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TheStreet Open House

ArthroCare Reports Fourth Quarter And Full Year 2011 Financial Results

NET INCOME / LOSS AVAILABLE TO COMMON STOCKHOLDERS

Net loss attributable to common stockholders was $29.3 million or $1.06 per share in the fourth quarter of 2011, compared to net income of $10.1 million, or $0.30 per diluted share, in the fourth quarter of 2010.

For the year ended December 31, 2011, net loss attributable to common stockholders was $4.3 million, or a loss of $0.16 per share, compared to net income applicable to common stockholders of $33.8 million, or $1.02 per diluted share, for the year ended December 31, 2010.

BALANCE SHEET AND CASH FLOWS

Cash and cash equivalents increased $87.1 million to $219.6 million as of December 31, 2011 from December 31, 2010. Cash flows provided by operating activities for the year ended December 31, 2011 was $84.6 million compared to $82.6 million for the year ended December 31, 2010. Accrued liabilities increased $72.4 million as a result of the charge of $74.0 million recorded in the fourth quarter for the proposed securities class actions settlement. The Company anticipates funding the proposed settlement in the first quarter of 2012.

CONFERENCE CALL

ArthroCare will hold a conference call with the financial community to present these results at 4:30 p.m. ET/1:30 p.m. PT on Thursday, February 16, 2012. To participate in the live conference call dial 800-950-3502. A live and on-demand webcast of the call will be available on ArthroCare’s 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 21576468. The replay will remain available through March 1, 2012.

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 ArthroCare’s 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 impact upon the Company’s operations of legal compliance matters which may require improvement and remediation; the ability of the Company to control expenses relating to legal or compliance matters; the Company’s 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 Company’s financial reporting and its previously announced restatement and its insurance billing and healthcare fraud-and-abuse compliance practices; the results of the civil investigation by the Department of Justice related to the Civil Investigative Demand we received arising under the False Claims Act; the possibility that the Department of Justice could institute civil proceedings against us, based on the results of the investigation related to the Civil Investigative Demand; the risk that we could be subject to qui tam suits involving the False Claims Act; the possibility that the Department of Justice could institute a criminal enforcement action against us based on the results of the civil investigation related to the Civil Investigative Demand; the resolution of any litigation related to the civil investigation; 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 Company’s ability to effectively and successfully implement its business strategies, and manage the risks in its business; and the reactions of the marketplace to the foregoing.

 
ARTHROCARE CORPORATION
Condensed Consolidated Balance Sheets - Unaudited
(in thousands, except par value data)
     
December 31,
  2011     2010  
 
ASSETS
Current assets:
Cash and cash equivalents $ 219,605 $ 132,536
Accounts receivable, net of allowances of $2,251 and $2,445 at 2011 and 2010, respectively 51,350 48,870
Inventories, net 35,761 34,087
Deferred tax assets 40,622 24,661
Prepaid expenses and other current assets 5,532 4,424
Assets held for sale   -     3,081  
Total current assets 352,870 247,659
 
Property and equipment, net 35,769 41,582
Intangible assets, net 5,457 10,733
Goodwill 119,159 119,020
Deferred tax assets 18,159 16,019
Other assets   1,587     4,182  
Total assets $ 533,001   $ 439,195  
 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED AND STOCKHOLDERS'

EQUITY
Current liabilities:
Accounts payable $ 15,258 $ 13,819
Accrued liabilities 112,586 40,197
Deferred tax liabilities - 149
Deferred revenue 742 -
Income tax payable   1,542     1,555  
Total current liabilities 130,128 55,720
 
Notes payable - -
Deferred tax liabilities 29 213
Other non-current liabilities   18,922     13,766  
Total liabilities 149,079 69,699
 
 
Series A 3% Redeemable Convertible Preferred Stock, par value $0.001; Authorized: 100 shares;
Issued and outstanding: 75 shares at December 31, 2011 and 2010, respectively
Redemption value: $87,089 77,184 73,768
 
Stockholders' equity:
Preferred stock, par value $0.001; Authorized: 4,900 shares;
Issued and outstanding: none - -
Common stock, par value, $0.001: Authorized: 75,000 shares; Issued: 31,523 and 30,905;
Outstanding: 27,562 and 27,112 shares at December 31, 2011 and 2010, respectively 28 27
Treasury stock: 3,968 and 3,997 shares at December 31, 2011 and 2010, respectively (107,126 ) (107,899 )
Additional paid-in capital 400,580 386,395
Accumulated other comprehensive income 4,615 4,246
Retained earnings   8,641     12,959  
Total stockholders' equity   306,738     295,728  
Total liabilities, redeemable convertible preferred stock and stockholders' equity $ 533,001   $ 439,195  
 
