ArthroCare Reports 2004 Financial Results; Strong Fourth-Quarter Performance Drives Record Quarterly and Year-End Revenues, with 30 Percent Annual Revenue Growth.SUNNYVALE Sunnyvale, city (1990 pop. 117,229), Santa Clara co., W Calif., near San Francisco; settled 1849, inc. 1912. A city in Silicon Valley, its many manufactures include semiconductors; machinery and instruments; electrical, electronic, and aerospace products; , Calif. -- ArthroCare(R) Corp. (Nasdaq:ARTC ARTC Arthrocare Corp (stock symbol) ARTC Australian Rail Track Corporation ARTC Air Route Traffic Control ARTC Association de la Recherche Theatrale au Canada ARTC Andean Root and Tuber Crops ), a multi-business medical device company that develops minimally invasive invasive /in·va·sive/ (-siv) 1. having the quality of invasiveness. 2. involving puncture of the skin or insertion of an instrument or foreign material into the body; said of diagnostic techniques. surgical products, announced today financial results for the fourth quarter ended Dec. 31, 2004, reporting product revenues of $40.8 million, a 30 percent increase over the $31.3 million recorded in the same quarter of the previous year. Total revenues, which include product revenues, license fees and royalties, for the fourth quarter were $42.7 million, a 31 percent increase over the $32.5 million reported in the fourth quarter of 2003. ArthroCare reported a net loss of $34.5 million, or $1.52 on a basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share basis, for the fourth quarter of 2004, compared to net income of $2.8 million, or $0.13 per diluted share, reported in the same quarter of 2003.
Q4 SUMMARY TABLE
Q404 Q304 Q403
----------------------------------------------------------------------
Product Sales $40.8 M $36.8 M $31.3 M
----------------------------------------------------------------------
License Fees, Royalties and Other Revenues $1.9 M $1.4 M $1.2 M
----------------------------------------------------------------------
Total Revenues $42.7 M $38.2 M $32.5 M
----------------------------------------------------------------------
Net Income (Loss) $(34.5 M) $3.6 M $2.8 M
----------------------------------------------------------------------
Earnings (Loss) Per Basic/Diluted Share $(1.52) $0.16 $0.13
----------------------------------------------------------------------
IMPACT OF OPUS MEDICAL ACQUISITION ArthroCare completed the acquisition of Opus Medical on Nov. 12, 2004. The company estimates the acquisition had the following impact on fourth quarter financial results: --Opus contributed $2.9 million in revenues and generated a gross profit of approximately $665,000 after a $213,000 charge for the sale of Opus inventory that was recorded at fair value in accounting for the acquisition (in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). 141). --The acquisition added $40.7 million in operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. for the fourth quarter, with $36.8 million consisting of a non-cash write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of in-process research and development costs and acquisition-related amortization of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. . The remaining balance of $3.9 million consists of the acquired entity's expenses and acquisition integration costs. --The remaining difference between reported net income and net income after the impact of the acquisition relates to acquisition-related interest expense and tax impact. --ArthroCare issued 1.9 million shares in closing the acquisition, which increased the fully diluted share count for the fourth quarter by 969,000 to 24.7 million. Excluding the impact of the Opus acquisition, fourth quarter revenues were $39.8 million with net income of approximately $4.7 million, or $0.20 per diluted share. FISCAL YEAR-END Fiscal Year-End The completion of a one-year, or 12-month, accounting period. Notes: The reason that a company's fiscal year often differs from the calendar year and does not close on Dec 31, is due to the nature of company's needs. 