UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 3, 2006
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 0-26224 51-0317849
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
311 Enterprise Drive
Plainsboro, NJ 08536
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 275-0500
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
This Current Report on Form 8-K/A amends and supplements the Current Report on
Form 8-K filed by Integra LifeSciences Holdings Corporation (the "Company") on
March 8, 2006 (the "Initial Form 8-K") to include financial statements and pro
forma financial information permitted pursuant to Item 9.01 of Form 8-K to be
excluded from the Initial Form 8-K and filed by amendment to the Initial Form
8-K no later than 71 days after the date the Initial Form 8-K was required to be
filed.
ITEM 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Statements of Assets and Liabilities to be Sold as of September 30, 2005 and
2004 and the Statements of Net Revenue, Cost of Revenue, and Direct Expenses for
the Years then Ended for Radionics, Products Lines of Tyco Healthcare Group LP
and Independent Auditors' Report.
Statements of Assets and Liabilities To Be Sold as of September 30, 2005 and
December 31, 2005 (unaudited), and the Statements of Net Revenue, Cost of
Revenue, and Direct Expenses for the Three Month Periods Ended December 31, 2004
(unaudited) and December 30, 2005 (unaudited) for Radionics, Products Lines of
Tyco Healthcare Group LP.
(b) Unaudited Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Balance Sheet of the Company as of
December 31, 2005
Unaudited Pro Forma Condensed Combined Statement of Operations of the Company
for the year ended December 31, 2005
Note to Unaudited Pro Forma Condensed Combined Financial Information of the
Company
(c) Exhibits.
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.1* Asset Purchase Agreement, dated as of September 7, 2005, by and
between Tyco Healthcare Group LP and Sherwood Services, AG and
Integra LifeSciences Corporation and Integra LifeSciences (Ireland)
Limited
23.1 Consent of Deloitte & Touche LLP
* Filed on Form 8-K on September 13, 2005
ITEM 9.01(a) Financial Statements of Business Acquired
Independent Auditors' Report
Financial Statements:
Statements of Assets and Liabilities to be Sold as of September 30, 2005 and
2004.
Statements of Net Revenue, Cost of Revenue, and Direct Expenses for the Years
Ended September 30, 2005 and 2004 for Radionics, Products Lines of Tyco
Healthcare Group LP.
Notes to the Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Management of Tyco Healthcare Group LP
Mansfield, Massachusetts
We have audited the accompanying statements of assets and liabilities to be sold
of Radionics, Product Lines of Tyco Healthcare Group LP ("Radionics"), as of
September 30, 2005 and 2004, pursuant to the asset purchase agreement by and
between the Tyco Healthcare Group LP and Sherwood Services, AG, as Seller, and
Integra LifeSciences Corporation and Integra LifeSciences (Ireland) Limited
(collectively, "Integra"), as Buyer, dated as of September 7, 2005 (the
"Agreement"), and as described in Note 1, and the related statements of net
revenue, cost of revenue and direct expenses for the years then ended. These
statements are the responsibility of Radionics' management. Our responsibility
is to express an opinion on the statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statements
are free of material misstatement. An audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of Radionics' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements of assets and liabilities to be sold and related statements of
net revenue, cost of revenue and direct expenses. We believe that our audits
provide a reasonable basis for our opinion.
The accompanying statements were prepared to present the assets and liabilities
of Radionics to be sold to Integra pursuant to the Agreement, described in Note
1, and are not intended to be a complete presentation of Radionics' assets and
liabilities or results of operations.
In our opinion, the accompanying statements present fairly, in all material
respects, the assets and liabilities of Radionics as of September 30, 2005 and
2004, to be sold pursuant to the Agreement, described in Note 1, and the related
statements of net revenue, cost of revenue and direct expenses for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared from the separate
records maintained by Radionics and may not necessarily be indicative of the
conditions that would have existed or the results of operations if Radionics had
been operated as an unaffiliated company. As described in Note 2, portions of
certain costs of revenue and direct expenses represent allocations made from
Tyco Healthcare Group LP items applicable to the company as a whole.
Deloitte & Touche LLP
Boston, Massachusetts
February 17, 2006
RADIONICS, PRODUCT LINES OF TYCO HEALTHCARE GROUP LP
STATEMENTS OF ASSETS AND LIABILITIES TO BE SOLD
AS OF SEPTEMBER 30, 2005 AND 2004
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2005 2004
ASSETS TO BE SOLD
INVENTORIES $7,028 $ 9,471
OTHER CURRENT ASSETS 531 152
PROPERTY, PLANT, AND EQUIPMENT--Net 1,080 1,187
INTANGIBLE ASSET--Net 1,237 1,767
------ ------
TOTAL $9,876 $12,577
====== =======
LIABILITIES TO BE SOLD
DEFERRED REVENUE $1,883 $ 1,810
ACCRUED WARRANTY COSTS 359 450
CUSTOMER DEPOSITS 30 120
EMPLOYEE SEVERANCE 45
COMMITMENTS AND CONTINGENCIES (Note 6)
------ -------
TOTAL $2,317 $ 2,380
====== =======
See notes to financial statements.
RADIONICS, PRODUCT LINES OF TYCO HEALTHCARE GROUP LP
STATEMENTS OF NET REVENUE, COST OF REVENUE, AND DIRECT EXPENSES
FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2005 2004
NET REVENUE $68,727 $62,199
COST OF REVENUE 24,847 23,483
------- -------
GROSS PROFIT 43,880 38,716
------- -------
DIRECT EXPENSES:
Selling, general and administrative 23,110 20,469
Research and development 3,416 3,982
Freight to customers 1,037 912
------- -------
Total direct expenses 27,563 25,363
------- -------
EXCESS OF NET REVENUE OVER COST OF REVENUE AND
DIRECT EXPENSES $16,317 $13,353
======= =======
See notes to financial statements.
RADIONICS, PRODUCT LINES OF TYCO HEALTHCARE GROUP LP
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The financial statements consist of the assets and
liabilities related to Radionics, Product Lines of Tyco Healthcare Group LP,
("Radionics" or the "Company") to be sold pursuant to the Asset Purchase
Agreement by and between the Tyco Healthcare Group LP and Sherwood Services, AG,
as Seller, and Integra LifeSciences Corporation and Integra LifeSciences
(Ireland) Limited (collectively, "Integra"), as Buyer, dated as of September 7,
2005 (the "Agreement"), and as amended through February 3, 2006, and the related
net revenues, cost of revenues and direct expenses of Radionics. The Tyco
Healthcare Group LP ("Tyco Healthcare") is a segment of Tyco International Ltd.
("Tyco"), and Sherwood Services, AG is a subsidiary of Tyco. Tyco Healthcare and
Tyco collectively are the "parent companies".
The Radionics' operations include a leased manufacturing facility in Burlington,
Massachusetts, which produces products exclusively for the Radionics' product
lines. There are also manufacturing facilities in Tijuana, Mexico and Boulder,
Colorado which produce products for Radionics and other Tyco Healthcare
operations. The products manufactured in these shared facilities are transferred
to Radionics at cost. The shared facilities are not included in the net assets
of Radionics as they are not being sold to Integra. Distribution of Radionics'
products is generally integrated with other Tyco Healthcare product lines.
Domestically, the products are sold by independent representatives.
