UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 2, 2011
ARTHROCARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
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0-027422 |
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94-3180312 |
(State or other jurisdiction |
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(Commission File Number) |
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(I.R.S. Employer Identification |
7500 Rialto Blvd., Building Two, Suite 100
Austin, TX 78735
(Address of principal executive offices, including zip code)
(512) 391-3900
(Registrants telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 14e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 |
Results of Operations |
On May 2, 2011, ArthroCare Corporation, (the Company) issued a press release reporting the filing of its Form 10-Q for the quarter ended March 31, 2011 along with the Companys results for the quarter ended March 31, 2011. The press release, a copy of which is furnished as exhibit 99.1 to this report, is incorporated herein by reference.
Item 9.01. |
Financial Statements and Exhibits |
Exhibits
Exhibit |
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Title |
99.1 |
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Press release dated May 2, 2011. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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ARTHROCARE CORPORATION |
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Date: May 2, 2011 |
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By: |
/s/ David Fitzgerald |
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David Fitzgerald | |
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President and Chief Executive Officer |
Exhibit 99.1
FOR IMMEDIATE RELEASE:
CONTACTS:
ArthroCare Corp.
Corinne Ervin
512-391-3907
ARTHROCARE REPORTS FIRST QUARTER 2011 FINANCIAL RESULTS
Austin, Texas May 2, 2011 ArthroCare Corp. (NASDAQ: ARTC), a leader in developing state-of-the-art, minimally invasive surgical products, announced its financial results for the first quarter ended March 31, 2011 as follows:
FIRST QUARTER 2011 HIGHLIGHTS
· Total revenue of $87.9 million from continuing operations
· Income from operations of $16.6 million, or operating margin of 18.9 percent
· Net income available to common stockholders of $11.9 million, or $0.36 per diluted share
REVENUE
Total revenue from continuing operations for the first quarter of 2011 was $87.9 million, compared to $89.1 million for the first quarter of 2010.
Sports Medicine product sales were $56.7 million in the first quarter of 2011 compared to $60.4 million in the same period in 2010. In the first quarter of 2010, Sports Medicine product sales for the Americas included the recognition of $6.6 million of product sales from prior periods that were deferred pending resolution of certain contract issues with customers. Excluding the impact from the deferred revenue recognized in the first quarter of 2010, Sports Medicine product sales increased $2.9 million, or 5.3 percent, in the first quarter of 2011. The $2.9 million period over period increase was comprised of a $3.3 million increase in the Companys International markets as well as a $0.5 million increase in contract manufactured product sales pursuant to the Companys existing supply and distribution agreement with Smith & Nephew. These increases were partially offset by a $0.9 million decrease in the Companys proprietary product sales in the Americas, primarily a result of lower sales to stocking distributors and lower average sales prices that offset a modest increase in sales volumes.
ENT product sales increased $2.6 million, or 11.8 percent, in the first quarter of 2011 compared to the same period of 2010, a result of an increase in the Companys user and customer base as well as higher average selling prices. International product sales increased $0.9 million, due higher sales in the Asia Pacific region.
Other product sales, which consist principally of Coblation spine product sales, declined $0.5 million in the first quarter of 2011 compared to the same period of 2010.
Had the same foreign currency rates been in effect in the quarter ended March 31, 2011 as were in effect in the same quarter in 2010, the U.S. dollar reported value of product sales would have been lower by $0.7 million for the quarter ended March 31, 2011.
GROSS PRODUCT MARGIN
Gross product margin was 70.4 percent for the first quarter of 2011 compared to 68.8 percent for the first quarter of 2010. Inventory obsolescence charges in the first quarter of 2010 were $1.4 million higher than in the first quarter of 2011.
INCOME FROM OPERATIONS
Income from operations for the first quarter of 2011 was $16.6 million compared to $15.5 million for the same period in 2010. Research and development (R&D) costs decreased $1.8 million during the quarter ended March 31, 2011 compared to the same period in 2010, as materials and services consumed by the Companys R&D efforts were lower in the first quarter of 2011 due to the timing of certain projects. Additionally, a higher proportion of the Companys engineering costs in the first quarter of 2011 were associated with the manufacturing process, which increased the allocation of engineering costs to inventory and cost of goods sold.
