Net income for the second quarter of 2012 included the after-tax effects of $3.4 million of non-cash stock-based compensation expense, $2.1 million of expenses associated with the Company's deferred prosecution agreement (DPA), $0.8 million of charges associated with distributor conversions and non-competes and $0.7 million of charges associated with the previously announced cost restructuring plan. Net income for the second quarter of 2011 included the after-tax effects of approximately $2.4 million of expenses associated with the Company’s deferred prosecution agreement (DPA) and $1.6 million of non-cash stock-based compensation expense.
The Company's second quarter 2012 net income, as adjusted for the above items, decreased to $5.3 million in 2012 from $9.0 million in 2011, while diluted earnings per share, as adjusted, decreased to $0.14 in the second quarter of 2012 from $0.23 in the second quarter of 2011. Including stock based expense, diluted earnings per share, as adjusted, totaled $0.08 in the second quarter of 2012. A reconciliation of U.S. GAAP to “as adjusted” results is included in the attached financial tables.
Cash and cash equivalents and marketable securities totaled $192.9 million as of the end of the second quarter of 2012, an increase of $25.6 million compared to the end of the fourth quarter of 2011. Net cash flow from operating activities was $22.0 million, which combined with capital expenditures of $4.0 million, resulted in free cash flow of $18.0 million in the second quarter of 2012 compared to $7.6 million in the second quarter of 2011.
Palmisano concluded, “We are pleased with our progress for the first half of the year, and we will continue to focus on executing our key strategic initiatives with excellence. During the second half of the year, we will make increased investments to accelerate foot and ankle growth, improve customer satisfaction in our Ortho-Recon business and increase cash generation capabilities. We also expect continued progress on our inventory reduction initiatives and on improving U.S. foot and ankle sales productivity, both of which we anticipate will accelerate in 2013. We are very enthusiastic about our execution so far in 2012 and believe we will continue to build momentum against our key priorities for the remainder of this year and beyond.”