INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Exhibit 99.1
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Overview
On June 4, 2007, we entered into an Agreement and Plan of Reorganization (the “Merger
Agreement”), pursuant to which we agreed to acquire Cholestech Corporation (“Cholestech”) through
the merger of our wholly owned subsidiary, Iris Merger Sub, Inc., with and into Cholestech (the
“Merger”). Cholestech is a leading provider of diagnostic tools and information for immediate risk
assessment and therapeutic monitoring of heart disease and inflammatory disorders. The completion
of the Merger is subject to various closing conditions, including obtaining the approval of
Cholestech stockholders. The Merger is intended to qualify as a reorganization for United States
federal income tax purposes and is expected to close during the third quarter of 2007.
The unaudited pro forma condensed combined financial statements (the “Financial Statements”)
reflect our probable acquisition of Cholestech. The Financial Statements are based on the
respective historical consolidated financial statements and the notes thereto of Inverness and
Cholestech. The Financial Statements also reflect our previous acquisitions of Biosite
Incorporated (“Biosite”) (including related financing transactions), Instant Technologies, Inc.
(“Instant”) and the Innovacon business, including the ABON facility (“Innovacon”). All acquisitions
are reflected using the purchase method of accounting and the estimates, assumptions and
adjustments described below and in the notes to the Financial Statements. Actual operating results
of the previous acquisitions are included in Inverness’ historical financial results only from the
respective dates of the several acquisitions.
The Financial Statements also reflect our previous transfer of our consumer diagnostic
products assets to a 50/50 joint venture with The Procter & ▇▇▇▇▇▇ Company (“P&G”), the elimination
of the historical results of operations of our consumer diagnostic products business, and the
impact of the new manufacturing agreement with the joint venture on our historical results of
operations.
For purposes of preparing the Financial Statements, the historical financial information for
Inverness is based on the year ended December 31, 2006 and the six months ended June 30, 2007, and
the historical financial information for Cholestech is based on the year ended December 29, 2006
and the six months ended June 29, 2007. These periods differ from the fiscal periods that
Cholestech uses for financial reporting purposes, and accordingly the following historical
financial information for Cholestech does not match Cholestech’s historical financial statements
filed with the SEC and is unaudited.
The historical Cholestech financial information included in the accompanying unaudited pro
forma condensed combined statements of operations for the year ended December 31, 2006 and the six
months ended June 30, 2007 represents the pre-acquisition results of Cholestech. The historical
Biosite financial information included in the accompanying unaudited pro forma
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condensed combined statements of operations for the year ended December 31, 2006 and the six
months ended June 30, 2007 includes results of operations for the pre-acquisition period ended June
26, 2007, which represent the historical pre-acquisition results of Biosite. The historical Instant
financial information included in the accompanying unaudited pro forma condensed combined
statements of operations for the year ended December 31, 2006 and the six months ended June 30,
2007 includes results of operations for the pre-acquisition period ended March 12, 2007, which
represent the historical pre-acquisition results of Instant. The historical Innovacon financial
information included in the accompanying unaudited pro forma condensed combined statements of
operations for the year ended December 31, 2006 includes results of operations for the
pre-acquisition period ended March 31, 2006, which represent the historical pre-acquisition results
of Innovacon.
The unaudited pro forma condensed combined statements of operations for the year ended
December 31, 2006 and the six months ended June 30, 2007 assume that the pending acquisition of
Cholestech, the acquisition of Biosite and the related financing transactions, the previous
acquisitions of Instant and Innovacon, and the consummation of the 50/50 joint venture with P&G
occurred on January 1, 2006. The unaudited pro forma condensed combined balance sheet assumes that
the pending acquisition of Cholestech occurred on June 30, 2007. The historical Inverness balance
sheet as of June 30, 2007 reflects the acquisition of Biosite and the related financing
transactions, the acquisitions of Instant and Innovacon, and the consummation of the 50/50 joint
venture with P&G.
The Financial Statements are presented for illustrative purposes only and do not purport to be
indicative of the results of operations or financial position for future periods or the results
that actually would have been realized had the pending merger with Cholestech or the other
transactions described above been consummated as of January 1, 2006 or June 30, 2007. The pro forma
adjustments are based upon available information and certain estimates and assumptions as described
in the notes to the Financial Statements that management of Inverness believes are reasonable in
the circumstances.
The Financial Statements and accompanying notes should be read in conjunction with the
historical consolidated financial statements and notes thereto of Inverness included in our Annual
Report on Form 10-K for the year ended December 31, 2006, as amended, our Quarterly Report on Form
10-Q for the three months ended June 30, 2007 and our previously filed Forms 8-K, as well as the
historical financial statements and notes thereto of Cholestech included in its Annual Report on
Form 10-K for the year ended March 31, 2007 and its Quarterly Report on Form 10-Q for the thirteen
weeks ended June 29, 2007.
The following is a more complete explanation of the transactions reflected in the unaudited
pro forma condensed combined financial statements.
Proposed Acquisition of Cholestech
On June 4, 2007, we entered into the Merger Agreement with Cholestech, pursuant to which we
agreed to acquire Cholestech through the Merger. The completion of the Merger is subject to various
closing conditions, including obtaining the approval of Cholestech
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stockholders. The Merger is intended to qualify as a reorganization for United States federal
income tax purposes and is expected to close during the third quarter of 2007.
