UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment 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): May 12, 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 (I.R.S. Employer
incorporation or organization) File Number) 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))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
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
May 17, 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.
Miltex Holdings, Inc. was created on January 1, 2006 as a wholly owned
subsidiary of ASP/ Miltex LLC. ASP/ Miltex LLC transferred the shares in all of
its other subsidiaries to Miltex Holdings, Inc. in exchange for all of the
shares of Miltex Holdings, Inc. After that date ASP/ Miltex LLC had no other
assets or liabilities or did not have any other operations. The financial
statements of ASP/ Miltex LLC essentially represent the entire business acquired
by the Company on May 12, 2006. The entire business, for purposes of this
document, is defined as Miltex Holdings, Inc. and Subsidiaries ("Miltex").
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
ASP/ Miltex LLC and Subsidiaries Consolidated Financial Statements as of and for
the years ended December 31, 2005 and 2004 and Report of Independent Auditors
ASP/ Miltex LLC and Subsidiaries Condensed Consolidated Statements of Operations
and Other Comprehensive Income (Loss), Changes in Member's Equity and Cash Flows
for the three months ended March 31, 2005 and 2006 (unaudited)
(b) Unaudited Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Balance Sheet of the Company and Miltex
as of March 31, 2006
Unaudited Pro Forma Condensed Combined Statements of Operations of the Company
and Miltex for the year ended December 31, 2005 and three months ended March 31,
2006
Notes to unaudited Pro Forma Condensed Combined Financial Information of the
Company and Miltex
(c) Exhibits
Exhibit Number Description of Exhibit
-------------- ----------------------
23.1 Consent of PricewaterhouseCoopers LLP
ITEM 9.01(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
ASP/MILTEX LLC AND
SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
ASP/MILTEX LLC AND SUBSIDIARIES
INDEX
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
PAGE(S)
REPORT OF INDEPENDENT AUDITORS ....................................... 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets ....................................................... 2
Statements of Operations and Other Comprehensive Income (Loss) ....... 3
Statements of Changes in Members' Equity ............................. 4
Statements of Cash Flows ............................................. 5
Notes to Financial Statements ........................................ 6-22
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Members of ASP/Miltex LLC
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and other comprehensive income (loss),
changes in members' equity and cash flows present fairly, in all material
respects, the financial position of ASP/Miltex LLC and its subsidiaries at
December 31, 2005 and 2004, and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements 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
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
/s/ PricewaterhouseCoopers LLP
March 30, 2006
1
ASP/MILTEX LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
ASSETS
Current assets
Cash $ 216,101 $ 131,676
Accounts receivable, net of allowance for
doubtful accounts of $75,000 in 2005 and 2004 7,729,230 8,513,883
Inventory 14,711,127 14,878,600
Deferred income taxes 1,660,572 1,622,630
Prepaid expenses and other current assets 940,610 1,753,332
----------- -----------
Total current assets 25,257,640 26,900,121
Other assets 383,727 1,088,453
Property and equipment, net 7,298,620 7,756,983
Deferred financing costs, net 1,197,083 1,595,357
Goodwill 38,897,136 38,897,136
Other intangible assets, net 20,285,212 21,345,477
----------- -----------
Total assets $93,319,418 $97,583,527
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 8,535,948 $ 8,132,602
Current portion of long-term debt 6,428,449 5,526,700
----------- -----------
Total current liabilities 14,964,397 13,659,302
Long-term debt 23,087,509 30,830,414
Other liabilities 684,304 703,059
Deferred income taxes 6,751,082 7,410,557
----------- -----------
Total liabilities 45,487,292 52,603,332
Commitments and contingencies
Members' equity 47,832,126 44,980,195
