Orthofix International N.V. (NASDAQ:OFIX) today announced its results for the fourth quarter and year ended December 31, 2010.
“Adjusted Net Income and Adjusted Net Income per Diluted Share”
Reported net sales were $143.8 million and $564.4 million for the fourth quarter and full year ended December 31, 2010, respectively. Reported net income was $8.0 million, or $0.44 per diluted share, for the fourth quarter and $44.2 million, or $2.47 per diluted share, for the full year ended December 31, 2010.
"We continue to be encouraged by the growth in our Spinal Implants and Biologics business, as well as the return to positive growth for our Sports Medicine business, " said President and CEO Alan Milinazzo. "Additionally we continue to take the appropriate steps to improve our operating leverage which has allowed us to absorb higher costs associated with certain ongoing legal matters."
Sales Performance
Reported net sales were $143.8 million in the fourth quarter compared to $144.0 million in the fourth quarter of the prior year primarily as a result of the Company's exit from two of its non-strategic product lines. Further, foreign currency negatively impacted fourth quarter net sales by approximately $1.3 million or 1%. Excluding the impact of exiting the vascular and anesthesia product lines along with a prior year accounting adjustment for net sales in our Sports Medicine division, adjusted constant currency net sales increased 5% compared to the same period of the prior year.
Fourth quarter net sales in the Company's combined spine sector were up 6% to $78.7 million. Sales growth in our spine sector was driven by an 11% increase in implants and biologics revenue. The stimulation products used in spine applications growth slowed to 1%, primarily as a result of the ongoing industry wide investigation of the bone growth stimulation business and industry reimbursement challenges.
Reported fourth quarter net sales in the Company's orthopedic sector were $37.5 million, which was an increase of 5%, and represented growth of 8% on a constant currency basis compared to the prior year. This increase was led by its external fixation and deformity correction hardware platforms along with the increased use of Trinity® Evolution™ in orthopedic applications.
Reported net sales of the Company's sports medicine sector were $25.1 million, up 9% in the fourth quarter compared to the prior year. As previously noted, prior year sales were negatively impacted by an accounting adjustment. Excluding this adjustment, adjusted net sales of the Company's sports medicine sector returned to a positive growth of 3% in the fourth quarter compared to the prior year due to improved performances of its bracing and cold therapy product lines.
For the full year, net sales were $564.4 million, up 3% compared to the prior year on a reportable basis. The exit of the vascular and anesthesia product lines along with foreign currency negatively impacted full year 2010 and 2009 net sales by approximately $13.6 million and $30.5 million, respectively. Excluding the impact of exiting the vascular and anesthesia businesses, adjusted constant currency net sales increased 7% compared to the same period of the prior year.
The reconciliations of net sales to adjusted constant currency net sales have been included at the end of this press release.
Earnings Performance
Reported net income for the fourth quarter was down 16% to $8.0 million while net income per diluted share was down 19% to $0.44. Reported net income and net income per diluted share included the previously announced charge related to employee termination benefits of $3.6 million ($2.9 million, net of income taxes, or $0.16 per diluted share) associated with our internal reorganization, which will streamline operations and lower operating costs within the Company's three Global Business Units: Spine, Orthopedics and Sports Medicine. Also, included in reported net income was the previously disclosed patent dispute settlement charge of $2.0 million ($1.3 million, net of income taxes, or $0.07 per diluted share) concerning the Trinity® Evolution™ tissue allograft.
Adjusted net income and adjusted net income per diluted share for the fourth quarter increased 32% and 28%, respectively, compared to the prior year. The following table reconciles reported net income and net income per diluted share to adjusted net income and adjusted net income per diluted share for the fourth quarter ended December 31, 2010:
During the fourth quarter of 2010, the Company recorded $4.1 million ($2.7 million, net of income taxes, or $0.15 per diluted share) of legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company's internal investigation into compliance with the Foreign Corrupt Practices Act at its distribution subsidiary in Mexico. These charges are included in both the reported and adjusted financial results.
The following table reconciles reported net income and net income per diluted share to adjusted net income and net income per diluted share for the year ended December 31, 2010:
2011 Outlook
In 2011, the Company expects to generate between $580 million and $590 million in net sales or 3% to 5% over reported net sales in 2010 which includes the continued reduction of vascular and anesthesia revenues reported as Other Products.
The Company expects both reported and adjusted net income 2011 to be between $2.60 and $2.70 per diluted share compared to reported net income of $2.47 per diluted share and adjusted net income of $2.19 per diluted share in 2010. This represents a 5% to 9% increase in reported net income per diluted share and an 18% to 23% increase in adjusted net income per diluted share compared to 2010.
The Company expects to incur approximately $8 million, or $0.26 per diluted share, of share-based compensation expense in 2011. This non-cash compensation expense is included in both the reported net income and adjusted net income per diluted share guidance for 2011.
The Company further expects an effective tax rate for 2011 of 38% to 40% due to its current geographical mix of earnings including jurisdictions in operating loss positions for which there is no tax benefit.
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