At the effective time of the Merger (the “Effective Time”), by virtue of the Merger and
without any action on the part of the holders of any capital stock of Cholestech, each share of
common stock of Cholestech issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive 0.43642 (the “Exchange Ratio”) of a share of common stock of
Inverness (each full share, an “Inverness Share”). Based on Cholestech’s outstanding shares as of
the date of the Merger Agreement and the Exchange Ratio, approximately 6.8 million Inverness Shares
would have been issued to effect the Merger.
Pursuant to the Merger Agreement, each option to purchase shares of Cholestech common stock
granted under employee and director stock plans of Cholestech that is outstanding as of immediately
prior to the Effective Time, whether vested or unvested, shall be converted into a right to acquire
Inverness Shares on the same terms and conditions as were applicable to such option prior to the
Effective Time, provided that the number of Inverness Shares receivable and the exercise price of
the option shall be adjusted to reflect the Exchange Ratio. All other Cholestech equity-based
awards outstanding as of the Effective Time will remain in effect but will be denominated in
Inverness Shares, with applicable adjustments to reflect the Exchange Ratio.
Acquisition Of Biosite
On June 29, 2007, we completed our acquisition of Biosite for a preliminary aggregate purchase
price of $1.8 billion, including related transaction expenses of $63.8 million and $77.4 million of
fair value associated with the outstanding fully vested Biosite employee stock options which were
converted to options to acquire our common stock as part of the transaction.
To finance the acquisition, we entered into a secured First Lien Credit Agreement with certain
lenders, General Electric Capital Corporation as administrative agent and collateral agent, and
certain other agents and arrangers, a secured Second Lien Credit Agreement with certain lenders,
General Electric Capital Corporation as administrative agent and collateral agent, and certain
other agents and arrangers, and certain related guaranty and security agreements. The First Lien
Credit Agreement provides for term loans in the aggregate amount of $900.0 million and, subject to
our continued compliance with the First Lien Credit Agreement, a $150.0 million revolving line of
credit. The Second Lien Credit Agreement provides for term loans in the aggregate amount of $250.0
million. To finance the acquisition, we drew the full amount of the term loans under the two Credit
Agreements and approximately $73.1 million under the revolver.
A portion
of the acquisition was also financed from the proceeds of our
May 2007 sale of $150.0 million principal amount of 3% convertible senior subordinated notes due 2016 (the “Convertible
Notes”) in a private placement to qualified institutional buyers.
Joint Venture with P&G
On May 17, 2007, we completed our previously announced transaction to form a 50/50 joint
venture with P&G for the development, manufacturing, marketing and sale of existing and
to-be-developed consumer diagnostic products, outside the cardiology, diabetes and oral care
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fields. At the closing, Inverness and P&G entered into material definitive agreements,
pursuant to which we transferred our consumer diagnostic net assets, other than our manufacturing
and core intellectual property assets, to the joint venture, and P&G acquired its interest in the
joint venture for a cash payment to us of approximately $325.0 million.
Upon completion of the transaction to form the joint venture, we ceased to consolidate the
operating results of our consumer diagnostic products business and began to account for our 50%
interest in the results of the joint venture under the equity method of accounting. In our capacity
as the manufacturer of products for the joint venture, we supply products to the joint venture and
record revenue on those sales. No gain on the proceeds that we received from P&G through the
formation of the joint venture will be recognized in our financial statements until P&G’s option to
require us to purchase its interest in the joint venture expires. As a result, all income tax
effects as a result of this transaction have also been deferred.
Acquisition of Instant
On March 12, 2007, we acquired 75% of the issued and outstanding capital stock of Instant
Technologies, Inc., a privately-owned Virginia corporation located in Norfolk, Virginia, for an
aggregate purchase price of $44.1 million, consisting of approximately $30.7 million in cash,
including approximately $0.3 million of direct acquisition costs, plus 313,888 shares of our common
stock with a fair value of approximately $13.1 million. Instant primarily distributes rapid drugs
of abuse diagnostic products that are used in the workplace, criminal justice or other testing
markets.
Acquisition of the Innovacon Business, including the ABON Facility
On March 31, 2006, we acquired the assets of ACON Laboratories’ business of researching,
developing, manufacturing, marketing and selling lateral flow immunoassay and directly-related
products in the United States, Canada, Europe (excluding Russia, the former Soviet Republics that
are not part of the European Union and Turkey), Israel, Australia, Japan and New Zealand (“the
Innovacon business”). The preliminary aggregate purchase price was approximately $93.9 million,
which consisted of $55.1 million in cash, 711,676 shares of our common stock with an aggregate fair
value of $19.7 million, $9.1 million in estimated direct acquisition costs and an additional
liability of $10.0 million payable to the sellers on the deferred payment date, pursuant to the
purchase agreement.
On May 15, 2006, as part of the Innovacon business, we acquired a newly-constructed
manufacturing facility in Hangzhou, China pursuant to the terms of our acquisition agreement with
ACON Laboratories and its affiliates. In connection with the acquisition of the new facility, we
acquired ABON BioPharm (Hangzhou) Co., Ltd (“ABON”), the direct owner of the new factory and now
our subsidiary. The preliminary aggregate purchase price was approximately $20.8 million, which
consisted of $8.8 million in cash and 417,446 shares of our common stock with an aggregate fair
value of $12.0 million. In addition, pursuant to the acquisition agreement, we made an additional
payment of $4.1 million in cash as a result of the amount of cash acquired, net of indebtedness
assumed, which increased the preliminary aggregate purchase price to $24.9 million. Subsequently,
between August and November 2006, we made cash payments totaling $44.0 million and issued 742,128
shares of our common stock with an aggregate fair
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value of $21.3 million as various milestones were achieved. This brings the aggregate purchase
price for the Innovacon business, including the ABON facility, to a total of $184.1 million.