----------- -----------
Total liabilities and members' equity $93,319,418 $97,583,527
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
2
ASP/MILTEX LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE INCOME (LOSS) YEARS ENDED
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
Net sales $61,981,119 $59,296,703
Cost of sales 35,624,301 35,250,306
----------- -----------
Gross profit 26,356,818 24,046,397
----------- -----------
OPERATING EXPENSES
Selling, general and administrative 13,962,945 13,902,346
Depreciation and amortization 1,498,020 1,476,154
----------- -----------
Total operating expenses 15,460,965 15,378,500
----------- -----------
Income from operations 10,895,853 8,667,897
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (3,321,930) (3,242,868)
Gain (loss) on forward foreign
exchange contracts, net (2,828,498) 1,330,822
----------- -----------
Total other expense, net (6,150,428) (1,912,046)
----------- -----------
Income before provision for income taxes 4,745,425 6,755,851
Provision for income taxes 1,811,764 2,238,437
----------- -----------
Net income 2,933,661 4,517,414
----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS)
Minimum pension liability, net of taxes of
$(39,056) and $14,353, respectively (63,723) 28,655
Foreign currency translation adjustment, net of
taxes of $(11,037) and $4,695, respectively (18,007) 7,659
----------- -----------
Total other comprehensive (loss) income (81,730) 36,314
----------- -----------
Comprehensive income $ 2,851,931 $ 4,553,728
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
3
ASP/MILTEX LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
MEMBERS' RETAINED COMPREHENSIVE MEMBERS'
INTEREST EARNINGS INCOME (LOSS) EQUITY
BALANCE, JANUARY 1, 2004 $ 30,523,011 $ 9,922,442 $ (83,986) $40,361,467
Contributions 65,000 - - 65,000
Other comprehensive income - - 36,314 36,314
Net income - 4,517,414 - 4,517,414
------------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 2004 30,588,011 14,439,856 (47,672) 44,980,195
Other comprehensive income - - (81,730) (81,730)
Net income - 2,933,661 - 2,933,661
------------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 2005 $ 30,588,011 $17,373,517 $ (129,402) $47,832,126
============ =========== ============ ===========
The accompanying notes are an integral part of
these consolidated financial statements.
4
ASP/MILTEX LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,933,661 $ 4,517,414
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 2,090,687 2,009,281
Amortization of financing costs 398,274 398,274
Unrealized gain (loss) on forward
foreign exchange contracts, net 2,206,953 2,434,365
Unrealized loss on interest rate swap contracts - (159,816)
Provision for doubtful accounts - (97,000)
Provision for obsolete inventory 16,374 245,107
Deferred income taxes (647,324) (808,388)
Loss on sales of property and equipment 73,921 71,387
Changes in operating assets and liabilities
Accounts receivable 784,653 (1,494,62)
Inventory 151,099 (1,893,86)
Prepaid expenses and other current assets 164,604 (54,065)
Other assets 25,955 (52,910)
Accounts payable and accrued expenses (506,821) 2,386,335
Other liabilities (121,534) (275,261)
------------ -----------
Net cash provided by operating activities 7,570,502 7,226,237
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of property and equipment 3,208 -
Purchases of property and equipment (581,740) (973,854)
------------ -----------
Net cash used in investing activities (578,532) (973,854)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on credit facilities 8,973,854 13,622,672
Payments on borrowings on credit facilities (15,852,355) (19,881,199)
Contributions from members - 65,000
------------ -----------
Net cash used in financing activities (6,878,501) (6,193,52)
------------ -----------
Effect of exchange rate changes on cash (29,044) 12,354
------------ -----------
Net increase in cash 84,425 71,210
CASH
Beginning of year 131,676 60,466
------------ -----------
End of year $ 216,101 $ 131,676
============ ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION
Cash paid for interest $ 2,384,018 $ 3,199,950
============ ===========
Cash paid for income taxes $ 2,862,606 $ 945,011
============ ===========
NONCASH INVESTING ACTIVITIES
Investment in a capital lease $ 37,345 $ 17,511
============ ===========
The accompanying notes are an integral part of
these consolidated financial statements.