Internationally, the products are generally sold through existing Tyco
Healthcare operations. In addition to administrative offices in Burlington,
Massachusetts, which are exclusive to Radionics, additional administrative
support services are integrated within other Tyco Healthcare operations. See
Note 2, ALLOCATION OF DIRECT EXPENSES AND RELATED-PARTY TRANSACTIONS, for a
further description of these services. Research and development activities occur
primarily at the Burlington facility. The statements of net revenue, cost of
revenue and direct expenses do not include any amounts for corporate overhead,
interest expense or income taxes.
The financial statements include allocations for the above described direct
expenses incurred at shared services and related-party transactions. As a
result, the financial information presented herein may not be indicative of the
results that would have been achieved had Radionics operated as a separate,
stand-alone entity. The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results may differ from those estimates. Significant accounting estimates used
include estimates of shared costs of production allocated to inventory values
and inventory reserves. Estimates are used in allocating certain direct expenses
for selling, marketing, general, and administrative services provided by the
parent companies. Management believes these allocations are reasonable.
DESCRIPTION OF THE BUSINESS--Radionics is a leader in the design, manufacture
and sale of advanced minimally-invasive medical instruments in the field of
neurosurgery and radiation therapy. Its products are primarily utilized in the
treatment of cancer. Radionics designs its products to deliver the highest
accuracy and provides quality assurance tools, training, and service to ensure
reliability and safety.
INVENTORIES--Inventories are valued at lower of cost (first-in, first-out basis)
or market.
Provisions for obsolete and slow-moving inventory are estimated based on
forecasted demand. Changes in estimates are reflected in cost of revenues.
Distribution costs of $2,243 and $1,541 are included in cost of revenue for the
years ended September 30, 2005 and 2004, respectively. These costs consist of
direct costs of $353 and $267 and allocated costs of $1,890, and $1,274 from
Tyco Healthcare for shared distribution facilities for the respective years.
PRODUCT WARRANTY--The Company generally records estimated product warranty costs
at the time of sale. Manufactured products and equipment are warranted against
defects in materials and worksmanship, generally for 12 months after delivery.
Warranty period terms range from 1 to 7 years. The warranty liability is
determined based upon historical information, including claims experience.
LONG-LIVED ASSETS--The Company periodically evaluates the net realizable value
of long-lived assets, including property, plant, and equipment, and amortizable
intangible assets when indicators of potential impairment are present. Fair
values are based on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates, reflecting varying degrees of
perceived risk.
PLANT, PROPERTY, AND EQUIPMENT--NET--Property, plant, and equipment, net is
recorded at cost less accumulated depreciation.
Maintenance and repair expenditures are expensed when incurred. When assets are
retired or sold, the related cost and accumulated depreciation or amortization
is removed from the accounts and any resulting gain or loss is included in
operations. Losses on retirements of $140 were recorded and included as a
component of selling, general and administration in the statement of Net
Revenue, Cost of Revenue and Direct Expenses for the year ended September 30,
2004. There were no losses on retirements for the year ended September 30, 2005.
Depreciation is computed on a straight-line basis over the following estimated
useful lives:
Machinery and equipment 3-15 years
Furniture and fixtures 3-15 years
Computer software and hardware 3-5 years
Leasehold improvements Remaining term of lease
Only dedicated assets to be acquired by Integra are included in the statements
of assets and liabilities to be sold. All other assets shared with, and owned
by, Tyco Healthcare are excluded.
DEMONSTRATION PRODUCT AND LOANED EQUIPMENT--Demonstration product ("Demo") is
capital equipment utilized by the sales force as a sales tool. Demo is located
with the sales force and independent dealers and is expensed when shipped to
them. In addition, Radionics maintains an inventory of loaned capital equipment,
primarily items that are provided to customers for use when the customer owned
item is sent in for repair. Upon completion of the repair, the loaned equipment
is returned to Radionics.
INTANGIBLE ASSETS AND GOODWILL--Patents are recorded at fair value as of the
dates of acquisition and are amortized on a straight-line basis over the lesser
of their remaining legal life, or the maximum estimated useful life, generally
10 years or less.
Tyco adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS in fiscal 2002. In connection with
adoption, Tyco allocated goodwill at one level below the Tyco segment level, as
prescribed by SFAS No. 142. Radionics' operations are more than one level below
the Tyco segment level and as a result, no goodwill has been included in the
Radionics' financial statements.
REVENUE RECOGNITION--Revenue from the sale of products is recognized at the time
title and risks and rewards of ownership pass. This is generally when the
products are received by the customer, the sales price is fixed and determinable
and collection is reasonably assured. Revenue from the sale of selected capital
equipment is recognized after the equipment is installed and accepted by the
customer. No individual customer represents more than 10% of revenue.
Radionics leases certain products to customers for terms ranging from 1 to 5
years. Radionics recognizes lease revenue upon consummation of the contract and
receipt and acceptance of the product by the customer. No new financing
arrangements were entered into during the years ended September 30, 2005 and
2004.
Revenue from the sale of warranty contracts is deferred and recognized into
income over the term of the contract. Contracts are noncancelable, with terms of
generally one year, although certain contracts have terms ranging up to three
years. Warranty revenue of $2,704 and $2,788 was recognized for the years ended
September 30, 2005 and 2004, respectively.
FREIGHT TO CUSTOMERS--Tyco Healthcare allocates the costs associated with
third-party freight providers to the Company. Costs associated with third-party
freight that are billed to customers are included in net revenue and cost of
revenue. Freight costs that are not billed to customers are included in direct
expenses.
FOREIGN CURRENCY TRANSLATION--For the Company's non-U.S. operations whose
functional currency is other than U.S. dollars, assets and liabilities are
translated into U.S. dollars using year-end exchange rates. Sales and expenses
are translated at the average exchange rates in effect during the year. As part
of managing the exposure to changes in foreign currency rates, the Company
utilizes forward and option contracts with financial institutions acting as
principal counterparties. Gains and losses on foreign currency transactions are
generally related to intercompany purchases and sales of inventory and are
included in cost of revenue. A net gain of $1,285 and $917 is included in cost
of revenue for the years ended September 30, 2005 and 2004, respectively. Gains
and losses on foreign currency related to other transactions resulted in net
losses of $252 and $160 which is included within selling, general and
administrative expense for the years ended September 30, 2005 and 2004,
respectively.
RESEARCH AND DEVELOPMENT--Research and development costs are expensed as
incurred. Expenses consist of direct expenditures attributable to costs incurred
at the Burlington facility, inclusive of personnel-related costs, and facility
overhead as well as allocated research costs from Tyco Healthcare.
EMPLOYEE SHARE OPTION PLANS--Tyco has granted options to purchase Tyco common
shares to certain of Radionics employees. Radionics and Tyco measure
compensation cost in connection with employee share option plans using the
intrinsic value method and, accordingly, do not recognize compensation expense
for the issuance of options with an exercise price equal to or greater than the
market price at the date of grant. Had the fair value based method been applied,
using the Black-Scholes option pricing model and the assumptions set forth in
Note 9, the effect on the Company's direct expenses would have been as follows
in 2005 and 2004:
2005 2004
Excess of direct revenues over
expenses--as reported $16,317 $13,353
Less total employee compensation
expense for share options
determined under fair value
method--net of income taxes 90 90
------- -------
Excess of direct revenues over
expenses--pro forma $16,227 $13,263
======= =======
ACCOUNTING PRONOUNCEMENTS--In November 2004, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 151, INVENTORY COSTS, AN AMENDMENT OF ARB NO. 43,
CHAPTER 4. SFAS No. 151 amends Accounting Research Bulletin ("ARB") No. 43,
Chapter 4, to clarify that abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials (spoilage) should be recognized as
current-period charges. In addition, SFAS No. 151 requires that allocation of
fixed production overhead to inventory be based on the normal capacity of the
production facilities. SFAS No. 151 will be effective in fiscal 2006. The
adoption of SFAS No. 151 is not expected to have a significant impact on the
Company's financial statements.