The Innovacon business and ABON facility financial information included in the accompanying
unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006
includes results of operations for the pre-acquisition period ended March 31, 2006, which represent
the historical pre-acquisition results of these entities.
Other Acquisitions
The unaudited pro forma condensed combined financial statements do not reflect the pro forma
effects of other acquisitions that Inverness has completed since December 31, 2005, or probable
pending acquisitions, none of which is significant enough to require pro forma presentation.
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Inverness Medical Innovations, Inc. and Subsidiaries
Unaudited Pro forma Condensed Combined Statements of Operations
For the twelve months ended December 31, 2006
(in 000s, except per share amounts)
Unaudited Pro forma Condensed Combined Statements of Operations
For the twelve months ended December 31, 2006
(in 000s, except per share amounts)
| Pro forma Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Completed Transactions | Pending Transaction | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Innovacon | Innovacon | Instant | Instant | Disposition of | Formation of | Biosite | Biosite | Pro forma | Cholestech | Cholestech | Pro forma | |||||||||||||||||||||||||||||||||||||||||
| Inverness | Historical | Adjustments | Historical | Adjustments | CD Business | Joint Venture | Historical | Adjustments | Combined Company | Historical | Adjustments | Combined Company | ||||||||||||||||||||||||||||||||||||||||
Net product sales |
$ | 552,130 | $ | 13,447 | $ | — | $ | 23,595 | $ | (12,782 | ) E | $ | (177,219 | ) J | $ | 94,803 | L | $ | 303,261 | $ | — | $ | 797,235 | $ | 69,070 | $ | — | $ | 866,305 | |||||||||||||||||||||||
Research and License revenues |
17,324 | — | — | — | — | — | — | 5,331 | — | 22,655 | — | — | 22,655 | |||||||||||||||||||||||||||||||||||||||
Net revenues |
569,454 | 13,447 | — | 23,595 | (12,782 | ) | (177,219 | ) | 94,803 | 308,592 | — | $ | 819,890 | 69,070 | — | $ | 888,960 | |||||||||||||||||||||||||||||||||||
Cost of sales |
340,231 | 4,786 | 1,634 | A | 12,092 | (12,782 | ) E | (90,289 | ) J | 90,289 | L | 94,228 | 6,000 | O | 453,812 | 23,459 | 1,600 | T | 480,886 | |||||||||||||||||||||||||||||||||
| — | — | 1,037 | B | — | — | — | — | — | 6,586 | P | — | 2,015 | U | |||||||||||||||||||||||||||||||||||||||
Gross profit |
229,223 | 8,661 | (2,671 | ) | 11,503 | — | (86,930 | ) | 4,514 | 214,364 | (12,586 | ) | 366,078 | 45,611 | (3,615 | ) | 408,074 | |||||||||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Research and development |
53,666 | 322 | — | — | — | (5,171 | ) J | — | 53,043 | — | 101,860 | 6,276 | — | 108,136 | ||||||||||||||||||||||||||||||||||||||
Sales and marketing |
94,445 | 2,897 | 770 | B | 5,301 | 1,985 | F | (36,654 | ) J | — | 69,952 | 30,402 | O | 169,098 | 14,597 | 2,444 | T | 186,139 | ||||||||||||||||||||||||||||||||||
General and administrative |
71,243 | 625 | (1,026 | ) C | 1,325 | — | (14,696 | ) J | — | 30,288 | 22,089 | P | 155,069 | 12,876 | 167,945 | |||||||||||||||||||||||||||||||||||||
| 45,221 | P | |||||||||||||||||||||||||||||||||||||||||||||||||||
Loss on dispositions |
3,498 | — | — | — | — | — | — | — | — | 3,498 | — | — | 3,498 | |||||||||||||||||||||||||||||||||||||||
Total operating expenses |
222,852 | 3,844 | (256 | ) | 6,626 | 1,985 | (56,521 | ) | — | 153,283 | 97,712 | 429,525 | 33,749 | 2,444 | 465,718 | |||||||||||||||||||||||||||||||||||||
Operating income |
6,371 | 4,817 | (2,415 | ) | 4,877 | (1,985 | ) | (30,409 | ) | 4,514 | 61,081 | (110,298 | ) | (63,447 | ) | 11,862 | (6,059 | ) | (57,644 | ) | ||||||||||||||||||||||||||||||||
Interest and other income (expense), net |
(17,486 | ) | (11 | ) | — | (450 | ) | (509 | ) G,H | — | 11,653 | M | 4,244 | (105,955 | ) Q,R | (108,514 | ) | 1,834 | — | (106,680 | ) | |||||||||||||||||||||||||||||||
(Loss) Income before income taxes |
(11,115 | ) | 4,806 | (2,415 | ) | 4,427 | (2,494 | ) | (30,409 | ) | 16,167 | 65,325 | (216,253 | ) | (171,961 | ) | 13,696 | (6,059 | ) | (164,324 | ) | |||||||||||||||||||||||||||||||
Income tax provision |
5,727 | — | — | — | — | (7,880 | ) K | 6,802 | N | 25,331 | (25,331 | ) S | 4,649 | 5,530 | (5,530 | ) V | 4,649 | |||||||||||||||||||||||||||||||||||
Net (loss) income |
$ | (16,842 | ) | $ | 4,806 | $ | (2,415 | ) | $ | 4,427 | $ | (2,494 | ) | $ | (22,529 | ) | $ | 9,365 | $ | 39,994 | $ | (190,922 | ) | $ | (176,610 | ) | $ | 8,166 | $ | (529 | ) | $ | (168,973 | ) | ||||||||||||||||||
Net loss per common share: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and diluted |
$ | (0.49 | ) | $ | (4.98 | ) | $ | (4.00 | ) | |||||||||||||||||||||||||||||||||||||||||||
Weighted average shares — basic and diluted |
34,109 | 1,008 | D | 314 | I | 0 | 0 | 35,431 | 6,844 | W | 42,275 | |||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.
