified approximately
$0.5 million of interest expense under continuing operations in 2012 but
should have classified it under discontinued operations. As a result of
these collective accounting errors, it is expected that pretax income
from continuing operations will increase by approximately $2 million for
the fiscal year ended December 31, 2011, and will decrease by
approximately $1 million, $2.5 million and $2.5 million for the fiscal
years ended December 31, 2012 and 2013 and the fiscal quarter ended
March 31, 2014, respectively.
In view of the foregoing corrections, the Company has determined that it
will restate its financial statements for the fiscal years ended
December 31, 2011, 2012 and 2013 (including the quarterly periods
therein) and the fiscal quarter ended March 31, 2014, and that the
Company's previously filed financial statements for these periods should
no longer be relied upon due to the anticipated corrections described
above. The Company intends to include restated financial statements for
these periods in amendments it will file to its Annual Report on Form
10-K for the fiscal year ended December 31, 2013 (the "2013 Form 10-K")
and its Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2014 (the "2014 First Quarter Form 10-Q"). The Company is working
diligently to prepare these restated and revised financial statements
and currently expects to file the amended 2013 Form 10-K and amended
2014 First Quarter Form 10-Q, together with the delayed filing of its
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014
(the "2014 Second Quarter Form 10-Q"), prior to the end of September
2014. The determinations and related corrections described above are
preliminary and may be subject to further revision prior to corrective
filings being made.
NASDAQ Notice of Delisting
As previously disclosed, the Company has delayed the filing of the 2014
Second Quarter Form 10-Q as a result of the accounting matters described
above. As a result, the Company is currently out of compliance with
NASDAQ Stock Market Listing Rule 5250(c)(1). On August 15, 2014, the
Company received a letter from NASDAQ stating that unless the Company
requests a hearing before a NASDAQ Listing Qualifications Panel (a
"Hearings Panel") by August 22, 2014, the Company's common stock will be
delisted. Under NASDAQ's rules and procedures, in general, a company's
request for such a hearing automatically stays any delisting for 15
calendar days from the deadline to request a hearing. The Company will
file a hearing request on or prior to August 22, 2014 and request a
further stay of delisting. The letter states that the hearing would be
expected to occur 30-45 days following the date that the Company submits
its hearing request. If the Hearings Panel grants Orthofix's request for
a further stay (which is discretionary on the part of the Hearings Panel
and therefore not assured), any final delisting will be stayed until
further Hearings Panel proceedings. The letter states that given the
circumstances that prevented the Company from timely filing the 2014
Second Quarter Form 10-Q, the NASDAQ listing staff would not object to
the Hearings Panel granting the Company an extended stay of delisting.
As noted above, the Company currently expects to file the 2014 Second
Quarter Form 10-Q prior to the end of September 2014.
Credit Agreement Waiver
In connection with its delayed filing of the 2014 Second Quarter Form
10-Q, as well as the anticipated financial restatement described above,
the Company has entered into a limited waiver with the lenders under its
secured senior credit agreement under which such lenders have
collectively waived requirements under the credit agreement that the
Company deliver quarterly financial statements for the fiscal quarter
ended June 30, 2014, and related financial covenant certificates, until
the earlier of (i) September 30, 2014 or (ii) the date that is one day
after such financial statements are publicly filed or released. In
addition, the limited waiver provides that the Company's restatement of
financial statements shall not constitute a default or event of default
provided that within one business day after the public release or filing
of such restated financial statements, the Company delivers corrected
financial statements and compliance certificates with respect to such
restated periods and immediately pays any additional interest and other
fees that would have been owed had applicable interest and fees
originally been calculated based on the restated financial statements.
The Company does not expect the restatement to trigger any such
additional interest or fees with respect to such prior periods.
Currently, the Company has outstanding debt of $20.0 million under this
credit agreement.
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, 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 uncertain results and timing of our anticipated
filing of restated and revised financial statements for prior periods,
the timing of the filing of our late 2014 Second Quarter Form 10-Q,
potential delisting of our securities from the NASDAQ Stock Market, as
well as how these matters may impact our expenses, liquidity, legal
liability, borrowing ability, product sales, relationships with
customers, suppliers, strategic partners and third party reimbursement
providers, ongoing compliance obligations under our corporate integrity
agreement with the Office of Inspector General of the Department of
Health and Human Services, deferred prosecution agreement with the U.S.
Department of Justice and consent decree with the SEC, ability to remain
in compliance with covenants and other obligations under our senior
secured credit agreement, the cost and nature of our insurance coverage,
and other factors described in our annual report on Form 10-K for the
fiscal year ended December 31, 2013 and 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.
Investor Relations
Mark Quick,
214-937-2924
markquick@orthofix.com
Source: Orthofix International N.V.
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