UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): February 27, 2004
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 0-26224 51-0317849
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
311 Enterprise Drive
Plainsboro, NJ 08536
(Address of principal executive offices) (Zip Code)
(609)-275-0500
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not applicable
(b) Not applicable
(c) Exhibits.
Exhibit
Number Description of Exhibit
------- ----------------------
99.1 Press release issued February 27, 2004 regarding earnings for the quarter
and year ended December 31, 2003
This exhibit is being furnished under Item 12, Results of Operations and
Financial Condition of this Form 8-K and shall not be deemed shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933, except
as shall be expressly set forth by specific reference in such filing.
ITEM 12. Results of Operations and Financial Condition
On February 27, 2004, Integra LifeSciences Holdings Corporation issued a press
release announcing its financial results for the quarter and year ended December
31, 2003 and held a conference call to discuss those results and its forward
looking guidance. A copy of the press release is attached as Exhibit 99.1 to
this Current Report on Form 8-K. A replay of the conference call is available
through March 12, 2004 by telephone at (973)341-3080 (access code 4418658)
or by webcast at www.integra-ls.com.
The information in this Form 8-K and the Exhibit attached hereto shall not be
deemed "filed" for purposes of Section 18 of the Securities Act of 1934, nor
shall it be deemed incorporated by reference in any filing under the Securities
Act of 1933, except as hall be expressly set forth by specific reference in such
filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
Date: February 27, 2004 By: /s/ Stuart M. Essig
-----------------------------
Stuart M. Essig
President and Chief Executive Officer
Exhibit Index
-------------
Exhibit
Number Description of Exhibit
------- ----------------------
99.1 Press release issued February 27, 2004 regarding earnings for the quarter
and year ended December 31, 2003
Exhibit 99.1
News Release
Contacts:
Integra LifeSciences Holdings Corporation
John Bostjancic Maria Platsis
Senior Director of Finance Director of Corporate Development
(609) 936-2239 and Investor Relations
jbostjancic@integra-ls.com (609) 936-2333
mplatsis@integra-ls.com
Integra LifeSciences Reports Record Operating Earnings and Revenues for the
Fourth Quarter and Full Year 2003
Plainsboro, New Jersey, February 27, 2004 -- Integra LifeSciences Holdings
Corporation (Nasdaq: IART) today reported net income of $9.2 million, or $0.30
per share, for the fourth quarter of 2003, compared to $25.4 million, or $0.83
per share, for the prior year period. Net income for the year ended December 31,
2003 was $26.9 million, or $0.88 per share, compared to $35.3 million, or $1.14
per share, for the year ended December 31, 2002. Our reported net income for the
quarter and year ended December 31, 2002 included a $20.4 million tax benefit
attributable to a reduction in deferred tax asset valuation allowances.
Operating income was $13.0 million for the fourth quarter of 2003, a 92%
increase over the fourth quarter of 2002, and $39.6 million for the year ended
December 31, 2003, a 107% increase over 2002.
Total revenues in the fourth quarter of 2003 increased by $23.8 million to $59.0
million, a 67% increase over the fourth quarter of 2002. Product revenues
increased by $12.8 million to $46.9 million, a 37% increase over the fourth
quarter of 2002, and other revenues increased by $11.0 million to $12.2 million.
The increase in other revenues in the fourth quarter reflects accelerated
recognition of deferred revenue associated with the termination of our 1999
supply and distribution agreement for the INTEGRA(R) Dermal Regeneration
Template with ETHICON Inc.
"I am pleased with our performance in the fourth quarter and for the year,"
said Stuart M. Essig, Integra's President and Chief Executive Officer. "We
achieved record revenues and operating income and invested in a number of
initiatives that will support the continued growth of the Company. During the
fourth quarter, we completed two acquisitions, extended our line of dural
matrix products, significantly expanded our marketing capability, doubled our
plastic and reconstructive surgery sales organization, initiated an upgrade of
our corporate information systems, consolidated our San Diego facilities and
made a significant contribution to the Integra Foundation."
As a result of the termination of the agreement with ETHICON Inc., we obtained
the exclusive right to sell the INTEGRA Dermal Regeneration Template effective
January 1, 2004. In anticipation of the return of this product, we reorganized
and significantly expanded our plastic and reconstructive surgery sales force in
the fourth quarter. We now distribute the INTEGRA Dermal Regeneration Template,
along with a line of specialized surgical instruments and implants, through a
fourteen-person plastic and reconstructive surgery sales organization in the
United States and parts of Western Europe and through a network of distributors
elsewhere. We expect to further increase the size of this sales organization in
2004.