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Inverness Medical Innovations, Inc. and Subsidiaries
Unaudited Pro forma Condensed Combined Statements of Operations
For the six months ended June 30, 2007
(in 000s, except per share amounts)
Unaudited Pro forma Condensed Combined Statements of Operations
For the six months ended June 30, 2007
(in 000s, except per share amounts)
| Pro forma Adjustments | ||||||||||||||||||||||||||||||||||||||||||||
| Completed Transactions | Pending Transaction | |||||||||||||||||||||||||||||||||||||||||||
| Instant | Instant | Disposition of | Formation of | Biosite | Biosite | Pro forma | Cholestech | Cholestech | Pro forma | |||||||||||||||||||||||||||||||||||
| Inverness | Historical | Adjustments | CD Business | Joint Venture | Historical | Adjustments | Combined Company | Historical | Adjustments | Combined Company | ||||||||||||||||||||||||||||||||||
Net product
sales |
$ | 305,953 | $ | 5,381 | $ | (544 | ) E | $ | (73,781 | ) J | $ | 36,007 | L | $ | 152,686 | $ | — | $ | 425,702 | $ | 36,161 | $ | — | $ | 461,863 | |||||||||||||||||||
Research and
License revenue |
7,991 | — | — | — | — | 2,718 | — | 10,709 | — | — | 10,709 | |||||||||||||||||||||||||||||||||
Net revenue |
313,944 | 5,381 | (544 | ) | (73,781 | ) | 36,007 | 155,404 | — | 436,411 | 36,161 | — | 472,572 | |||||||||||||||||||||||||||||||
Cost of sales |
169,266 | 3,143 | (544 | ) E | (34,292 | ) J | 34,292 | L | 47,406 | 3,000 | O | 221,114 | 12,319 | 800 | T | 234,233 | ||||||||||||||||||||||||||||
| (1,157 | ) P | |||||||||||||||||||||||||||||||||||||||||||
Gross profit |
144,678 | 2,238 | — | (39,489 | ) | 1,715 | 107,998 | (1,843 | ) | 215,297 | 23,842 | (800 | ) | 238,339 | ||||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||||||
Research and development |
24,119 | — | — | (7,290) J | — | 26,780 | — | 43,609 | 3,097 | — | 46,706 | |||||||||||||||||||||||||||||||||
Sales and marketing |
56,311 | 1,014 | 870 | F | (16,414 | ) J | — | 38,222 | 13,003 | O | 93,007 | 7,545 | 1,090 | T | 101,642 | |||||||||||||||||||||||||||||
General and administrative |
90,454 | 254 | — | (6,823 | ) J | — | 33,197 | (22,089 | ) P | 49,771 | 7,741 | — | 57,512 | |||||||||||||||||||||||||||||||
| — | — | — | — | — | — | (45,221 | ) P | — | — | — | — | |||||||||||||||||||||||||||||||||
Loss on
dispositions, net |
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Operating (loss) income |
(26,206 | ) | 970 | (870 | ) | (8,962 | ) | 1,715 | 9,799 | 52,464 | 28,910 | 5,459 | (1,890 | ) | 32,479 | |||||||||||||||||||||||||||||
Interest and other income (expense), net |
(18,958 | ) | (169 | ) | (86 | ) G,H | — | 3,509 | M | 2,060 | (43,408 | ) Q | (41,699 | ) | 1,416 | — | (40,283 | ) | ||||||||||||||||||||||||||
| — | — | — | — | — | — | 15,353 | — | — | — | — | ||||||||||||||||||||||||||||||||||
(Loss)
Income before income tax provision |
(45,164 | ) | 801 | (956 | ) | (8,962 | ) | 5,224 | 11,859 | 24,409 | (12,790 | ) | 6,875 | (1,890 | ) | (7,805 | ) | |||||||||||||||||||||||||||
Income tax provision |
3,205 | — | 36 | (2,331 | ) K | 929 | N | 5,515 | (5,515 | ) S | 3,683 | 1,548 | (1,548 | ) V | 3,683 | |||||||||||||||||||||||||||||
| — | — | — | — | K | — | N | — | 1,844 | S | — | — | — | V | — | ||||||||||||||||||||||||||||||
Net (loss) income |
$ | (48,369 | ) | $ | 801 | $ | (992 | ) | $ | (6,631 | ) | $ | 4,295 | $ | 6,344 | $ | 28,080 | $ | (16,473 | ) | $ | 5,327 | $ | (342 | ) | $ | (11,488 | ) | ||||||||||||||||
Net (loss) income per common share: |
||||||||||||||||||||||||||||||||||||||||||||
Basic and
diluted |
$ | (1.06 | ) | $ | (0.36 | ) | $ | (0.22 | ) | |||||||||||||||||||||||||||||||||||
Weighted
average shares — basic and diluted |
45,565 | — | — | — | 45,565 | 6,844 | 52,409 | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.
