UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended March 31, 2005
OR
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to
COMMISSION FILE NUMBER 001-16789
INVERNESS MEDICAL INNOVATIONS, INC.
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE |
|
04-3565120 |
(State or
other jurisdiction of |
|
(I.R.S.
Employer |
51 SAWYER ROAD, SUITE 200
WALTHAM, MASSACHUSETTS 02453
(Address of principal executive offices)
(781) 647-3900
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ý No o
The number of shares outstanding of the registrants common stock as of May 6, 2005 was 23,210,888.
INVERNESS MEDICAL INNOVATIONS, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2005
This quarterly report on Form 10-Q 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. Readers can identify these statements by forward-looking words such as may, could, should, would, intend, will, expect, anticipate, believe, estimate, continue or similar words. There are a number of important factors that could cause actual results of Inverness Medical Innovations, Inc. and its subsidiaries to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, the risk factors detailed in this quarterly report on Form 10-Q and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission. Readers should carefully review the factors discussed in the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations Certain Factors Affecting Future Results and Special Statement Regarding Forward-Looking Statements beginning on pages 33 and 45, respectively, in this quarterly report on Form 10-Q and should not place undue reliance on our forward-looking statements. These forward-looking statements are based on information, plans and estimates at the date of this report. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.
References in this quarterly report on Form 10-Q to we, us, and our refer to Inverness Medical Innovations, Inc. and its subsidiaries.
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
|
|
Three Months Ended March 31, |
|
||||
|
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
||
Net product sales |
|
$ |
89,391 |
|
$ |
88,201 |
|
License revenue |
|
2,221 |
|
2,500 |
|
||
Net revenue |
|
91,612 |
|
90,701 |
|
||
Cost of sales |
|
59,716 |
|
53,792 |
|
||
Gross profit |
|
31,896 |
|
36,909 |
|
||
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
||
Research and development (Note 8) |
|
7,232 |
|
7,423 |
|
||
Sales and marketing |
|
17,030 |
|
14,351 |
|
||
General and administrative |
|
14,115 |
|
11,320 |
|
||
Total operating expenses |
|
38,377 |
|
33,094 |
|
||
Operating (loss) income |
|
(6,481 |
) |
3,815 |
|
||
|
|
|
|
|
|
||
Interest expense, including amortization of discounts and write-off of deferred financing costs |
|
(5,012 |
) |
(7,770 |
) |
||
Other income, net |
|
4,911 |
|
447 |
|
||
Loss before income taxes |
|
(6,582 |
) |
(3,508 |
) |
||
Income tax provision |
|
1,513 |
|
163 |
|
||
Net loss |
|
$ |
(8,095 |
) |
$ |
(3,671 |
) |
Net loss available to common stockholders basic and diluted (Note 5) |
|
$ |
(8,095 |
) |
$ |
(4,420 |
) |
Net loss per common share basic and diluted (Note 5) |
|
$ |
(0.39 |
) |
$ |
(0.23 |
) |
Weighted average shares basic and diluted (Note 5) |
|
20,942 |
|
19,216 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
(UNAUDITED)
(in thousands, except per share amounts)
|
|
March 31, |
|
December 31, |
|
||
ASSETS |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
33,667 |
|
$ |
16,756 |
|
Accounts receivable, net of allowances of $9,973 at March 31, 2005 and $9,359 at December 31, 2004 |
|
57,814 |
|
61,347 |
|
||
Inventories |
|
65,437 |
|
60,143 |
|
||
Deferred tax assets |
|
2,961 |
|
2,819 |
|
||
Prepaid expenses and other current assets |
|
14,128 |
|
9,601 |
|
||
Total current assets |
|
174,007 |
|
150,666 |
|
||
Property, plant and equipment, net |
|
69,244 |
|
66,780 |
|
||
Goodwill |
|
258,886 |
|
221,155 |
|
||
Other intangible assets with indefinite lives |
|
55,356 |
|
50,542 |
|
||
Core technology and patents, net |
|
68,540 |
|
40,327 |
|
||
Other intangible assets, net |
|
35,445 |
|
27,680 |
|
||
Deferred financing costs, net, and other non-current assets |
|
9,335 |
|
9,156 |
|
||
Deferred tax assets |
|
794 |
|
872 |
|
||
Total assets |
|
$ |
671,607 |
|
$ |
567,178 |
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Current portion of long-term debt |
|
$ |
329 |
|
$ |
88 |
|
Current portion of capital lease obligations |
|
492 |
|
467 |
|
||
Accounts payable |
|
39,471 |
|
32,345 |
|
||
Accrued expenses and other current liabilities |
|
62,288 |
|
51,886 |
|
||
Total current liabilities |
|
102,580 |
|
84,786 |
|
||
|
|
|
|
|
|
||
Long-term liabilities: |
|
|
|
|
|
||
Long-term debt, net of current portion |
|
211,315 |
|
189,268 |
|
||
Capital lease obligations, net of current portion |
|
1,312 |
|
1,401 |
|
||
Deferred tax liabilities |
|
28,726 |
|
12,596 |
|
||
Other long-term liabilities |
|
4,721 |
|
4,446 |
|
||
Total long-term liabilities |
|
246,074 |
|
207,711 |
|
||
|
|
|
|
|
|
||
Commitments and contingencies |
|
|
|
|
|
||
|
|
|
|
|
|
||
Series A redeemable convertible preferred stock, $0.001 par value: |
|
|
|
|
|
||
Authorized 2,667 shares |
|
|
|
|
|
||
Issued 2,527 shares |
|
|
|
|
|
||
Outstanding none |
|
|
|
|
|
||
|
|
|
|
|
|
||
Stockholders equity: |
|
|
|
|
|
||
Preferred stock, $0.001 par value: |
|
|
|
|
|
||
Authorized 2,333 shares, none issued |
|
|
|
|
|
||
Common stock, $0.001 par value: |
|
|
|
|
|
||
Authorized 50,000 shares |
|
|
|
|
|
||
Issued and outstanding 23,191 at March 31, 2005 and 20,711 shares at December 31, 2004 |
|
23 |
|
21 |
|
||
Additional paid-in capital |
|
418,440 |
|
359,582 |
|
||
Notes receivable from stockholders |
|
(14,691 |
) |
(14,691 |
) |
||
Accumulated deficit |
|
(95,847 |
) |
(87,752 |
) |
||
Accumulated other comprehensive income |
|
15,028 |
|
17,521 |
|
||
Total stockholders equity |
|
322,953 |
|
274,681 |
|
||
Total liabilities and stockholders equity |
|
$ |
671,607 |
|
$ |
567,178 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
Three Months Ended March 31, |
|
||||
|
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
||
Net loss |
|
$ |
(8,095 |
) |
$ |
(3,671 |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