In November we acquired Spinal Specialties, Inc., a producer of custom kits and
products used in a variety of spinal, orthopedic and pain management procedures,
for approximately $6.0 million in cash. Spinal Specialties' products include the
OsteoJect(TM) Bone Cement Delivery System, which allows precise delivery of
bone cement to a surgical site under active fluoroscopy by a surgeon whose
hands remain outside the fluoroscopy field, and the ACCU-DISC(TM) Pressure
Monitoring System, which offers the accurate delivery of fluids to the body and
the ability to monitor the fluids in discography interpretation. Spinal
Specialties markets its products to anesthesiologists and interventional
radiologists through an in-house telemarketing team and a network of
distributors.
In December we acquired the assets of Reconstructive Technologies, Inc., the
developer of the Automated Cyclic Expansion or ACE System(TM), a tissue
expansion device. The ACE System uses a compact pump that produces a cyclic
force when attached to ballooning tissue expanders. The ACE System is designed
to accelerate tissue expansion by stimulating the body's natural response to
physical stress on the skin. We anticipate obtaining regulatory clearance and
launching the product through our plastic and reconstructive sales force in
2005.
Our revenues for the period were as follows:
Three Months Year
Ended December 31, Ended December 31,
2003 2002 2003 2002
Product Revenu
Neuromonitoring products $11,466 $10,479 $44,229 $37,184
Operating room products 14,325 11,865 53,301 38,326
Instruments 15,422 5,780 47,168 16,802
Private label products 5,648 5,978 21,997 20,313
Total Product Revenue 46,861 34,102 166,695 112,625
Other revenue 12,164 1,159 18,904 5,197
Total Revenue 59,025 35,261 185,599 117,822
Increased sales of our intracranial monitoring products and drainage systems
provided most of the fourth quarter year-over-year growth in neuromonitoring
product revenues. Continued strong growth in sales of our DuraGen(R)Dural Graft
Matrix and NeuraGen(TM) Nerve Guide products accounted for the increase in
operating room product revenues. Sales of the recently acquired JARIT(R) and
Padgett(TM) surgical instrument lines and of Spinal Specialties' product lines
contributed $9.0 million of the fourth quarter year-over-year increase in
instrument revenues. The decline in our private label product revenues is
attributable to a decline in revenues from the Absorbable Collagen Sponge we
supply for use in Medtronic's INFUSE(TM) bone graft product.
Revenues from product lines acquired since the beginning of 2002 accounted for
$37.6 million of the increase in product revenues for the year ended December
31, 2003, as compared to 2002. Excluding revenues attributable to private label
product lines and to product lines acquired since the beginning of 2002, produc
revenues for the year ended December 31, 2003 increased by $16.1 million, or
19%, over 2002. Changes in foreign currency exchange rates contributed
$2.0 million to our annual year-over-year product revenue growth.
Revenues from product lines acquired since the beginning of the fourth quarter
of 2002 accounted for $9.3 million of the increase in product revenues in the
fourth quarter of 2003, as compared to the fourth quarter of 2002. Excluding
revenues attributable to private label product lines and to product lines
acquired since the beginning of the fourth quarter of 2002, fourth quarter
product revenues increased by $3.8 million, or 14%, over the fourth quarter of
2002. Changes in foreign currency rates contributed $0.7 million to our
quarterly year-over-year product revenue growth.
"The income we recognized in connection with the termination of our agreement
with ETHICON in the fourth quarter provided us with a unique opportunity to
invest in our business," said Stuart Essig. "We initiated and completed a
significant number of activities during the quarter, which resulted in higher
operating costs compared to our recent trend. We anticipate our 2004 operating
costs as a percentage of product revenues to return to levels consistent with
the first three quarters of 2003."
Gross margin on product revenues in the fourth quarter of 2003 was 55%. The
current quarter included approximately $1.2 million of inventory write-offs
associated with discontinued product lines, raw material quality issues and
product packaging changes made to accommodate the direct sales and marketing of
the INTEGRA Dermal Regeneration Template product line and discretionary
operating expenses. Our gross margin was also negatively affected by the
appreciation in the euro and British pound. Starting in the first quarter of
2004, we expect our direct sale and marketing of the INTEGRA Dermal Regeneration
Template product line to improve our gross margin, partially offsetting any
continued negative effect of a strong euro and pound.
Research and development expense increased $2.3 million in the fourth quarter of
2003 to $4.8 million. This increase was primarily due to approximately $0.9
million of incremental costs incurred in connection with the closing of our San
Diego research center and the transfer of many of its activities to other of our
facilities, a $0.4 million in-process research and development charge taken in
connection with the acquisition of Reconstructive Technologies, Inc., and $0.3
million of accelerated spending on sponsored clinical research and publications.
