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ArthroCare Reports First Quarter 2012 Financial Results

CONFERENCE CALL

ArthroCare will hold a conference call with the financial community to present these results at 8:30 a.m. ET/5:30 a.m. PT on Thursday, May 3, 2012. To participate in the live conference call dial 800-734-8582. 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 21590105. The replay will remain available through May 17, 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)
 
    March 31,

2012

December 31,

2011

 
ASSETS
Current assets:
Cash and cash equivalents $ 161,977 $ 219,605

 

Accounts receivable, net of allowances of $2,125 and $2,251 at March 31, 2012

 

 

49,167

 

 

 

51,350

Inventories, net 37,372 35,761
Deferred tax assets 35,882 40,622
Prepaid expenses and other current assets   6,266     5,532  
Total current assets 290,664 352,870
 
Property and equipment, net 34,706 35,769
Intangible assets, net 4,150 5,457
Goodwill 119,426 119,159
Deferred tax assets 18,172 18,159
Other assets   1,667     1,587  
Total assets $ 468,785   $ 533,001  
 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 13,940 $ 15,258
Accrued liabilities 33,979 112,586
Deferred Revenue 854 742
Income tax payable   -     1,542  
Total current liabilities 48,773 130,128
 
Deferred tax liabilities 31 29
Other non-current liabilities   19,651     18,922  
Total liabilities 68,455 149,079
 
Commitments and contingencies (Notes 6 and 7)
 
Series A 3% Redeemable Convertible Preferred Stock, par value $0.001; Authorized: 100 shares;
Issued and outstanding: 75 shares at March 31, 2012 and December 31, 2011; Redemption
value: $87,089 78,063 77,184
 
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: 31,615 and 31,523 shares
Outstanding: 27,647 and 27,562 shares at March 31, 2012 and December 31, 2011, respectively 28 28
Treasury stock: 3,961 shares at March 31, 2012 and 4,005 shares at December 31, 2011 (106,945 ) (107,126 )
Additional paid-in capital 403,458 400,580
Accumulated other comprehensive income 5,006 4,615
Retained earnings   20,720     8,641  
Total stockholders' equity   322,267     306,738  
Total liabilities, redeemable convertible preferred stock and stockholders' equity $ 468,785   $ 533,001  
 
ARTHROCARE CORPORATION    
Condensed Consolidated Statements of Operations - Unaudited
(in thousands, except per share data)
 
  Three Months Ended

March 31,

2012 2011
 
Revenues:
Product sales $ 88,375 $ 83,507
Royalties, fees and other 4,497 4,425
Total revenues 92,872 87,932
 
Cost of product sales 26,651 24,744
 
Gross profit 66,221 63,188
Operating expenses:
Research and development 7,594 6,810
Sales and marketing 30,200 28,098
General and administrative 8,488 8,180
Amortization of intangible assets 1,321 1,311
Exit costs 160 -
Investigation and restatement-related costs 1,093 2,212
Total operating expenses 48,856 46,611
 
Income from operations 17,365 16,577
 
Non-operating gains, net 386 490
 
Income from continuing operations before income taxes 17,751 17,067
 
Income tax provision 4,793 4,608
 
Net income from continuing operations 12,958 12,459
 
Income from discontinued operations, net of taxes - 311
 
Net income 12,958 12,770
 

Accrued dividend and accretion charges on Series A

(879)

(840)

 
Net income available to common stockholders 12,079 11,930
 
Other comprehensive income
Foreign currency translation adjustments 392 899
 
Total comprehensive income 13,350 13,669
 

Weighted average shares outstanding:

Basic 27,614 27,168
Diluted 27,987 27,586
 

Earnings per share from continuing operations:

Basic $ 0.36 $ 0.35
Diluted $ 0.36 $ 0.35
 
Earnings per share applicable to common stockholders:
Basic $ 0.36 $ 0.36
Diluted $ 0.36 $ 0.36
 
ARTHROCARE CORPORATION              
Supplemental Schedule of Product Sales - Unaudited
(in thousands)  
 
Three Months Ended Three Months Ended
March 31, 2012 March 31, 2011
Americas   International   Total Product Sales   % Net Product Sales Americas International Total Product Sales % Net Product Sales
 
Sports medicine $ 39,028 $ 20,282 $ 59,310 67.2 % $ 37,381 $ 19,328 $ 56,709 67.9 %
ENT 21,776 5,394 27,170 30.7 % 20,037 4,267 24,304 29.1 %
Other   590   1,305   1,895 2.1 %   685   1,809   2,494 3.0 %
Total product sales $ 61,394 $ 26,981 $ 88,375 100.0 % $ 58,103 $ 25,404 $ 83,507 100.0 %




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