Interest expense related to amortization and/or write-off of noncash original issue discount and deferred financing costs |
|
443 |
|
3,311 |
|
||
Noncash charge related to interest rate swap agreement |
|
|
|
64 |
|
||
Depreciation and amortization |
|
6,202 |
|
5,575 |
|
||
Deferred income taxes |
|
638 |
|
(701 |
) |
||
Other noncash items |
|
(68 |
) |
(19 |
) |
||
Minority interest |
|
207 |
|
|
|
||
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
||
Accounts receivable, net |
|
8,688 |
|
23 |
|
||
Inventories |
|
(3,012 |
) |
(3,441 |
) |
||
Prepaid expenses and other current assets |
|
(4,476 |
) |
596 |
|
||
Accounts payable |
|
5,348 |
|
(5,820 |
) |
||
Accrued expenses and other current liabilities |
|
9,356 |
|
2,370 |
|
||
Other non-current liabilities |
|
76 |
|
|
|
||
Net cash provided by (used in) operating activities |
|
15,307 |
|
(1,713 |
) |
||
Cash Flows from Investing Activities: |
|
|
|
|
|
||
Purchases of property, plant and equipment |
|
(3,979 |
) |
(4,401 |
) |
||
Proceeds from sale of property, plant and equipment |
|
43 |
|
28 |
|
||
Payments for acquisitions and of transactional costs for previous acquisitions |
|
(15,776 |
) |
(2,364 |
) |
||
Increase in other assets |
|
(394 |
) |
(815 |
) |
||
Net cash used in investing activities |
|
(20,106 |
) |
(7,552 |
) |
||
Cash Flows from Financing Activities: |
|
|
|
|
|
||
Cash paid for financing costs |
|
(355 |
) |
(4,666 |
) |
||
Proceeds from issuance of common stock, net of issuance costs |
|
899 |
|
521 |
|
||
Proceeds from issuance of senior subordinated notes |
|
|
|
150,000 |
|
||
Net proceeds (repayment) under revolving line of credit |
|
22,170 |
|
(40,460 |
) |
||
Repayments of notes payable |
|
(9 |
) |
(94,241 |
) |
||
Principal payments of capital lease obligations |
|
(115 |
) |
(107 |
) |
||
Net cash provided by financing activities |
|
22,590 |
|
11,047 |
|
||
Foreign exchange effect on cash and cash equivalents |
|
(880 |
) |
(262 |
) |
||
Net increase in cash and cash equivalents |
|
16,911 |
|
1,520 |
|
||
Cash and cash equivalents, beginning of period |
|
16,756 |
|
24,622 |
|
||
Cash and cash equivalents, end of period |
|
$ |
33,667 |
|
$ |
26,142 |
|
|
|
|
|
|
|
||
Supplemental Disclosure of Noncash Activities: |
|
|
|
|
|
||
|
|
|
|
|
|
||
Dividends, redemption interest and amortization of beneficial conversion feature related to preferred stock |
|
$ |
|
|
$ |
749 |
|
Fair value of stock issued for acquisitions |
|
$ |
57,962 |
|
$ |
|
|
Conversion of preferred stock to common stock |
|
$ |
|
|
$ |
6,934 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation of Financial Information
The accompanying consolidated financial statements of Inverness Medical Innovations, Inc. and its subsidiaries are unaudited. In the opinion of management, the unaudited consolidated financial statements contain all adjustments considered normal and recurring and necessary for their fair presentation. Interim results are not necessarily indicative of results to be expected for the year. These interim financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include all information and footnotes necessary for a complete presentation of operations, financial position, and cash flows in conformity with accounting principles generally accepted in the United States of America (GAAP). Our audited consolidated financial statements for the year ended December 31, 2004 included information and footnotes necessary for such presentation and were included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2005. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2004.
(2) Cash and Cash Equivalents
We consider all highly liquid cash investments with original maturities of three months or less at the date of acquisition to be cash equivalents. At March 31, 2005, our cash equivalents consisted of money market funds.
(3) Inventories
Inventories are stated at the lower of cost (first in, first out) or market and are comprised of the following:
(in thousands) |
|
March 31, 2005 |
|
December 31, 2004 |
|
||
Raw materials |
|
$ |
25,866 |
|
$ |
23,434 |
|
Work-in-process |
|
16,419 |
|
14,956 |
|
||
Finished goods |
|
23,152 |
|
21,753 |
|
||
|
|
$ |
65,437 |
|
$ |
60,143 |
|
(4) Employee Stock-Based Compensation Arrangements
For all periods presented in the accompanying unaudited consolidated financial statements, we accounted for our employee stock-based compensation arrangements using the intrinsic value method under the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and in accordance with Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 44, Accounting for Certain Transactions Involving Stock Compensation. We have elected to use the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure.
6
Had compensation expense for stock option grants to employees been determined based on the fair value method at the grant dates for awards under the stock option plans consistent with the method prescribed by SFAS No. 123, our net loss would have been increased to the pro forma amounts indicated as follows:
|
|
Three Months Ended March 31, |
|
||||
(in thousands, except per share amounts) |
|
2005 |
|
2004 |
|
||
Net loss as reported |
|
$ |
(8,095 |
) |
$ |
(3,671 |
) |
Pro forma stock-based employee compensation |
|
(1,586 |
) |
(1,603 |
) |
||
Net loss pro forma |
|
$ |
(9,681 |
) |
$ |
(5,274 |
) |
|
|
|
|
|
|
||
Loss per share basic and diluted: |
|
|
|
|
|
||
Net loss per share as reported |
|
$ |
(0.39 |
) |
$ |
(0.23 |
) |
Pro forma stock-based employee compensation |
|
(0.07 |
) |
(0.08 |
) |
||
Net loss per share pro forma |
|
$ |
(0.46 |
) |
$ |
(0.31 |
) |
We have computed the pro forma disclosures for stock options granted to employees after January 1, 1995 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The assumptions used were as follows:
|
|
Three Months Ended March 31, |
|
||
|
|
2005 |
|
2004 |
|
Risk-free interest rate |
|
3.58-3.73 |
% |
2.8-3.39 |
% |
Expected dividend yield |
|
|
|
|
|
Expected lives |
|
5 years |
|
5 years |
|
Expected volatility |
|
46 |
% |
49 |
% |
The weighted average fair value under the Black-Scholes option pricing model of options granted to employees during the three months ended March 31, 2005 and 2004 were $10.60 and $9.48, respectively.