In December 2004, the FASB issued SFAS No. 123R which requires all share-based
payments to employees be recognized in the financial statements based upon fair
values. SFAS 123R replaces SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, and supersedes Accounting Principles Board Opinion No. 25, ("APB
Opinion No. 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Effective October 1,
2005, Tyco adopted the provisions of SFAS No. 123R using the modified
prospective method. Under this method, compensation expense is recorded for all
unvested options over the related vesting period beginning in the quarter of
adoption. The Company previously applied the intrinsic value based method
prescribed in APB Opinion No. 25 in accounting for employee stock-based
compensation. Under adoption of SFAS No. 123R, the company will recognize
stock-based compensation costs ratably over the service period, which is the
earlier of the retirement eligibility date, if the grant contains provisions
such that the award becomes fully vested upon retirement, or the stated vesting
period. For grants issued to retirement eligible employees prior to the adoption
of SFAS No. 123R, the Company will recognize compensation costs over the stated
vesting period with acceleration of any unrecognized compensation costs if and
when the employee elects to retire. The Company has not calculated the estimated
impact of the adoption of SFAS No. 123R for fiscal year 2006.
In March 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107
regarding the Staff's interpretation of SFAS No. 123R. This interpretation
provides the Staff's views regarding interactions between SFAS No. 123R and
certain SEC rules and regulations and provides interpretations of the valuation
of share-based payments for public companies. The interpretive guidance is
intended to assist companies in applying the provisions of SFAS No. 123R and
investors and users of the financial statements in analyzing the information
provided. The Company will follow the guidance prescribed in SAB No. 107 in
connection with its adoption of SFAS No. 123R.
In March 2005, the FASB issued Interpretation ("FIN") No. 47, ACCOUNTING FOR
CONDITIONAL ASSET RETIREMENT OBLIGATIONS--AN INTERPRETATION OF FASB STATEMENT
NO. 143. This Interpretation clarifies the timing of liability recognition for
legal obligations associated with an asset retirement when the timing and (or)
method of settling the obligation are conditional on a future event that may or
may not be within the control of the entity. FIN No. 47 is effective no later
than the end of fiscal years ending after December 15, 2005. The Company is
assessing the impact, if any, that FIN No. 47 will have on the results of its
financial statements.
2. ALLOCATION OF DIRECT EXPENSES AND RELATED-PARTY TRANSACTIONS
Tyco Healthcare and U.S. Surgical, a division of Tyco Healthcare that is
responsible for the management of Radionics, allocate certain employee benefit
expenses to Radionics on the basis of the number of personnel. Tyco and Tyco
Healthcare, including U.S. Surgical, do not allocate freight and warehousing,
certain research and development, and selling and marketing and general
administrative and other expenses to its operating divisions for internal
financial reporting. However, for the purposes of the accompanying financial
statements, an allocation of such direct expenses from Tyco Healthcare and U.S.
Surgical has been included and is summarized as follows:
YEAR ENDED SEPTEMBER 30, 2005 DOMESTIC INTERNATIONAL TOTAL
Other cost of sales, freight and warehousing $ 724 $ 2,161 $ 2,885
Research and development--regulatory 16 38 54
Selling and marketing - 6,013 6,013
General--administrative and other 1,744 2,721 4,465
-------- ------- -------
Total $ 2,484 $10,933 $13,417
======== ======= =======
YEAR ENDED SEPTEMBER 30, 2004 DOMESTIC INTERNATIONAL TOTAL
Other cost of sales, freight and warehousing $ 628 $ 1,960 $ 2,588
Research and development--regulatory 81 17 98
Selling and marketing 5,340 5,340
General--administrative and other 2,066 2,546 4,612
-------- ------- -------
Total $ 2,775 $ 9,863 $12,638
======== ======= =======
Included in the domestic allocations are both Tyco Healthcare and U.S. Surgical
allocations. Tyco Healthcare costs represent an allocation of shared services
such as personnel, legal, human resources and finance which are allocated
primarily on the proportion of Radionics sales to Tyco Healthcare sales. U.S.
Surgical direct support costs represent personnel and support expenses for
quality control, regulatory compliance, finance (accounts payable, accounts
receivable, planning, payroll, sales force compensation and treasury),
information systems, customer service, legal, human resources, warehousing and
engineering support. The allocation includes use of corporate facilities by
these employees. These costs are primarily allocated based on the proportion of
Radionics sales to total Radionics and U.S. Surgical sales.
International direct expenses are generally allocated on a percentage of
Radionics' sales to total international sales in the respective location. There
is also a Belgium facility which is primarily dedicated to supporting Radionics.
Direct expenses for the Belgium facility totaled $727 and $841 for the years
ended September 30, 2005 and 2004, respectively.
Management believes that all allocations of these direct expenses are
reasonable; however, these costs may not be indicative of the costs that would
have been incurred if Radionics operated on a stand-alone basis.
Radionics' manufacturing facility in Burlington, Massachusetts manufactures a
small volume of raw materials for use in products sold by an affiliate. In
addition, Tyco Healthcare manufactures products for Radionics at shared
facilities in Boulder, Colorado and Tijuana, Mexico that are not being sold to
Integra and are excluded from the financial statements. Radionics purchases
components for its products from other Tyco businesses. The costs of these
components were $616 and $859 for the years ended September 30, 2005, and 2004,
respectively.
Tyco allocates certain corporate overhead costs to Tyco Healthcare. These costs
are administrative services that are primarily related to costs associated with
being a publicly traded company, treasury, tax, risk management, and certain
human resource functions. These costs are not part of the direct expense,
operations, or business of Radionics on a stand-alone basis, and, as such,
allocations of these Tyco overhead costs have been excluded from the Radionics'
financial statements.
3. INVENTORY
Inventory is as follows:
2005 2004
Finished goods $ 4,171 $ 5,856
Work in process 1,020 594
Raw materials 5,507 9,049
------- -------
10,698 15,499
Less allowance for obsolescence (3,670) (6,028)
------- -------
$ 7,028 $ 9,471
======= =======
Activity in the allowance for obsolescence is as follows:
2005 2004
Balance--beginning of year $(6,028) $(4,478)
Provision for inventory obsolescence (1,057)
Dispositions and adjustments--net 2,358 (493)
------- -------
Balance--end of year $(3,670) $(6,028)
======= =======
Inventory and product costs included in cost of sales are comprised of the
following:
COST OF
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 2005 INVENTORY SALES
Inventory at standard costs $11,223 $20,999
Inventory variances:
Specific identified manufacturing facilities 77 2,190
Allocated at shared manufacturing facilities (602) (1,591)
Inventory allowance for obsolescence (3,670)
Nonproduct costs included in cost of sales
(including warranty, warehousing,
freight, demo, and loaners) 3,249
------- -------
Total $ 7,028 $24,847
======= =======
COST OF
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 2004 INVENTORY SALES
Inventory at standard costs $16,488 $20,933
Inventory variances:
Specific identified manufacturing facilities 636 1,131
Allocated at shared manufacturing facilities (1,625) (2,555)
Inventory allowance for obsolescence (6,028) 1,057
Nonproduct costs included in cost of sales
(including warranty, warehousing,
freight, demo, and loaners) 2,917
------- -------
Total $ 9,471 $23,483
======= =======
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment--net, is as follows:
2005 2004
Machinery and equipment $ 1,403 $ 1,255
Furniture and fixtures 265 236
Computer equipment and software 885 717
Leasehold improvements 722 722
Construction in progress 102 148
Accumulated depreciation (2,297) (1,891)
------- -------
$ 1,080 $ 1,187
======= =======
Depreciation expense on property, plant, and equipment was $406 and $472 for the
years ended September 30, 2005 and 2004, respectively.