5
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS
ASP/Miltex LLC, together with its wholly-owned subsidiaries, ASP/Miltex
Group Holdings, Inc. and Miltex Dental, Inc. (collectively, the
"Company"), is a manufacturer and distributor of medical and dental
instruments to health care product dealers throughout domestic and
international markets. The subsidiaries of ASP/Miltex Group Holdings,
Inc. are, ASP/Miltex Holdings, Inc., Miltex, Inc., Miltex Technologies,
Inc., Miltex GmbH and Meisterhand Instrument GmbH, a subsidiary of
Miltex GmbH acquired in January 2005. The subsidiaries of Miltex Dental,
Inc. are, Miltex Dental Technologies, Inc., Miltex Dental Instruments,
Inc. and Endosolutions, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ASP/Miltex
LLC and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of consolidated assets and consolidated liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
consolidated revenues and consolidated expenses during the reporting
period. Significant estimates made by management include allowance for
doubtful accounts, inventory obsolescence, depreciation, amortization
and accrued expenses. Actual consolidated results could differ from
those estimates.
INVENTORY
Inventory, consisting of raw material, work in process and merchandise
for resale, is stated at the lower of cost or market. Cost is determined
using the weighted average method.
At each balance sheet date, the Company evaluates ending inventories for
excess and obsolete quantities. This evaluation includes analyses of
historical sales levels by product, projections of future demand and
general market conditions. To the extent that management determines
there are excess or obsolete quantities, valuation reserves are recorded
against all or a portion of the value of the related products to adjust
their carrying value to estimated net realizable value.
DEFERRED FINANCING COSTS
The costs related to the issuance of credit facilities are capitalized
and amortized using the effective interest method over the term of the
related borrowings. Amortization expense included as a component of
interest expense at December 31, 2005 and 2004 was approximately
$398,000, and accumulated amortization for the years then ended was
approximately $2,253,000 and $1,855,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which primarily range from 5 to 12
years for equipment and 15 to 39 years for buildings and improvements.
6
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
CASH
The Company includes cash, interest-bearing cash accounts and petty cash
in the cash account on the balance sheet.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade accounts receivable are recorded at the invoiced amount and do not
bear interest. The Company grants credit to customers in the normal
course of business, but generally does not require collateral or any
other security to support its receivable. The allowance for doubtful
accounts is the best estimate of the amount of probable credit losses in
the existing accounts receivable. The allowance is determined based on a
review of individual accounts for collectibility, generally focusing on
those accounts that are past due. The current year expense to adjust the
allowance for doubtful accounts is recorded within selling, general and
administrative expenses in the statements of operations and other
comprehensive income (loss). Account balances are charged against the
allowance when it is probable the receivable will not be recovered.
GOODWILL AND INDEFINITE LIVED INTANGIBLE ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("SFAS 142"), the Company
ceased amortizing goodwill and indefinite lived intangible assets as of
January 1, 2002. Goodwill and indefinite lived intangible assets is
tested for impairment annually on December 31 or whenever events or
changes have occurred that would suggest an impairment of carrying
value. An impairment would be recognized when the carrying amount of
goodwill and indefinite lived intangible assets exceeds its implied fair
value. The Company has identified no such impairment losses.
INTANGIBLE ASSETS
Intangible assets are comprised of patents, customer lists, trademarks
and trade names, product supply agreements and copyrights and are
recorded at cost. Amortization of these assets is recorded using the
straight-line method over lives ranging from 3 to 30 years. The Company
continually reviews its intangible assets to evaluate whether events or
changes have occurred that would suggest an impairment of carrying
value. An impairment would be recognized when expected future operating
cash flows are lower than the carrying value. The Company has identified
no such impairment losses.
ASSET RECOVERABILITY
In accordance with Statement of Financial Accounting Standards No. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS No
144"), the Company reviews the realizability of long-lived assets,
including property and equipment, whenever events or circumstances occur
which indicate recorded costs may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amounts
of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell. The Company has identified no such impairment losses.