(5) Loss Per Share
The following table sets forth the computation of basic and diluted loss per share:
|
|
Three Months Ended March 31, |
|
||||
(in thousands, except per share amounts) |
|
2005 |
|
2004 |
|
||
Numerator: |
|
|
|
|
|
||
Net loss |
|
$ |
(8,095 |
) |
$ |
(3,671 |
) |
Dividends, redemption interest and amortization of beneficial conversion feature related to Series A Preferred Stock |
|
|
|
(749 |
) |
||
Net loss available to common stockholders basic and diluted |
|
$ |
(8,095 |
) |
$ |
(4,420 |
) |
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
||
Denominator for basic and diluted loss per share weighted average shares |
|
20,942 |
|
19,216 |
|
||
|
|
|
|
|
|
||
Net loss per share basic and diluted |
|
$ |
(0.39 |
) |
$ |
(0.23 |
) |
We had the following potential dilutive securities outstanding on March 31, 2005: (a) options and warrants to purchase an aggregate of 4.3 million shares of common stock at a weighted average exercise price of $16.58 per share, and (b) 104,000 shares of common stock held in escrow. These potential dilutive securities were not included in the computation of diluted loss per share because the effect of including such potential dilutive securities would be antidilutive.
7
We had the following potential dilutive securities outstanding on March 31, 2004: (a) options and warrants to purchase an aggregate of 4.1 million shares of common stock at a weighted average exercise price of $15.83 per share, (b) 498,000 shares of unvested restricted common stock issued to certain executive officers, and (c) convertible promissory notes that are convertible into an aggregate of 344,000 shares of common stock. These potential dilutive securities were not included in the computation of diluted loss per share because the effect of including such potential dilutive securities would be antidilutive.
(6) Comprehensive Income or Loss
Comprehensive income or loss represents net income or loss plus other comprehensive income or loss items. Our other comprehensive income or loss includes primarily foreign currency translation adjustments.. For the three months ended March 31, 2005 and 2004, we generated a comprehensive loss of $10.6 million and $3.3 million, respectively.
(7) Business Combinations
All of the acquisitions discussed below resulted in the recognition of goodwill. Acquisitions are an important part of our growth strategy. When we acquire businesses, we seek to complement existing products and services, enhance or expand our product lines and/or expand our customer base. We determine what we are willing to pay for each acquisition partially based on our expectation that we can cost effectively integrate the products and services of the acquired companies into our existing infrastructure. In addition, we utilize existing infrastructure of the acquired companies to cost effectively introduce our products to new geographic areas. All these factors contributed to the acquisition prices of the acquired businesses discussed below, that were in excess of the fair value of net assets acquired and the resultant goodwill.
(a) Acquisition of Binax
On March 31, 2005, we acquired Binax, Inc (Binax), a privately held developer, manufacturer and distributor of rapid diagnostic products for infectious disease testing, primarily related to the respiratory system. The preliminary aggregate purchase price was $44.7 million which consisted of $9.0 million in cash, 1.4 million shares of our common stock with an aggregate fair value of $35.2 million and $0.5 million in estimated direct acquisition costs. The terms of the acquisition agreement also provide for $11.0 million of contingent cash consideration payable to the Binax shareholders upon the successful completion of certain new product developments during the next five years. This contingent consideration will be accounted for as an increase in the preliminary aggregate purchase price and goodwill if and when the contingency is met.
The aggregate purchase price was preliminarily allocated to the assets acquired and liabilities assumed at the date of acquisition as follows:
|
|
(in thousands) |
|
|
Cash and cash equivalents |
|
$ |
1,556 |
|
Accounts receivable |
|
5,264 |
|
|
Inventories |
|
2,548 |
|
|
Property, plant and equipment |
|
2,421 |
|
|
Goodwill |
|
25,178 |
|
|
Core technology and intangible assets |
|
15,000 |
|
|
Other assets |
|
984 |
|
|
Accounts payable and accrued expenses |
|
(2,300 |
) |
|
Deferred tax liability |
|
(6,000 |
) |
|
|
|
|
|
|
|
|
$ |
44,651 |
|
The above values for the assets acquired and liabilities assumed are based on preliminary management estimates due to the timing of the acquisition. Final purchase price allocation may differ from the above. Management is also in the process of determining the useful lives of the core technology and intangible assets as listed above.
The acquisition of Binax is accounted for as a purchase under SFAS No. 141, Business Combinations. Accordingly, the operating results of Binax will be included in the accompanying consolidated financial statements since the acquisition date as part of our professional diagnostic products reporting units and business segment. Goodwill generated from this acquisition is not deductible for tax purposes.
8
(b) Acquisition of Ischemia
On March 16, 2005, we acquired Ischemia Technologies, Inc (Ischemia), a privately held, venture-backed company that developed, manufactures and markets the only FDA-cleared in vitro diagnostic test targeted on cardiac ischemia. The preliminary aggregate purchase price was $27.2 million, which consisted of 968,000 shares of our common stock with an aggregate fair value of $22.7 million, estimated exit costs of $1.7 million to vacate Ischemias manufacturing and administrative facilities, which we recorded in accordance with Emerging Issues Task Force (EITF) Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, estimated direct acquisition costs of $2.3 million and $0.5 million in assumed debt.
The aggregate purchase price was preliminarily allocated to the assets acquired and liabilities assumed at the date of acquisition as follows:
|
|
(in thousands) |
|
|
Cash and cash equivalents |
|
$ |
115 |
|
Accounts receivable |
|
58 |
|
|
Inventories |
|
40 |
|
|
Property, plant and equipment |
|
469 |
|
|
Goodwill |
|
12,400 |
|
|
Core technology and patents |
|
24,000 |
|
|
Other assets |
|
99 |
|
|
Accounts payable and accrued expenses |
|
(377 |
) |
|
Deferred tax liability |
|
(9,600 |
) |
|
|
|
$ |
27,204 |
|
The above values for the assets acquired and liabilities assumed are based on preliminary management estimates due to the timing of the acquisition. Final purchase price allocation may differ from the above values. Management is also in the process of determining the useful lives of the core technology and patents as listed above.
The acquisition of Ischemia is accounted for as a purchase under SFAS No. 141. Accordingly, the operating results of Ischemia have been included in the accompanying consolidated financial statements since the acquisition date as part of our professional diagnostic products reporting units and business segments. Goodwill generated from this acquisition is not deductible for tax purposes.