2004 For the fiscal year ended Dec. 31, 2004, total revenues reached $154.1 million compared with $118.9 million in fiscal 2003. The product sales portion of revenue increased to $147.8 million in 2004 compared to $114.7 million in 2003. The net loss for fiscal year 2004 was $26.2 million, or $1.21 on a basic and diluted share basis, compared with net income of $7.5 million, or $0.34 per diluted share, in the previous year. Excluding the impact of the Opus acquisition, net income for the year ended Dec. 31, 2004 was approximately $13.0 million, or $0.56 per diluted share. REVENUE In addition to fourth quarter product sales of $40.8 million, license fees, royalties and other revenue were $1.9 million in the fourth quarter of 2004 compared to $1.2 million in the fourth quarter of 2003. International sales increased 14 percent compared to the same period last year and represented 22 percent of product sales during the quarter. BUSINESS UNIT PERFORMANCE The Sports Medicine sports medicine, branch of medicine concerned with physical fitness and with the treatment and prevention of injuries and other disorders related to sports. Knee, leg, back, and shoulder injuries; stiffness and pain in joints; tendinitis; "tennis elbow"; and business unit produced year-over-year revenue growth of 31 percent during the quarter ended Dec. 31, 2004 compared with the same period of 2003, and represented 69 percent of total product revenue. For the year ended Dec. 31, 2004, Sports Medicine sales grew 19 percent and represented 66 percent of total product sales. Sales in the Spine business unit increased 8 percent during the fourth quarter compared to the fourth quarter of 2003 and represented 11 percent of product sales. For the fiscal year ended Dec. 31, 2004, Spine revenues grew 52 percent, driven primarily by the first full year of Parallax parallax (pâr`əlăks), any alteration in the relative apparent positions of objects produced by a shift in the position of the observer. In astronomy the term is used for several techniques for determining distance. sales, and represented approximately 15 percent of total product sales. The fourth quarter increase in ENT ENT ears, nose, and throat (otorhinolaryngology). ENT abbr. ear, nose, and throat ENT ear, nose and throat. ENT Ears, nose & throat; formally, otorhinolaryngology product sales over the comparable period of last year was 51 percent, with ENT sales representing 20 percent of product revenue during the quarter. For the fiscal year ended Dec. 31, 2004, ENT revenues grew 65 percent and represented approximately 19 percent of total product sales. This growth continues to be driven by tonsillectomy tonsillectomy /ton·sil·lec·to·my/ (ton?si-lek´tah-me) excision of a tonsil. ton·sil·lec·to·my n. Surgical removal of tonsils or a tonsil. sales in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , where ArthroCare estimates Coblation technology is being used in more than 20 percent of all tonsillectomies performed. OPERATIONS Reported product margin was 64 percent in the fourth quarter of 2004, compared to 63 percent in the year-ago quarter. Gross margin was 66 percent in the fourth quarter of 2004, compared to 64 percent in the year-ago quarter. Excluding the impact of the Opus Medical acquisition, product margin was approximately 67 percent and gross margin was approximately 69 percent. For the year ended Dec. 31, 2004, reported product margin was 65 percent compared to 67 percent reported in the prior year, and gross margin was 67 percent compared to 68 percent in the previous year. Excluding the impact of the Opus Medical acquisition, product margin was approximately 66 percent and gross margin was approximately 68 percent. Operating expenses for the fourth quarter and calendar year 2004 of $62.7 million and $126.8 million, respectively, represent increases of 251 percent and 74 percent versus the comparable periods in 2003. Excluding acquisition-related costs, operating expenses were approximately $22.0 million for the fourth quarter and $86.1 million for the calendar year. In addition, ArthroCare ended the fourth quarter with approximately $21.8 million in cash and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has , up $3.4 million from the previous quarter. This cash balance increase was net of ArthroCare's first principal payment on the term loan related to the Opus Medical acquisition. This principal payment was approximately $1.1 million, resulting in a debt balance of approximately $29.0 million at the end of the fourth quarter. "We are happy to report strong revenue growth in the fourth quarter and for the full fiscal year," said Michael A. Baker Michael Allen Baker (Captain, USN, Ret.) is the International Space Station Program Manager for International and Crew Operations, at NASA's Johnson Space Center. He is responsible for the coordination of program operations, integration and flight crew training and support , president and chief executive officer for ArthroCare. "We exceeded our financial objectives with annual revenue growth of 30 percent, and an increase of approximately 70 percent in net income, excluding the impact of the Opus acquisition. I'm I'm Contraction of I am. Our Living Language Speakers of some scattered varieties of American English sometimes use I'm instead of I've or I have in present perfect constructions, as in also happy to report that we appear to have gotten off to a fast start in 2005. Through