7
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
INCOME TAXES
The Company recognizes deferred income tax assets and liabilities for
ASP/Miltex Group Holdings, Inc. and Miltex Dental, Inc., which are
recognized as C corporations for income tax purposes. Deferred income
taxes are recognized for the expected future tax consequences of events
that have been included in the Company's consolidated financial
statements or corporate income tax returns. Deferred income tax assets
and liabilities are determined based on differences between financial
accounting and tax bases of assets and liabilities using enacted tax
rates in effect for the period in which the differences are expected to
reverse.
SIGNIFICANT CONCENTRATIONS
Financial instruments which potentially subject the Company to credit
risk principally consist of trade receivables. A substantial portion of
the Company's sales and accounts receivables are from its 10 largest
customers. At December 31, 2005 and 2004, approximately 54% and 66%,
respectively, of accounts receivables were due from these customers.
Sales from these customers for 2005 and 2004 were approximately 49% and
58%, respectively.
The Company currently buys a significant portion of its products from
overseas suppliers primarily in Germany and Japan. Changes in market
conditions could affect operating results as approximately 80% and 77%
of purchases were purchased from these overseas suppliers at December
31, 2005 and 2004, respectively.
REVENUE RECOGNITION
The Company recognizes revenues when the goods are shipped, the title
and risk of loss has transferred to the customer, the price is fixed or
determinable and collectibility is reasonably assured. Some customers
receive rebates upon attaining established sales volumes. Management
records these rebate costs as a reduction of revenue based on its
assessment of the likelihood that these volumes will be attained.
SHIPPING AND HANDLING FEES
Shipping and handling fees that are collected from our customers in
connection with our sales are recorded as revenue and were $538,147 and
$466,617 for the years ending December 31, 2005 and 2004, respectively.
The costs incurred with respect to shipping and handling fees are
recorded as cost of sales and were $1,290,666 and $1,219,030 for the
years ending December 31, 2005 and 2004, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, including
accounts receivable, prepaid expenses, accounts payable and accrued
expenses approximate cost because of their short maturities. The fair
value of the debt approximates its carrying amount based upon current
market conditions and interest rates.
DERIVATIVE INSTRUMENTS
The Company accounts for derivative financial instruments in accordance
with SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES ("SFAS 133"). SFAS 133, as amended, requires that all
derivative instruments be recorded on the balance sheet at fair value as
either assets or liabilities. Since the Company's derivative instruments
do not qualify for hedge accounting, changes in fair value of the
derivatives are recognized in earnings.
8
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
The Company uses derivative financial instruments principally to manage
the risk that changes in interest rates will affect the amount of its
future interest payments and, with regard to foreign currency exchange
rates, to manage the risk that changes in exchange rates will affect the
amount of unremitted future payments for goods received from its
overseas suppliers.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiary are
translated into United States dollars for consolidation and reporting
purposes. Current rates of exchange are used to translate assets and
liabilities, except for certain liabilities denominated in United States
dollars which are translated at the historical rates in effect on the
transaction dates. Revenues and expenses are translated at rates which
approximate the rates in effect on the transaction dates. Cumulative
translation adjustments are reflected as a separate component of
members' equity. Transaction gains or losses are included in the
determination of income.
STOCK OPTIONS
As permitted by Statement of Financial Standards No. 123, ACCOUNTING FOR
STOCK BASED COMPENSATION ("SFAS No. 123"), the Company has chosen to
apply APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB
25") and related interpretations in accounting for its Plans.
Accordingly, no compensation cost has been recognized for options
granted under the Plans.
For pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. Following is the
after tax expense effect of the application of the Black-Scholes
valuation:
2005 2004
Net income $ 2,933,661 $ 4,517,414
Less: Total stock based employee
compensation expense, net of related
tax effects of $7,103 and $7,298 10,655 10,947
------------- -----------
Net income, pro forma $ 2,923,006 $ 4,506,467
============= ===========
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 151, INVENTORY COSTS -- AN AMENDMENT OF ARB NO.