During the years ended September 30, 2005 and 2004, Radionics acquired assets
with a cost of $299 and $356.
5. INTANGIBLE ASSET--NET
Intangible asset--net, is as follows:
2005 2004
Patent $ 5,300 $ 5,300
Accumulated amortization (4,063) (3,533)
------- -------
$ 1,237 $ 1,767
======= =======
Amortization expense was $530 for each of the years ended September 30, 2005 and
2004, respectively. Annual amortization expense fiscal 2006 through 2007 is
estimated to be $530 per year. Amortization expense is estimated to be $177 for
2008.
6. COMMITMENTS AND CONTINGENCIES
Radionics is obligated under various noncancelable facility operating leases
that are being assumed by Integra. Total rent expense under operating leases was
$442 and $419 for the years ended September 30, 2005 and 2004, respectively.
Future minimum lease payments under the property leases with initial or
remaining terms in excess of one year as of September 30, 2005, are as follows:
YEARS ENDING
SEPTEMBER 30
2006 $247
2007 228
2008 38
thereafter -
----
$513
====
Office equipment and vehicles are leased under a Tyco Healthcare master
agreement and have lease terms of one year or less and generally relate to
administrative services at shared service facilities or, in the case of
vehicles, sales representatives. The obligations under these agreements are not
included in the table above as these will not be assumed by Integra. Costs for
the items are included in allocations described in Note 2 to the financial
statements.
7. RETIREMENT PLANS
DEFINED CONTRIBUTION RETIREMENT PLANS--Domestic employees of Radionics that are
employed full-time are eligible to participate in Tyco's 401(K) retirement plan.
Participants can elect to defer a percentage of their salary through payroll
deductions and direct their contributions into different investment funds.
Radionics provides for matching contributions in the amount of 5% of salary,
increasing to 6% of salary for employees with services of five years or more.
The expense associated with the matching contribution was $355 and $351 for the
years ended September 30, 2005 and 2004, respectively.
Radionics' employees participate in a Tyco sponsored unfunded Supplemental
Executive Retirement Plan ("SERP"). This plan is nonqualified and restores the
employer match that certain employees lose due to IRS limits on eligible
compensation under the defined contribution plans. Expenses, assets and
liabilities related to SERP were immaterial for the years ended September 30,
2005 and 2004. Radionics employees do not participate in any other Tyco
sponsored non-qualified deferred compensation plan.
DEFINED BENEFIT PENSION PLANS--Radionics has employees who participate in
pension plans which cover employees from multiple Tyco business segments.
Radionics has certain non-U.S. employees who participate in Tyco defined benefit
retirement plans which have been designed in accordance with applicable
conditions and practices in the countries concerned.
Allocated pension expense associated with the Tyco plans was $21 and $19 for the
years ended September 30, 2005 and 2004, respectively.
8. SHARE PLANS
Radionics has no employee share option plans; however, certain callout employees
of the Radionics have been granted share options under the Tyco International
Ltd. 2004 Stock and Incentive Plan (the "2004 Plan"). The 2004 Plan provides for
the award of stock options, stock appreciation rights, annual performance
bonuses, long-term performance awards, restricted units, restricted stock,
promissory stock, and other stock-based awards for eligible employees of Tyco
and the Company.
SHARE OPTIONS--Options are granted to purchase common shares at prices which are
equal to or greater than the market price of the common shares on the date the
options are granted. Conditions of vesting are determined at the time of grant.
The 2004 Plan indicates that, unless otherwise stated, the options will become
exercisable in equal annual installments over a period of four years and will
generally expire 10 years after the date of grant. However, the majority of
stock options vest in equal annual installments over three years.
Share option activity for Radionics' employees under all Tyco plans for the
years ended September 30, 2005 and 2004, is as follows:
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
Balance--September 30, 2003 59,684 $ 31.09
Granted 16,200 27.80
Exercised (4,352) 21.01
------- --------
Balance--September 30, 2004 71,532 30.96
Granted 15,350 35.80
Exercised (8,218) 21.56
Cancellations (3,550) 40.81
------- --------
Balance--September 30, 2005 75,114 $ 32.51
======= ========
The following table summarizes information about Tyco share options held by
Radionics' employees outstanding and exercisable at September 30, 2005:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICES NUMBER PRICE LIFE-YEARS NUMBER PRICE
$14.27 11,048 $ 14.27 7.5 6,235 $ 14.27
$19.06-$ 23.83 9,100 23.31 6.6 8,767 23.47
$27.80-$ 35.80 28,966 31.61 9.1 4,372 27.80
$43.62-$ 44.77 25,000 44.23 5.2 25,000 44.23
$50.66 1,000 50.66 5.1 1,000 50.66
------ -------
Total 75,114 $ 32.51 45,374 $ 34.66
======= ======= ======= =======
On the dates of grant using the Black-Scholes option-pricing model and
assumptions set forth below, the estimated weighted-average fair value of Tyco
options granted to Radionics' employees during 2005 and 2004 was $10.97 and
$10.78, respectively.
The following weighted-average assumptions were used for the years ended
September 30, 2005 and 2004:
2005 2004
Expected stock price volatility 33% 47%
Risk-free interest rate 4.09% 2.45%
Expected annual dividend per share $ 0.40 $ 0.05
Expected life of options (years) 4.5 4.0
RESTRICTED SHARES--In March 2004, certain employees of Radionics were granted
common shares of Tyco subject to certain restrictions under the 2004 Plan. These
restricted shares cliff vest after three years. At September 30, 2005 and 2004,
Radionics' employees had 2,580 and 1,870 restricted shares outstanding. The fair
market value of the shares at the time of the grant is amortized (net of income
tax benefit) to expense over the period of vesting.
The expense attributed to the amortization of restricted stock was immaterial
for the years ended September 30, 2005 and 2004, respectively.
EMPLOYEE STOCK PURCHASE PLAN--Substantially all full-time employees of Radionics
are eligible to participate in an employee share purchase plan. Eligible
employees authorize payroll deductions to be made for the purchase of Tyco
shares. Radionics matches a portion of the employee contribution by contributing
an additional 15% of the employee payroll deduction. A designated broker
purchases all shares purchased under the plan on the open market. The expense
related to this plan was $12 and $13 for the years ended September 30, 2005 and
2004, respectively.
9. GEOGRAPHIC DATA
The Company operates as a single segment throughout the world, primarily within
existing Tyco Healthcare facilities.