the first two months of the year, the integration of Opus continues to proceed ahead of schedule, and we are on track to meet or exceed our financial guidance for both the first quarter and full year." RECENT CORPORATE DEVELOPMENTS --ArthroCare completed the acquisition of Opus Medical, an innovative developer and manufacturer of soft tissue orthopedic orthopedic /or·tho·pe·dic/ (-pe´dik) pertaining to the correction of deformities of the musculoskeletal system; pertaining to orthopedics. repair systems. ArthroCare acquired Opus for $30 million in cash and $60 million of ArthroCare stock. The agreement also calls for an additional delayed payment of $40 million and a contingent payment based on Opus' 2005 net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight , payable in cash or stock at ArthroCare's election (subject to certain restrictions), in the first quarter of 2006. Opus Medical's first commercial product -- the AutoCuff(R) anchoring system -- is designed to enable surgeons to easily perform total arthroscopic rotator cuff rotator cuff n. A set of muscles and tendons that secures the arm to the shoulder joint and permits rotation of the arm. Also called musculotendinous cuff. surgery in combination with arthroscopic tissue modification or ablation ablation /ab·la·tion/ (-shun) 1. separation or detachment; extirpation; eradication. 2. removal or destruction, especially by cutting. ab·la·tion n. devices, such as ArthroCare's Coblation(R)-based ArthroWands(R). --ArthroCare received notice from the U.S. Food and Drug Administration (FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. ) that its Parallax(R) Acrylic acrylic, artificial fiber made from a special group of vinyl compounds, primarily acrylonitrile. Acrylic fibers are thermoplastic (i.e., soften when heated, reharden upon cooling), have low moisture regain, are low in density, and can be made into bulky fabrics. Resin with TRACERS Tracers Refers to investment trusts which are populated by corporate bonds. In October 2001, Morgan Stanley's Tradable Custodial Receipts (Tracers) was launched. Tracers contain a number of coporate bonds and credit default swaps which are selected for liquidity and diversity. (R) Bone Cement cement, binding material used in construction and engineering, often called hydraulic cement, typically made by heating a mixture of limestone and clay until it almost fuses and then grinding it to a fine powder. Opacifier o·pac·i·fi·er n. A chemical agent added to a material, such as rocket propellant, to make it opaque. was cleared for the fixation fixation: see psychoanalysis. of pathological 1. pathological - [scientific computation] Used of a data set that is grossly atypical of normal expected input, especially one that exposes a weakness or bug in whatever algorithm one is using. fractures Fractures Definition A fracture is a complete or incomplete break in a bone resulting from the application of excessive force. Description of the vertebral ver·te·bral adj. 1. Of, relating to, or of the nature of a vertebra. 2. Having or consisting of vertebrae. 3. Having a spinal column. body using vertebroplasty Vertebroplasty is a medical procedure where bone cement is percutaneously injected into a fractured vertebra in order to stabilize it. The procedure is typically used for a spine fracture caused by osteoporosis, a disease that causes weakening of the bones and can lead to fractures or kyphoplasty Kyphoplasty is a medical procedure developed by orthopedist Mark A. Reiley, MD, where the original height and angle of kyphosis of a fractured vertebra (of certain types) are restored, followed by its stabilization using injected bone filler material. procedures. The FDA clearance coincided with ArthroCare's launch of a new version of its Parallax Acrylic Resin featuring a proprietary type of tantalum tantalum (tăn`tələm) [from Tantalus], metallic chemical element; symbol Ta; at. no. 73; at. wt. 180.9479; m.p. 2,996°C;; b.p. 5,400±100°C;; sp. gr. 16.65 at 20°C;; valence +2, +3, +4, or +5. . This product, currently cleared for use in cranioplasty cranioplasty /cra·nio·plas·ty/ (kra´ne-o-plas?te) any plastic operation on the skull. cra·ni·o·plas·ty n. Surgical repair of a defect or deformity of the skull. , is designed to enhance the physician's ability to track the flow of bone cement under fluoroscopy fluoroscopy /flu·o·ros·co·py/ (fldbobr-ros´kah-pe) examination by means of the fluoroscope. fluo·ros·co·py n. Examination by means of a fluoroscope. Also called radioscopy. . ArthroCare intends to seek 510(k) clearance for use of the tantalum opacified cement in vertebroplasty or kyphoplasty procedures during the first quarter of 2005. --The company appointed Michael Gluk vice president of finance and administration. Mr. Gluk brings significant financial experience in controllership, treasury and business development to ArthroCare from his previous positions with General Motors Corp., which spanned 20 years. --Gene Reu Reu (rē`y  ), in the Bible, son of Peleg. An alternate form is Ragau. , former vice president of operations at Opus Medical,
