Exhibit 99.2
INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined 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 Inverness, including its
previous acquisition of the Innovacon business, including the ABON facility, and
Instant Technologies, Inc. ("Instant") been a consolidated company during the
specified period. Pro forma results exclude adjustments related to our other
acquisitions completed since January 1, 2006, as these acquisitions did not
materially affect our results of operations.
The unaudited pro forma condensed combined financial statements are based
on the respective audited historical consolidated financial statements and the
notes thereto of Inverness and its previous acquisition of the Innovacon
business, including the ABON facility, after giving effect to the acquisition,
as discussed in Note 1, using the purchase method of accounting and assumptions
and adjustments described below and in the notes of the unaudited pro forma
condensed combined financial statements. Actual operating results of the
previous acquisition are included in Inverness' historical financial results
only from the respective date of the acquisition.
The historical Instant financial statements presented in the unaudited pro
forma condensed combined financial statements represent Instant Technologies and
OTC combined financial information, as this was the only business acquired,
contained in the supplementary information included in the audited combined
financial statements of Instant Technologies, Inc. and Affiliates for December
31, 2006 and 2005, as presented in Exhibit 99.1 to this Form 8-K/A.
The unaudited pro forma condensed combined statements of operations for the
year ended December 31, 2006 assume that the previous acquisition of the
Innovacon business, including the ABON facility, and the recent acquisition of
Instant, as discussed in Note 1, occurred on January 1, 2006. The unaudited pro
forma condensed combined balance sheet assumes that the Instant acquisition
occurred on December 31, 2006. The historical Inverness balance sheet as of
December 31, 2006 reflects the Innovacon business, including the ABON facility.
The pro forma adjustments are based upon available information and certain
assumptions as described in the notes to the unaudited pro forma condensed
combined financial statements that management of Inverness believes are
reasonable in the circumstances.
The unaudited pro forma condensed combined financial statements and
accompanying notes should be read in conjunction with the historical
consolidated financial statements and accompanying notes thereto of Inverness
included in its Annual Report on Form 10-K, for the year ended December 31,
2006, as amended.
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, Inc. 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
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$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.
Subsequent, 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 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 is based on the historical
pre-acquisition results of these entities.
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 a preliminary aggregate purchase price of
$43.8 million, consisting of approximately $30.7 million in cash, including
approximately $0.1 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.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(IN OOOS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS
----------------------------------------------------------------------------
PRO FORMA
INVERNESS INNOVACON INNOVACON INSTANT INSTANT COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS COMPANY
---------- ---------- ----------- ---------- ----------- ---------
Net product sales $552,130 $13,447 $ -- $23,595 $(12,782)E $576,390
Royalty and license revenue 17,324 -- -- -- -- 17,324
-------- ------- ------- ------- -------- --------
Net revenue 569,454 13,447 -- 23,595 (12,782) 593,714
Cost of sales 340,231 4,786 1,634 A 12,092 (12,782)E 346,998
-- -- 1,037 B -- --
-------- ------- ------- ------- -------- --------
Gross profit 229,223 8,661 (2,671) 11,503 -- 246,716
-------- ------- ------- ------- -------- --------
Operating expenses:
Research and development 53,666 322 -- -- -- 53,988
Selling, general and administrative expenses 165,688 3,522 770 B 6,626 1,985 F 177,565
-- -- (1,026)C -- --
Loss on dispositions, net 3,498 -- -- -- -- 3,498
-------- ------- ------- ------- -------- --------
222,852 3,844 (256) 6,626 1,985 235,051
-------- ------- ------- ------- -------- --------
Operating income 6,371 4,817 (2,415) 4,877 (1,985) 11,665
Interest and other income (expense), net (17,486) (11) -- (450) 136 G (18,456)
-- -- -- -- (645)H
-------- ------- ------- ------- -------- --------
(Loss) Income before provision for income taxes (11,115) 4,806 (2,415) 4,427 (2,494) (6,791)
Provision for income taxes 5,727 -- -- -- -- 5,727
-------- ------- ------- ------- -------- --------
Net (loss) income $(16,842) $ 4,806 $(2,415) $ 4,427 $ (2,494) $(12,518)
======== ======= ======= ======= ======== ========
Non-cash amortization of discounts and dividends
on preferred stock -- -- -- -- -- --
-------- ------- ------- ------- -------- --------
Net (loss) income available to common
stockholders - basic and diluted $(16,842) $ 4,806 $(2,415) $ 4,427 $ (2,494) $(12,518)
======== ======= ======= ======= ======== ========
Net loss per common share:
Basic and diluted $ (0.49) $ (0.35)
======== ========
Weighted average shares - basic and diluted 34,109 1,008 D 314 M 35,431
======== ======= ======== ========
The accoumpanying 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 DECEMBER 31, 2006
(IN THOUSANDS)
Pro Forma
Historical -------------------------
-------------------- Combined
Inverness Instant Adjustments Company
---------- ------- ----------- ----------
ASSETS
CURRENT ASSETS:
Cash and short term investments $ 71,104 $ 266 $(37,659)I,J $ 33,711
Accounts receivable, net of allowances 100,388 2,438 -- 102,826
Inventory, net 78,322 5,783 -- 84,105
Deferred tax assets 5,332 -- -- 5,332
Prepaid expenses and other current assets 20,398 566 -- 20,964
---------- ------ -------- ----------
TOTAL CURRENT ASSETS 275,544 9,053 (37,659) 246,938
Property, plant and equipment, net 82,312 151 -- 82,463
Goodwill, trademarks and other intangible assets, net 679,002 268 44,610 K 723,880
Deferred financing costs, net, and other assets 48,835 2 -- 48,837
Deferred tax assets 78 -- -- 78
---------- ------ -------- ----------
TOTAL ASSETS $1,085,771 $9,474 $ 6,951 $1,102,196
========== ====== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,504 $3,106 $ (3,106)J $ 7,504
Current portion of capital lease obligations 584 -- -- 584
Accounts payable 46,342 2,947 -- 49,289