(c) Acquisition of ACS
On January 24, 2005, we acquired the consumer pregnancy test business of Advanced Clinical Systems Pty Ltd (ACS). In acquiring ACS, we obtained the rights to the Crystal Clear brand. Crystal Clear is the leading consumer pregnancy test in Australia and has a leading position in New Zealand. The purchase price of ACS consisted of $4.6 million in cash and estimated direct acquisition costs of $0.3 million. The majority of the purchase price of ACS is allocated to the intangible asset, trademarks, with an average useful life of 7 years.
9
(d) Pro Forma Financial Information
The following table presents selected unaudited financial information of our company, including Binax and Ischemia, as if the acquisitions of these entities had occurred on January 1, 2004. Pro forma results exclude adjustments for ACS as the acquisition did not materially affect our results of operations. The pro forma results are derived from the historical financial results of the acquired businesses for all periods presented and are not necessarily indicative of the results that would have occurred had the acquisitions been consumated on January 1, 2004.
|
|
Three Months Ended March 31, |
|
||||
(in thousands, except per share amounts) |
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
||
Pro forma net revenue |
|
$ |
101,441 |
|
$ |
97,463 |
|
Pro forma net loss |
|
(5,996 |
) |
(3,378 |
) |
||
Net loss available to common stockholders basic and diluted (1) |
|
(5,996 |
) |
(4,127 |
) |
||
Pro forma net loss per common share basic and diluted (1) |
|
$ |
(0.26 |
) |
$ |
(0.19 |
) |
(1) Loss per share amounts are computed as described in Note 5.
(e) Restructuring Plans of Acquisitions
In connection with our acquisitions of Ischemia, Ostex International, Inc. (Ostex), IVC Industries, Inc. (now operating as Inverness Medical Nutritionals Group or IMN) and certain entities, businesses and intellectual property of Unilever Plc (the Unipath business), we recorded restructuring costs as part of the respective aggregate purchase prices in accordance with EITF Issue No. 95-3. The following table sets forth the restructuring costs and balances recorded in connection with the restructuring activities of these acquired businesses:
(in thousands) |
|
Balance at |
|
Costs Added |
|
Amounts |
|
Other (1) |
|
Balance at |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Ischemia |
|
$ |
|
|
$ |
1,690 |
|
$ |
(1,039 |
) |
$ |
|
|
$ |
651 |
|
Ostex |
|
910 |
|
|
|
(72 |
) |
|
|
838 |
|
|||||
IMN |
|
263 |
|
|
|
(115 |
) |
|
|
148 |
|
|||||
Unipath business |
|
1,453 |
|
|
|
|
|
(27 |
) |
1,426 |
|
|||||
Total restructuring costs |
|
$ |
2,626 |
|
$ |
1,690 |
|
$ |
(1,226 |
) |
$ |
(27 |
) |
$ |
3,063 |
|
(1) Represents foreign currency translation adjustment.
In connection with our acquisition of Ischemia in March 2005, we established a restructuring plan whereby we will exit the current facilities of Ischemia in Denver, Colorado, and combine its activities with our existing manufacturing and distribution facilities by mid-2005. Total severance costs associated with involuntarily terminated employees are estimated to be $1.6 million, of which $1.0 million has been paid as of March 31, 2005. We estimated costs to vacate the Ischemia facilities to be approximately $100,000, none of which has been paid as of March 31, 2005. The total number of involuntarily terminated employees was 17, of whom 7 were terminated as of March 31, 2005. Although we believe our plan and estimated exit costs are reasonable, actual spending for exit activities may differ from current estimated exit costs, which might impact the final aggregate purchase price.
As a result of our acquisition of Ostex, we established a restructuring plan whereby we exited the facilities of Ostex in Seattle, Washington, and combined the activities of Ostex with our existing manufacturing and distribution facilities. The total number of employees to be terminated involuntarily under the restructuring plan is 38, of which all were terminated as of March 31, 2005. Total severance costs associated with involuntarily terminated employees are $1.6 million, of which all has been paid as of March 31, 2005. Costs to vacate the Ostex facilities are $0.5 million, of which $0.2 million has been paid as of March 31, 2005. Additionally, the remaining costs to exit operations, primarily facilities lease commitments, are $1.9 million, of which $1.4 million has been paid as of March 31, 2005. Total unpaid exit costs amounted to $0.8 million as of March 31, 2005.
10
Immediately after the close of the acquisition, we reorganized the business operations of IMN to improve efficiencies and eliminate redundant activities on a company-wide basis. The restructuring affected all cost centers within the organization, but most significantly responsibilities at the sales and executive levels, as such activities were combined with our existing business operations. Also as part of the restructuring plan, we relocated one of IMNs warehouses to a closer proximity of the manufacturing facility to improve efficiency. Of the $1.6 million in total exit costs, which include severance costs of 47 involuntarily terminated employees and costs to vacate the warehouse, $1.4 million has been paid and $0.2 million remains unpaid as of March 31, 2005.
As a result of the acquisition of the Unipath business from Unilever Plc in 2001, we reorganized the operations of the Unipath business for purposes of improving efficiencies and achieving economies of scale on a company-wide basis. Such reorganization affected all major cost centers at the operations in England. Additionally, most business activities of the U.S. division were merged into our existing U.S. businesses. Total exit costs, which primarily related to severance and early retirement obligations of 65 involuntarily terminated employees, were $4.1 million. As of March 31, 2005, $1.4 million, adjusted for foreign exchange effect, in exit costs remained unpaid.
(8) Co-Development Arrangement
On February 25, 2005, we entered into a co-development agreement with ITI Scotland Limited (ITI), whereby ITI agreed to provide us with approximately £30 million (or $56.5 million at March 31, 2005) over three years to partially fund research and development programs focused on identifying novel biomarkers and near-patient and home use tests for cardiovascular and other diseases (the Programs). We agreed to invest £37.5 million (or $70.6 million at March 31, 2005) in the programs over the next three years. Through our subsidiary, Stirling Medical Innovations Limited (Stirling), we intend to establish a new research center in Stirling, Scotland, where we will consolidate many of our existing cardiology programs and ultimately commercialize products arising from the programs. ITI and Stirling will have exclusive rights to the developed technology in their respective fields of use. As of March 31, 2005, we had received approximately $11 million in funding from ITI. As qualified expenditures are made under the co-development arrangement, we recognize the fee earned during the period as a reduction of our related expenses, subject to certain limitations. For the three months ended March 31, 2005, we recognized $2.2 million of reimbursements, of which $1.9 million offset our research and development spending and $0.3 million reduced our general and administrative spending incurred by Stirling. Funds received from ITI in excess of amounts earned are included in accrued expenses and other current liabilities, the balance of which was $7.1 million as of March 31, 2005.