Sales and marketing expense increased by $4.6 million to $11.3 million in the
fourth quarter of 2003, and as a percentage of product revenue increased from
20% in the fourth quarter of 2002 to 24% in the current period. This increase in
sales and marketing expense as a percentage of product revenue is due to
increased discretionary spending in anticipation of increased revenues in future
periods. We incurred significant costs to expand our sales and marketing
infrastructure, particularly in our plastic and reconstructive surgery
organization.
General and administrative expense increased $3.5 million in the fourth quarter
of 2003 to $8.0 million. The increase resulted primarily from a $2.0 million
donation to the Integra Foundation, and $0.6 million of costs related to
discretionary compensation programs.
We reported net interest income of $81,000 in the fourth quarter of 2003, as
compared to $727,000 in the prior year period. This change resulted primarily
from interest expense associated with the $120.0 million of contingent
convertible subordinated notes that we issued in March and April of 2003.
Other income increased to $2.0 million as a result of the termination payment
received from ETHICON, Inc.
Our effective tax rate increased to 37.8% for 2003 primarily as a result of a
change in the geographic mix of taxable income for 2003, including the effects
of the additional revenue and gains associated with the termination of our
distribution agreement with ETHICON Inc.
The Company's cash and investments totaled $206.7 million at December 31, 2003.
We are revising our expectations for revenues, product revenues, gross margin
and earnings per share for 2004 and providing our initial guidance for 2005. We
are increasing our guidance for total revenues to between $215 and $220 million
in 2004 and $250 and $260 million in 2005. Consolidated gross margin is
expected to increase to 61% and 63% of product revenues in 2004 and 2005,
respectively. Excluding a potential in-process research and development charge
related to a $1.5 million milestone payment that may become due under the terms
of a product development agreement, we expect our earnings to be within a range
of $1.08 to $1.14 per share in 2004 and $1.35 to $1.40 per share in 2005. Our
guidance for the first quarter of 2004 is for total revenues in the range of
$50 to $52 million and earnings per share of $0.23 to $0.24.
Our guidance incorporates the expected impact of our recently announced
acquisitions of the Sparta and the R&B product lines. In accordance with our
usual practice, our expectations for 2004 and 2005 financial performance do not
include the impact of acquisitions or other strategic corporate transactions
that have not yet closed.
We have scheduled a conference call for 9:00 am EST today, February 27, 2004,
to discuss the financial results for the fourth quarter of 2003 and to further
discuss forward-looking financial guidance. The call is open to all listeners
and will be followed by a question and answer session. Access to the live call
is available by dialing (973) 935-8511 or through a listen-only webcast via a
link provided on the home page of Integra's website at www.Integra-LS.com. A
replay of the conference call will be accessible starting one hour following
the live event. Access to the replay is available through March 12, 2004 by
dialing (973) 341-3080 access code 4418658) or through the webcast accessible
on our home page.
Integra LifeSciences Holdings Corporation is a diversified medical technology
company that develops, manufactures, and markets medical devices for use in a
variety of applications. The primary applications for our products are
surgery. Integra is a leader in applying the principles of biotechnology to
medical devices that improve patients' quality of life. Our corporate
headquarters are in Plainsboro, New Jersey, and we have manufacturing and
research facilities located throughout the world. We have approximately 880
permanent employees. Please visit our Website at (http://www.Integra-LS.com).
This news release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
include, but are not limited to, statements concerning future financial
performance, including projections for revenues, gross margins, operating
expenses, income tax rates, earnings per share and future acquisitions. Such
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from predicted or expected results. Among
other things, our ability to maintain relationships with customers of acquired
entities, physicians' willingness to adopt our recently launched and planned
products and our ability to secure regulatory approval for products in
development may adversely affect our future product revenues; our ability to
increase sales and product volumes and changes in foreign currency exchange
rates may adversely affect our future gross margins; our ability to integrate
recently acquired businesses may affect our operating expenses; the geographic
mix of our taxable income may adversely affect our income tax rates; and our
ability to integrate acquired businesses, increase product sales and gross
margins, and control non-product costs may affect our earnings per share. In
addition, the economic, competitive, governmental, technological and other
factors identified under the heading "Risk Factors" included in the Business
section of Integra's Annual Report on Form 10-K for the year ended December 31,
2002 and information contained in subsequent filings with the Securities and
Exchange Commission could affect actual results.