Selected information by geographic area is presented below:
2005 2004
Net sales:
United States $33,301 $33,697
Europe 21,135 15,728
Asia 5,541 5,748
Japan 3,753 3,436
Canada and Latin America 4,997 3,590
------- -------
$68,727 $62,199
======= =======
10. SUBSEQUENT EVENTS
During 2005, the Company was party to a consulting agreement for
research-related services. On October 21, 2005, the Company terminated the
existing agreement. As part of the termination, the Company paid $100 for a
mutual release, and $350 for the assignment of certain related patents.
The Company entered into a license buy-out agreement and mutual release dated
January 26, 2006, with a third party for a cost of $100. This agreement provides
an upfront paid license in place of periodic royalty payments based on licensed
product sales as well as releasing the Company from certain obligations which
existed in a prior agreement.
******
ITEM 9.01(a) Financial Statements of Business Acquired
Condensed Unaudited Financial Statements:
Statement of Assets and Liabilities To Be Sold of Radionics, Product Lines of
Tyco Healthcare Group LP as of December 30, 2005 (Unaudited) and September 30,
2005.
Unaudited Statement of Net Revenue, Cost of Revenue, and Direct Expenses for the
Quarters Ended December 30, 2005 and December 31, 2004 for Radionics, Products
Lines of Tyco Healthcare Group LP
Notes to the Condensed Unaudited Financial Statements
RADIONICS, PRODUCT LINES OF TYCO HEALTHCARE GROUP LP
STATEMENT OF ASSETS AND LIABILITIES TO BE SOLD (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
DECEMBER SEPTEMBER
30, 30,
ASSETS TO BE SOLD 2005 2005
---------- --------
INVENTORIES $ 8,805 $ 7,028
OTHER CURRENT ASSETS 505 531
PROPERTY, PLANT, AND EQUIPMENT--Net 1,039 1,080
INTANGIBLE ASSET--Net 1,104 1,237
-------- -------
TOTAL $ 11,453 $ 9,876
======== =======
LIABILITIES TO BE SOLD
DEFERRED REVENUE $ 1,682 $ 1,883
ACCRUED WARRANTY COSTS 358 359
CUSTOMER DEPOSITS 2 30
EMPLOYEE SEVERANCE 30 45
-------- -------
TOTAL $ 2,072 $ 2,317
======== =======
See notes to interim financial statements.
RADIONICS, PRODUCT LINES OF TYCO HEALTHCARE GROUP LP
STATEMENT OF NET REVENUE, COST OF REVENUE, AND DIRECT EXPENSES (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
December December
30, 31,
2005 2004
-------- ---------
NET REVENUE $15,582 $16,298
COST OF REVENUE 4,496 6,045
------- -------
GROSS PROFIT 11,086 10,253
------- -------
DIRECT EXPENSES:
Selling, general and administrative 5,399 5,434
Research and development 819 763
Freight to customers 244 233
------- -------
Total direct expenses 6,462 6,430
------- -------
EXCESS OF NET REVENUE OVER COST
OF REVENUE AND
DIRECT EXPENSES $ 4,624 $ 3,823
======= =======
See notes to interim financial statements.
RADIONICS, PRODUCT LINES OF TYCO HEALTHCARE GROUP LP
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 30, 2005 AND DECEMBER 31, 2004 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The financial statements consist of the assets and
liabilities related to Radionics, Product Lines of Tyco Healthcare Group LP,
("Radionics" or the "Company") to be sold pursuant to the Asset Purchase
Agreement by and between the Tyco Healthcare Group LP and Sherwood Services, AG,
as Seller, and Integra LifeSciences Corporation and Integra LifeSciences
(Ireland) Limited (collectively, "Integra"), as Buyer, dated as of September 7,
2005 (the "Agreement"), and as amended through February 3, 2006, and the related
net revenues, cost of revenues and direct expenses of Radionics. The Tyco
Healthcare Group LP ("Tyco Healthcare") is a segment of Tyco International Ltd.
("Tyco"), and Sherwood Services, AG is a subsidiary of Tyco. Tyco Healthcare and
Tyco collectively are the "parent companies."
The Radionics' operations include a leased manufacturing facility in Burlington,
Massachusetts, which produces products exclusively for the Radionics' product
lines. There are also manufacturing facilities in Tijuana, Mexico and Boulder,
Colorado which produce products for Radionics and other Tyco Healthcare
operations. The products manufactured in these shared facilities are transferred
to Radionics at cost. The shared facilities are not included in the net assets
of Radionics as they are not being sold to Integra. Distribution of Radionics'
products is generally integrated with other Tyco Healthcare product lines.
Domestically, the products are sold by independent representatives.
Internationally, the products are generally sold through existing Tyco
Healthcare operations. In addition to administrative offices in Burlington,
Massachusetts, which are exclusive to Radionics, additional administrative
support services are integrated within other Tyco Healthcare operations. See
Note 2 ALLOCATION OF DIRECT EXPENSES AND RELATED-PARTY TRANSACTIONS, for a
further description of these services. Research and development activities occur
primarily at the Burlington facility. The statements of net revenue, cost of
revenue and direct expenses do not include any amounts for corporate overhead,
interest expense or income taxes.
The financial statements include allocations for the above described direct
expenses incurred at shared services and related-party transactions. As a
result, the financial information presented herein may not be indicative of the
results that would have been achieved had Radionics operated as a separate,
stand-alone entity. The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results may differ from those estimates. Significant accounting estimates used
include estimates of shared costs of production allocated to inventory values
and inventory reserves. Estimates are used in allocating certain direct expenses
for selling, marketing, general, and administrative services provided by the
parent companies. Management believes these allocations are reasonable.
DESCRIPTION OF THE BUSINESS--Radionics is a leader in the design, manufacture
and sale of advanced minimally-invasive medical instruments in the field of
neurosurgery and radiation therapy. Its products are primarily utilized in the
treatment of cancer. Radionics designs its products to deliver the highest
accuracy and provides quality assurance tools, training, and service to ensure
reliability and safety.
INVENTORIES--Inventories are valued at lower of cost (first-in, first-out basis)
or market.
Provisions for obsolete and slow-moving inventory are estimated based on
forecasted demand. Changes in estimates are reflected in cost of revenues.
Distribution costs of $472 are included in cost of revenue for the three months
ended December 30, 2005. These costs consist of direct costs of $107 and
allocated cost of $365 from Tyco Healthcare for shared distribution facilities.
For the three months ended December 31, 2004, distribution costs of $461 are
included in cost of revenue. These costs consist of direct costs of $11 and
allocated costs of $450 from Tyco Healthcare for shared distribution facilities.
PRODUCT WARRANTY--The Company generally records estimated product warranty costs
at the time of sale. Manufactured products and equipment are warranted against
defects in materials and worksmanship, generally for 12 months after delivery.
Warranty period terms range from 1 to 7 years. The warranty liability is
determined based upon historical information, including claims experience.
LONG-LIVED ASSETS--The Company periodically evaluates the net realizable value
of long-lived assets, including property, plant, and equipment, and amortizable
intangible assets when indicators of potential impairment are present. Fair
values are based on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates, reflecting varying degrees of
perceived risk.
PLANT, PROPERTY, AND EQUIPMENT--NET--Property, plant, and equipment, net is
recorded at cost less accumulated depreciation.
