IRVINE, Calif., Oct. 25 /PRNewswire-FirstCall/ -- Edwards Lifesciences Corporation , the world leader in products and technologies to treat advanced cardiovascular disease, today reported a net loss for the quarter ended September 30, 2005 of $4.4 million, or $0.07 per diluted share, compared to net income of $12.4 million, or $0.20 per diluted share, for the same period in 2004. Adjusted net income, which excludes the special items detailed in the reconciliation tables below, was $29.0 million compared to $23.5 million in the comparable period of the previous year. Adjusted earnings per diluted share grew 21.1 percent to $0.46 per share, compared to $0.38 per share for the same period last year.
Third quarter net sales increased 7.2 percent to $240.9 million, compared to $224.8 million in the same quarter last year. Foreign exchange (FX) contributed $1.5 million and was more than offset by discontinued businesses, resulting in underlying sales growth of 8.2 percent.
“We are pleased to report another solid quarter for Edwards Lifesciences, led by strong sales growth in our leading Heart Valve Therapy and Critical Care franchises,” said Michael A. Mussallem, chairman and CEO. “Consistent performance around the globe, with particular strength in the U.S., continues to drive increased sales growth.”
Sales Results
For the third quarter, the company reported Heart Valve Therapy sales of $112.9 million, an 11.8 percent increase compared to the same quarter last year. “Our innovative tissue heart valve and repair products continued to drive market share gains this quarter,” said Mussallem. “In the U.S., Heart Valve Therapy sales grew 15 percent due to the continuing penetration of PERIMOUNT Magna and ThermaFix. Additionally this quarter, we introduced the Magna mitral heart valve in Europe and look forward to its U.S. market launch in the first half of 2006, pending regulatory approval.”
Critical Care sales of $78.1 million grew 8.5 percent compared to last year’s quarter. Growth was due primarily to strong pressure monitoring sales resulting from market share gains and sales of advanced technology catheters.
Cardiac Surgery Systems sales for the third quarter were $27.4 million compared to $27.5 million for the same period last year, as the expected difficult year-over-year comparison of TMR sales and the impact of discontinued businesses more than offset cannula sales growth and FX gains.
Vascular sales increased to $15.6 million and grew 9.1 percent compared to the same period in 2004. Third quarter sales of LifeStent products were slightly more than $2 million, and fourth quarter sales are expected to be $3 million.
Sales of Other Distributed Products declined to $6.9 million in the quarter compared to $10.0 million in the year ago period, due primarily to the discontinued pacemaker business in Japan.
Domestic and international sales for the third quarter were $113.0 million and $127.9 million, respectively.
Additional Operating Results
For the quarter, Edwards’ gross profit margin increased to 62.3 percent from 60.9 percent in the same period last year, primarily due to the increase in sales of higher margin heart valve products.
Selling, general and administrative expenses were 35.7 percent of sales for the quarter, or $85.9 million, compared to 35.5 percent of sales in the year ago period. Research and development (R&D) expenses of $24.0 million increased 9.6 percent compared to the prior year’s quarter, primarily attributable to increased investments in percutaneous valve programs.
During the quarter, the company recorded a $21.4 million net pretax special charge, primarily related to a previously announced $15.0 million contribution to the Edwards Lifesciences charitable fund, and a write-down of an investment in an unconsolidated affiliate. In addition to these special charges, the company also recorded a $15.8 million tax expense related to a distribution of approximately $260 million from its foreign affiliates, and a $1.2 million pretax charge for an in-process R&D expense associated with a technology acquisition.
Long-term debt at September 30 was $251.5 million, resulting in a debt-to-cap ratio of 27.6 percent. Free cash flow generated during the quarter was $43.2 million, which is defined as cash flow from operating activities of $39.0 million minus capital expenditures of $10.8 million, plus $15.0 million related to the charitable fund contribution.
In the quarter, the company repurchased approximately 460,000 shares of common stock for $20.4 million.
Nine-Month Results
For the nine months ended September 30, 2005, the company recorded net income of $40.7 million compared to a net loss of $24.2 million for the same period in 2004. Excluding special items detailed in the reconciliation tables below, net income was $91.4 million compared to $75.2 million for the same period last year. Adjusted earnings per diluted share grew 19.8 percent to $1.45 per share, compared to $1.21 per diluted share for the same period last year.
