ArthroCare Reports Product Sales Growth of 21 Percent in Fiscal 2002.Business Editors/Medical Writers 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.--(BUSINESS WIRE)--Feb. 5, 2003 Recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. of $0.08 in Q4 Reduced by $2.7 Million in Non-Recurring Adjustments; Gross Margin on Product Sales Reaches 68 Percent in Q4 ArthroCare 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 products based on its patented Coblation(R) technology, announced today that in the fourth quarter of 2002, ended Dec. 31, 2002, the company reported total revenues of $24.4 million, a 37 percent increase over the $17.8 million reported in the fourth quarter of 2001. The company reported a net loss of $1.1 million, or $0.05 per 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, for the fourth quarter. The net loss is a result of $2.7 million in non-recurring charges the company recorded in the fourth quarter. These charges include adjustments that account for the completion of three major, strategic initiatives: an inventory revaluation Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. driven by the relocation RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a relocation. of the majority of production to a lower-cost facility, charges and reserves associated with the completion of distribution channel restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). , and balance sheet adjustments required by the acquisitions in the fourth quarter of Atlantech Medical Devices, Ltd. and Atlantech GmbH GmbH Gesellschaft mit Beschränkter Haftung (German: limited liability company; business entity) . -- The company expects product sales to increase approximately 20 percent in 2003 compared with 2002. This increase will primarily be led by growth in the Spine, ENT and OEM business units. -- The company anticipates improving gross margin on direct product sales by approximately 3-4 percentage points in 2003 compared with 2002. -- The company expects to decrease its tax rate by 1-2 percentage points in 2003 compared with 2002. Excluding these adjustments and on a recurring basis, the company had revenue of $25.1 million and net income of $1.6 million, or $0.08 per diluted share. In the same quarter of 2001, the company had revenue of $17.8 million and net income of $2.3 million, or $0.10 per diluted share.
Q4 SUMMARY TABLE
Q402 Q402 Q302 Q401
(reported) (recurring)
--------------------------- ---------- ----------- --------- --------
Product Sales $23.6 M $24.3 M $21.3 M $16.8 M
--------------------------- ---------- ----------- --------- --------
License Fees, Royalties and
Other Revenues $767,000 $767,000 $879,000 $1.0 M
--------------------------- ---------- ----------- --------- --------
Total Revenues $24.4 M $25.1 M $22.2 M $17.8 M
--------------------------- ---------- ----------- --------- --------
Net Income (Loss) $(1.1) $1.6 M $646,000 $2.3 M
--------------------------- ---------- ----------- --------- --------
Diluted Earnings (Loss) Per
Share $(0.05) $0.08 $0.03 $0.10
--------------------------- ---------- ----------- --------- --------
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. For the fiscal year ended Dec. 31, 2002, the company reported total revenues of $88.8 million compared to $78.4 million for fiscal 2001. Total product sales for the fiscal year ended Dec. 31, 2002 reached $85.0 million, a 21 percent increase over the $70.3 million reported for fiscal 2001. On a recurring basis, total revenues and total net product sales for fiscal 2002 were $89.5 million and $85.6 million respectively. The company reported net income of $1.1 million, or $0.05 per diluted share, for the year. On a recurring basis, the company had net income of $3.9 million, or $0.17 per diluted share. In the comparable period of 2001, the company reported net income of $10.1 million, or $0.43 per diluted share. Q4 SUMMARY -- The company expects product sales to increase approximately 20 percent in 2003 compared with 2002. This increase will primarily be led by growth in the Spine, ENT and OEM business units. -- The company anticipates improving gross margin on direct product sales by approximately 3-4 percentage points in 2003 compared with 2002. -- The company expects to decrease its tax rate by 1-2 percentage points in 2003 compared with 2002. REVENUE In the fourth quarter of 2002, reported product sales were $23.6 million, a 40 percent increase over the $16.8 million recorded in the same quarter of the previous year. License fees, royalties Not to be confused with Royal family. Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right. and other revenue were $767,000 in the fourth quarter of 2002 compared to $1.0 million in the fourth quarter of 2001. During the fourth quarter, the company shipped more than 120,000 disposable disposable Nursing adjective Referring to that which is discarded or disposed of noun An item used in health care-related Pt contact which is discarded after use–eg masks, gloves, gowns, needles, paper products, syringes, wipes. See Biohazardous waste. devices, and average selling prices The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. for disposables increased to more than $170 as the company continued to experience favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. mix trends across all product lines. More than 700 controller units were also shipped during the quarter. International markets contributed approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 20 percent of product sales, up from 18 percent in the third quarter. BUSINESS UNIT PERFORMANCE ArthroCare experienced solid revenue growth from all of its business units during the fourth quarter and fiscal year 2002. Arthroscopy Arthroscopy Definition Arthroscopy is the examination of a joint, specifically, the inside structures. The procedure is performed by inserting a specifically designed illuminated device into the joint through a small incision. revenue increased 23 percent during the quarter compared with the same period of 2001 and represented 75 percent of total product sales. For the fiscal year ended Dec. 31, 2002, arthroscopy sales grew approximately 12 percent and represented approximately 76 percent of product sales. Fourth quarter revenue from the spine business unit increased 178 percent compared with the same quarter of 2001. For the fiscal year ended Dec. 31, 2002, spine sales grew approximately 151 percent. Spine sales represented approximately 10 percent of product sales for both the fourth quarter and full year. 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 approximately 45 percent. For the fiscal year ended Dec. 31, 2002, ENT sales grew approximately 48 percent. ENT sales represented approximately 12 percent of product sales for both the fourth quarter and full year. OPERATIONS On a recurring basis, 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. increased approximately 20 percent, or $2.7 million compared with the immediately preceding quarter. Increased spending was driven by legal expenses in connection with patent litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , management team additions and costs related to the acquisitions of two distributors in the United Kingdom and Germany Germany (jûr`mənē), Ger. Deutschland, officially Federal Republic of Germany, republic (2005 est. pop. 82,431,000), 137,699 sq mi (356,733 sq km). -- Atlantech Medical Devices, Ltd. and Atlantech GmbH. Gross margin on product sales improved to 68 percent in the fourth quarter compared to the 63 percent reported in the previous quarter. This significant improvement is principally driven by the increased volume of product being manufactured at the company's Costa Rica Costa Rica (kŏs`tə rē`kə), officially Republic of Costa Rica, republic (2005 est. pop. 4,016,000), 19,575 sq mi (50,700 sq km), Central America. facility. The facility produced approximately 65 percent of all products manufactured during the final month of the quarter and contributed approximately $1.6 million in cost savings in the fourth quarter. Gross margin on product sales improved to 64 percent for the year ended Dec. 31, 2002 compared to the 61 percent reported in the previous year. "We are happy with the momentum we generated across all of our business units during the past year, particularly from a revenue perspective," 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. "While we made several significant financial provisions during the fourth quarter, these provisions are directly related to the completion of important strategic initiatives that we believe are critical to the execution of our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. growth strategy."
RECENT CORPORATE DEVELOPMENTS
-- ArthroCare increased the company's direct sales presence in
arthroscopy with the acquisitions of Atlantech Medical
Devices, Ltd. and Atlantech GmbH. Atlantech, a specialist in
arthroscopy and ligament fixation, had been ArthroCare's
distributors in the United Kingdom and Germany. The company
now has 52 direct, full-time employees in Europe.
-- The company welcomed Jerry Widman, a seasoned health care
executive, to its board of directors. Before retiring in 2001,
Widman was chief financial officer for Ascension Health,
successor organization to the Daughters of Charity National
Health System, where he helped grow company revenues from $1
billion to more than $7 billion.
-- ArthroCare implemented new corporate governance initiatives by
naming independent directors to the following board positions:
-- Peter Wilson, who has served on ArthroCare's board for
more than one year, was elected to the newly created post
of lead independent director.
-- Tord Lendau, who has also served on ArthroCare's board for
more than one year, was appointed chairman of the
company's newly formed nominating committee.
-- Jerry Widman, who joined ArthroCare's board in November
2002, was named chairman of the company's audit committee.
-- The company appointed Jack Giroux senior vice president of
surgical business units. Giroux is responsible for managing
all of ArthroCare's surgical business units, overseeing their
short- and long-term strategic planning, creating brand equity
for their products and Coblation technology, and broadening
awareness among consumers for their new surgical procedures.
-- ArthroCare introduced the new Coblation Assisted
Microdiscectomy (CAM) procedure, which is designed to make
microdiscectomies easier and faster to perform and to improve
patient outcomes.