Maintenance and repair expenditures are expensed when incurred. When assets are
retired or sold, the related cost and accumulated depreciation or amortization
is removed from the accounts and any resulting gain or loss is included as a
component of selling, general and administrative in the statement of net
revenue, cost of revenue and direct expense. There were no losses on retirements
for the three months ended December 30, 2005 and 2004. Depreciation is computed
on a straight-line basis over the following estimated useful lives:
Machinery and equipment 3-15 years
Furniture and fixtures 3-15 years
Computer software and hardware 3-5 years
Leasehold improvements Remaining term of lease
Only dedicated assets to be acquired by Integra are included in the statements
of assets and liabilities to be sold. All other assets shared with, and owned
by, Tyco Healthcare are excluded.
DEMONSTRATION PRODUCT AND LOANED EQUIPMENT--Demonstration product ("Demo") is
capital equipment utilized by the sales force as a sales tool. Demo is located
with the sales force and independent dealers and is expensed when shipped to
them. In addition, Radionics maintains an inventory of loaned capital equipment,
primarily items that are provided to customers for use when the customer owned
item is sent in for repair. Upon completion of the repair, the loaned equipment
is returned to Radionics.
INTANGIBLE ASSETS AND GOODWILL--Patents are recorded at fair value as of the
dates of acquisition and are amortized on a straight-line basis over the lesser
of their remaining legal life, or the maximum estimated useful life, generally
10 years or less.
Tyco adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS in fiscal 2002. In connection with
adoption, Tyco allocated goodwill at one level below the Tyco segment level, as
prescribed by SFAS No. 142. Radionics' operations are more than one level below
the Tyco segment level and as a result, no goodwill has been included in the
Radionics' financial statements.
REVENUE RECOGNITION--Revenue from the sale of products is recognized at the time
title and risks and rewards of ownership pass. This is generally when the
products are received by the customer, the sales price is fixed and determinable
and collection is reasonably assured. Revenue from the sale of selected capital
equipment is recognized after the equipment is installed and accepted by the
customer. No individual customer represents more than 10% of revenue.
Radionics leases certain products to customers for terms ranging from 1 to 5
years. Radionics recognizes lease revenue upon consummation of the contract and
receipt and acceptance of the product by the customer. No new financing
arrangements were entered into during the three months ended December 30, 2005.
Revenue from the sale of warranty contracts is deferred and recognized into
income over the term of the contract. Contracts are noncancelable, with terms of
generally one year, although certain contracts have terms ranging up to three
years. Warranty revenue of $691 and $694 was recognized for the three months
ended December 30, 2005 and December 31, 2004, respectively.
FREIGHT TO CUSTOMERS--Tyco Healthcare allocates the costs associated with
third-party freight providers to the Company. Costs associated with third-party
freight that are billed to customers are included in net revenue and cost of
revenue. Freight costs that are not billed to customers are included in direct
expenses.
FOREIGN CURRENCY TRANSLATION--For the Company's non-U.S. operations whose
functional currency is other than U.S. dollars, assets and liabilities are
translated into U.S. dollars using December 30, 2005 exchange rates. Sales and
expenses are translated at the average exchange rates in effect during the
quarter. As part of managing the exposure to changes in foreign currency rates,
the Company utilizes forward and option contracts with financial institutions
acting as principal counterparties. Gains and losses on foreign currency
transactions are generally related to intercompany purchases and sales of
inventory and are included in cost of revenue. A net gain of $306 and $230 is
included in cost of revenue for the three months ended December 30, 2005 and
December 31, 2004, respectively. Gains and losses on foreign currency related to
other transactions resulted in net gain of $1 which is included within selling,
general and administrative expense for the three months ended December 30, 2005.
Gains and losses on foreign currency related to other transactions resulted in
net loss of $291 which is included within selling, general and administrative
expense for the three months ended December 31, 2004.
RESEARCH AND DEVELOPMENT--Research and development costs are expensed as
incurred. Expenses consist of direct expenditures attributable to costs incurred
at the Burlington facility, inclusive of personnel-related costs, and facility
overhead as well as allocated research costs from Tyco Healthcare.
2. ALLOCATION OF DIRECT EXPENSES AND RELATED-PARTY TRANSACTIONS
Tyco Healthcare and U.S. Surgical, a division of Tyco Healthcare that is
responsible for the management of Radionics, allocate certain employee benefit
expenses to Radionics on the basis of the number of personnel. Tyco and Tyco
Healthcare, including U.S. Surgical, do not allocate freight and warehousing,
certain research and development, and selling and marketing and general
administrative and other
expenses to its operating divisions for internal financial reporting. However,
for the purposes of the accompanying financial statements, an allocation of such
direct expenses from Tyco Healthcare and U.S. Surgical has been included and is
summarized as follows:
THREE MONTHS ENDED DECEMBER 30, 2005 DOMESTIC INTERNATIONAL TOTAL
Other cost of sales, freight and warehousing $ 164 $ 441 $ 605
Research and development--regulatory 6 13 19
Selling and marketing - 1,507 1,507
General--administrative and other 349 605 954
------- ------- -------
Total $ 519 $ 2,566 $ 3,085
======= ======= =======
THREE MONTHS ENDED DECEMBER 31, 2004 DOMESTIC INTERNATIONAL TOTAL
Other cost of sales, freight and warehousing $ 192 $ 654 $ 846
Research and development--regulatory 4 2 6
Selling and marketing - 1,271 1,271
General--administrative and other 449 836 1,285
------- ------- -------
Total $ 645 $ 2,763 $ 3,408
======= ======= =======
Included in the domestic allocations are both Tyco Healthcare and U.S. Surgical
allocations. Tyco Healthcare costs represent an allocation of shared services
such as personnel, legal, human resources and finance which are allocated
primarily on the proportion of Radionics sales to Tyco Healthcare sales. U.S.
Surgical direct support costs represent personnel and support expenses for
quality control, regulatory compliance, finance (accounts payable, accounts
receivable, planning, payroll, sales force compensation and treasury),
information systems, customer service, legal, human resources, warehousing and
engineering support. The allocation includes use of corporate facilities by
these employees. These costs are primarily allocated based on the proportion of
Radionics sales to total Radionics and U.S. Surgical sales.
International direct expenses are generally allocated on a percentage of
Radionics' sales to total international sales in the respective location. There
is also a Belgium facility which is primarily dedicated to supporting Radionics.
Direct expenses for the Belgium facility totaled $141 and $207 for the three
months ended December 30, 2005 and December 31, 2004, respectively.
Management believes that all allocations of these direct expenses are
reasonable; however, these costs may not be indicative of the costs that would
have been incurred if Radionics operated on a stand-alone basis.
Radionics' manufacturing facility in Burlington, Massachusetts manufactures a
small volume of raw materials for use in products sold by an affiliate. In
addition, Tyco Healthcare manufactures products for Radionics at shared
facilities in Boulder, Colorado and Tijuana, Mexico that are not being sold to
Integra and are excluded from the financial statements. Radionics purchases
components for its products from other Tyco businesses. The cost of these
components was $220 and $167 for the three months ended December 30, 2005 and
December 31, 2004, respectively.
Tyco allocates certain corporate overhead costs to Tyco Healthcare. These costs
are administrative services that are primarily related to costs associated with
being a publicly traded company, treasury, tax, risk management, and certain
human resource functions. These costs are not part of the direct expense,
operations, or business of
Radionics on a stand-alone basis, and, as such, allocations of these Tyco
overhead costs have been excluded from the Radionics' financial statements.
