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 28, 2007
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)
Registrant's telephone number, including area code: (609) 275-0500
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On February 28, 2007, Integra LifeSciences Holdings Corporation issued a press
release announcing financial results for the quarter and year ended December 31,
2006. A copy of the press release is attached as Exhibit 99.1 to this Current
Report on Form 8-K and is incorporated by reference into this Item.
The information contained in Item 2.02 of this Current Report on Form 8-K
(including the press release) is being furnished and shall not be deemed "filed"
for the purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or otherwise subject to the liabilities of that
Section. The information contained in Item 2.02 of this Current Report on Form
8-K (including the press release) shall not be incorporated by reference into
any registration statement or other document pursuant to the Securities Act of
1933, as amended, or the Exchange Act, except as shall be expressly set forth by
specific reference in any such filing.
DISCUSSION OF ADJUSTED FINANCIAL MEASURES
In addition to our GAAP results, we provide adjusted net income and adjusted
earnings per diluted share. Adjusted net income consists of net income excluding
equity-based compensation charges, acquisition-related charges, charges incurred
in connection with the Company's exchange offer of convertible notes and the
termination of the Company's interest rate swap agreement, facility
consolidation, manufacturing transfer and system integration charges, certain
employee termination and related costs, charges associated with discontinued
product lines, and, on a quarterly basis, an income tax expense adjustment
related to significant changes in the effective income tax rate during the year.
Adjusted earnings per diluted share is calculated by dividing adjusted net
income for diluted earnings per share by adjusted diluted weighted average
shares outstanding. Because all equity-based compensation expense is added back
in the calculation of adjusted net income, the calculation of diluted weighted
average shares outstanding is adjusted to exclude the benefits of unearned
equity-based compensation costs attributable to future services and not yet
recognized in the financial statements. These unearned equity-based compensation
costs are treated as proceeds assumed to be used to repurchase shares, based on
the average trading price of Integra common stock during the period reported, in
the calculation of GAAP diluted weighted average shares outstanding.
Integra believes that the presentation of adjusted net income and adjusted
earnings per diluted share provides important supplemental information to
management and investors regarding non-cash expenses and financial and business
trends relating to the Company's financial condition and results of operations.
Management uses non-GAAP financial measures in the form of adjusted net income
and adjusted earnings per diluted share when evaluating operating performance
because we believe that the inclusion or exclusion of the items described below,
for which the amounts and/or timing may vary significantly depending upon the
Company's acquisition and restructuring activities, provides a supplemental
measure of our operating results that facilitates comparability of our operating
performance from period to period, against our business model objectives, and
against other companies in our industry. We have chosen to provide this
information to investors so they can analyze our operating results in the same
way that management does and use this information in their assessment of our
core business and the valuation of our Company.
Internally, adjusted net income and adjusted earnings per diluted share are
significant measures used by management for purposes of:
o supplementing the financial results and forecasts reported to the Company's
board of directors;
o evaluating, managing and benchmarking the operating performance of the
Company;
o establishing internal operating budgets;
o determining compensation under bonus or other incentive programs;
o enhancing comparability from period to period;
o comparing performance with internal forecasts and targeted business models;
and
o evaluating and valuing potential acquisition candidates.
Adjusted net income reflects net income adjusted for the following items:
o EQUITY-BASED COMPENSATION. Equity-based compensation relates primarily to
stock options and restricted stock issued by the Company. Although recurring in
nature, equity-based compensation expense is heavily influenced by management
decisions regarding equity-based awards that were granted at a time when
different accounting rules applied to such awards and is a non-cash expense that
varies in amount from period to period and is affected by market forces that are
difficult to predict and are not within the control of management, such as the
price of our common stock. Accordingly, management excludes this item from its
internal operating forecasts and models and as it assesses the Company's
performance. Management believes that its presentation and disclosure of this
non-GAAP disclosure is consistent with the guidance included within Staff
Accounting Bulletin No. 107 and exclusion of this item is consistent with the
guidance in Staff Accounting Bulletin No. 107.