Regulation G, "Conditions for Use of Non-GAAP Financial Measures," and other
provisions of the Securities Exchange Act of 1934, as amended, define and
prescribe the conditions for the use of certain non-GAAP financial information.
In this news release, we provide "growth in product revenues excluding private
label products and recently acquired product lines", which is a non-GAAP
financial measure. A reconciliation of this non-GAAP financial measure to the
most comparable GAAP measure is provided in the tables of financial information
contained at the end of this news release.
Non-GAAP financial measures should not be relied upon to the exclusion of GAAP
financial measures. Management believes that this non-GAAP financial measure is
important supplemental information to investors which reflects an additional
way of viewing aspects of our operations that, when viewed with our GAAP
results and the accompanying reconciliations, provide a more complete
understanding of factors and trends affecting our ongoing business and
operations. Management strongly encourages investors to review our financial
statements and filed reports in their entirety and to not rely on any single
financial measure. Because non-GAAP financial measures are not standardized, it
may not be possible to compare these financial measures with other companies'
non-GAAP financial measures having the same or similar names.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED FINANCIAL RESULTS
(In thousands, except per share data)
(UNAUDITED)
Statement of Operations Data:
Three Months Twelve Months
E Ended December 31, Ended December 31,
2003 2002 2003 2002
Product revenue $46,861 $34,102 $166,695 $112,625
Other revenue 12,164 1,159 18,904 5,197
Total revenue 59,025 35,261 185,599 117,822
Cost of product revenue 20,935 14,168 70,597 45,772
Research and development 4,371 2,471 12,414 9,189
In-process research
and development 400 -- 400 2,328
Sales and marketing 11,349 6,798 38,097 25,118
General and administrative 8,007 4,539 21,364 14,584
Amortization 968 505 3,080 1,644
Total costs and expenses 46,030 28,481 145,952 98,635
Operating income 12,995 6,780 39,647 19,187
Interest income, net 81 727 471 3,535
Other income (expense), net 1,962 (18) 3,071 3
Income before income taxes 15,038 7,489 43,189 22,725
Provision for income taxes 5,867 (17,885) 16,32 (12,552)
Net income $ 9,171 $25,374 $26,861 $35,277
Diluted earnings per share $ 0.30 $ 0.83 $ 0.88 $ 1.14
Diluted weighted average
common shares outstanding 30,660 30,659 30,468 30,895
Condensed Balance Sheet Data:
December 31, December 31,
2003 2002
Cash and marketable securities,
including non-current portion $206,743 $132,311
Accounts receivable, net 28,936 19,412
Inventory, net 41,046 28,502
Total assets 412,525 274,668
Current liabilities 20,082 21,921
Long-term debt 119,257 --
Total liabilities 143,994 27,071
Stockholders' equity 268,530 247,597
Reconciliation of non-GAAP financial measures to the most comparable GAAP
measure:
A. Annual year-over-year growth in product revenues excluding private label
products and recently acquired product lines
Excluding revenues attributable to private label product lines and to product
lines acquired since the beginning of 2002, product revenues for the year ended
December 31, 2003 increased by $16.1 million, or 19%, over 2002.
Year Ended Increase
December 31, (Decrease)
2003 2002 $ %
-------- -------- ------ -----
($ in thousands)
Total product revenues, as reported $166,695 $112,625 $54,070 48%
Less: Product revenues acquired in 2003 24,476 -- 24,476 N/A
Product revenues acquired in 2002 20,739 7,607 13,132 173%
Private label product revenues(1) 19,225 18,895 330 2%
-------- -------- ------ -----
Product revenues excluding
acquired products and private
label products $102,255 $ 86,123 $16,132 19%
(1) Excludes private label product revenues already reported in "Product
revenues acquired in 2002" and "Product revenues acquired in 2003".
B. Excluding revenues attributable to private label product lines and to
product lines acquired since the beginning of the fourth quarter of 2002,
fourth quarter product revenues increased by $3.8 million, or 14%, over the
fourth quarter of 2002.
Quarter Ended Increase
December 31, (Decrease)
2003 2002 $ %
-------- -------- ------ -----
($ in thousands)
Total product revenues, as reported $ 46,861 $ 34,102 $12,759 37%
Less: Product revenues acquired in 2003 8,595 -- 8,595 N/A
Product revenues acquired in the
fourth quarter of 2002 1,914 1,185 729 62%
Private label product revenues 5,648 5,978 (330) (6%)
-------- -------- ------ -----
Product revenues excluding
acquired products and
private label products $ 30,704 $ 26,939 $ 3,765 14%