Net research, development and engineering costs (“RD&E”) for the 2012 fourth quarter and full-year of 2012 were $11.2 million and $52.5 million, respectively, compared to $12.8 million and $45.5 million, respectively, for the comparable 2011 periods. For the fourth quarter and full-year of 2012, our acquisitions added $0.2 million and $2.6 million, respectively, to RD&E. RD&E amounts for the fourth quarter of 2012 and 2011 include $1.4 million and $2.3 million, respectively, of design verification testing (“DVT”) costs in connection with our development of a neuromodulation platform. For the year, DVT expenses were $5.2 million for 2012 and $5.1 million for 2011. RD&E for the second half of 2012 was lower than the first half of 2012 by $3.7 million as the Company refocused its medical device R&D investment and discontinued non-core R&D projects. Additionally, the fourth quarter of 2012 included $1.7 million of additional customer cost reimbursements due to the timing of when milestones on certain projects were achieved. For the year, customer cost reimbursements increased $1.4 million in comparison to 2011. Excluding DVT related expenses, medical device adjusted expenses were $28.5 million for 2012 compared to $22.1 million for 2011. Going forward, the Company intends to continue to look for ways to reduce the RD&E investment impact on its bottom line which will include identifying strategic partners to share these costs, monetizing non-core technology assets and refocusing our medical device technology investment towards Algostim and the portable medical markets.
GAAP operating income for the fourth quarter and full-year 2012 was $1.4 million and $25.8 million, respectively, compared to $12.5 million and $61.7 million for the respective periods of 2011. This decrease was primarily due to the charges incurred in connection with the consolidation of our Swiss orthopaedic operations, as well as other productivity initiatives which are expected to ultimately drive improved profitability. Adjusted operating income, which excludes these costs as well as other charges, was $21.1 million and $73.9 million for the 2012 fourth quarter and full-year, respectively, compared to $15.7 million and $67.6 million, respectively, for the comparable 2011 periods. Refer to Table A at the end of this release for a reconciliation of GAAP operating income to adjusted operating income and the “Use of Non-GAAP Financial Information” section below.
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