ARTHROCARE CORPORATION
Condensed Consolidated Statements of Operations - Unaudited
(in thousands, except per share data)
         
Quarters Ended December 31, Years Ended December 31,
  2011     2010     2011     2010  
 
Revenues:
Product sales $ 88,455 $ 87,609 $ 338,319 $ 338,757
Royalties, fees and other   3,957     5,024     16,566     16,622  
Total revenues 92,412 92,633 354,885 355,379
 
Cost of product sales   27,144     27,182     103,314     110,751  
 
Gross profit   65,268     65,451     251,571     244,628  
Operating expenses:
Research and development 7,472 9,309 28,932 35,846
Sales and marketing 27,497 27,954 108,621 107,852
General and administrative 8,697 9,485 35,069 35,534
Amortization of intangible assets 1,319 1,305 5,291 5,237
Exit costs 2,996 8,300 -
Investigation and restatement-related costs   68,680     2,644     80,825     5,889  
Total operating expenses   116,661     50,697     267,038     190,358  
 
Income (loss) from operations (51,393 ) 14,754 (15,467 ) 54,270
Other income, net 32 (61 ) 14 216
Interest expense and bank fees (139 ) (206 ) (622 ) (769 )
Foreign exchange gain (loss), net   (563 )   (599 )   (723 )   (3,311 )
Total other expense   (670 )   (866 )   (1,331 )   (3,864 )
 
Income (loss) from continuing operations before

income taxes

(52,063 ) 13,888 (16,798 ) 50,406
 
Income tax provision (benefit)   (23,662 )   2,904     (13,985 )   12,888  
 
Net income (loss) from continuing operations (28,401 ) 10,984 (2,813 ) 37,518
 
Income (loss) from discontinued operations, net of

taxes

  -     (66 )   1,911     (434 )
 
Net income (loss)   (28,401 )   10,918     (902 )   37,084  
 
Accrued dividend, beneficial conversion
feature and accretion charges on Series A
3% Convertible Preferred Stock   (870 )   (830 )   (3,416 )   (3,264 )
 
Net income (loss) applicable to common
stockholders $ (29,271 ) $ 10,088   $ (4,318 ) $ 33,820  
 

Weighted-average shares outstanding:

Basic 27,525 27,059 27,382 27,006
Diluted 27,525 27,446 27,382 27,348
 
Earnings (loss) per share from continuing operations
applicable to common stockholders:
Basic $ (1.06 ) $ 0.31   $ (0.23 ) $ 1.04  
Diluted $ (1.06 ) $ 0.30   $ (0.23 ) $ 1.03  
 
 
Earnings (loss) per share applicable to common

stockholders:

Basic $ (1.06 ) $ 0.31   $ (0.16 ) $ 1.03  
Diluted $ (1.06 ) $ 0.30   $ (0.16 ) $ 1.02  
 
ARTHROCARE CORPORATION
Supplemental Schedule of Product Sales
(in thousands)
                 
Quarter Ended Quarter Ended
December 31, 2011 December 31, 2010
Americas International

Total Product Sales

% Net Product Sales

Americas International

Total Product Sales

% Net Product Sales

 
 
Sports Medicine $ 42,030 $ 20,350 $ 62,380 70.5 % $ 38,738 $ 21,108 $ 59,846 68.3 %
ENT 19,077 4,526 23,603 26.7 % 20,029 4,325 24,354 27.8 %
Other   583   1,889   2,472 2.8 %   1,006   2,403   3,409 3.9 %
Total Product Sales $ 61,690 $ 26,765 $ 88,455 100.0 % $ 59,773 $ 27,836 $ 87,609 100.0 %
 
 
 
Year Ended Year Ended
December 31, 2011 December 31, 2010
Americas International

Total Product Sales

% Net Product Sales

Americas International

Total Product Sales

% Net Product Sales

 
 
Sports Medicine $ 149,010 $ 79,337 $ 228,347 67.5 % $ 160,859 $ 71,120 $ 231,979 68.5 %
ENT 81,810 18,429 100,239 29.6 % 79,019 15,270 94,289 27.8 %
Other   2,785   6,948   9,733 2.9 %   4,122   8,367   12,489 3.7 %
Total Product Sales $ 233,605 $ 104,714 $ 338,319 100.0 % $ 244,000 $ 94,757 $ 338,757 100.0 %




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