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8-K - 8-K - DJO Finance LLCd313667d8k.htm

Exhibit 99.1

 

LOGO

DJO Investor/Media Contact:

DJO Global, Inc.

David Smith

SVP and Treasurer

760.734.3075

ir@djoglobal.com

FOR IMMEDIATE RELEASE

DJO GLOBAL ANNOUNCES FINANCIAL RESULTS FOR FOURTH QUARTER AND FISCAL YEAR END 2016

Embarks on overall Business Transformation

SAN DIEGO, CA, March 8, 2017DJO Global, Inc. (“DJO” or the “Company”), a leading global provider of medical technologies designed to get and keep people moving, today announced financial results for its public reporting subsidiary, DJO Finance LLC (“DJOFL”), for the fourth quarter and fiscal year ended December 31, 2016.

Fourth Quarter Highlights

 

    Net sales were $296.5 million, reflecting a decline of 3.7% as reported and growth of 3.3% on a sales per day constant currency basis

 

    Net loss was $202.1 million, including goodwill impairment charges and non-cash inventory reserve adjustments totaling approximately $178.0 million.

 

    Adjusted EBITDA was $59.5 million

 

    Business Transformation Office established, key priorities identified for 2017 and execution underway

Full Year Highlights

 

    Net sales were $1.16 billion, reflecting 3.7% growth as reported and growth of 4.2% on a constant currency basis

 

    Net loss was $286.3 million, including goodwill impairment charges and non-cash inventory reserve adjustments totaling approximately $178.0 million.

 

    Adjusted EBITDA was $235.3 million

“We saw continued growth across our global business in 2016,” said Brady Shirley, DJO’s President and Chief Executive Officer. “That is a testament to DJO’s strong brand recognition, great products and rapid

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growth in our Surgical Implant business, as well as a talented team of employees. Looking forward, we recognize that we need to make a step change improvement in our business to strengthen our long-term financial performance. Today we are taking bold steps to transform our business by focusing on four core priorities – liquidity, profitability, customer experience and growth.”

Mr. Shirley added, “When this transformation is complete, we will look very different than we do today. We will balance our priorities of improved liquidity, profitability, customer experience and above-market growth through a more efficient and effective organization. While these actions will take time to implement, we are executing them with the appropriate sense of urgency, led by an experienced leadership team, including numerous new additions who have specific transformation expertise. I’m excited about our vision for the future and I am confident that the steps we are taking today will position us to deliver sustainable value to our customers, our shareholders and our employees in the years to come.”

Business Transformation

Today the Company announced that it has embarked on an aggressive business transformation to improve liquidity, profitability, customer experience and growth. This business transformation will focus on delivering end-to-end productivity across the Company, including removing 7% to 10% of annualized cost across the entire organization by the end of 2018. While there will be certain one-time costs and investments required as part of the transformation, the Company has identified cost savings and working capital initiatives that are expected to exceed the cost to achieve these activities.

The Company is addressing the following priorities through this transformation:

 

    Liquidity and Working Capital Improvements

 

    Organizational Effectiveness

 

    Procurement Spend Optimization

 

    Manufacturing, Distribution and Sales and Operations Planning

 

    Customer and Product Profitability Improvements

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“We are entering a new era for DJO and I am excited to help lead the overall business transformation,” said Mike Eklund, DJO’s Chief Operating Officer and Chief Financial Officer. “We have been working diligently over the last couple of months to clearly identify our performance ambitions from a business and a financial point of view. Today, we have a bottoms-up plan, including tactics, resources, leadership talent and investments, and we are in execution mode. We have a great brand, great products, positive culture, and an experienced leadership team. With that base, I am confident that we can quickly solve the challenges ahead of us and unleash the full potential of DJO’s incredible brands and deliver sustainable growth.”

Sales Results

DJOFL achieved net sales for the fourth quarter of 2016 of $296.5 million, reflecting as reported decline of 3.7%, compared with net sales of $308.0 million for the fourth quarter of 2015. Additionally, the fourth quarter of 2016 included 61 shipping days, while the comparable period in 2015 included 65 shipping days. On the basis of constant currency and selling days, sales in the fourth quarter of 2016 grew approximately 3.3% over sales in the fourth quarter of 2015. For the twelve months ended December 31, 2016, DJOFL achieved net sales of $1.16 billion, reflecting as reported growth of 3.7% and constant currency growth of 4.2% compared to net sales of $1.11 billion for the twelve months ended December 31, 2015.