(9) Defined Benefit Pension Plan
Our subsidiary in England, Unipath Ltd., has a defined benefit pension plan established for certain of its employees. The net periodic benefit costs are as follows:
|
|
Three Months Ended March 31, |
|
||||
(in thousands) |
|
2005 |
|
2004 |
|
||
Service cost |
|
$ |
68 |
|
$ |
454 |
|
Interest cost |
|
153 |
|
52 |
|
||
Expected return on plan assets |
|
(90 |
) |
(46 |
) |
||
Realized losses |
|
11 |
|
6 |
|
||
Net periodic benefit cost |
|
$ |
142 |
|
$ |
466 |
|
11
(10) Financial Information by Segment
Under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision making group is composed of the chief executive officer and members of senior management. Our reportable operating segments are Consumer Diagnostic Products, Vitamins and Nutritional Supplements, Professional Diagnostic Products, and Corporate and Other. Included in the operating loss of Corporate and Other are non-allocable corporate expenditures and expenses related to our research and development activities in the area of cardiology, the latter of which amounted to $4.3 million, net of the ITI funding of $1.9 million (Note 8), and $3.6 million for the three months ended March 31, 2005 and 2004, respectively. Total assets in the area of cardiology, which are included in Corporate and Other in the tables below, amounted to $57.3 million at March 31, 2005 and $8.6 million at December 31, 2004.
We evaluate performance of our operating segments based on revenue and operating income (loss). Segment information for the three months ended March 31, 2005 and 2004 is as follows:
|
|
Consumer |
|
Vitamins and |
|
Professional |
|
Corporate |
|
|
|
|||||
|
|
Diagnostic |
|
Nutritional |
|
Diagnostic |
|
and |
|
|
|
|||||
(in thousands) |
|
Products |
|
Supplements |
|
Products |
|
Other |
|
Total |
|
|||||
Three Months Ended March 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net revenue to external customers |
|
$ |
43,420 |
|
$ |
16,921 |
|
$ |
31,271 |
|
$ |
|
|
$ |
91,612 |
|
Operating income (loss) |
|
6,941 |
|
(1,860 |
) |
(2,772 |
) |
(8,790 |
) |
(6,481 |
) |
|||||
Assets |
|
246,534 |
|
51,241 |
|
310,885 |
|
62,947 |
|
671,607 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
At December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Assets |
|
243,001 |
|
48,072 |
|
263,169 |
|
12,936 |
|
567,178 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Three Months Ended March 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net revenue to external customers |
|
40,418 |
|
20,291 |
|
29,992 |
|
|
|
90,701 |
|
|||||
Operating income (loss) |
|
3,578 |
|
(30 |
) |
3,363 |
|
(3,096 |
) |
3,815 |
|
|||||
(11) Material Contingencies and Legal Settlements
Our material pending legal proceedings are described in the section of our annual report on Form 10-K for the year ended December 31, 2004 titled Item 3. Legal Proceedings. Material developments in our material pending legal proceedings are described in this quarterly report on Form 10-Q in Part II. Item 1. Legal Proceedings.
On February 2, 2005, our IMN subsidiary received $8.4 million representing its pro rata share of the net funds which were disbursed in connection with the settlement of class action suits against several raw material suppliers. The class action suits alleged that certain defendants unlawfully agreed to fix prices of certain vitamin products sold in the United States. IMNs recovery represented 7.3% of its approved purchases from the settling parties during the period in which the price fixing was alleged. The $8.4 million is included in other income, net, in the accompanying consolidated statement of operations for the three months ended March 31, 2005.
12
On April 6, 2005, we entered into a binding settlement agreement of our pending litigation with Princeton BioMeditech Corporation (PBM) pursuant to which we paid $2.5 million in resolution of all pending litigation with PBM. PBM also received an option to permanently settle certain claims against our subsidiary, Applied Biotech, Inc. (ABI), that are not part of any pending case in exchange for $1.75 million of collaborative research and development funding from us. In connection with the settlement, the parties also entered into an agreement to form a joint venture pursuant to which both companies will make all their sales of existing drugs of abuse products (excluding sales to hospitals) (the New Joint Venture). All products sold by the New Joint Venture will be manufactured by PBM. The New Joint Venture will be owned equally by PBM and us and profits will be distributed in proportion to the trailing 12 month sales of products contributed to the venture. In connection with this settlement arrangement, we recorded a $4.2 million charge which is included in other income, net, in the accompanying consolidated statement of operations for the three months ended March 31, 2005.
On April 27, 2005 we entered into a settlement agreement with Quidel Corporation (Quidel) terminating all domestic and international intellectual property litigation with them. Under the settlement agreement, we received a net payment of $17.0 million and net future royalties from Quidel at 8.5%, in exchange for a license to all of our current and future patents which embody lateral flow technology for all diagnostic products other than for cardiology testing and for consumer/over-the-counter womens health (except that diagnostics for womens infectious diseases are within the licensed field of use). Quidel and its affiliates are granting a net royalty free cross-license of their current and future patents that embody lateral flow technology to us and all of our affiliates for all applications. The payment of $17.0 million will be included in our financial results for the three months ended June 30, 2005.
(12) Recent accounting pronouncements
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, An Amendment of ARB No. 43, Chapter 4. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials should be recognized as current period charges in all circumstances. We are required to adopt SFAS No. 151 on January 1, 2006. We do not expect the adoption of SFAS No. 151 to have a material impact on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123R. SFAS No. 123R addresses the accounting for transactions in which a company receives employee services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. It eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25 and generally requires that such transactions be accounted for using a fair-value-based method. As permitted by the current SFAS No. 123, we have been accounting for share-based compensation to employees using APB Opinion No. 25s intrinsic value method and, as such, we generally recognize no compensation cost for employee stock options. Under the original guidance of SFAS No. 123R, we were to adopt the statements provisions for the interim period beginning after June 15, 2005. However, in April 2005, as a result of an action by the Securities and Exchange Commission, companies are allowed to adopt the provisions of SFAS No. 123R at the beginning of their fiscal year that begins after June 15, 2005. Consequently, we will adopt SFAS No. 123R on January 1, 2006. We expect that the requirement to expense stock options and other equity interests that have been or will be granted pursuant to our equity incentive program will significantly increase our operating expenses and result in lower earnings per share. See note 4 of these consolidated financial statements for the effect of accounting for stock-based compensation using the fair-value-based method. The adoption of SFAS No. 123R will have no impact on our cash flows.
