Net income for the fourth quarter of 2012 included the after-tax effects of $2.5 million of non-cash stock-based compensation expense, $1.7 million of charges associated with distributor conversions and non-competes, $2.1 million of non-cash interest expense related to the 2017 Convertible Notes, an unrealized loss of $3.5 million related to mark-to-market adjustments on derivatives, $1.8 million of due diligence and transaction costs, a $2.4 million increase to management’s estimate of the Company’s probable insurance recovery for previously recognized costs associated with product liability claims, and a $15 million gain on the sale of intellectual property. Net income for the fourth quarter of 2011 included the after-tax effects of $2.8 million of charges associated with the 2011 cost restructuring plan, $3.4 million of expenses associated with the Company’s DPA, and $2.4 million of non-cash stock-based compensation expense.
The Company’s fourth quarter 2012 net income, as adjusted for the above items, decreased to $1.8 million in 2012 from $6.7 million in 2011, while diluted earnings per share, as adjusted, decreased to $0.05 in the fourth quarter of 2012 from $0.17 in the fourth quarter of 2011. Including stock-based expense, diluted earnings per share, as adjusted, totaled $0.01 in the fourth quarter of 2012. The attached financial tables include a reconciliation of U.S. GAAP to “as adjusted” results.
Cash and cash equivalents and marketable securities totaled $333.0 million as of the end of the fourth quarter of 2012, an increase of $161.3 million compared to the end of the fourth quarter of 2011. Net cash flow from operating activities was $11.1 million, which combined with capital expenditures of $6.0 million, resulted in free cash flow of $5.0 million in the fourth quarter of 2012 compared to free cash flow of $0.9 million in the fourth quarter of 2011.
Palmisano concluded, “During 2013, we will continue to make investments to accelerate foot and ankle growth and sales productivity, build a growing global OrthoRecon business and deliver sustained, strong cash flow. We also look forward to closing the transaction with BioMimetic and adding BioMimetic’s breakthrough biologics platform and pipeline to our Extremities business. We believe this will significantly accelerate the positive transformation of our business as well as our strategy of building a world-class biologics platform and growing our foot and ankle business at well above market growth rates. Our team is confident that the right organizational alignment and strategic programs are in place to position us for future success and drive growth and shareholder value.”
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