Accrued expenses and other current liabilities 87,801 344 -- 88,145
---------- ------ -------- ----------
TOTAL CURRENT LIABILITIES 142,231 6,397 (3,106) 145,522
---------- ------ -------- ----------
LONG-TERM LIABILITIES:
Long-term debt 194,473 3,833 (3,833)J 194,473
Capital lease obligations 415 -- -- 415
Deferred tax liabilities 23,984 -- -- 23,984
Other long-term liabilities 10,530 -- -- 10,530
---------- ------ -------- ----------
TOTAL LONG-TERM LIABILITIES 229,402 3,833 (3,833) 229,402
---------- ------ -------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock -- -- -- --
Common stock 39 9 (9)L,M 39
Additional paid-in capital 826,987 -- 13,134 M 840,121
Treasury stock (24) 24 L --
Accumulated deficit (127,069) (741) 741 L (127,069)
Accumulated other comprehensive income 14,181 -- -- 14,181
---------- ------ -------- ----------
TOTAL STOCKHOLDERS' EQUITY 714,138 (756) 13,890 727,272
---------- ------ -------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,085,771 $9,474 $ 6,951 $1,102,196
========== ====== ======== ==========
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 THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1 BASIS OF PRESENTATION AND PURCHASE PRICES
Included in the accompanying unaudited pro forma condensed combined
financial statements are the historical results of Inverness and the Innovacon
business, including the ABON facility, as defined below, and the historical
consolidated results of Instant Technologies and OTC. ("Instant").
The historical results of operations for Instant have been derived from the
supplemental information contained in the combined financial statement of
Instant Technologies and Affiliates for the years ended December 31, 2006, as
certain entities included within those combined financial statements were not
acquired by Inverness. The unaudited pro forma combined balance sheet assumes
that the pro forma events occurred on December 31, 2006.
Preliminary Instant Purchase Price
The following represents the preliminary allocation of the estimated
purchase price for our acquisition of the acquired assets and assumed
liabilities of Instant as of the date of the pro forma condensed combined
balance sheet, and is for illustrative purposes only. Assuming the transaction
had occurred on December 31, 2006, the estimated purchase price allocation for
the acquisition of Instant would have been as follows:
(IN THOUSANDS)
--------------
Cash............................. $ 266
Accounts receivable.............. 2,438
Inventory........................ 5,783
Other assets..................... 568
Property and equipment........... 151
Customer relationships........... 10,000
Trademarks....................... 2,500
Goodwill......................... 32,378
Current portion long-term debt... (3,106)
Accounts payable................. (2,947)
Accrued expenses................. (344)
Long-term debt................... (3,833)
-------
$43,854
=======
The estimated purchase price consisted of approximately $30.7 million of
cash and 313,888 shares of our common stock, with a fair value of $13.1 million.
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.
The purchase price allocation for the acquisition of Instant is preliminary
and is subject to adjustment upon finalization of the purchase accounting as of
the date of consummation of the acquisition. We have estimated that
approximately $12.5 million of the preliminary excess purchase price will be
assigned to customer lists and trademarks, both having a useful life of ten
years. The final allocation of the excess of the purchase price over the fair
value of the net assets acquired could differ materially.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(CONTINUED)
NOTE 1 BASIS OF PRESENTATION AND PURCHASE PRICES (CONTINUED)
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, Inc. 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.
Subsequent, 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.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(CONTINUED)
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:
A. Reflects estimated cost increase for products supplied under a contractual
supply agreement.
B. Reflects amortization expense of the estimated 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 the First Territory Business from ACON. No amortization
expense was recorded on acquired goodwill in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 142. The fair values of
acquired intangible assets in connection with the acquisition of the First
Territory Business 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 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 (see Note 2k).
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.
I. Represents the cash consideration paid, including direct acquisition costs
incurred, in connection with the acquisition of Instant.
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INVERNESS MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(CONTINUED)
NOTE 2 PRO FORMA ADJUSTMENTS AND ASSUMPTIONS (CONTINUED)
J. Represents the repayment of Instant's outstanding loan balances,
including accrued interest, in connection with the acquisition
transaction.
K. Reflects the recording of Inverness' intangible assets acquired and
the resulting goodwill associated with the acquisition of Instant, net
of the elimination of Instant's pre-existing goodwill and intangible
assets.
No amortization expense was recorded on acquired goodwill in
accordance with SFAS No. 142. The estimated fair values of acquired
intangible assets in connection with the acquisition of Instant and
their respective useful lives are as follows:
FAIR VALUE LIFE
-------------- ----------
(IN THOUSANDS)
Goodwill........................ $32,378 Indefinite
Trademarks...................... 2,500 10 years
Customer relationships.......... 10,000 10 years
-------
Total intangibles acquired... $44,878
=======
- ----------
L. Reflects the elimination of Instant's pre-existing common stock,
treasury stock and accumulated deficit.
M. Represents the issuance of 313,888 shares of common stock by Inverness
at $41.84 per share in connection with the acquisition of Instant.
NOTE 3. PRO FORMA NET INCOME PER SHARE
For the year ended December 31, 2006, the unaudited pro forma combined
company basic and diluted net income per 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 upon the closings of the respective acquisitions
and the related financings, as if such transactions occurred on January 1, 2006.
Common stock equivalents resulting from the assumed exercise of Inverness's
stock options or warrants are not included in the pro forma combined company
diluted net income per share calculation for the year ended December 31, 2006,
because inclusion thereof would be antidilutive.
8