o ACQUISITION-RELATED CHARGES. Acquisition-related charges include in-process
research and development charges, charges related to discontinued research and
development projects for product technologies that were made redundant by an
acquisition and inventory fair value purchase accounting adjustments. Inventory
fair value purchase accounting adjustments consist of the increase to cost of
goods sold that occur as a result of expensing the "step up" in the fair value
of inventory that we purchased in connection with acquisitions as that inventory
is sold during the financial period. Although recurring given the ongoing
character of our acquisition program, these acquisition-related charges are not
factored into the evaluation of our performance by management after completion
of acquisitions because they are of a temporary nature, they are not related to
our core operating performance and the frequency and amount of such charges vary
significantly based on the timing and magnitude of our acquisition transactions
as well as the level of inventory on hand at the time of acquisition.
o FACILITY CONSOLIDATION, MANUFACTURING TRANSFER AND SYSTEM INTEGRATION CHARGES.
These charges, which include employee termination and other costs associated
with exit or disposal activities and costs associated with the worldwide
implementation of a single enterprise resource planning system, result from
rationalizing our existing manufacturing, distribution and administrative
infrastructure. Many of these cost-saving and efficiency-driven activities are
identified as opportunities in connection with acquisitions that provide the
Company with additional capacity or economies of scale. Although recurring in
nature given management's ongoing review of the efficiency of our manufacturing,
distribution and administrative facilities and operations, management excludes
these items when evaluating the operating performance of the Company because the
frequency and amount of such charges vary significantly based on the timing and
magnitude of the Company's rationalization activities and are, in some cases,
dependent upon opportunities identified in acquisitions, which also vary in
frequency and magnitude.
o EMPLOYEE TERMINATION AND RELATED COSTS. Employee termination and related costs
consist of charges related to significant reductions in force that are not
initiated in connection with facility consolidations or manufacturing transfers.
Management excludes these items when evaluating Integra's operating performance
because these amounts do not affect our core operations and because of the
infrequent and large-scale nature of these activities.
o CONVERTIBLE NOTE EXCHANGE OFFER CHARGES / SWAP TERMINATION CHARGES. The
convertible note exchange offer charges consist of fees paid in connection with
the exchange offer and the write-off of the unamortized debt issuance costs
associated with the old contingent convertible notes that were exchanged. The
interest rate swap termination charges result from the write-off of the
unamortized mark-to-market fair value adjustment recorded under hedge accounting
against the contingent convertible notes. The Company discontinued hedge
accounting following termination of the interest rate swap. Management excludes
these items when evaluating Integra's operating performance because these
amounts do not affect our core operations and because of the infrequent and
large-scale nature of these activities.
o CHARGES ASSOCIATED WITH DISCONTINUED PRODUCT LINES. This represents a charge
taken in connection with a product line that the Company discontinued.
Management excludes this item when evaluating Integra's operating performance
because this amount does not affect our core operations and because of the
infrequent nature of this activity.
o QUARTERLY ADJUSTMENT TO INCOME TAX EXPENSE RELATED TO SIGNIFICANT CHANGES IN
THE YEAR-TO-DATE EXPECTED EFFECTIVE INCOME TAX RATE. Income tax expense is
adjusted, on a quarterly basis, to eliminate the cumulative effects in the
current quarter of significant adjustments to the year-to-date (full year)
expected effective income tax rate. Neither the year-to-date (full year)
adjusted net income nor adjusted earnings per share amounts are affected by this
latter adjustment.
o INCOME TAX EXPENSE (BENEFIT). Income tax expense is adjusted by the amount of
additional tax expense or benefit that the Company estimates that it would
record if it used non-GAAP results instead of GAAP results in the calculation of
its tax provision. Such additional tax expense or benefit is calculated at the
statutory rate applicable to jurisdictions in which such non-GAAP adjustments
relate.