Net sales for the first nine months of 2005 totaled $748.2 million, an increase of 7.7 percent over the same period last year. Foreign exchange contributed $12.0 million to the growth and was more than offset by discontinued businesses, resulting in an underlying year-to-date sales growth rate of 8.7 percent.
Domestic and international sales for the nine months were $343.2 million and $405.0 million, respectively.
Free cash flow generated in the first nine months was $103.7 million, calculated as cash flow from operating activities of $92.5 million minus capital expenditures of $26.6 million, plus special items totaling $37.8 million.
2005 Outlook
“Based on our strong year-to-date performance, we expect to meet or exceed all of our financial goals this year,” said Mussallem. “For 2005, we now expect total sales of approximately $1 billion, gross profit margin to be slightly above 62 percent of sales, net income growth of more than 18 percent excluding the impact of special items, and free cash flow of substantially more than $125 million. And, at current FX levels and excluding special items, we are comfortable with the First Call mean EPS estimates for both the fourth quarter and full year 2005.
“The sales growth in our leading franchises demonstrates the underlying strength of Edwards’ base businesses, and together with our near-term initiatives, moves us closer to achieving consistent double-digit sales growth,” concluded Mussallem. “Additionally, the potential of our innovative percutaneous valve technologies to address the needs of a large, untreated patient population suffering from heart valve disease represents a truly transformational growth opportunity for Edwards Lifesciences. We look forward to providing additional details about our growth strategy and 2006 outlook at our upcoming Investor Conference next month.”
2005 Investor Conference
Edwards Lifesciences will be hosting its 2005 Investor Conference on November 29 and 30, 2005 at its corporate headquarters in Irvine, California. Additional information about this event is available at http://www.edwards.com/investorconference.
About Edwards Lifesciences
Edwards Lifesciences, a leader in advanced cardiovascular disease treatments, is the number-one heart valve company in the world and the global leader in acute hemodynamic monitoring. Headquartered in Irvine, Calif., Edwards focuses on specific cardiovascular opportunities including heart valve disease, peripheral vascular disease and critical care technologies. The company’s global brands, which are sold in approximately 100 countries, include Carpentier-Edwards, Cosgrove-Edwards, Fogarty, LifeStent, PERIMOUNT and Swan-Ganz. Additional company information can be found at www.edwards.com.
Conference Call and Webcast Information
Edwards Lifesciences will be hosting a conference call today at 5:00 p.m. EDT to discuss its third quarter results. To participate in the conference call, dial (877) 407-8037 or (201) 689-8037. For 72 hours following the call, an audio replay can be accessed by dialing (877) 660-6853 or (201) 612-7415 and using account number 2995 and conference number 172895. The call will also be available via live or archived webcast on the “Investor Relations” section of the Edwards’ web site at www.edwards.com or www.edwards.com/InvestorRelations.
This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to substantial risks and uncertainties including, but not limited to, the ability to sustain strong sales growth and/or drive market share gains in the Heart Valve Therapy and Critical Care franchises; the continuing penetration of Magna and ThermaFix; the introduction of the Magna mitral heart valve in Europe and the U.S.; the expectation of fourth quarter LifeStent sales of $3 million; the ability to meet or exceed 2005 financial goals including $1 billion in sales, a gross profit margin above 62 percent of sales, net income growth of more than 18 percent excluding the impact of special items, and free cash flow of substantially more than $125 million; the ability to achieve the First Call mean EPS estimates for both the fourth quarter and full year 2005; the ability to achieve consistent double-digit sales growth; the potential of the company’s innovative percutaneous valve technologies to address a large, untreated patient population and the transformational growth opportunity these technologies represent; and more generally, the ability to obtain regulatory approvals for and market new products; the ability to generate and maintain sufficient cash resources to increase investments in the company’s business and repay debt; the success and timing of new product launches; the impact of currency exchange rates; the timing or results of pending or future clinical trials; actions by the U.S. Food and Drug Administration and other regulatory agencies; technological advances in the medical field; product demand and market acceptance; changing conditions in the economy in general and in the healthcare industry; and other risks detailed in the company’s filings with the Securities and Exchange Commission including its Annual Report on Form 10-K for the year ended December 31, 2004. These forward-looking statements are based on estimates and assumptions made by management of the company and are believed to be reasonable, though they are inherently uncertain and difficult to predict. Actual results or experience could differ materially from that expressed or implied by forward-looking statements.