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Inverness Medical Innovations, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2007
(in thousands)
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2007
(in thousands)
| Pending Transaction | ||||||||||||||||
| Inverness | Cholestech | Cholestech | Pro forma | |||||||||||||
| Historical | Historical | Adjustments | Combined Company | |||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and short term investments |
$ | 164,291 | $ | 50,171 | $ | — | $ | 214,462 | ||||||||
Accounts receivable, net of allowances |
115,676 | 6,156 | — | 121,832 | ||||||||||||
Inventory |
131,543 | 8,759 | 2,015 | U | 142,317 | |||||||||||
Deferred tax assets |
5,433 | 2,199 | — | 7,632 | ||||||||||||
Prepaid expenses and other current assets |
109,921 | 1,753 | — | 111,674 | ||||||||||||
Total current assets |
526,864 | 69,038 | 2,015 | 597,917 | ||||||||||||
Property, plant and equipment, net |
247,986 | 6,725 | — | 254,711 | ||||||||||||
Goodwill, trademarks and other intangible assets, net |
2,263,119 | 394 | 252,826 | T | 2,516,339 | |||||||||||
Investment in unconsolidated subsidiaries |
83,884 | — | — | 83,884 | ||||||||||||
Deferred financing costs, net, and other assets |
46,618 | 18,509 | — | 65,127 | ||||||||||||
Deferred tax assets |
19,576 | 9,280 | — | 28,856 | ||||||||||||
Total assets |
$ | 3,188,047 | $ | 103,946 | $ | 254,841 | $ | 3,546,834 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Current portion of long-term debt |
$ | 15,347 | $ | — | $ | — | $ | 15,347 | ||||||||
Current portion of capital lease obligations |
664 | — | — | 664 | ||||||||||||
Accounts payable |
57,377 | 3,745 | — | 61,122 | ||||||||||||
Accrued expenses and other current liabilities |
168,246 | 2,652 | — | 170,898 | ||||||||||||
Total current liabilities |
241,634 | 6,397 | — | 248,031 | ||||||||||||
Long-term liabilities: |
||||||||||||||||
Long-term debt |
1,397,981 | — | — | 1,397,981 | ||||||||||||
Capital lease obligations |
272 | — | — | 272 | ||||||||||||
Deferred tax liabilities |
137,728 | — | 14,006 | X | 151,734 | |||||||||||
Deferred gain on joint venture |
302,770 | — | — | 302,770 | ||||||||||||
Other long-term liabilities |
19,751 | — | — | 19,751 | ||||||||||||
Total long-term liabilities |
1,858,502 | — | 14,006 | 1,872,508 | ||||||||||||
Stockholders’ equity: |
||||||||||||||||
Preferred stock |
— | — | — | — | ||||||||||||
Common stock |
47 | — | 68 | Y | 115 | |||||||||||
Additional paid-in capital |
1,244,545 | 105,435 | (105,435 | ) Z | 1,244,545 | |||||||||||
| 338,316 | Y,AA | 338,316 | ||||||||||||||
Accumulated deficit |
(175,438 | ) | (7,816 | ) | 7,816 | Z | (175,438 | ) | ||||||||
| — | ||||||||||||||||
| — | ||||||||||||||||
| — | ||||||||||||||||
Accumulated other comprehensive income |
18,757 | (70 | ) | 70 | Z | 18,757 | ||||||||||
Total stockholders’ equity |
1,087,911 | 97,549 | 240,835 | 1,426,295 | ||||||||||||
Total liabilities and stockholders’ equity |
$ | 3,188,047 | $ | 103,946 | $ | 254,841 | $ | 3,546,834 | ||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
NOTE 1 — BASIS OF PRESENTATION, ACQUISITIONS AND JOINT VENTURE
The accompanying unaudited pro forma condensed combined statements of operations for the year
ended December 31, 2006 and the six months ended June 30, 2007 include the historical results of
Inverness and Cholestech, our previous acquisition of Biosite and related financing transactions,
our previous acquisitions of Instant and Innovacon, the elimination of the historical results of
operations for our consumer diagnostic products business and the impact of our new manufacturing
agreement with the joint venture on our historical results of operations as if these transactions
had occurred on January 1, 2006. The historical results of operations for Instant have been derived
from the supplemental information contained in the combined financial statements of Instant
Technologies and Affiliates for the year ended December 31, 2006, as certain entities included
within those combined financial statements were not acquired by Inverness.
The accompanying unaudited pro forma condensed combined balance sheet assumes that the pending
acquisition of Cholestech occurred on June 30, 2007.
Proposed Acquisition of Cholestech
On June 4, 2007, we entered into the Merger Agreement, pursuant to which we agreed to acquire
Cholestech through the Merger. The completion of the Merger is subject to various closing
conditions, including obtaining the approval of Cholestech stockholders. The Merger is intended to
qualify as a reorganization for United States federal income tax purposes and is expected to close
during the third quarter of 2007.
At the Effective Time, by virtue of the Merger and without any action on the part of the
holders of any capital stock of Cholestech, each share of common stock of Cholestech issued and
outstanding immediately prior to the Effective Time will be converted into the right to receive
Inverness Shares based on the Exchange Ratio. Based on Cholestech’s outstanding shares as of the
date of the Merger Agreement and the Exchange Ratio, approximately
6.8 million Inverness Shares with an aggregate value of
$317.5 million would have been issued to effect the Merger.