Net sales for DJO’s Bracing and Vascular segment were $132.2 million in the fourth quarter of 2016, a reported decline of 7.6%, compared to the fourth quarter of 2015. On the basis of selling days, sales declined 1.5%, reflecting positive growth in the DonJoy brand offset by continued market pressures in the Dr. Comfort Diabetic Footwear business. For the full year of 2016, net sales in this segment were $522.6 million, down 0.7% compared to 2015, also reflecting growth in the DonJoy brand, offset by challenges in the Dr. Comfort business during the second half of 2016.

Net sales for DJO’s Recovery Sciences segment were $42.2 million in the fourth quarter of 2016, a decline of 3.4%, compared to the fourth quarter of 2015. On the basis of selling days, sales grew 2.9%, reflecting strong growth in our Consumer business, offset by continued pressure in our Regen business. For the full year of 2016, net sales in this segment were $157.0 million, reflecting growth of 0.5% compared to the full year of 2015.

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Net sales for the Surgical Implant segment were $48.0 million for the fourth quarter of 2016, representing 13.8% growth over net sales in the fourth quarter of 2015. On the basis of selling days, sales grew 21.3%. For the full year of 2016, net sales for the Surgical Implant segment were $174.5 million, an increase of 29.4% over 2015, driven by strong sales of each of the Company’s shoulder, knee and hip product lines.

Net sales for DJO’s International segment were $74.1 million in the fourth quarter of 2016, a decline of 6.3% over net sales in the fourth quarter of 2015. On the basis of selling days and constant currency, sales grew 2.5%. For the full year of 2016, net sales for the International segment were $301.2 million, an increase of 1.7% over 2015, or 3.4% growth on a constant currency basis, reflecting stronger sales in most direct markets, offset by continued pressure in our export markets.

Earnings Results

For the fourth quarter of 2016, DJOFL reported a GAAP net loss attributable to DJOFL of $202.1 million, compared to a net loss of $49.6 million for the fourth quarter of 2015. The increase in the net loss was due primarily to impairments of goodwill of $160.0 million related to the Company’s CMF and Vascular businesses, as well as non-cash reserve adjustments of $18.0 million primarily related to changes in inventory methodology as part of the business transformation. For the twelve months of 2016, DJOFL reported a net loss attributable to DJOFL of $286.3 million, compared to a net loss attributable to DJOFL of $340.9 million for the twelve months of 2015. As detailed in the attached financial tables, the results for the current and prior fourth quarter and twelve month periods were impacted by significant non-cash items, non-recurring items and other adjustments.

Adjusted EBITDA for the fourth quarter of 2016 was $59.5 million compared with Adjusted EBITDA of $68.9 million in the fourth quarter of 2015. Adjusted EBITDA for the twelve months of 2016 was $235.3 million compared to Adjusted EBITDA of $239.9 million for the twelve months of 2015. Including the projected future savings from cost savings programs currently underway as permitted under our credit agreement, Adjusted EBITDA for the twelve months ended December 2016 was $244.9 million compared with Adjusted EBITDA of $249.0 million for twelve months ended 2015.

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The Company defines Adjusted EBITDA as net (loss) income attributable to DJOFL plus net interest expense, income tax provision (benefit), and depreciation and amortization, further adjusted for certain non-cash items, non-recurring items and other adjustment items as permitted in calculating covenant compliance under the Company’s senior secured credit facilities (“Senior Credit Facilities”) and the indentures governing its 8.125% second lien notes and its 10.75% third lien notes. Reconciliation between net loss and Adjusted EBITDA is included in the attached financial tables.

Conference Call Information

DJO has scheduled a conference call to discuss this announcement beginning at 4:00 pm, Eastern Time Wednesday, March 8, 2017. Individuals interested in listening to the conference call may do so by dialing (866) 394-8509 (International callers please use (706) 643-6833), using the reservation code 22322226. A telephone replay will be available for 48 hours following the conclusion of the call by dialing (855) 859-2056 and using the above reservation code. The live conference call and replay will be available via the Internet at www.DJOglobal.com.