Edwards, PERIMOUNT Magna, Magna and ThermaFix are trademarks of Edwards Lifesciences Corporation. Edwards Lifesciences, Carpentier-Edwards, Cosgrove-Edwards, Fogarty and Swan-Ganz are trademarks of Edwards Lifesciences Corporation and are registered in the U.S. Patent and Trademark Office. LifeStent is a trademark of Edwards Lifesciences AG and is registered in the United States Patent and Trademark Office.
EDWARDS LIFESCIENCES CORPORATION Unaudited Consolidated Statements of Operations Three Months Ended Nine Months Ended Sept. 30, Sept. 30, (in millions, except per share data) 2005 2004 2005 2004 Net sales $240.9 $224.8 $748.2 $694.4 Cost of goods sold 90.9 87.9 285.0 279.0 Gross profit 150.0 136.9 463.2 415.4 Selling, general and administrative expenses 85.9 79.7 261.6 237.2 Research and development expenses 24.0 21.9 73.2 63.6 Purchased in-process research and development expenses 1.2 12.3 1.2 93.3 Special charges, net 21.4 -- 47.0 12.3 Interest expense, net 2.2 3.4 8.3 10.7 Other expenses (income), net -- 0.1 (1.3) 2.3 Income (loss) before provision for income taxes 15.3 19.5 73.2 (4.0) Provision for income taxes 19.7 7.1 32.5 20.2 Net income (loss) ($4.4) $12.4 $40.7 ($24.2) Weighted average common shares outstanding used to calculate basic earnings per share 59.8 59.7 59.6 59.6 Basic earnings (loss) per share ($0.07) $0.21 $0.68 ($0.41) Weighted average common shares outstanding used to calculate diluted earnings per share 59.8 62.1 62.4 59.6 Diluted earnings (loss) per share ($0.07) $0.20 $0.65 ($0.41) Operating Statistics As a percentage of net sales: Gross profit 62.3% 60.9% 61.9% 59.8% Selling, general and administrative expenses 35.7% 35.5% 35.0% 34.2% Research and development expenses 10.0% 9.7% 9.8% 9.2% Income (loss) before provision for income taxes 6.4% 8.7% 9.8% (0.6%) Net income (loss) (1.8%) 5.5% 5.4% (3.5%) Effective tax rate 128.8% 36.4% 44.4% (505.0%) Reconciliation of Diluted Earnings per Share Net income (loss) from above ($4.4) $12.4 $40.7 ($24.2) Adjustment for items included in net income related to the contingent convertible debt -- -- -- -- Adjusted net income (loss) ($4.4) $12.4 $40.7 ($24.2) Weighted average common shares outstanding used to calculate diluted earnings per share excluding contingent convertible debt 59.8 62.1 62.4 59.6 Weighted average common shares outstanding for the contingent convertible debt -- -- -- -- Weighted average common shares outstanding used to calculate diluted earnings per share including the contingent convertible debt 59.8 62.1 62.4 59.6 Diluted earnings (loss) per share including the contingent convertible debt ($0.07) $0.20 $0.65 ($0.41) Note: Numbers may not foot due to rounding Edwards Lifesciences Corporation Unaudited Balance Sheets (in millions) September 30, December 31, 2005 2004 ASSETS Current assets Cash and cash equivalents $88.0 $48.9 Accounts and other receivables, net 125.9 119.4 Inventories, net 135.5 127.7 Deferred income taxes 13.9 21.1 Prepaid expenses and other current assets 67.1 50.4 Total current assets 430.4 367.5 Property, plant and equipment, net 192.1 201.7 Goodwill 337.7 337.7 Other intangible assets, net 141.8 152.6 Investments in unconsolidated affiliates 14.5 20.6 Deferred income taxes 18.9 22.3 Other assets 9.6 10.3 Total assets $1,145.0 $1,112.7 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable and accrued liabilities $204.6 $195.4 Long term debt 251.5 267.1 Other non current liabilities 29.7 22.1 Stockholders’ equity Common stock 65.4 64.2 Additional contributed capital 528.0 500.6 Retained earnings 264.7 224.1 Accumulated other comprehensive income (22.5) (20.8) Common stock in treasury, at cost (176.4) (140.0) Total stockholders’ equity 659.2 628.1 Total liabilities and equity $1,145.0 $1,112.7 Notes to the Unaudited Reconciliation Schedules
Certain disclosures prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) contained in this discussion are accompanied by disclosures that are not prepared in conformity with GAAP. These non-GAAP disclosures exclude certain items from the GAAP presentations. Management has determined that these non-GAAP disclosures provide (1) a more meaningful, consistent comparison of the Company’s operating results for the periods presented, on a basis consistent with management’s means of evaluating operating performance, and (2) additional information for investors to assess changes between periods that better reflect the Company’s ongoing operations. The items included in these non-GAAP disclosures, and the basis for excluding them, are set forth below:
In-Process Research and Development -- The Company incurred purchased in-process research and development expenses related to a technology acquisition for $1.2 million in the third quarter of 2005. In the first and third quarters of 2004, the Company incurred purchased in-process research and development expenses of $81.0 million for the acquisition of PVT and $12.3 million for the purchase of ev3, Inc. mitral valve repair program, respectively. Given the materiality and unusual nature of these expenses relative to the operating results for the periods presented, these expenses have been excluded in the Adjusted Unaudited Consolidated Statements of Operations and the Unaudited Reconciliation of Consolidated Statements of Operations.