In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary Assets, an Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. SFAS No. 153 is based on the principle that exchange of nonmonetary assets should be measured based on the fair market value of the assets exchanged. SFAS No. 153 eliminates the exception of nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005. We are currently evaluating the provisions of SFAS No. 153 and do not believe that the adoption of SFAS No. 153 will have a material impact on our consolidated financial statements.
13
(13) Guarantor Financial Information
We issued $150.0 million in senior subordinated notes (the Bonds) to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and outside the United States in compliance with Regulation S of the Securities Act. Our payment obligations under the Bonds are currently guaranteed by all of our domestic subsidiaries (the Guarantor Subsidiaries). The guarantee is full and unconditional. Separate financial statements of the Guarantor Subsidiaries are not presented because we have determined that they would not be material to investors in the Bonds. The following supplemental financial information sets forth, on a consolidating basis, the statements of operations and cash flows for the three months ended March 31, 2005 and 2004 and the balance sheets as of March 31, 2005 and December 31, 2004 for our company (the Issuer), the Guarantor Subsidiaries and our other subsidiaries (the Non-Guarantor Subsidiaries). The supplemental financial information reflects our investments and the Guarantor Subsidiaries investments in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.
We have extensive transactions and relationships between various members of our consolidated group. These transactions and relationships include intercompany pricing agreements, intellectual property royalty agreements, and general and administrative and research and development cost sharing agreements. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.
On October 20, 2004, our subsidiary IMN became a Guarantor Subsidiary under the Bonds. Prior to this change, IMN was a Non-Guarantor Subsidiary. For comparative purposes, we have included the financial results of IMN in the results of the Guarantor Subsidiaries in the following supplemental financial information for all periods presented.
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2005
|
|
Issuer |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Consolidated |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net product sales |
|
$ |
5,478 |
|
$ |
50,778 |
|
$ |
45,339 |
|
$ |
(12,204 |
) |
$ |
89,391 |
|
License revenue |
|
|
|
31 |
|
2,190 |
|
|
|
2,221 |
|
|||||
Net revenue |
|
5,478 |
|
50,809 |
|
47,529 |
|
(12,204 |
) |
91,612 |
|
|||||
Cost of sales |
|
5,617 |
|
43,033 |
|
24,564 |
|
(13,498 |
) |
59,716 |
|
|||||
Gross profit |
|
(139 |
) |
7,776 |
|
22,965 |
|
1,294 |
|
31,896 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Research and development |
|
141 |
|
1,115 |
|
5,976 |
|
|
|
7,232 |
|
|||||
Sales and marketing |
|
480 |
|
7,177 |
|
9,373 |
|
|
|
17,030 |
|
|||||
General and administrative |
|
3,308 |
|
3,622 |
|
7,185 |
|
|
|
14,115 |
|
|||||
Total operating expenses |
|
3,929 |
|
11,914 |
|
22,534 |
|
|
|
38,377 |
|
|||||
Operating (loss) income |
|
(4,068 |
) |
(4,138 |
) |
431 |
|
1,294 |
|
(6,481 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity in earnings of subsidiaries, net of tax |
|
3,614 |
|
|
|
|
|
(3,614 |
) |
|
|
|||||
Interest expense, including amortization of discounts and write off of deferred financing costs |
|
(4,245 |
) |
(484 |
) |
(1,343 |
) |
1,060 |
|
(5,012 |
) |
|||||
Other (expense) income, net |
|
(3,074 |
) |
8,660 |
|
324 |
|
(999 |
) |
4,911 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(Loss) income before income taxes |
|
(7,773 |
) |
4,038 |
|
(588 |
) |
(2,259 |
) |
(6,582 |
) |
|||||
Income tax provision |
|
322 |
|
718 |
|
473 |
|
|
|
1,513 |
|
|||||
Net (loss) income |
|
$ |
(8,095 |
) |
$ |
3,320 |
|
$ |
(1,061 |
) |
$ |
(2,259 |
) |
$ |
(8,095 |
) |
14
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2004
|
|
Issuer |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Consolidated |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net product sales |
|
$ |
4,775 |
|
$ |
50,074 |
|
$ |
44,198 |
|
$ |
(10,846 |
) |
$ |
88,201 |
|
License revenue |
|
|
|
22 |
|
2,478 |
|
|
|
2,500 |
|
|||||
Net revenue |
|
4,775 |
|
50,096 |
|
46,676 |
|
(12,327 |
) |
90,701 |
|
|||||
Cost of sales |
|
5,044 |
|
38,295 |
|
21,776 |
|
(11,323 |
) |
53,792 |
|
|||||
Gross profit |
|
(269 |
) |
11,801 |
|
24,900 |
|
477 |
|
36,909 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Research and development |
|
96 |
|
628 |
|
6,699 |
|
|
|
7,423 |
|
|||||
Sales and marketing |
|
471 |
|
6,597 |
|
7,283 |
|
|
|
14,351 |
|
|||||
General and administrative |
|
2,315 |
|
3,544 |
|
5,461 |
|
|
|
11,320 |
|
|||||
Total operating expenses |
|
2,882 |
|
10,769 |
|
19,443 |
|
|
|
33,094 |
|
|||||
Operating (loss) income |
|
(3,151 |
) |
1,032 |
|
5,457 |
|
477 |
|
3,815 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity in earnings of subsidiaries, net of tax |
|
964 |
|
|
|
|
|
(964 |
) |
|
|
|||||
Interest expense, including amortization of discounts and write off of deferred financing costs |
|
(3,173 |
) |
(3,934 |
) |
(1,304 |
) |
641 |
|
(7,770 |
) |
|||||
Other income (expense), net |
|
