Second Quarter Results
Second quarter 2012 sales increased 14% over the prior year period to a record $166.5 million. This increase was driven by the acquisition of Micro Power, primarily Portable Medical, which added $21.3 million to sales, as well as a 16% increase in Vascular Access revenue and stronger than expected growth in our CRM product line. Second quarter results also included the impact of foreign currency exchange rate fluctuations, which lowered Orthopaedic sales by approximately $3 million in comparison to the prior year. On an organic constant currency basis, sales for the second quarter increased 1% versus the prior year as the benefits described above were partially offset by continued weakness within our Orthopaedics product line.
Gross profit was $51.9 million, or 31.2% of sales, in the second quarter of 2012, compared to $46.6 million, or 31.8% of sales for the comparable 2011 period. The increase in gross profit primarily resulted from the higher sales volumes discussed above. The decrease in gross profit as a percentage of sales from the prior year was primarily due to price concessions made to our larger OEM customers, a higher mix of lower margin revenue, as well as production inefficiencies at our Swiss Orthopaedic facilities. As previously discussed, these operational issues are aggressively being addressed and should improve as the year progresses and into 2013.
Selling, general and administrative (“SG&A”) expenses increased to $20.7 million, or 12.5% of sales, for the second quarter of 2012 compared to $17.6 million, or 12.0% of sales, for the same period of 2011. The majority of this increase can be attributed to the Company’s recent acquisitions, which added $2.8 million to SG&A.Net research, development and engineering costs (“RD&E”) for the 2012 second quarter were $14.2 million, compared to $11.3 million for the comparable 2011 period. Approximately $0.7 million of this increase was a result of the operations from our recent acquisitions. The remainder of this increase can be attributed to the investment in the development of complete medical devices which totaled $7.0 million for the 2012 second quarter compared to $5.6 million for 2011. These amounts include $1.6 million and $0.6 million, respectively, of design verification testing (“DVT”) costs in connection with our development of a neuromodulation platform. For the second half of the year we anticipate that RD&E costs will be slightly lower than the first half as the Company begins to optimize its RD&E investment, which will be partially offset by an increased level of design verification testing.
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