Other Items -- The Company incurred certain special charges and credits in 2005 and 2004, related to the following:
1) a $22.8 million charge for restructuring the 3F agreements in the second quarter of 2005 2) a $15.8 million tax expense in the third quarter of 2005 related to repatriation 3) a $15.0 million contribution to Edwards Lifesciences charitable fund in the third quarter of 2005 4) the impairment of certain investments for $4.8 million and $8.9 million in the second and third quarters of 2005, respectively, and $1.7 million in the second quarter of 2004 5) the 2004 termination of its Lifepath AAA program for $8.4 million and its Interventional Cardiology products for $2.2 million in the first quarter of 2004 6) a $7.7 million gain on the sale of the Japan Perfusion Products business in the first quarter of 2005 7) the Japan realignment for $5.7 million in the first quarter of 2005 8) an intellectual property litigation gain for $2.5 million in the third quarter of 2005
Given the materiality and unusual nature of these items relative to the operating results for the periods presented, these items have been excluded in the Adjusted Unaudited Consolidated Statements of Operations and the Unaudited Reconciliation of Consolidated Statements of Operations.
Results of Discontinued Businesses -- The Company has exited certain businesses during the periods presented. In light of the significance of the impact these businesses had on the profitability of the Company, the results of these businesses have been detailed in the Reconciliation of Sales by Product Line and Region.
Foreign Exchange -- Fluctuation in exchange rates impacts the comparative results and growth rates of the Company’s underlying business. The impact of foreign exchange rate fluctuations have been detailed in the Reconciliation of Sales by Product Line and Region. Management believes that excluding these impacts helps explain changes in the fundamental business operations.
EDWARDS LIFESCIENCES CORPORATION Adjusted Unaudited Consolidated Statements of Operations Excluding Special Items, Net Three Months Ended Nine Months Ended Sept. 30, Sept. 30, (in millions, except per share data) 2005 2004 2005 2004 Net sales $240.9 $224.8 $748.2 $694.4 Cost of goods sold 90.9 87.9 285.0 279.0 Gross profit 150.0 136.9 463.2 415.4 Selling, general and administrative expenses 85.9 79.7 261.6 237.2 Research and development expenses 24.0 21.9 73.2 63.6 Interest expense, net 2.2 3.4 8.3 10.7 Other expense (income), net -- 0.1 (1.3) 2.3 Income before provision for income taxes 37.9 31.8 121.4 101.6 Provision for income taxes 8.9 8.3 30.0 26.4 Adjusted net income $29.0 $23.5 $91.4 $75.2 Weighted average common shares outstanding used to calculate basic earnings per share 59.8 59.7 59.6 59.6 Adjusted basic earnings per share $0.48 $0.39 $1.53 $1.26 Weighted average common shares outstanding used to calculate diluted earnings per share 65.2 64.8 65.1 64.7 Adjusted diluted earnings per share $0.46 $0.38 $1.45 $1.21 Operating Statistics As a percentage of net sales: Gross profit 62.3% 60.9% 61.9% 59.8% Selling, general and administrative expenses 35.7% 35.5% 35.0% 34.2% Research and development expenses 10.0% 9.7% 9.8% 9.2% Income before provision for income taxes 15.7% 14.1% 16.2% 14.6% Adjusted net income 12.0% 10.5% 12.2% 10.8% Effective tax rate 23.5% 26.1% 24.7% 26.0% Reconciliation of Diluted Earnings per Share Adjusted net income from above $29.0 $23.5 $91.4 $75.2 Adjustment for items included in net income related to the contingent convertible debt 1.0 1.0 3.0 3.0 Adjusted net income $30.0 $24.5 $94.4 $78.2 Weighted average common shares outstanding used to calculate diluted earnings per share excluding contingent convertible debt 62.5 62.1 62.4 62.0 Weighted average common shares outstanding for the contingent convertible