43, CHAPTER 4. This standard provides clarification that abnormal
amounts of idle facility expense, freight, handling costs, and spoilage
should be recognized as current-period charges. Additionally, this
standard requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. The provisions of this standard are effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. This
standard will not have a material impact on the Company's financial
statements.
On December 16, 2004, the FASB issued Statement of Financial Accounting
Standards No. 123(R), SHARE-BASED PAYMENT ("FAS 123(R)"). FAS 123(R)
revised FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
("FAS 123") and requires companies to expense the fair value of employee
stock options and other forms of stock-based compensation. FAS 123(R)
must be adopted by nonpublic companies starting with the first annual
period that begins after December 15, 2005. The Company is evaluating
the requirements of FAS 123(R) and will adopt the statement in 2006.
9
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
In March 2005, the FASB issued FIN 47, ACCOUNTING FOR CONDITIONAL ASSET
RETIREMENT OBLIGATIONS (an interpretation of SFAS No. 143). FIN 47
provides clarification with respect to the timing of liability
recognition for legal obligations associated with retirement of tangible
long-lived assets when the timing and/or method of settlement of the
obligation is conditional on a future event. FIN 47 requires that the
fair value of a liability for a conditional asset retirement obligation
be recognized in the period in which it occurred if a reasonable
estimate of fair value can be made. The adoption of FIN 47 at December
31, 2005 had no impact on the Company's statements of operations and
other comprehensive income (loss), cash flows or its balance sheet.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified for consistent
presentation.
3. RESTRUCTURING
On August 22, 2005, Company's management announced a plan to consolidate
the operations from the Missoula, MT manufacturing facility into the
York, PA facility. The consolidation was completed on January 31, 2006,
and the Missoula facility has been placed on the market for sale. The
costs associated with the move are anticipated to be approximately
$241,000, of which approximately $138,000 was incurred during 2005 and
is included in selling, general and administrative expenses. This amount
is included in accrued expenses at December 31, 2005 and principally
related to employee termination costs.
4. INVENTORY
Inventory consisted of the following at December 31:
2005 2004
Raw material $ 367,896 $ 457,055
Work in process 1,118,138 790,195
Merchandise for resale 14,130,093 14,519,976
------------- -----------
15,616,127 15,767,226
Less: Allowance for obsolescence (905,000) (888,626)
------------- -----------
$ 14,711,127 $14,878,600
============= ===========
10
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at December 31:
2005 2004
Land $ 625,000 $ 625,000
Building and improvements 3,533,946 3,520,977
Machinery and equipment 4,364,981 4,113,758
Computer equipment 2,067,449 1,931,324
Furniture and fixtures 800,328 792,117
Construction in progress 64,816 22,921
Equipment under capital lease 55,066 17,511
------------ ------------
Property and equipment, gross 11,511,586 11,023,608
Less: Accumulated depreciation and
amortization (4,212,966) (3,266,625)
------------ ------------
Property and equipment, net $ 7,298,620 $ 7,756,983
============ ============
Depreciation and amortization expense for the years ended December 31,
2005 and 2004 was $1,000,319 and $929,595, respectively.
In connection with the facility consolidation (Note 3), the Company
disposed of certain equipment. Losses on sales of property and
equipment, including losses associated with the facility consolidation,
for the years ended December 31, 2005 and 2004 was $73,921 and $71,387,
respectively.