Sales and marketing expenses increased approximately $1.2 million in the first quarter of 2011 compared to the same period in 2010. The increase is primarily due to increased commission expense.
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
In the first quarter of 2011, net income applicable to common stockholders was $11.9 million or $0.36 per diluted share, compared to $8.0 million, or $0.24 per diluted share, for the first quarter of 2010. In the first quarter of 2011, income from continuing operations before taxes increased by $4.7 million of which $1.1 million was due to an increase in income from operations and $3.6 million was due to changes in foreign exchange gain (loss). During the quarter ended March 31, 2011, the U.S. dollar weakened against the British Pound, Euro, and Australian dollar, which decreased the local currency amount of U.S. dollar payables of certain international subsidiaries resulting in foreign exchange gains, whereby the Company incurred foreign exchange losses in the same period in 2010.
BALANCE SHEET AND CASH FLOWS
Cash and cash equivalents increased $15.0 million to $147.5 million as of March 31, 2011 from $132.5 million at December 31, 2010. Cash flows provided by operating activities for the quarter ended March 31, 2011 was $15.2 million compared to $11.2 million for the quarter ended March 31, 2010. Net inventory balances decreased approximately $0.7 million and accounts receivable decreased $0.8 million from December 31, 2010.
CONFERENCE CALL
ArthroCare will hold a conference call to present these results Tuesday, May 3, 2011, at 8:30 a.m. ET/5:30 a.m. PT to review the results. To participate in the live conference call dial 800-773-0497. A live and on-demand webcast of the call will be available on ArthroCares 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 21521927. The replay will remain available through May 17, 2011.
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 ArthroCares 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 Companys ability to design or improve internal controls to address issues detected in its reviews of internal controls and insurance reimbursement practices or by management in its reassessment of the Companys internal controls; the impact upon the Companys operations of legal compliance matters or internal controls review, improvement and remediation; the ability of the Company to control expenses relating to legal compliance matters or internal controls review, improvement and remediation; the Companys 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 Companys financial reporting and its previously announced restatement and its insurance billing and healthcare fraud-and-abuse compliance practices; 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 Companys ability to effectively and successfully implement its financial and strategic alternatives, as well as business strategies, and manage the risks in its business; and the reactions of the marketplace to the foregoing.
Financial Tables Appended
ARTHROCARE CORPORATION
Condensed Consolidated Balance Sheets - Unaudited
(in thousands, except par value data)
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March 31, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
147,529 |
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$ |
132,536 |
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Accounts receivable, net of allowances of $2,291 and $2,445 at March 31, 2011 and December 31, 2010, respectively |
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48,101 |
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48,870 |
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Inventories, net |
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33,409 |
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34,087 |
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Deferred tax assets |
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22,390 |
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24,661 |
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Prepaid expenses and other current assets |
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6,986 |
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4,424 |
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Assets held for sale |
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2,833 |
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3,081 |
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Total current assets |
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261,248 |
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247,659 |
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Property and equipment, net |
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40,638 |
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41,582 |
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Intangible assets, net |
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9,447 |
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10,733 |
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Goodwill |
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119,495 |
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119,020 |
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Deferred tax assets |
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16,019 |
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16,019 |
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Other assets |
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1,960 |
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4,182 |
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Total assets |
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$ |
448,807 |
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$ |
439,195 |
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
13,828 |
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$ |
13,819 |
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Accrued liabilities |
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32,606 |
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40,197 |
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Deferred tax liabilities |
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149 |
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149 |
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Income tax payable |
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1,421 |
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1,555 |
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Total current liabilities |
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48,004 |
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55,720 |
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Deferred tax liabilities |
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225 |
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213 |
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Other non-current liabilities |
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13,846 |
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13,766 |
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Total liabilities |
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62,075 |
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69,699 |
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Series A 3% Redeemable Convertible Preferred Stock, par value $0.001; Authorized: 100 shares; Issued and outstanding: 75 shares at March 31, 2011 and December 31, 2010; Redemption value $87,089 |
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74,608 |
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73,768 |
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Stockholders equity: |
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Preferred stock, par value $0.001; Authorized: 4,900 shares; Issued and outstanding: none |
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Common stock, par value $0.001; Authorized: 75,000 shares; Issued: 31,225 and 31,102 shares Outstanding: 27,389 and 27,112 shares at March 31, 2011 and December 31, 2010, respectively |
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27 |
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27 |
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Treasury stock: 3,990 shares at March 31, 2011 and 3,990 shares December 31, 2010 |
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(107,731 |
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(107,899 |
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Additional paid-in capital |
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389,795 |
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386,395 |
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Accumulated other comprehensive income |
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5,145 |
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4,246 |
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Retained earnings (accumulated deficit) |
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24,888 |
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12,959 |
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Total stockholders equity |
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312,124 |
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295,728 |
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Total liabilities, redeemable convertible preferred stock and stockholders equity |
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$ |
448,807 |
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$ |
439,195 |
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ARTHROCARE CORPORATION
Condensed Consolidated Statements of Operations - Unaudited
(in thousands, except per share data)
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Three Months Ended |
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2011 |
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2010 |
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Variance |
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Revenues: |