debt 2.7 2.7 2.7 2.7 Weighted average common shares outstanding used to calculate diluted earnings per share including the contingent convertible debt 65.2 64.8 65.1 64.7 Adjusted diluted earnings per share including the contingent convertible debt $0.46 $0.38 $1.45 $1.21 Note: Numbers may not foot due to rounding EDWARDS LIFESCIENCES CORPORATION Unaudited Reconciliation of Consolidated Statements of Operations Q3 2005 and YTD 2005 (in millions, except per share data) Special Items Q3 2005 Charitable QUARTER TO DATE GAAP Fund Investment As Reported Contribution Impairments Net sales $240.9 Cost of goods sold 90.9 Gross profit 150.0 Selling, general and administrative expenses 85.9 Research and development expenses 24.0 Purchased in-process R&D expenses 1.2 Special charges, net 21.4 (15.0) (8.9) Interest expense, net 2.2 Other expenses (income), net -- Income before provision for income taxes 15.3 15.0 8.9 Provision for income taxes 19.7 6.0 -- Net income (loss) $(4.4) $9.0 $8.9 EDWARDS LIFESCIENCES CORPORATION Unaudited Reconciliation of Consolidated Statements of Operations Q3 2005 and YTD 2005 (in millions, except per share data) Special Items QUARTER TO DATE Intellectual Purchased Property In-Process Repatriation Litigation R&D Taxes Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Research and development expenses Purchased in-process R&D expenses (1.2) Special charges, net 2.5 Interest expense, net Other expenses (income), net Income before provision for income taxes (2.5) 1.2 -- Provision for income taxes (1.0) -- (15.8) Net income (loss) $(1.5) $1.2 $15.8 EDWARDS LIFESCIENCES CORPORATION Unaudited Reconciliation of Consolidated Statements of Operations Q3 2005 and YTD 2005 (in millions, except per share data) Q3 2005 QUARTER TO DATE Proforma As Adjusted Net sales $240.9 Cost of goods sold 90.9 Gross profit 150.0 Selling, general and administrative expenses 85.9 Research and development expenses 24.0 Purchased in-process R&D expenses -- Special charges, net -- Interest expense, net 2.2 Other expenses (income), net -- Income before provision for income taxes 37.9 Provision for income taxes 8.9 Net income (loss) $29.0 Special Items YTD Q3'05 Restructure YEAR TO DATE GAAP 3F Investment As Reported Agreements Impairments Net sales $748.2 Cost of goods sold 285.0 Gross profit 463.2 Selling, general and administrative expenses 261.6 Research and development expenses 73.2 Purchased in-process R&D expenses 1.2 Special charges, net 47.0 (22.8) (13.7) Interest expense, net 8.3 Other expenses (income), net (1.3) Income before taxes 73.2 22.8 13.7 Provision for income taxes 32.5 9.2 -- Net income (loss) $40.7 $13.6 $13.7 Special Items Gain on sale of Japan YEAR TO DATE Charitable Perfusion Fund Products Japan Contribution Business Realignment Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Research and development expenses Purchased in-process R&D expenses Special charges, net (15.0) 7.7 (5.7) Interest expense, net Other expenses (income), net Income before taxes 15.0 (7.7) 5.7 Provision for income taxes 6.0 (3.2) 2.3 Net income (loss) $9.0 $(4.5) $3.4 Special Items YEAR TO DATE Intellectual Purchased Property In-Process Repatriation Litigation R&D Taxes Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Research and development expenses Purchased in-process R&D expenses (1.2) Special charges, net 2.5 Interest expense, net Other expenses (income), net Income before taxes (2.5) 1.2 -- Provision for income taxes (1.0) -- (15.8) Net income (loss) $(1.5) $1.2 $15.8 YTD Q3'05 YEAR TO DATE Proforma As Adjusted Net sales $748.2 Cost of goods sold 285.0 Gross profit 463.2 Selling, general and administrative expenses 261.6 Research and development expenses 73.2 Purchased in-process R&D expenses -- Special charges, net -- Interest expense, net 8.3 Other expenses (income), net