joined ArthroCare as the new vice president and general manager of the
Coblation Technologies business unit.INTERNAL CONTROL OVER FINANCIAL REPORTING ArthroCare is performing its initial annual evaluation of the design and effectiveness of its internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act See SOX. . While the company's assessment of its internal control over financial reporting has not yet been completed, in this process, the company identified a material weakness in its internal control over financial reporting related to the consolidation of foreign currency transactions at its European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. subsidiaries. As a result of this weakness, as of Dec. 31, 2004, management cannot conclude that its internal control over financial reporting was effective. The activities to remediate re·me·di·a·tion n. The act or process of correcting a fault or deficiency: remediation of a learning disability. re·me this weakness are underway and the company expects to complete the remediation of this material weakness by the end of 2005. ArthroCare does not believe this material weakness had any impact on the unaudited annual reported financials for 2004. This material weakness was previously disclosed in ArthroCare's Form 10-Q Form 10-Q See 10-Q. for the third quarter of 2004 and it will also be disclosed in the company's Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for 2004. As the company continues its assessment of its internal control over financial reporting, additional control deficiencies in its internal control over financial reporting may be identified. The company has been forced to allocate To reserve a resource such as memory or disk. See memory allocation. significant additional resources to completing its evaluation of internal control over financial reporting, which has limited the company's ability to prepare its financial statements in a timely manner. Consequently, the company plans to file a 12b-25 request for an automatic filing extension for its 10-K for 2004 tomorrow and expects to file the 10-K without management's report on internal control over financial reporting by March 31, 2005. The company expects to subsequently file an amendment to such Form 10-K to include management's report on internal control over financial reporting by April 30, 2005. BUSINESS OUTLOOK The following statements are based on current expectations on March 15, 2005. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any new businesses or license agreements the company may enter in future periods. In addition, the following guidance excludes the impact of non-cash or non-recurring charges related to equity compensation expenses. It does include anticipated depreciation, amortization and other non-recurring expenses related to all ArthroCare acquisitions, including Opus Medical.
ArthroCare's business outlook for fiscal 2005 is as follows:
-- ArthroCare anticipates fiscal 2005 product revenues will grow
by at least 30 percent compared to 2004 revenues. It also
expects sequential revenue growth in all four quarters of 2005
with strong year-over-year comparisons.
-- ArthroCare expects total first quarter 2005 revenues to be
$47-48 million.
-- The company expects sales of its existing Sports Medicine
products to grow by at least 10 percent over 2004
revenues. It also expects sales of Opus Medical products
to grow by at least 50 percent, and the combined revenues
of the Sports Medicine business unit to grow by at least
25 percent.
-- Spine revenues are expected to grow by at least 20
percent.
-- ENT revenues are anticipated to grow by at least 30
percent.
-- ArthroCare also expects an operating margin improvement of 3
percentage points compared with 2004, with 1 percentage point
coming from improvement in gross margin.
-- The company also currently expects its effective tax rate for
2005 to be approximately 25 percent.
-- The company's fiscal 2005 earnings per share (EPS) guidance
remains unchanged. ArthroCare expects EPS to develop in line
with recent historical patterns with strong sequential
quarter-to-quarter growth; however, the company expects this
pattern to be accentuated in 2005 by the ongoing integration
of the Opus Medical acquisition.
-- ArthroCare expects EPS to grow more rapidly than revenues with
an assumed share count of 26.5 million following the close of
the Opus Medical acquisition.
