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
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

51 SAWYER ROAD, SUITE 200

WALTHAM, MASSACHUSETTS 02453

(Address of principal executive offices)

 

(781) 647-3900

(Registrant’s 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 registrant’s 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 “Management’s 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

 

 

PAGE

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Consolidated Financial Statements (unaudited):

 

 

 

 

 

 

a)

Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 (restated)

3

 

 

 

 

 

b)

Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004

4

 

 

 

 

 

c)

Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (restated)

5

 

 

 

 

 

d)

Notes to Consolidated Financial Statements

6

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

46

 

 

 

 

Item 4. Controls and Procedures

47

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

48

 

 

 

 

Item 6. Exhibits

49

 

 

 

 

SIGNATURE

50

 

2



 

PART I -                                                FINANCIAL INFORMATION

 

ITEM 1.                             FINANCIAL STATEMENTS

 

INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES

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

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except per share amounts)

 

 

 

March 31,
2005

 

December 31,
2004

 

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 Ischemia’s 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
December 31,
2004

 

Costs Added
to Purchase
Price

 

Amounts
Paid

 

Other (1)

 

Balance at
March 31,
2005

 

 

 

 

 

 

 

 

 

 

 

 

 

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 IMN’s 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.  IMN’s 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 women’s health (except that diagnostics for women’s 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 company’s 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. 25’s 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 statement’s 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
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

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
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

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
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

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
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

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
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

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
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

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
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

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

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