3. INVENTORY
Inventory is as follows:
DECEMBER SEPTEMBER
30, 30,
2005 2005
--------- ---------
Finished goods $ 4,653 $ 4,171
Work in process 1,515 1,020
Raw materials 6,654 5,507
------- -------
12,822 10,698
Less allowance for obsolescence (4,017) (3,670)
------- -------
$ 8,805 $ 7,028
======= =======
Inventory and product costs included in cost of sales are comprised of the
following:
AS OF AND FOR THE THREE MONTHS COST OF
ENDED DECEMBER 30, 2005 INVENTORY SALES
Inventory at standard costs $13,051 $ 4,675
Inventory variances:
Specific identified manufacturing facilities 482 (86)
Allocated at shared manufacturing facilities (711) (470)
Inventory allowance for obsolescence (4,017)
Nonproduct costs included in cost of sales
(including warranty,
warehousing, freight,
demo, and loaners) 377
------- -------
Total $ 8,805 $ 4,496
======= =======
AS OF AND FOR THE YEAR COST OF
ENDED SEPTEMBER 30, 2005 INVENTORY SALES
Inventory at standard costs $11,223 $20,999
Inventory variances:
Specific identified manufacturing facilities 77 2,190
Allocated at shared manufacturing facilities (602) (1,591)
Inventory allowance for obsolescence (3,670)
Nonproduct costs included in cost of sales
(including warranty,
warehousing, freight,
demo, and loaners) 3,249
------- -------
Total $ 7,028 $24,847
======= =======
4. PROPERTY, PLANT, AND EQUIPMENT
Property, Plant, and equipment-net, is as follows:
DECEMBER SEPTEMBER
30, 30,
2005 2005
--------- --------
Machinery and equipment $ 1,775 $ 1,403
Furntiture and fixtures 265 265
Computer equipment and software 886 885
Leasehold Improvements 722 722
Construction in progress 153 102
Accumulated depreciation (2,762) (2,297)
------- -------
$ 1,039 $ 1,080
======= =======
5. INTANGIBLE ASSET-NET
Intangible asset-net, is as follows:
DECEMBER SEPTEMBER
30, 30,
2005 2005
--------- ---------
Patent $ 5,300 $ 5,300
Accumulated amortization (4,196) (4,063)
------- -------
$ 1,104 $ 1,237
======= =======
6. GEOGRAPHIC DATA
The Company operates as a single segment throughout the world, within existing
Tyco facilities.
Selected information by geographical area is presented below:
3 MONTHS 3 MONTHS
ENDED ENDED
DEC 31, 2004 DEC 30, 2005
---------------- ---------------
Net sales:
United States $ 9,074 $ 7,688
Europe 4,140 4,265
Asia 926 1,176
Japan 1,105 1,168
Canada and Latin America 1,053 1,285
--------- -------
$ 16,298 $15,582
========= =======
7. SUBSEQUENT EVENTS
The Company entered into a license buy-out agreement and mutual release dated
January 26, 2006, with a third party for a cost of $100. This agreement provides
an upfront paid license in place of periodic royalty payments based on licensed
product sales as well as releasing the Company from certain obligations which
existed in a prior agreement.
******
ITEM 9.01(b) Unaudited Pro Forma Financial Information
On March 3, 2006, wholly owned subsidiaries of Integra LifeSciences
Holdings Corporation (the "Company") completed the asset acquisition of the
Radionics Division of Tyco Healthcare Group LP ("Radionics") from Tyco
Healthcare Group LP ("Tyco") and Sherwood Services, AG.
The total purchase price for the assets was $76.6 million subject to an
adjustment based on closing inventory levels and included $2.1 million in
transaction related costs. Radionics is a leader in the design, manufacture
and sale of advanced minimally-invasive medical instruments in the fields
of neurosurgery and radiation therapy. Radionics' products include the CUSA
EXcel(TM) ultrasonic surgical aspiration system, the CRW(TM) stereotactic
system, the XKnife(TM) stereotactic radiosurgery system, and the
OmniSight(TM) EXcel image guided surgery system. The transaction is being
accounted for as a business combination in accordance with FASB 141.
The Company assumed Tyco's lease on the Radionics facility in Burlington
Massachusetts and entered into transitional supply and distribution
agreements with Tyco Healthcare Group LP for products currently
manufactured at Tyco facilities not included in the transaction. The
transitional supply agreement provides for the manufacture of certain
ultrasonic aspirator products and peripherals and certain other products
for a period of up to two years. The transitional distribution agreement
provides for the distribution of acquired product lines in certain
international markets by affiliates of Tyco for periods ranging from three
months to approximately 12 months after the closing date.
The Company made an offer of employment to approximately 135 employees of
the business relating to the purchased assets. The Company also assumed
certain liabilities from Tyco relating to the assets they are purchasing,
including certain employment agreements.
The financial statements for the year ended September 30, 2005, and the
unaudited financial statements as of December 30, 2005 and for the three
months ended December 30, 2005 and December 31, 2004 included elsewhere in
this Form 8-K/A represent the assets and liabilities of Radionics purchased
by the Company and the direct revenues and expenses associated with the
Radionics business. Because Radionics did not operate as a stand alone
business and certain operations and activities were part of Tyco Healthcare
LP, the financial statements do not represent a complete set of financial
statements as required by Rule 3-05 of Regulation S-X. Certain portions of
the costs included in the statements represent an allocation of Tyco
operational costs. These costs are further defined in footnote 2 in the
financial statements for the year ended September 30, 2005.
The Company expects to utilize Tyco international affiliates for a
transition period and then third party distributors to support certain
markets outside the United States where previously Tyco Healthcare had been
selling the Radionics products directly to end customers. The Company
expects to sell to these distributors at discounts ranging from 32% to 50%
depending on the specific market. As a result, assuming the same volume of
sales as in the past, the Company will recognize lower revenue than Tyco
recognized. Similarly, as discussed below, as the Company will sell to
distributors rather than have its own distribution network, it expects to
recognize lower selling expenses associated with Radionics products than
Tyco recognized. Radionics direct international market sales in countries
and for products where it anticipates selling through distributors were
$32.5 million in 2005. No adjustment is reflected in the pro forma
statement of operations to consider the impact of future sales discounts as
it is considered a forward looking estimate.
In addition, the Company does not expect to incur certain costs associated
with the direct selling organizations in the international markets referred
to above. The Radionics Statement of Net Revenue, Cost of Revenue, and
Direct Expenses includes $8.7 million in selling, general and
administrative costs associated with Tyco Healthcare's international
affiliate operations. The Company will incur some additional costs
associated with the acquisition of the Radionics international business,
but it does not expect to incur costs to the same degree as those
allocations because it did not acquire the Tyco international operations
associated with those allocations, and the Company will operate through
third party distributors in a number of international markets. The pro
forma statement of operations does not include any projection of the
difference in costs as it would be considered a forward looking estimate.
The unaudited pro forma condensed combined balance sheet as of December 31,
2005 was prepared by combining the historical balance sheet at December 31,
2005 for the Company with the historical balance sheet of Radionics at
September 30, 2005, giving effect to the acquisition as though it was
completed on December 31, 2005.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 2005 was prepared by combining the Company's
historical statement of net revenue, cost of revenue and direct expenses
for the year ended December 31, 2005 with Radionics' historical statement
of operations for the year ended September 30, 2005, giving effect to the
acquisition as though it had occurred on January 1, 2005. This unaudited
pro forma condensed combined statement of operations does not give effect
to any potential cost savings or other operating efficiencies that could
result from the acquisition, nor any non-recurring expenses resulting from
the transaction.