6. OTHER INTANGIBLE ASSETS, NET
Other intangible assets consisted of the following at December 31:
2005
----------------------------------------------
ACCUMULATED
LIVES COST AMORTIZATION NET
INTANGIBLE ASSETS SUBJECT
TO AMORTIZATION
Trademarks and trade names 10-30 $17,528,232 $ 3,393,239 $14,134,993
Customer list 5-20 4,906,000 1,527,300 3,378,700
Patents 5-20 814,138 424,619 389,519
----------- ------------- -----------
Total intangible assets
subject to amortization 23,248,370 5,345,158 17,903,212
INTANGIBLE ASSETS NOT SUBJECT
TO AMORTIZATION
Product supply agreement 2,382,000 - 2,382,000
----------- ------------- -----------
Intangible assets, net $25,630,370 $ 5,345,158 $20,285,212
=========== ============= ===========
11
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
2004
----------------------------------------------
ACCUMULATED
LIVES COST AMORTIZATION NET
INTANGIBLE ASSETS SUBJECT
TO AMORTIZATION
Trademarks and trade names 10-30 $17,508,031 $ 2,800,267 $14,707,764
Customer list 5-20 4,906,000 1,176,100 3,729,900
Patents 5-20 849,108 323,295 525,813
----------- ------------ -----------
Total intangible assets
subject to amortization 23,263,139 4,299,662 18,963,477
INTANGIBLE ASSETS NOT
SUBJECT TO AMORTIZATION
Product supply agreement 2,382,000 - 2,382,000
----------- ------------ -----------
Intangible assets, net $25,645,139 $ 4,299,662 $21,345,477
=========== ============ ===========
Amortization expense charges totaled $1,090,368 and $1,079,686 for the
years ended December 31, 2005 and 2004, respectively. At December 31,
2005, estimated future amortization expense would be approximately
$1,792,000 for the years ending December 31, 2006, 2007 and 2008 and
$880,000 for the years ending December 31, 2009 and 2010.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at
December 31:
2005 2004
Accrued taxes $ 2,590,605 $2,977,509
Trade payables 1,593,180 2,091,815
Customer rebates 1,081,960 1,124,899
Unrealized loss on
foreign exchange contracts 910,167 -
Interest payable 618,603 78,965
Employee bonuses 335,203 282,341
Selling commissions 229,855 227,761
Other 217,366 126,911
Professional fees 211,471 123,473
Employer 401(k) match 151,881 74,948
Salary 149,761 149,340
Missoula facility closing 137,964 -
Marketing and advertising 109,577 128,336
Royalties 100,075 92,460
Consulting contract (Note 15) 98,280 376,505
Deferred revenue - 277,339
----------- ----------
$ 8,535,948 $8,132,602
=========== ==========
8. DERIVATIVE INSTRUMENTS
The Company has two types of derivative instruments which include
interest rate cap contracts and forward foreign exchange contracts.
12
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
INTEREST RATE SWAP AGREEMENT AND INTEREST RATE CAP CONTRACT
The Company uses interest rate cap contracts to adjust the proportion of
total debt that is subject to variable interest rates. The Company has
interest rate cap contracts that are currently in effect and expire on
March 31, 2008.
Under the cap contract, the Company's interest rate is 'capped' at an
agreed-upon rate for the notional principal amount as designated in the
contract.
While the cap contracts are utilized to reduce exposure to changes in
the amount of future cash flows associated with the Company's interest
payments on its variable-rate debt obligations, these instruments do not
qualify for hedge accounting under FAS 133. Accordingly, the contracts
are reflected at fair value in the consolidated balance sheet and all
changes in fair value are included in interest expense in the
consolidated statement of operations.
At December 31, 2005 and 2004, the Company had an interest rate cap
contract which capped LIBOR interest at 3.5% for one-half of the
outstanding balances of the Term "A," Term "B," and Term "C" loans (Note
6) expiring on March 31, 2006. In addition, the Company has entered into
an interest rate cap contract, effective April 1, 2006, which capped
LIBOR interest at 5.0% for three-fourths of the outstanding balances of
the Term "A," Term "B," and Term "C" loans (Note 6) expiring on March
31, 2008. At December 31, 2005, the fair value of such interest rate cap
contracts was $104,069, of which $39,127 was included in prepaid
expenses and other assets, and $69,942 was included in other noncurrent
assets. At December 31, 2004, the fair value of the interest rate cap
contract was $24,414 and was included in other noncurrent assets.