The preliminary aggregate purchase price for Cholestech, as discussed above, will be allocated
based on the closing balance sheet of Cholestech as of the date of acquisition, when available. On
a preliminary basis, for purposes of the accompanying unaudited pro forma condensed combined
balance sheet, the purchase price was allocated based on the June 29, 2007 balance sheet of
Cholestech as follows:
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 — BASIS OF PRESENTATION, ACQUISITIONS AND JOINT VENTURE (CONTINUED)
| (in thousands) | ||||
Cash and marketable securities |
$ | 50,171 | ||
Accounts receivable |
6,156 | |||
Inventory |
10,774 | |||
Deferred tax assets |
11,479 | |||
Other current assets |
1,753 | |||
Property and equipment |
6,725 | |||
Customer relationships |
9,000 | |||
Core technology |
16,000 | |||
Trademarks |
8,000 | |||
Goodwill and other intangibles |
220,220 | |||
Other assets |
18,509 | |||
Accounts payable and accrued expenses |
(6,397 | ) | ||
Deferred tax liability |
(14,006 | ) | ||
| $ | 338,384 | |||
The above values for the assets acquired and liabilities assumed are based on preliminary
management estimates due to the timing of the acquisition. We have estimated that approximately
$33.0 million of the preliminary excess purchase price will be assigned to customer relationships,
core technology and trademarks, having a useful life of ten to sixteen years. The final allocation
of the excess of the purchase price over the fair value of the net assets acquired could differ
materially.
Acquisition of Biosite
On June 29, 2007, we completed our acquisition of Biosite for a preliminary aggregate purchase
price of $1.8 billion, including related transaction expenses of $63.8 million and $77.4 million of
fair value associated with the outstanding fully vested Biosite employee stock options which were
converted to options to acquire our common stock as part of the transaction.
The preliminary aggregate purchase price for Biosite, as discussed above, will be allocated
based on the closing balance sheet of Biosite as of the date of acquisition. On a
preliminary basis, for purposes of the accompanying unaudited pro forma condensed combined balance
sheet, the purchase price was allocated based on the assets acquired and liabilities assumed from
Biosite as follows:
- 10 -
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 — BASIS OF PRESENTATION, ACQUISITIONS AND JOINT VENTURE (CONTINUED)
| (in thousands) | ||||
Cash and short term investments |
$ | 174,115 | ||
Accounts receivable |
44,409 | |||
Inventory |
42,597 | |||
Deferred tax assets |
3,350 | |||
Other current assets |
63,048 | |||
Property and equipment |
157,793 | |||
Customer relationships |
150,000 | |||
Core technology |
60,000 | |||
Trademarks |
30,000 | |||
Goodwill and other intangibles |
1,282,331 | |||
Other assets |
5,204 | |||
Accounts payable and accrued expenses |
(118,178 | ) | ||
Other long
term liabilities |
(11,081 | ) | ||
Deferred tax liability |
(101,985 | ) | ||
| $ | 1,781,603 | |||
The above values for the assets acquired and liabilities assumed are based on preliminary
management estimates due to the timing of the acquisition. The final purchase price allocation will
include an evaluation of whether certain in-process research and development projects have yet
reached technical feasibility.
The value of projects which have not yet reached technical feasibility, if any, could be
material and will be expensed as in-process research and development when quantified. We have
estimated that approximately $240.0 million of the preliminary excess purchase price will be
assigned to customer relationships, core technology and trademarks, having a useful life of ten to
sixteen years. The final allocation of the excess of the purchase price over the fair value of the
net assets acquired could differ materially.
Joint Venture with P&G
On May 17, 2007, we consummated a transaction with P&G to form a 50/50 joint venture for the
development, manufacturing, marketing and sale of existing and to-be-developed consumer diagnostic
products, outside the cardiology, diabetes and oral care fields, whereby we
contributed our consumer diagnostic assets, other than our manufacturing and core intellectual
property assets, to the joint venture, and P&G acquired its interest in the joint venture for a
cash payment to us of approximately $325.0 million. Under the terms of the joint venture agreement,
- 11 -
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 — BASIS OF PRESENTATION, ACQUISITIONS AND JOINT VENTURE (CONTINUED)
we will continue to manufacture consumer diagnostic products and sell these products to the joint
venture entity.
Additionally, in conjunction with the joint venture, we entered into a transition services
agreement with the joint venture entity, pursuant to which we will provide certain operational
support services to the joint venture for a period of four years, subject to renewal or earlier
termination under the terms of the agreement. Transitional services under such agreement will be
provided for varying periods. As the final scope and periods of such arrangements are variable and
not estimable, no profits from such services revenue have been assumed in the accompanying pro
forma results.
The historical financial results of the consumer business contributed to the joint venture
include all direct and allocable costs associated with the business. Certain other costs not
specifically attributable to the business, including corporate overhead expenses, interest income
and expense, and certain other non-operating costs are not included in the historical results of
the contributed consumer business.
Acquisition of Instant
On March 12, 2007, we acquired 75% of the issued and outstanding capital stock of Instant
Technologies, Inc., a privately-owned Virginia corporation located in Norfolk, Virginia, for an
aggregate purchase price of $44.1 million, consisting of approximately $30.7 million in cash,
including approximately $0.3 million of direct acquisition costs, plus 313,888 shares of our common
stock with a fair value of approximately $13.1 million.