BUSINESS OUTLOOK The following statements are based on current expectations on February February: see month. 5, 2003. These statements are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. , 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. The company's business outlook for fiscal 2003 is as follows: -- The company expects product sales to increase approximately 20 percent in 2003 compared with 2002. This increase will primarily be led by growth in the Spine, ENT and OEM business units. -- The company anticipates improving gross margin on direct product sales by approximately 3-4 percentage points in 2003 compared with 2002. -- The company expects to decrease its tax rate by 1-2 percentage points in 2003 compared with 2002. ArthroCare will hold a conference call with the financial community at 8:00 a.m. ET/5:00 a.m. PT today. The call will be simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics Webcast on www.ccbn.com and will remain available through Feb. 12, 2003. A telephonic replay of the conference call can be accessed by dialing 800-633-8284 and entering pass code number 21110374. ABOUT ARTHROCARE ArthroCare Corp. (www.arthrocare.com), headquartered in Sunnyvale, Calif., is a multi-business medical device company that develops, manufactures and markets 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. soft tissue surgical products based on its patented Coblation technology. Coblation uses low-temperature radio-frequency 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 approximately 2 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 2003, 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, and the uncertainty of protecting the company's patent position. 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 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 the year ended December December: see month. 29, 2001 and Form 10-Q Form 10-Q See 10-Q. for the quarter ended September September: see month. 28, 2002. 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)
(Unaudited)
Three Months Ended Twelve Months Ended
------------------------- -----------------------
December 31 December 29 December 31 December 29
2002 2001 2002 2001
------------ ------------ ----------- -----------
(Reported) (Reported)
Revenues:
Product sales $23,637 $16,796 $84,964 $70,300
Royalties, fees and
other 767 1,000 3,823 8,075
------------ ------------ ----------- -----------
Total revenues 24,404 17,796 88,787 78,375
Cost of product sales 10,649 6,301 33,407 27,691
------------ ------------ ----------- -----------
Gross profit 13,755 11,495 55,380 50,684
------------ ------------ ----------- -----------
Operating expenses:
Research and
development 2,354 2,167 8,826 8,036
Sales and marketing 10,248 7,182 36,518 29,652
General and
administrative 4,022 1,550 10,883 5,306
------------ ------------ ----------- -----------
Total
operating
expenses 16,624 10,899 56,227 42,994
Income from
operations (2,869) 596 (847) 7,690
Interest and other
income, net 1,314 2,944 2,545 8,047
------------ ------------ ----------- -----------
Income before income
tax provision (1,555) 3,540 1,698 15,737
Income tax provision (498) 1,275 566 5,677
------------ ------------ ----------- -----------
Net income $(1,057) $2,265 $1,132 $10,060
============ ============ =========== ===========
Basic net income per
share -$0.05 $0.10 $0.05 $0.45
============ ============ =========== ===========
Shares used in
computing basic
net income per
share 21,080 21,883 21,465 22,222
Diluted net income
per common share -$0.05 $0.10 $0.05 $0.43
============ ============ =========== ===========
Shares used in
computing diluted
net income per
share 21,731 22,972 22,327 23,182
ARTHROCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
----------------------- -----------------------
December 31 December 29 December 31 December 29
2002 2001 2002 2001
----------- ----------- ----------- -----------
(Recurring) (Recurring)
Revenues:
Product sales $24,320 $16,796 $85,647 $70,300
Royalties, fees and
other 767 1,000 3,823 8,075
----------- ----------- ----------- -----------
Total revenues 25,087 17,796 89,470 78,375
Cost of product sales 7,803 6,301 30,561 27,691
----------- ----------- ----------- -----------
Gross profit 17,284 11,495 58,909 50,684
----------- ----------- ----------- -----------
Operating expenses:
Research and
development 2,354 2,167 8,826 8,036
Sales and marketing 10,248 7,182 36,518 29,652
General and
administrative 3,522 1,550 10,383 5,306
----------- ----------- ----------- -----------
Total operating
expenses 16,124 10,899 55,727 42,994
Income from operations 1,160 596 3,182 7,690
Interest and other
income, net 1,314 2,944 2,545 8,047
----------- ----------- ----------- -----------
Income before income
tax provision 2,474 3,540 5,727 15,737
Income tax provision 792 1,275 1,856 5,677
----------- ----------- ----------- -----------
Net income $1,682 $2,265 $3,871 $10,060
=========== =========== =========== ===========
Basic net income per
share $0.08 $0.10 $0.18 $0.45
=========== =========== =========== ===========
Shares used in
computing basic net
income per share 21,080 21,883 21,465 22,222
Diluted net income per
common share $0.08 $0.10 $0.17 $0.43
=========== =========== =========== ===========
Shares used in
computing diluted net
income per share 21,731 22,972 22,327 23,182
ARTHROCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Twelve Months Ended
------------------------------------
December 31 December 31
2002 Adjustments 2002
------------ ----------- -----------
(Recurring) (Reported)
Revenues:
Product sales $85,647 $(683) $84,964
Royalties, fees and other 3,823 3,823
------------ ----------- -----------
Total revenues 89,470 (683) 88,787
Standard cost of product sales 30,561 30,561
Standard Revaluation 2,846 2,846
------------ ----------- -----------
Cost of product sales 30,561 2,846 33,407
------------ ----------- -----------
Gross profit 58,909 (3,529) 55,380
------------ ----------- -----------
Operating expenses:
Research and development 8,826 8,826
Sales and marketing 36,518 36,518
General and administrative 10,383 500 10,883
------------ ----------- -----------
Total operating
expenses 55,727 500 56,227
Income from operations 3,182 (4,029) (847)
Interest and other income, net 2,545 2,545
------------ ----------- -----------
Income before income tax provision 5,727 (4,029) 1,698
Income tax provision (benefit) 1,856 (1,290) 566
------------ ----------- -----------
Net income $3,871 $(2,739) $1,132
============ =========== ===========
Basic net income per share $0.18 ($0.13) $0.05
============ =========== ===========
Shares used in computing
basic net income per share 21,465 21,465 21,465
Diluted net income per common
share $0.17 ($0.12) $0.05
============ =========== ===========
Shares used in computing
diluted net income per share 22,327 22,327 22,327
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