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About DJO Global

DJO Global is a leading global provider of medical technologies designed to get and keep people moving. The Company’s products address the continuum of patient care from injury prevention to rehabilitation after surgery, injury or from degenerative disease, enabling people to regain or maintain their natural motion. Its products are used by orthopaedic specialists, spine surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers and other healthcare professionals. In addition, many of the Company’s medical devices and related accessories are used by athletes and patients for injury prevention and at-home physical therapy treatment. The Company’s product lines include rigid and soft orthopaedic bracing, hot and cold therapy, bone growth stimulators, vascular therapy systems and compression garments, therapeutic shoes and inserts, electrical stimulators used for pain management and physical therapy products. The Company’s surgical division offers a comprehensive suite of reconstructive joint products for the hip, knee and shoulder. DJO Global’s products are marketed under a portfolio of brands including Aircast®, Chattanooga, CMF™, Compex®, DonJoy®, ProCare®, DJO® Surgical, Dr. Comfort® and ExosTM. For additional information on the Company, please visit www.DJOglobal.com.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements relate to, among other things, the Company’s expectations for improved liquidity, estimated cost reductions associated with the execution of its business transformation plans and improved efficiencies. The words “believe,” “will,” “should,” “expect,” “target,” “intend,” “estimate” and “anticipate,” variations of such words and similar expressions identify forward-looking statements, but their absence does not mean that a statement is not a forward-looking statement. These forward-looking statements are based on the Company’s current expectations and are subject to a number of risks, uncertainties and assumptions, many of which are beyond the Company’s ability to control or predict. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The important factors that could cause actual operating results to differ significantly from those expressed or implied by such forward-looking statements include, but are not limited to the successful execution of the Company’s business transformation plans, including achievement of planned actions to improve liquidity, improvements in

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operational effectiveness, optimization of the Company’s procurement activities, improvements in manufacturing, distribution, sales and operations planning, and actions to improve the profitability of the mix of our product and customers. Other important factors that could cause actual operating results to differ significantly from those expressed or implied by such forward-looking statements include, but are not limited to: business strategies relative to our Bracing and Vascular, Recovery Sciences, International and Surgical Implant segments; the continued growth of the markets the Company addresses and any impact on these markets from changes in global economic conditions; the impact of potential reductions in reimbursement levels and coverage by Medicare and other governmental and commercial payors; the Company’s highly leveraged financial position; the Company’s ability to successfully develop, license or acquire, and timely introduce and market new products or product enhancements; risks relating to the Company’s international operations; resources needed and risks involved in complying with government regulations and government investigations; the availability and sufficiency of insurance coverage for pending and future product liability claims; and the effects of healthcare reform, Medicare competitive bidding, managed care and buying groups on the prices of the Company’s products. These and other risk factors related to DJO are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 25, 2016. Many of the factors that will determine the outcome of the subject matter of this press release are beyond the Company’s ability to control or predict.

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DJO Finance LLC

Unaudited Condensed Consolidated Statements of Operations

(In thousands)

 

     Three Months ended
December 31,
    Twelve Months ended
December 31,
 
     2016     2015     2016     2015  

Net sales

   $ 296,490     $ 307,951     $ 1,155,288     $ 1,113,627  

Costs and operating expenses:

        

Cost of sales (exclusive of amortization see note 1)

     150,324       132,126       511,414       466,019  

Selling, general and administrative

     132,349       125,223       490,693       454,724  

Research and development

     9,253       9,955       37,710       35,105  

Amortization of intangible assets

     18,869       20,076       76,526       79,964  

Impairment of goodwill

     160,000       —         160,000       —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     470,795       287,380       1,276,343       1,035,812  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (174,305     20,571       (121,055     77,815  

Other (expense) income:

        

Interest expense, net

     (42,733     (42,733     (170,082     (172,290

Loss on modification and extinguishment of debt

     —         (171     —         (68,473

Other expense, net

     (3,266     (834     (2,534     (7,303
  

 

 

   

 

 

   

 

 

   

 

 

 
     (45,999     (43,738     (172,616     (248,066
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (220,304     (23,167     (293,671     (170,251

Income tax (benefit) provision

     (18,009     2,276       (6,853     12,256  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

     (202,295     (25,443     (286,818     (182,507

Net income (loss) from discontinued operations

     331       (23,909     1,138       (157,580
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (201,964     (49,352     (285,680     (340,087

Net income attributable to noncontrolling interests

     (162     (234     (623     (840
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to DJO Finance LLC

   $ (202,126   $ (49,586   $ (286,303   $ (340,927
  

 

 

   

 

 

   

 

 

   

 

 

 

Note 1 — Cost of sales is exclusive of amortization of intangible assets of $6,981 and $28,525 for the three months and twelve months ended December 31, 2016 and $7,785 and $30,719 for the three and twelve months ended December 31, 2015, respectively.