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Product sales |
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$ |
83,507 |
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$ |
85,165 |
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$ |
(1,658 |
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Royalties, fees and other |
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4,425 |
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3,949 |
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476 |
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Total revenues |
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87,932 |
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89,114 |
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(1,182 |
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Cost of product sales |
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24,744 |
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26,579 |
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(1,835 |
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Gross profit |
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63,188 |
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62,535 |
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653 |
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Operating expenses: |
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Research and development |
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6,810 |
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8,615 |
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(1,805 |
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Sales and marketing |
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28,098 |
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26,855 |
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1,243 |
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General and administrative |
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9,188 |
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9,255 |
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(67 |
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Amortization of intangible assets |
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1,311 |
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1,315 |
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(4 |
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Investigation and restatement related costs |
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1,204 |
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1,043 |
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161 |
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Total operating expenses |
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46,611 |
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47,083 |
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(472 |
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Income from operations |
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16,577 |
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15,452 |
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1,125 |
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Foreign exchange gain (loss) |
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664 |
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(2,960 |
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3,624 |
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Other expense, net |
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(174 |
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(101 |
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(73 |
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Other income (expense), net |
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490 |
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(3,061 |
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3,551 |
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Income from continuing operations before income taxes |
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17,067 |
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12,391 |
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4,676 |
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Income tax provision |
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4,608 |
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3,314 |
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1,294 |
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Net income from continuing operations |
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12,459 |
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9,077 |
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3,382 |
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Income from discontinued operations, net of taxes |
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311 |
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(250 |
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561 |
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Net income |
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12,770 |
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8,827 |
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3,943 |
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Accrued dividend and accretion charges on Series A 3% Convertible Preferred Stock |
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(840 |
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(802 |
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(38 |
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Net income available to common stockholders |
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$ |
11,930 |
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$ |
8,025 |
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$ |
3,905 |
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Weighted average shares outstanding: |
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Basic |
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27,168 |
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26,922 |
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Diluted |
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27,586 |
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27,221 |
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Earnings per share from continuing operations |
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Basic |
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$ |
0.35 |
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$ |
0.25 |
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Diluted |
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$ |
0.35 |
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$ |
0.25 |
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Earnings per share applicable to common stockholders: |
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Basic |
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$ |
0.36 |
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$ |
0.25 |
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Diluted |
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$ |
0.36 |
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$ |
0.24 |
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ARTHROCARE CORPORATION
Supplemental schedule of Product Sales
(in thousands)
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Three Months Ended |
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Three Months Ended |
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Americas |
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March 31, 2011 |
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Total |
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% Net |
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Americas |
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March 31, 2010 |
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Total |
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% Net |
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Sports Medicine |
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$ |
37,381 |
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$ |
19,328 |
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$ |
56,709 |
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67.9 |
% |
$ |
44,391 |
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$ |
16,058 |
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$ |
60,449 |
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71.0 |
% |
ENT |
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20,037 |
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4,267 |
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24,304 |
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29.1 |
% |
18,415 |
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3,330 |
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21,745 |
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25.5 |
% | ||||||
Other |
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685 |
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1,809 |
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2,494 |
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3.0 |
% |
969 |
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2,002 |
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2,971 |
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3.5 |
% | ||||||
Total Product Sales |
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$ |
58,103 |
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$ |
25,404 |
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$ |
83,507 |
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100.0 |
% |
$ |
63,775 |
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$ |
21,390 |
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$ |
85,165 |
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100.0 |
% |