Based on final valuations, the aggregate purchase price for Instant was allocated to the
assets acquired and liabilities assumed at the date of acquisition as follows:
- 12 -
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 — BASIS OF PRESENTATION, ACQUISITIONS AND JOINT VENTURE (CONTINUED)
| (in thousands) | ||||
Cash |
$ | 327 | ||
Accounts receivable |
3,638 | |||
Inventory |
4,267 | |||
Other assets |
780 | |||
Property and equipment |
141 | |||
Customer relationships |
20,060 | |||
Trademarks |
2,380 | |||
Goodwill |
31,858 | |||
Accounts payable and accrued expenses |
(4,279 | ) | ||
Long-term debt and other liabilities |
(6,145 | ) | ||
Deferred tax liability |
(8,976 | ) | ||
| $ | 44,051 | |||
Immediately subsequent to the acquisition, we repaid the outstanding principal and
accrued interest balances related to the debt we assumed in the transaction, totaling approximately
$4.9 million.
We estimate a useful life of 5 years and 17 years for trademarks and customer relationships,
respectively, and have recorded these assets in other intangible assets, net in the accompanying
consolidated balance sheet at June 30, 2007. Goodwill resulting from this transaction is not
deductible for tax purposes.
The Innovacon Business, including the ABON Facility
On March 31, 2006, we acquired Innovacon. The preliminary aggregate purchase price was
approximately $93.9 million, which consisted of $55.1 million in cash, 711,676 shares of our common
stock with an aggregate fair value of $19.7 million, $9.1 million in estimated direct acquisition
costs and an additional deferred payable of $10.0 million, which was paid to the sellers in May
2007, pursuant to the purchase agreement.
On May 15, 2006, as part of the Innovacon business, we acquired a newly-constructed
manufacturing facility in Hangzhou, China pursuant to the terms of our acquisition agreement with
ACON Laboratories and its affiliates. In connection with the acquisition of the new facility, we
acquired ABON, the direct owner of the new factory and now our subsidiary. The preliminary
aggregate purchase price was approximately $20.8 million, which consisted of $8.8
million in cash and 417,446 shares of our common stock with an aggregate fair value of $12.0
million. In addition, pursuant to the acquisition agreement, we made an additional payment of
- 13 -
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 — BASIS OF PRESENTATION, ACQUISITIONS AND JOINT VENTURE (CONTINUED)
$4.1 million in cash as a result of the amount of cash acquired, net of indebtedness assumed, which
increased the preliminary aggregate purchase price to $24.9 million.
Subsequently, between August and November 2006, we made cash payments totaling $44.0 million
and issued 742,128 shares of our common stock with an aggregate fair value of $21.3 million as
various milestones were achieved. This brings the aggregate purchase price for the Innovacon
business, including the ABON facility, to a total of $184.1 million.
The aggregate purchase price for the Innovacon business, including the ABON facility discussed
above, was allocated to the assets acquired and liabilities assumed at the date of acquisition as
follows:
| (in thousands) | ||||
Cash |
$ | 8,403 | ||
Accounts receivable |
11,328 | |||
Inventories |
4,814 | |||
Property, plant and equipment, net |
10,274 | |||
Goodwill |
112,116 | |||
Trademarks |
800 | |||
Customer relationships |
27,700 | |||
Supply agreements |
3,300 | |||
Core technology |
16,200 | |||
Other assets |
1,369 | |||
Accounts payable and accrued expenses |
(4,081 | ) | ||
Long-term debt |
(8,125 | ) | ||
| $ | 184,098 | |||
Goodwill generated from this acquisition is not deductible for tax purposes. We estimate
the useful lives of the trademarks, customer relationships, supply agreements and product
technology to be 10 years, 16.8 years and 17.8 years, 1.8 years and 7 years, respectively, and have
included them in core technology and patents, net, and other intangible assets, net, respectively,
in the accompanying consolidated balance sheets. The weighted average amortization period for the
acquired intangible assets with finite lives is 12.7 years.
NOTE 2 — PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
The following describes the pro forma adjustments made to the accompanying unaudited pro forma
condensed combined financial statements:
- 14 -
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 — PRO FORMA ADJUSTMENTS AND ASSUMPTIONS (CONTINUED)
| A. | Reflects estimated cost increase for products supplied under a contractual supply agreement. |
| B. | Reflects amortization expense of the value assigned to customer relationships, supply agreements and trademarks as discussed in Note 1, which intangible assets Inverness acquired in connection with the acquisition of Innovacon from ACON. The fair values of acquired intangible assets in connection with the acquisition of Innovacon and their respective useful lives are as follows: |
| Fair Value | Life | |||||||
| (in thousands) | ||||||||
Goodwill |
$ | 112,116 | Indefinite | |||||
Trademarks |
800 | 10 years | ||||||
Customer relationships |
27,700 | 16.8-17.8 years | ||||||
Supply agreements |
3,300 | 1.8 years | ||||||
Core technology |
16,200 | 7 years | ||||||
Total intangibles |
$ | 160,116 | ||||||
| C. | Reflects the reversal of legal fees incurred by ACON and Inverness in connection with pre-acquisition intellectual property litigation settled in connection with the acquisition. |
| D. | Represents adjustment to the historical number of basic weighted average Inverness shares outstanding giving effect to the issuance of shares of Inverness common stock as part of the consideration to acquire and finance the Innovacon business, including the ABON facility, as if such transaction occurred on January 1, 2006. |
| E. | Represents elimination of sales and related cost of sales between Innovacon and Instant. |
| F. | Reflects the reversal of amortization expense recorded by Instant related to pre-acquisition intangible assets written off in connection with the acquisition of Instant, net of amortization related to estimated intangibles acquired. |
| G. | Reflects the reversal of interest expense incurred by Instant related to pre-acquisition debt which was repaid by Inverness in connection with the acquisition of Instant. |