These pro forma statements are presented for illustrative purposes only.
The pro forma adjustments are based upon available information and
assumptions that the Company believes are reasonable. The condensed
combined pro forma financial statements do not purport to represent what
the consolidated results of operations or financial position of the Company
would actually have been if the acquisition had occurred on the dates
referred to above, nor do they purport to project the results of operations
or financial position of the Company for any future period or as of any
date.
Unaudited Pro Forma Condensed Combined Balance Sheet
December 31, 2005
IN THOUSANDS
Integra
LifeSciences
Holdings Pro Forma
Corporation Radionics* Adjustments Note Consolidated
----------- ---------- ----------- ---- ------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 46,889 $ -- $ (43,325) (a) $ 3,564
Short-term investments 80,327 -- (17,277) (a) 63,050
Trade accounts receivable 49,007 -- -- 49,007
Inventories 67,476 7,028 1,891 (b) 76,395
Prepaid expenses and other current assets 22,253 531 -- 22,784
---------- ---------- ---------- ---- -----------
Total current assets 265,952 7,559 (58,711) 214,800
Property, plant, and equipment, net 27,451 1,080 354 (b) 28,885
Goodwill 68,364 -- 23,035 (c) 91,399
Intangible assets, net 64,569 1,237 (1,237) (c)
45,000 (c) 109,569
Non-current investments & other assets 22,096 -- -- 22,096
---------- ---------- ---------- ---- -----------
Total assets $ 448,432 $ 9,876 $ 8,441 $ 466,749
========== ========== ========== ==== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade 8,978 -- -- 8,978
Revolving credit facility -- -- 16,000 (a) 16,000
Deferred revenue -- 1,883 -- 1,883
Accrued expenses and other current liabilities 22,309 434 -- 22,743
---------- ---------- ---------- ---- -----------
Total current liabilities 31,287 2,317 16,000 49,604
Long term debt 118,378 -- -- 118,378
Other liabilities 8,949 -- -- 8,949
---------- ---------- ---------- ---- -----------
Total liabilities 158,614 2,317 16,000 176,931
Commitments and contingencies
Total stockholders' equity 289,818 -- -- 289,818
---------- ---------- ---------- ---- -----------
Total liabilities and stockholders' equity $ 448,432 $ 2,317 $ 16,000 $ 466,749
========== ========== ========== ==== ===========
* Radionics Statements of Assets and Liabilities To Be Sold as of September 30,
2005
See notes to pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2005
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Integra
LifeSciences
Holdings Pro Forma
Corporation Radionics* Adjustments Note Consolidated
----------- ---------- ----------- ---- ------------
Total revenue $ 277,935 $ 68,727 $ -- $ 346,662
COSTS AND EXPENSES
Cost of product revenue (exclusive of
amortization related to acquired
intangible assets) 105,536 25,884 -- 131,420
Research and development 11,960 3,416 -- 15,376
Selling, general and administrative 98,273 23,110 -- 121,383
Amortization 6,061 -- 3,749 (1) 9,810
---------- ---------- ---------- ---- -----------
Total costs and expenses 221,830 52,410 3,749 277,989
Operating income 56,105 16,317 (3,749) 68,673
Interest income (expense), net (265) -- (2,698) (2) (2,963)
Other income (expense), net (739) -- -- (739)
--------- ---------- ---------- ---- -----------
Income before income taxes 55,101 16,317 (6,447) 64,971
Income tax expense 17,907 2,875 (3) 20,782
---------- ---------- ---------- ---- -----------
Net income $ 37,194 $ 16,317 $ (9,322) $ 44,189
========== ========== ========== ==== ===========
Net income per share
Basic $ 1.23 $ 1.46
Diluted $ 1.15 $ 1.35
Weighted average common shares outstanding:
Basic 30,195 30,195
Diluted 34,565 34,565
* Radionics Statement of Net Revenue, Cost of Revenue, and Direct Expenses for
the Year Ended September 30, 2005
See notes to pro forma condensed combined financial statements.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Basis of Pro Forma Presentation
For the pro forma condensed combined balance, the preliminary $76.6 million
purchase price, including $2.1 million of estimated costs incurred by the
Company directly as a result of the acquisition, has been allocated based on
management's preliminary estimate of the fair values of assets acquired and
liabilities assumed as of December 31, 2005. Certain elements of the purchase
price allocation are considered preliminary, particularly as it relates to the
final valuation of certain identifiable intangible assets. Assuming the
transaction was completed December 31, 2005, the preliminary purchase price
allocation would be as follows:
Inventory $ 8,919
Property and equipment 1,434
Intangible assets 45,000
Goodwill 23,035
Other assets 531
Deferred revenue (1,883)
Accrued expenses (434)
--------
Total purchase price $ 76,602
The acquired intangible assets consist primarily of customer relationships,
trade names and core technology based assets. The customer relationships and
core technology, which totaled approximately $28.9 million, will be amortized
over lives ranging from seven to ten years. The trade names, which totaled
approximately $16.1 million, are considered indefinite lived assets and will not
be amortized. The goodwill recorded is based on the benefits the Company expects
to generate from the synergies between the Radionics products, including the
broad use of its trade names, and the Company's products specifically targeted
towards the neurosurgery market.
2. Pro Forma Adjustments
The following are the descriptions of the pro forma condensed combined balance
sheet adjustments:
(a) The Company used $60.6 million of available cash and short term
securities and borrowed the remaining $16 million of purchase price
under its available revolving credit facility.
(b) This adjustment is made to increase Radionics' inventory and property
and equipment balances as of September 30, 2005 to their estimated fair
value.
(c) These adjustments were recorded to reflect the estimated fair value of
the Radionics' intangible assets and remaining goodwill as of September
30, 2005 and an adjustment to eliminate historical intangible assets of
Radionics.
The following are the descriptions of the pro forma condensed combined statement
of operations adjustments:
(1) This adjustment records pro forma amortization expense for the year
ended December 31, 2005 for the intangible assets subject to
amortization of $28.9 million (customer relationships of $19.9 million
and technology of $9 million) on a straight line basis over their
amortizable lives of seven and ten years, respectively.
(2) This adjustment increases net interest expense for the estimated
reduction in interest income earned by the Company ($60,602 multiplied
by the Company's average return of 3% for 2005) and the increase in
interest expense associated with the $16.0 million borrowing under the
revolving credit facility (at its fixed rate of 5.5%) as a result of
the payment of the purchase price as if paid on January 1, 2005.
(3) This adjustment is based on the Company's estimate of the pre-tax
income by tax jurisdiction multiplied by the statutory rate for each
jurisdiction.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of the 12th day of May, 2006.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
BY: /s/ Stuart M. Essig
-----------------------------
STUART M. ESSIG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
333-46024, 333-82233, 333-58235, 333-06577, 333-73512, 333-109042 and 333-127488
of Integra LifeSciences Holding Corporation on Forms S-8 of our report dated
February 17, 2006 related to the financial statements of Radionics, Product
Lines of Tyco Healthcare Group LP as of September 30, 2005 and 2004, and for the
years then ended appearing in this Current Report on Form 8-K/A of Integra
LifeSciences Holdings Corporation.
Deloitte & Touche
Boston, Massachusetts
May 11, 2006