The calculation of adjusted earnings per diluted share is further adjusted for
the following item:
o As noted above, in calculating adjusted net income, one of the Company's
adjustments is to add back all equity-based compensation expense determined in
accordance with SFAS 123R to be more comparable to prior years. In order to make
the 2006 presentation more comparable to prior years, the calculation of
weighted average shares outstanding on a diluted basis had to be conformed as
well. In calculating diluted earnings per share, the dilutive effect of
restricted stock and stock options on the denominator is determined through
application of the treasury stock method, and unearned equity-based compensation
is one factor that is used to calculate assumed share repurchases under the
treasury stock method. Because the unrecognized equity-based compensation
expense under SFAS 123R is higher than if no equity-based compensation charges
are assumed (which is how we calculate adjusted net income), the number of
shares that are included in the denominator of diluted earnings per share when
applying SFAS 123R is less than the number of shares that are included in our
method of reporting adjusted earnings per diluted share (i.e. in order to be
consistent, since all equity-based compensation expense was added back in the
calculation of adjusted net income, the weighted average shares used to
calculate adjusted earnings per diluted share were also adjusted so that no
unearned equity-based compensation is considered in the treasury stock method).
As a result, our calculation of adjusted earnings per diluted share is based on
a different number of shares than GAAP earnings per share.
Adjusted net income and adjusted earnings per diluted share are not calculated
in accordance with GAAP, and should be considered supplemental to, and not as a
substitute for, or superior to, financial measures calculated in accordance with
GAAP. Non-GAAP financial measures have limitations in that they do not reflect
all of the costs or benefits associated with the operations of the Company's
business as determined in accordance with GAAP. As a result, you should not
consider these measures in isolation or as a substitute for analysis of
Integra's results as reported under GAAP. Integra expects to continue to incur
expenses of a nature similar to the non-GAAP adjustments described above, and
exclusion of these items from its adjusted net income should not be construed as
an inference that all of these costs are unusual,
infrequent or non-recurring. Some of the limitations in relying on adjusted net
income and adjusted earnings per diluted share are:
o Adjusted net income does not include equity-based compensation expense
related to equity awards granted to our workforce or third parties. Our equity
incentive plans are important components of our employee incentive compensation
arrangements and are reflected as expenses in our GAAP results in accordance
with Statement of Financial Accounting Standards No. 123R, Share-Based Payment,
commencing with the first quarter of 2006. While we include the dilutive impact
of such equity awards in weighted average shares outstanding, the expense
associated with equity-based awards is excluded from adjusted net income.
o Integra periodically acquires other companies or businesses, and we expect to
continue to incur acquisition-related expenses and charges in the future. These
costs can directly impact the amount of the Company's available funds or could
include costs for aborted deals which may be significant and reduce GAAP net
income.
o Although the charges related to the restructuring of our operations and
changes to our capital structure occur on a sporadic basis and the charges
relating to the discontinued product line, the convertible note exchange offer
and the interest rate swap termination did not previously occur, they may recur
in the future and they are, in many cases, cash charges that reduce our
available cash. There is no assurance that we will not incur other similar
charges and expenditures in the future.
o All of the adjustments, other than the quarterly income tax expense adjustment
related to significant changes in the expected year-to-date effective income tax
rate, have been tax effected at Integra's actual tax rates. Depending on the
nature of the adjustments and the tax treatment of the underlying items and the
magnitude of changes in the expected year-to-date effective income tax rate from
quarter to quarter, the effective tax rate related to adjusted net income could
differ significantly from the effective tax rate related to GAAP income.
In the financial statements portion of its earnings press release for the fourth
quarter of 2006, which is attached hereto as Exhibit 99.1, the Company has
included a reconciliation of GAAP net income to adjusted net income and GAAP
earnings per diluted share to adjusted earnings per diluted share used by
management for the quarters and years ended December 31, 2006 and 2005.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
Exhibit Number Description of Exhibit
------------------- ---------------------------
99.1 Press release issued February 28, 2007 regarding earnings
for the quarter and year ended December 31, 2006
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 28, 2007 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 28, 2007 regarding earnings for
the quarter and year ended December 31, 2006