| H. | Represents the recording of minority interest expense related to the 25% ownership in Instant not acquired by Inverness. |
- 15 -
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 — PRO FORMA ADJUSTMENTS AND ASSUMPTIONS (CONTINUED)
| I. | Represents the issuance of common stock by Inverness in connection with the acquisition of Instant. |
| ▇. | Reflects elimination of the historical consumer diagnostic products business as a result of the consummation of our transaction to form a 50/50 joint venture with P&G. |
| K. | Tax effect on the elimination of the historical consumer diagnostic products business as a result of the consummation of our transaction to form a 50/50 joint venture with P&G. |
| L. | Reflects manufacturing revenue and related costs in conjunction with the manufacturing agreement entered into with the joint venture entity. |
| M. | Represents our 50% investment income from the joint venture entity, which will be reported as equity earnings in unconsolidated subsidiaries, net of taxes. |
| N. | Tax effect on the profit resulting from the formation of the joint venture and related disposition of the consumer diagnostic business. |
| O. | Reflects amortization expense of the estimated value assigned to customer relationships, core technologies and trademarks as discussed in Note 1, acquired in connection with the acquisition of Biosite. The estimated fair values of acquired intangible assets in connection with the acquisition of Biosite and their respective useful lives are as follows: |
| Fair Value | Life | |||||||
| (in thousands) | ||||||||
Goodwill |
$ | 1,282,331 | Indefinite | |||||
Customer relationships |
150,000 | 16 years | ||||||
Core technology |
60,000 | 10 years | ||||||
Trademarks |
30,000 | 10 years | ||||||
Total intangibles |
$ | 1,522,331 | ||||||
| P. | Reflects the expensing in 2006 of the estimated write-up of inventory to fair value, the fair value of unvested options in connection with the acquisition of Biosite, and certain transaction-related expenses incurred in 2007 by Biosite during the pre-acquisition period and the reversal of such expenses recorded in the historical income statements during the six months ended June 30, 2007. Unvested Biosite options were accelerated at closing in accordance with the terms of the merger agreement with Biosite. |
- 16 -
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 — PRO FORMA ADJUSTMENTS AND ASSUMPTIONS (CONTINUED)
| Q. | Reflects interest expense incurred in connection with the acquisition of Biosite, including interest on the borrowings of $900.0 million under the First Lien Credit Agreement, $73.2 million under the related revolving line of credit, $250.0 million under the Second Lien Credit Agreement and $150.0 million under the Convertible Notes, net of interest saved from the repayment of the $150.0 million 8.75% senior subordinated notes. |
| R. | Reflects a redemption premium of $9.3 million incurred in connection with the repayment of the $150.0 million 8.75% senior subordinated notes and the write-off of unamortized deferred financing costs as of January 1, 2006 totaling $7.7 million ($6.1 million as of June 30, 2007) in connection with the repayment of the 8.75% senior subordinated notes and the Existing Credit Agreement. |
| S. | Reflects the reversal of the historical tax provisions of Biosite as a result of pro forma pretax losses incurred. |
| T. | Reflects amortization expense of the estimated value assigned to customer relationships, core technologies and trademarks as discussed in Note 1, expected to be acquired in connection with the proposed acquisition of Cholestech. The estimated fair values of acquired intangible assets in connection with the proposed acquisition of Cholestech and their respective useful lives are as follows: |
| Fair Value | Life | |||||||
| (in thousands) | ||||||||
Goodwill |
$ | 220,220 | Indefinite | |||||
Customer relationships |
9,000 | 16 years | ||||||
Core technology |
16,000 | 10 years | ||||||
Trademarks |
8,000 | 10 years | ||||||
Total intangibles |
$ | 253,220 | ||||||
| U. | Reflects the expensing of the estimated write-up of inventory to fair value in connection with the proposed acquisition of Cholestech. |
| V. | Reflects the reversal of the historical tax provisions of Cholestech as a result of overall pro forma pretax losses incurred. |
- 17 -
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 — PRO FORMA ADJUSTMENTS AND ASSUMPTIONS (CONTINUED)
| W. | Reflects estimated shares to be issued in connection with the proposed Cholestech acquisition and incremental diluted shares related to the proposed acquisition of Cholestech and the acquisition of Biosite. Such incremental dilutive shares represent the dilutive effect of options assumed and converted to Inverness options in connection with each transaction, computed on the treasury stock method. |
| X. | Represents the deferred tax liability recorded on estimated intangible assets recorded on the proposed acquisition of Cholestech. |
| Y. | Reflects the fair value of common stock to be issued in connection with the proposed acquisition of Cholestech. |
| Z. | Reflects the reversal of the historical equity accounts of Cholestech. |
| AA. | Represents the fair value of options to be assumed in connection with the proposed acquisition of Cholestech and converted to Inverness options. |
NOTE 3 — PRO FORMA NET LOSS PER COMMON SHARE
For the year ended December 31, 2006 and the six months ended June 30, 2007, the unaudited pro
forma combined company basic and diluted net loss per common share amounts are calculated based on
the weighted average number of Inverness common shares outstanding prior to the respective
acquisitions plus the adjustments to such shares giving effect to the Inverness common shares
issued or expected to be issued upon the closings of the respective acquisitions and the related
financings, as if such transactions had occurred on January 1, 2006. Common stock equivalents
resulting from the assumed exercise of Inverness’ stock options or warrants are not included in the
pro forma combined company diluted net loss per common share calculation for the year ended
December 31, 2006 and the six months ended June 30, 2007 because inclusion thereof would be
antidilutive.
- 18 -