731 |
|
150 |
|
207 |
|
(641 |
) |
447 |
|
|||||
(Loss) income before income taxes |
|
(4,629 |
) |
(2,752 |
) |
4,360 |
|
(487 |
) |
(3,508 |
) |
|||||
Income tax (benefit) provision |
|
(958 |
) |
185 |
|
936 |
|
|
|
163 |
|
|||||
Net (loss) income |
|
$ |
(3,671 |
) |
$ |
(2,937 |
) |
$ |
3,424 |
|
$ |
(487 |
) |
$ |
(3,671 |
) |
15
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
March 31, 2005
|
|
Issuer |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Consolidated |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
284 |
|
$ |
11,213 |
|
$ |
22,170 |
|
$ |
|
|
$ |
33,667 |
|
Accounts receivable, net of allowances |
|
1,934 |
|
36,548 |
|
19,332 |
|
|
|
57,814 |
|
|||||
Inventories |
|
5,830 |
|
43,221 |
|
21,104 |
|
(4,718 |
) |
65,437 |
|
|||||
Deferred tax assets |
|
|
|
142 |
|
2,819 |
|
|
|
2,961 |
|
|||||
Prepaid expenses and other current assets |
|
2,135 |
|
3,585 |
|
8,408 |
|
|
|
14,128 |
|
|||||
Intercompany receivables |
|
55,613 |
|
18,545 |
|
15,886 |
|
(90,044 |
) |
|
|
|||||
Total current assets |
|
65,796 |
|
113,254 |
|
89,719 |
|
(94,762 |
) |
174,007 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Property, plant and equipment, net |
|
2,858 |
|
30,173 |
|
36,213 |
|
|
|
69,244 |
|
|||||
Goodwill |
|
55,250 |
|
109,116 |
|
94,520 |
|
|
|
258,886 |
|
|||||
Other intangible assets with indefinite lives |
|
5,000 |
|
12,420 |
|
37,936 |
|
|
|
55,356 |
|
|||||
Core technology and patents, net |
|
31,454 |
|
5,871 |
|
31,215 |
|
|
|
68,540 |
|
|||||
Other intangible assets, net |
|
5,000 |
|
19,950 |
|
10,495 |
|
|
|
35,445 |
|
|||||
Deferred financing costs, net, and other non-current assets |
|
6,524 |
|
1,751 |
|
1,060 |
|
|
|
9,335 |
|
|||||
Deferred tax assets |
|
|
|
|
|
748 |
|
46 |
|
794 |
|
|||||
Investment in subsidiaries |
|
276,676 |
|
(1,020 |
) |
|
|
(275,656 |
) |
|
|
|||||
Intercompany notes receivable |
|
95,425 |
|
15,089 |
|
2 |
|
(110,516 |
) |
|
|
|||||
Total assets |
|
$ |
543,983 |
|
$ |
306,604 |
|
$ |
301,908 |
|
$ |
(480,888 |
) |
$ |
671,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current portion of long-term debt |
|
$ |
|
|
$ |
|
|
$ |
329 |
|
$ |
|
|
$ |
329 |
|
Current portion of capital lease obligations |
|
|
|
486 |
|
6 |
|
|
|
492 |
|
|||||
Accounts payable |
|
2,775 |
|
22,978 |
|
13,718 |
|
|
|
39,471 |
|
|||||
Accrued expenses and other current liabilities |
|
14,050 |
|
17,028 |
|
31,210 |
|
|
|
62,288 |
|
|||||
Intercompany payables |
|
17,835 |
|
21,595 |
|
50,614 |
|
(90,044 |
) |
|
|
|||||
Total current liabilities |
|
34,660 |
|
62,087 |
|
95,877 |
|
(90,044 |
) |
102,580 |
|
|||||
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term debt, net of current portion |
|
169,306 |
|
20,000 |
|
22,009 |
|
|
|
211,315 |
|
|||||
Capital lease obligations, net of current portion |
|
|
|
1,310 |
|
2 |
|
|
|
1,312 |
|
|||||
Deferred tax liabilities |
|
17,064 |
|
4,401 |
|
7,261 |
|
|
|
28,726 |
|
|||||
Other long-term liabilities |
|
|
|
29 |
|
4,692 |
|
|
|
4,721 |
|
|||||
Intercompany notes payable |
|
|
|
53,221 |
|
57,295 |
|
(110,516 |
) |
|
|
|||||
Total long-term liabilities |
|
186,370 |
|
78,961 |
|
91,259 |
|
(110,516 |
) |
246,074 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Stockholders equity |
|
322,953 |
|
165,556 |
|
114,772 |
|
(280,328 |
) |
322,953 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total liabilities and stockholders equity |
|
$ |
543,983 |
|
$ |
306,604 |
|
$ |
301,908 |
|
$ |
(480,888 |
) |
$ |
671,607 |
|
16
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
December 31, 2004
|
|
Issuer |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Consolidated |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
12 |
|
$ |
3,551 |
|
$ |
13,193 |
|
$ |
|
|
$ |
16,756 |
|
Accounts receivable, net of allowances |
|
2,660 |
|
36,273 |
|
22,414 |
|
|
|
61,347 |
|
|||||
Inventories |
|
6,340 |
|
40,061 |
|
19,815 |
|
(6,073 |
) |
60,143 |
|
|||||
Deferred tax assets |
|
|
|
|
|
2,819 |
|
|
|
2,819 |
|
|||||
Prepaid expenses and other current assets |
|
1,278 |
|
2,034 |
|
6,289 |
|
|
|
9,601 |
|
|||||
Intercompany receivables |
|
54,358 |
|
10,015 |
|
14,145 |
|
(78,518 |
) |
|
|
|||||
Total current assets |
|
64,648 |
|
91,934 |
|
78,675 |
|
(84,591 |
) |
150,666 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Property, plant and equipment, net |
|
2,808 |
|
27,591 |
|
36,381 |
|
|
|
66,780 |
|
|||||
Goodwill |
|
17,672 |
|
108,842 |
|
94,641 |
|
|
|
221,155 |
|
|||||
Other intangible assets with indefinite lives |
|
|
|
12,420 |
|
38,122 |
|
|
|
50,542 |
|
|||||
Core technology and patents, net |
|
2,533 |
|
6,009 |
|
31,785 |
|
|
|
40,327 |
|
|||||
Other intangible assets, net |
|
|
|
20,522 |
|
7,158 |
|
|
|
27,680 |
|
|||||
Deferred financing costs, net, and other non-current assets |
|
6,452 |
|
1,710 |
|
994 |
|
|
|
9,156 |
|
|||||
Deferred tax assets |
|
|
|
|
|
826 |
|
46 |
|
872 |
|
|||||
Investment in subsidiaries |
|
264,539 |
|
(966 |
) |
|
|
(263,573 |
) |
|
|
|||||
Intercompany notes receivable |
|
114,439 |
|
15,089 |
|
|
|
(129,528 |
) |
|
|
|||||
Total assets |
|
$ |
473,091 |
|
$ |
283,151 |
|
$ |
288,582 |
|
$ |
(477,646 |
) |
$ |
567,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current portion of long-term debt |
|
$ |
|
|
$ |
|
|
$ |
88 |
|
|
|
$ |
88 |
|
|
Current portion of capital lease obligations |
|
|
|
461 |
|
6 |
|
|
|
467 |
|
|||||
Accounts payable |
|
1,754 |
|
19,497 |
|
11,094 |
|
|
|
32,345 |