FORWARD FOREIGN EXCHANGE CONTRACTS
The Company purchases approximately 40% of their inventory from Germany
in transactions denominated in Euros. The Company uses forward foreign
exchange contracts to reduce its exposure to changes in currency
exchange rates. Forward contracts are purchased with lead times varying
from one month to two years and are based on an estimate of foreign
currency needs for future periods. These contracts do not qualify for
hedge accounting under FAS 133 and are recorded at fair value on the
Company's consolidated balance sheet and all of the related gains or
losses are recognized in net income. Realized and unrealized gains and
losses are recognized in the gain (loss) on forward exchange contracts,
net on the statements of operations.
13
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
At December 31, 2005, the Company had outstanding forward contracts in
varying amounts (with expirations through December 2007) to purchase
approximately 16,500,000 Euros. The Company also had range option
contracts (with expirations through December 2006), with put and call
amounts of 5,100,000 Euros and 3,736,000 Euros respectively. In
addition, the Company had outstanding forward contracts in varying
amounts (with expirations through June 2007) to purchase approximately
630 million Yen. At December 31, 2004, the Company had outstanding
forward contracts in varying amounts (with expirations through December
2006) to purchase approximately 10,575,000 Euros. The Company also had
range option contracts (also with expirations through December 2006),
with put and call amounts of 9,887,500 Euros and 7,014,000 Euros
respectively. In addition, the Company had outstanding forward contracts
in varying amounts (with expirations through June 2005) to purchase
approximately 180 million Yen. At December 31, 2005, the fair value of
such forward contracts was a net unrealized loss of $877,237, of which
$910,167 was included in accounts payable and accrued expenses, and an
unrealized gain of $32,930 was included in other noncurrent assets. At
December 31, 2004, the fair value of such forward contracts was
$1,329,716, of which $648,118 was included in prepaid expenses and other
assets, and $681,598 was included in other noncurrent assets.
9. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
2005 2004
Revolving credit facility; due
June 30, 2006; maximum line of
$10,000,000; floating interest
rate at index plus an applicable
margin of 1.75% or LIBOR plus an
applicable margin of 3.25% $ 550,000 $ 904,686
Swing line credit facility;
expires June 30, 2006; maximum
line of credit of $500,000;
floating interest rate at index
plus an applicable margin of
3.25% - -
Term A Loan; due June 30, 2007;
quarterly principal payments;
floating interest rate at index
plus an applicable margin of
2.00% or LIBOR plus an
applicable margin of 3.50% 7,255,538 12,654,508
Term B Loan; due June 30, 2008;
quarterly principal payments;
floating interest rate at index
plus an applicable margin of
2.50% or LIBOR plus an
applicable margin of 4.00% 15,067,688 15,868,668
Term C Loan; due June 30, 2008;
quarterly principal payments;
floating interest rate at index
plus an applicable margin of
2.50% or LIBOR plus an
applicable margin of 4.00% 6,268,541 6,520,541
Pennsylvania IDA loan, due June
1, 2010; monthly payments of
principal and interest; interest
at 2% 322,794 392,035
Obligation under capital lease 51,397 16,676
------------ ------------
Total long-term debt 29,515,958 36,357,114
Less: Current portion (6,428,449) (5,526,700)
------------ ------------
$ 23,087,509 $ 30,830,414
============ ============
14
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
Principal payments on all the loans are as follows:
2006 $ 6,428,449
2007 13,091,428
2008 9,884,520
2009 78,472
2010 33,089
------------
Total of remaining principal payments $ 29,515,958
============
Effective April 30, 2004, the Company entered into a Amendment and
Restatement ("the Agreement") of the Credit Agreement dated January 7,
2000 and Amendment and Restated on May 25, 2001 with the same syndicate
of financial institutions.