ArthroCare's business outlook for fiscal 2006 remains unchanged and is as follows: --ArthroCare expects fiscal 2006 product revenues will grow by at least 20 percent compared to 2005 revenues. CONFERENCE CALL ArthroCare will hold a conference call with the financial community to discuss these results at 4:30 p.m. ET/1:30 p.m. PT today. The call will be simultaneously Webcast by CCBN CCBN Central Coast Bancorp CCBN Charles County Business Network and can be accessed on ArthroCare's Web site at www.arthrocare.com. The Webcast will remain available through April 15, 2005. A telephonic replay of the conference call can be accessed by dialing 800-633-8284 and entering pass code number 21235292. ABOUT ARTHROCARE ArthroCare Corp. (www.arthrocare.com) is a multi-business medical device company that develops, manufactures and markets minimally invasive surgical products, many of which are based on its patented Coblation technology. Coblation uses low-temperature radiofrequency energy to gently and precisely dissolve A Web site design technique borrowed from the film and video industry in which the transition between two Web pages is represented visually by one page fading into another. Also known as a "soft cut," the result is achieved in the HTML coding of the images to gradual pre-determined rather than burn soft tissue, minimizing damage to healthy tissue. ArthroCare targets a multi-billion dollar market opportunity across several medical specialties Medical Specialties See also anatomy; disease and illness; drugs; health; remedies; surgery. adenography the science of the description of glands. — adenographic, adj. , significantly improving surgical procedures Surgical procedures have long and possibly daunting names. The meaning of many surgical procedure names can often be understood if the name is broken into parts. For example in splenectomy, "ectomy" is a suffix meaning the removal of a part of the body. "Splene-" means spleen. and enabling new, minimally invasive procedures Minimally invasive surgical procedures avoid open invasive surgery in favor of closed or local surgery with less trauma. These procedures involve use of laparoscopic devices and remote-control manipulation of instruments with indirect observation of the surgical field through an . ArthroCare's Coblation-based devices have been used in more than three million surgical procedures worldwide. The company has developed and marketed Coblation-based products for arthroscopic, spine/neurologic, ear, nose and throat, cosmetic cosmetic /cos·met·ic/ (koz-met´ik) 1. pertaining to cosmesis. 2. a beautifying substance or preparation. cos·met·ic n. , urologic, gynecologic gynecologic /gy·ne·co·log·ic/ (gi?ne-) (jin?e-kah-loj´ik) pertaining to the female reproductive tract or to gynecology. and laparoscopic/general surgical procedures, and continues research in other areas. SAFE HARBOR Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. STATEMENTS Except for historical information, this press release includes forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . These statements include, but are not limited to, the company's stated business outlook for fiscal 2004 and 2005, continued strength of the company's fundamental position, the strength of the company's technology, the company's belief that strategic moves will enhance achievement of the company's long term potential, the potential and expected rate of growth of new businesses, continued success of product diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. efforts, and other statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to the uncertainty of success of the company's non-arthroscopic products, competitive risk, uncertainty of the success of strategic business alliances, uncertainty over reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. , need for governmental clearances or approvals before selling products, the uncertainty of protecting the company's patent position, and any changes in financial results from completion of year-end audit activities. These and other risks and uncertainties are detailed from time to time in the company's Securities and Exchange Commission filings, including ArthroCare's Form 10-K for the year ended Dec. 31, 2003 and the 10-Q for the quarter ended Sept. 30, 2004. Forward-looking statements are indicated by words or phrases such as "anticipates," "estimates," "projects," "believes," "intends," "expects," and similar words and phrases Words and Phrases® A multivolume set of law books published by West Group containing thousands of judicial definitions of words and phrases, arranged alphabetically, from 1658 to the present. . Actual results may differ materially from management expectations.
ARTHROCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
-------------------------------------------------
Three Months Ended
Reported Recurring
Dec. 31 OPUS Dec. 31 Dec. 31
2004 Impact 2004 2003 Variance
----------- --------- --------- -------- --------
Revenues:
Net Product Sales $40,823 $(2,906) $37,917 $31,310 $6,607
Royalties, fees and
other 1,877 1,877 1,201 676
----------- --------- --------- -------- --------
Total
revenues 42,700 (2,906) 39,794 32,511 7,283
Cost of product sales 14,727 (2,241) 12,486 11,616 (870)
----------- --------- --------- -------- --------
Gross profit 27,973 (665) 27,308 20,895 6,413
----------- --------- --------- -------- --------
Product Margin 63.9% 67.1% 62.9%
Gross Margin 65.5% 68.6% 64.3%
Operating expenses:
Research and
development 3,506 (969) 2,537 2,322 (215)
Sales and
marketing 16,548 (2,450) 14,098 12,373 (1,725)
General and
administrative 5,228 (446) 4,782 2,863 (1,919)
Intangible
Amortization 37,422 (36,836) 586 295 (291)
----------- --------- --------- -------- --------
Total
operating
expenses 62,704 (40,701) 22,003 17,853 (4,150)
Income from operations (34,731) 40,036 5,305 3,042 2,263
Interest and other
income, net 381 134 515 721 (206)
----------- --------- --------- -------- --------
Income before income
tax provision (34,350) 40,170 5,820 3,763 2,057
Net Operating Margin -80% -1382% 15% 12%
Income tax provision 176 960 1,136 957 (179)
----------- --------- --------- -------- --------
Net income (loss) $(34,526) $39,210 $4,684 $2,806 $1,878
=========== ========= ========= ======== ========
Basic net income
(loss) per share -$1.52 N/A $0.22 $0.14 $0.08
=========== ========= ========= ======== ========
Shares used in
computing basic net
income (loss) per
share 22,751 (969) 21,782 20,779
Diluted net income per
common share -$1.52 N/A $0.20 $0.13 $0.07
=========== ========= ========= ======== ========
Shares used in
computing diluted
net income (loss)
per share 22,751 (969) 23,754 22,415
-------------------------------------------------
The Year Ended
Reported Recurring
Dec. 31 OPUS Dec. 31 Dec. 31
2004 Impact 2004 2003 Variance
--------- -------- --------- --------- --------
Revenues:
Net Product Sales $147,830 $(2,906) $144,924 $114,719 $30,205
Royalties, fees and
other 6,318 6,318 4,134 2,184
--------- -------- --------- --------- --------
Total
revenues 154,148 (2,906) 151,242 118,853 32,389
Cost of product sales 51,100 (2,241) 48,859 37,941 (10,918)
--------- -------- --------- --------- --------
Gross profit 103,048 (665) 102,383 80,912 21,471
--------- -------- --------- --------- --------
Product Margin 65.4% 66.3% 66.9%
Gross Margin 66.9% 67.7% 68.1%
Operating expenses:
Research and
development 13,346 (969) 12,377 10,642 (1,735)
Sales and
marketing 58,087 (2,450) 55,637 46,100 (9,537)
General and
administrative 16,310 (446) 15,864 14,845 (1,019)
Intangible
Amortization 39,058 (36,836) 2,222 1,180 (1,042)
--------- -------- --------- --------- --------
Total
operating
expenses 126,801 (40,701) 86,100 72,767 (13,333)
Income from operations (23,753) 40,036 16,283 8,145 8,138
Interest and other
income, net 824 134 958 2,357 (1,399)
--------- -------- --------- --------- --------
Income before income
tax provision (22,929) 40,170 17,241 10,502 6,739
Net Operating Margin -15% -1382% 11% 9%
Income tax provision 3,260 960 4,220 3,046 (1,174)
--------- -------- --------- --------- --------
Net income (loss) $(26,189) $39,210 $13,021 $7,456 $5,565
========= ======== ========= ========= ========
Basic net income
(loss) per share -$1.21 N/A $0.61 $0.36 $0.25
========= ======== ========= ========= ========
Shares used in
computing 21,594 (244) 21,350 20,885
basic net income
(loss) per share
Diluted net income per
common share -$1.21 N/A $0.56 $0.34 $0.22
========= ======== ========= ========= ========
Shares used in
computing 21,594 (244) 23,156 21,942
diluted net income
(loss) per share
Note:
Due to net loss position for the 4th quarter and full year 2004
diluted share count is not used.
ARTHROCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
ASSETS 2004 2003
------------ ------------
Current assets:
Cash and cash equivalents $21,836 $20,890
Accounts receivable, net of allowances 34,032 24,122
Inventories 40,484 33,072
Deferred tax asset 10,685 3,604
Prepaid expenses and other current assets 4,864 3,317
------------ ------------
Total current assets 111,901 85,005
Available-for-sale securities -- 10,428
Property and equipment, net 29,396 23,493
Related party receivables 1,075 1,205
Intangible assets 39,959 5,864
Goodwill 57,859 10,383
Other assets 341 1,760
------------ ------------
Total assets $240,531 $138,138
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $9,517 $6,808
Accrued liabilities 9,925 4,082
Accrued compensation 6,783 5,323
Current portion on long term debt 4,286 --
Income taxes payable 478 1,122
------------ ------------
Total current liabilities 30,989 17,335
Loan Payable 24,643 --
Deferred Tax Liability 9,493 --
Other liabilities 154 155
------------ ------------
Total liabilities 65,279 17,490
------------ ------------
Total stockholders' equity 175,252 120,648
------------ ------------
Total liabilities and
stockholders' equity $240,531 $138,138
============ ============
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