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DJO Finance LLC

Unaudited Condensed Consolidated Balance Sheets

(In thousands)

 

     December 31,  
     2016     2015  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 35,212     $ 48,943  

Accounts receivable, net

     178,193       172,360  

Inventories, net

     151,557       174,573  

Prepaid expenses and other current assets

     23,650       21,179  

Current assets of discontinued operations

     511       2,878  
  

 

 

   

 

 

 

Total current assets

     389,123       419,933  

Property and equipment, net

     128,019       117,273  

Goodwill

     855,626       1,018,104  

Intangible assets, net

     672,134       749,045  

Other assets

     5,536       5,174  

Non current assets of discontinued operations

     —         29  
  

 

 

   

 

 

 

Total assets

   $ 2,050,438     $ 2,309,558  
  

 

 

   

 

 

 

Liabilities and Deficit

    

Current liabilities:

    

Accounts payable

   $ 63,822     $ 58,492  

Accrued interest

     16,740       16,998  

Current portion of debt obligations

     10,550       10,550  

Other current liabilities

     113,265       102,173  

Current liabilities of discontinued operations

     —         13,371  
  

 

 

   

 

 

 

Total current liabilities

     204,377       201,584  

Long-term debt obligations

     2,392,238       2,344,562  

Deferred tax liabilities, net

     202,740       213,856  

Other long-term liabilities

     14,932       15,092  
  

 

 

   

 

 

 

Total liabilities

   $ 2,814,287     $ 2,775,094  
  

 

 

   

 

 

 

Commitments and contingencies

    

Deficit:

    

DJO Finance LLC membership deficit:

    

Member capital

     844,294       841,510  

Accumulated deficit

     (1,579,642     (1,293,339

Accumulated other comprehensive loss

     (30,580     (16,341
  

 

 

   

 

 

 

Total membership deficit

     (765,928     (468,170

Noncontrolling interests

     2,079       2,634  
  

 

 

   

 

 

 

Total deficit

     (763,849     (465,536
  

 

 

   

 

 

 

Total liabilities and deficit

   $ 2,050,438     $ 2,309,558  
  

 

 

   

 

 

 

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DJO Finance LLC

Unaudited Segment Information

(In thousands)

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2016     2015     2016     2015  

Net sales:

        

Bracing and Vascular

   $ 132,212     $ 143,008     $ 522,600     $ 526,295  

Recovery Sciences

     42,181       43,672       156,998       156,194  

Surgical Implant

     48,026       42,195       174,503       134,843  

International

     74,071       79,076       301,187       296,295  
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 296,490     $ 307,951     $ 1,155,288     $ 1,113,627  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income:

        

Bracing and Vascular

   $ 22,134     $ 31,496     $ 102,133     $ 115,791  

Recovery Sciences

     10,760       9,717       32,944       29,035  

Surgical Implant

     11,431       9,000       32,621       25,531  

International

     10,565       11,333       45,864       48,578  

Expenses not allocated to segments and eliminations

     (229,195     (40,975     (334,617     (141,120
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (174,305   $ 20,571     $ (121,055   $ 77,815  
  

 

 

   

 

 

   

 

 

   

 

 

 

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DJO Finance LLC

Adjusted EBITDA

For the Three and Twelve Months Ended December 31, 2016 and 2015

(unaudited)