|
|||||
Accrued expenses and other current liabilities |
|
12,408 |
|
17,298 |
|
22,180 |
|
|
|
51,886 |
|
|||||
Intercompany payables |
|
13,640 |
|
15,964 |
|
48,914 |
|
(78,518 |
) |
|
|
|||||
Total current liabilities |
|
27,802 |
|
53,220 |
|
82,282 |
|
(78,518 |
) |
84,786 |
|
|||||
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term debt, net of current portion |
|
169,256 |
|
20,000 |
|
12 |
|
|
|
189,268 |
|
|||||
Capital lease obligations, net of current portion |
|
|
|
1,397 |
|
4 |
|
|
|
1,401 |
|
|||||
Deferred tax liabilities |
|
1,352 |
|
3,821 |
|
7,423 |
|
|
|
12,596 |
|
|||||
Other long-term liabilities |
|
|
|
29 |
|
4,417 |
|
|
|
4,446 |
|
|||||
Intercompany notes payable |
|
|
|
53,221 |
|
76,307 |
|
(129,528 |
) |
|
|
|||||
Total long-term liabilities |
|
170,608 |
|
78,468 |
|
88,163 |
|
(129,528 |
) |
207,711 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Stockholders equity |
|
274,681 |
|
151,463 |
|
118,137 |
|
(269,600 |
) |
274,681 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total liabilities and stockholders equity |
|
$ |
473,091 |
|
$ |
283,151 |
|
$ |
288,582 |
|
$ |
(477,646 |
) |
$ |
567,178 |
|
17
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2005
|
|
Issuer |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Consolidated |
|
|||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net (loss) income |
|
$ |
(8,095 |
) |
$ |
3,320 |
|
$ |
(1,061 |
) |
$ |
(2,259 |
) |
$ |
(8,095 |
) |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity in earnings of subsidiaries, net of tax |
|
(3,614 |
) |
|
|
|
|
3,614 |
|
|
|
|||||
Interest expense related to amortization and/or write-off of noncash original issue discount and deferred financing costs |
|
292 |
|
96 |
|
55 |
|
|
|
443 |
|
|||||
Depreciation and amortization |
|
304 |
|
2,285 |
|
3,613 |
|
|
|
6,202 |
|
|||||
Deferred income taxes |
|
112 |
|
526 |
|
|
|
|
|
638 |
|
|||||
Other noncash items |
|
(25 |
) |
(6 |
) |
(37 |
) |
|
|
(68 |
) |
|||||
Minority interest in subsidiary |
|
|
|
|
|
207 |
|
|
|
207 |
|
|||||
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts receivable, net |
|
726 |
|
5,079 |
|
2,883 |
|
|
|
8,688 |
|
|||||
Inventories |
|
510 |
|
(572 |
) |
(1,595 |
) |
(1,355 |
) |
(3,012 |
) |
|||||
Prepaid expenses and other current assets |
|
(857 |
) |
(640 |
) |
(2,979 |
) |
|
|
(4,476 |
) |
|||||
Intercompany payables or receivables |
|
5,790 |
|
(2,900 |
) |
(3,304 |
) |
414 |
|
|
|
|||||
Accounts payable |
|
1,098 |
|
1,329 |
|
2,921 |
|
|
|
5,348 |
|
|||||
Accrued expenses and other current liabilities |
|
289 |
|
(951 |
) |
10,018 |
|
|
|
9,356 |
|
|||||
Other non-current liabilities |
|
|
|
|
|
76 |
|
|
|
76 |
|
|||||
Net cash (used in) provided by operating activities |
|
(3,470 |
) |
7,566 |
|
10,797 |
|
414 |
|
15,307 |
|
|||||
18
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS (CONTINUED)
For the Three Months Ended March 31, 2005
|
|
Issuer |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Consolidated |
|
|||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Purchases of property, plant and equipment |
|
(275 |
) |
(1,342 |
) |
(2,362 |
) |
|
|
(3,979 |
) |
|||||
Proceeds from sale of property, plant and equipment |
|
|
|
6 |
|
37 |
|
|
|
43 |
|
|||||
Payments for acquisitions and of transactional costs for previous acquisitions |
|
(12,492 |
) |
1,671 |
|
(4,955 |
) |
|
|
(15,776 |
) |
|||||
(Increase) decrease in other assets |
|
(231 |
) |
37 |
|
(200 |
) |
|
|
(394 |
) |
|||||
Net cash (used in) provided by investing activities |
|
(12,998 |
) |
372 |
|
(7,480 |
) |
|
|
(20,106 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash paid for financing costs |
|
(82 |
) |
(163 |
) |
(110 |
) |
|
|
(355 |
) |
|||||
Proceeds from issuance of common stock, net of issuance costs |
|
899 |
|
|
|
|
|
|
|
899 |
|
|||||
Net (repayment) borrowings under revolving line of credit |
|
(77 |
) |
|
|
22,247 |
|
|
|
22,170 |
|
|||||
Repayments of notes payable |
|
|
|
|
|
(9 |
) |
|
|
(9 |
) |
|||||
Principal payments of capital lease obligations |
|
|
|
(113 |
) |
(2 |
) |
|
|
(115 |
) |
|||||
Intercompany notes payable (receivable) |
|
16,000 |
|
|
|
(16,000 |
) |
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
|
16,740 |
|
(276 |
) |
6,126 |
|
|
|
22,590 |
|
|||||
Foreign exchange effect on cash and cash equivalents |
|
|
|
|
|
(466 |
) |
(414 |
) |
(880 |
) |
|||||
Net increase in cash and cash equivalents |
|
272 |
|
7,662 |
|
8,977 |
|
|
|
16,911 |
|
|||||
Cash and cash equivalents, beginning of period |
|
12 |
|
3,551 |
|
13,193 |
|
|
|
16,756 |
|
|||||
Cash and cash equivalents, end of period |
|
$ |
284 |
|
$ |
11,213 |
|
$ |
22,170 |
|
$ |
|
|
$ |
33,667 |
|
19
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2004
|
|
Issuer |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Consolidated |
|
|||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net (loss) income |
|
$ |
(3,671 |
) |
$ |
(2,937 |
) |
$ |
3,424 |
|
$ |
(487 |
) |
$ |
(3,671 |
) |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity in earnings of subsidiaries, net of tax |
|
(964 |
) |
|
|
|
|
964 |
|
|
|
|||||
Interest expense related to amortization and/or write-off of noncash original issue discount and deferred financing costs |
|
268 |
|
2,747 |
|
296 |
|
|
|
3,311 |
|
|||||
Noncash charge related to interest rate swap agreement |
|
64 |
|
|
|
|
|
|
|
64 |
|
|||||
Depreciation and amortization |
|
618 |
|
1,838 |
< |