Our Senior Secured Credit Facilities, consisting of a $1,041.8 million term loan facility (including a $20.0 million delayed draw term loan facility) and a $150.0 million asset-based revolving credit facility, under which $82.0 million was outstanding as of December 31, 2016, and the Indentures governing our $1,015.0 million of 8.125% second lien notes, $298.5 million of 10.75% third lien notes (collectively, the “notes”) represent significant components of our capital structure. Under our Senior Secured Credit Facilities, we are required to maintain a specified senior secured first lien leverage ratio, which is determined based on our Adjusted EBITDA. If we fail to comply with the senior secured first lien leverage ratio under our Senior Secured Credit Facilities, we would be in default. Upon the occurrence of an event of default under the Senior Secured Credit Facilities, the lenders could elect to declare all amounts outstanding under the Senior Secured Credit Facilities to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the Senior Secured Credit Facilities could proceed against the collateral granted to them to secure that indebtedness. We have pledged substantially all of our assets as collateral under the Senior Secured Credit Facilities and under the notes. Any acceleration under the Senior Secured Credit Facilities would also result in a default under the Indentures governing the notes, which could lead to the note holders electing to declare the principal, premium, if any, and interest on the then outstanding notes immediately due and payable. In addition, under the Indentures governing the notes, our and our subsidiaries’ ability to engage in activities such as incurring additional indebtedness, making investments, refinancing subordinated indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on Adjusted EBITDA. Our ability to meet the covenants specified in the Senior Secured Credit Facilities and the Indentures governing those notes will depend on future events, some of which are beyond our control, and we cannot assure you that we will meet those covenants.

Adjusted EBITDA is defined as net income (loss) attributable to DJOFL plusnet interest expense, income tax provision (benefit), and depreciation and amortization, further adjusted for certain non-cash items, non-recurring items and other adjustment items as permitted in calculating covenant compliance and other ratios under our Senior Secured Credit Facilities and the Indentures governing the notes. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants and other ratios in our Senior Secured Credit Facilities and the Indentures governing the notes. Adjusted EBITDA is a material component of these calculations.

Adjusted EBITDA should not be considered as an alternative to net income (loss) or other performance measures presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), or as an alternative to cash flow from operations as a measure of our liquidity. Adjusted EBITDA does not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, the definition of Adjusted EBITDA under our Senior Secured Credit Facilities and the Indentures governing the notes allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income (loss). However, these are expenses that may recur, vary greatly and are difficult to predict. While Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

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The following table provides reconciliation between net loss and Adjusted EBITDA:

 

     Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 

(in thousands)

   2016     2015     2016     2015  

Net loss attributable to DJO Finance LLC

   $ (202,126   $ (49,586   $ (286,303   $ (340,927

Net loss (income) from discontinued operations

     (331     23,909       (1,138     157,580  

Interest expense, net

     42,733       42,733       170,082       172,290  

Income tax (benefit) provision

     (18,009     2,276       (6,853     12,256  

Depreciation and amortization

     29,685       32,039       117,893       117,455  

Non-cash charges (a)

     179,458       1,073       182,399       3,403  

Non-recurring and integration charges (b)

     22,843       13,320       48,675       33,976  

Other adjustment items (c)

     5,251       3,101       10,553       83,908  
  

 

 

   

 

 

   

 

 

   

 

 

 
     59,504       68,865       235,308       239,941  

Permitted pro forma adjustments (d)

        

Future cost savings

         9,620       9,050  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 59,504     $ 68,865     $ 244,928     $ 248,991  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Non-cash charges are comprised of the following:

 

     Three Months Ended
December 31,
     Twelve Months
Ended December 31,
 

(in thousands)

   2016     2015      2016      2015  

Stock compensation expense

   $ 1,382     $ 355      $ 3,188      $ 1,805  

Impairment of goodwill (1)

     160,000       —          160,000        —    

Inventory adjustments (2)

     18,013       —          18,013        —    

Purchase accounting adjustments (3)

     (637     610        249        821  

Loss on disposal of assets, net

     700       108        949        777  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total non-cash items

   $ 179,458     $ 1,073      $ 182,399      $ 3,403  
  

 

 

   

 

 

    

 

 

    

 

 

 
(1) Impairment of goodwill and intangible assets for the year ended December 31, 2016 consisted of a goodwill impairment charge of $99.0 million and $61.0 million related to the CMF and Vascular reporting units, respectively. The impairment charge for our CMF reporting unit resulted from reductions in our projected operating results and estimated future cash flows due to disruption caused by our exit of the Empi business. The impairment charge for our Vascular reporting unit resulted from reductions in our projected operating results and estimated future cash flows due to a loss of revenue caused by disruption as we transitioned our Dr. Comfort therapeutic footwear manufacturing and distribution to a new ERP system and market pressure in the therapeutic shoe market.
(2) In the fourth quarter of fiscal 2016, current management implemented a new strategy relating to our procurement, manufacturing and liquidation philosophies in order to significantly reduce inventory levels. Historically, our strategy was to purchase inventory in large quantities to capture purchase discounts and rebates and provide an expansive mix of products for our customers. Our new strategy aims to integrate our supply chain services with customer demand through focused forecasted consumption and sales efforts, therefore limiting the range of SKUs we plan to offer. As a result of these changes, the Company recorded a charge to cost of sales and corresponding reduction in inventory of approximately $18.0 million. The E&O reserve expense in fiscal 2016 included $5.7 million related to the Company’s decision to discontinue certain SKUs mainly within the Bracing and Vascular product lines, $8.3 million related to holding inventory for shorter periods and the planned scrapping of long-dated inventory, $2.0 million related to new Surgical Implant products that changed the expected life cycle of its current product portfolio, and $2.0 million of slow moving consigned inventory within certain OfficeCare clinics.
(3) Purchase accounting adjustments consisted of amortization of fair market value inventory adjustments for all periods presented.

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(b) Non-recurring and integration charges are comprised of the following:

 

     Three Months Ended
December 31,
     Twelve Months
Ended December 31,
 

(in thousands)

   2016      2015      2016      2015  

Integration charges:

           

Global business unit reorganization and integration

   $ 5,796      $ 1,618      $ 9,794      $ 8,596  

Acquisition related expenses and integration (1)

     1,495        4,653        10,350        8,635  

CFO transition

     1,851        —          2,805        —    

CEO transition

     2,051        —          2,051        —    

Litigation and regulatory costs and settlements, net (2) (3)

     5,500        4,974        16,562        8,864  

Other non-recurring items (4) (5)

     6,149        1,079        7,044        4,247  

ERP implementation and other automation projects

     1        996        69        3,634  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-recurring and integration charges

   $ 22,843      $ 13,320      $ 48,675      $ 33,976  
  

 

 

    

 

 

    

 

 

    

 

 

 
(1) Consists of direct acquisition costs and integration expenses related to acquired businesses and costs related to potential acquisitions.
(2) For the twelve months ended December 31, 2016, litigation and regulatory costs consisted of $2.6 million in litigation costs related to ongoing product liability issues and $14.0 million related to other litigation and regulatory costs and settlements.
(3) For the twelve months ended December 31, 2015, litigation and regulatory costs consisted of $3.5 million in litigation costs related to ongoing product liability issues and $5.4 million related to other litigation and regulatory costs and settlements.
(4) For the twelve months ended December 31, 2016, other non-recurring items consisted of $4.3 million in specifically identified non-recurring operational and regulatory projects and $2.8 million in professional fees and other non-recurring charges.
(5) For the twelve months ended December 31, 2015, other non-recurring items consisted of $4.2 million in specifically identified non-recurring operational and regulatory projects.

 

(c) Other adjustment items are comprised of the following:

 

     Three Months Ended
December 31,
     Twelve Months Ended
December 31,
 

(in thousands)

   2016      2015      2016      2015  

Blackstone monitoring fee

   $ 1,750      $ 1,750      $ 7,000      $ 7,000  

Noncontrolling interests

     162        234        623        840  

Loss on modification and extinguishment of debt (1)

     —          171        —          68,473  

Other (2)

     3,339        946        2,930        7,595  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other adjustment items before permitted pro forma

adjustments

   $ 5,251      $ 3,101      $ 10,553      $ 83,908  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Loss on modification and extinguishment of debt for the twelve months ended December 31, 2015 consisted of $47.8 million in premiums related to the redemption of our 8.75% Notes, 9.875% Notes and 7.75% Notes, $11.9 million related to the non-cash write off of unamortized debt issuance costs and original issue discount associated with the portion of our debt that was extinguished and $8.8 million of arrangement and amendment fees and other fees and expenses incurred in connection with the refinancing.
(2) Other adjustments consist primarily of net realized and unrealized foreign currency transaction gains and losses.

(d) Permitted pro forma adjustments include future cost savings for the year ended December 31, 2016 related to the exit of our Empi business and the restructuring of our Recovery Sciences segment. Permitted pro forma adjustments include future cost savings for the year ended December 31, 2015 related to the exit of our Empi business.

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