In accordance with the Agreement, borrowings related to the revolving
credit facility, terms loans A, B, and C and swing line facility accrue
interest at an elected rate of index plus an applicable margin or LIBOR
plus an applicable margin. Margins are set based upon the leverage ratio
in existence at the end of an interest period. At December 31, 2005 and
2004, the index rate was 7.25% and 5.25%, which yielded maximum rates of
9.75% and 7.75%, respectively. At December 31, 2005 and 2004, the
contracted LIBOR was 3.71% and 2.52%, which yielded maximum rates of
7.21% and 6.01%, respectively. In addition to the interest, the
Agreement calls for an unused credit line fee for the revolving loan of
0.5%. The unused credit under this facility at December 31, 2005 and
2004 was $9,450,000 and $9,053,314, respectively.
The Agreement contains restrictions which, among other things, limit
indebtedness, capital expenditures, and other defined transactions. The
Agreement also requires maintenance of certain financial ratios and
contains other restrictive covenants, including a minimum threshold of
income from continuing operations before interest, taxes, depreciation
and amortization. On March 25, 2005, the Company entered into Waiver and
Amendment No. 2 to the existing revolving credit facility and term
loans. This new agreement adjusted certain financial covenants to
reflect expected financial performance for future periods though June
2006. At December 31, 2005 and 2004, the Company was in compliance with
all their financial debt covenants. Significantly all assets of the
Company are pledged as collateral for the loans associated with the
Amendment and Restatement Agreement.
10. MEMBERS' EQUITY
As of December 31, 2005 and 2004, the Company had 100 LLC units
outstanding, of which 98.04 units are held by an investor and 1.96 are
held by management.
15
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
11. STOCK OPTION PLAN
The Company issues non-qualified options to ASP/Miltex Group Holdings,
Inc. ("ASP/Miltex Group") and Miltex Dental, Inc. ("Dental") to certain
members of management. Under the plan, shares of common stock, $.01 par
value, have been reserved for issuance for each company. The exercise
prices of the awards are based on the fair value of each share at the
grant date. The options vest 100% upon a change of control, 100% after
six years, or prorata over five years based on achieving certain
performance targets tied to consolidated EBITDA. As of December 31, 2005
and 2004, one management member had vested options. No other options
have vested as the Company has not met such performance targets.
102,631 share options for ASP/Miltex Group have been granted with an
exercise price of $6.09, as well as 102,631 share options for Miltex
Dental Inc. with an exercise price of $3.50. 22,935 shares each of
ASP/Miltex and Miltex Dental Inc., which were issued to one management
member, have vested. The exercise price of the options equaled the fair
market value of the underlying stock on the date of grant.
The following is a summary of the transactions relating to the plans:
ASP/MILTEX GROUP MILTEX DENTAL
------------------------ -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
OUTSTANDING AT JANUARY 1, 2004 $ 85,397 $ 6.09 $ 85,397 $ 3.50
Granted 17,234 6.09 17,234 3.50
Canceled - 6.09 - 3.50
----------- ----------- ----------- ----------
OUTSTANDING AT DECEMBER 31, 2004 102,631 6.09 102,631 3.50
Granted - 6.09 - 3.50
Canceled - 6.09 - 3.50
----------- ----------- ----------- ----------
OUTSTANDING AT DECEMBER 31, 2005 $ 102,631 $ 6.09 $ 102,631 $ 3.50
=========== =========== =========== ==========
The following table summarizes information about stock options as of
December 31, 2005:
OPTIONS WEIGHTED OPTIONS
OUTSTANDING AVERAGE EXERCISABLE
AT REMAINING AT
DECEMBER 31, CONTRACTUAL DECEMBER 31,
EXERCISE PRICE 2005 LIFE 2005
ASP/Miltex Group $6.09 102,631 3 years 22,935
Miltex Dental $3.50 102,631 3 years 22,935
The fair value of each option grant is estimated on the date of the
grant using the minimum value option pricing model, assuming a dividend
yield of 0%, volatility of 0%, and a risk-free rate of based upon the
interest rates applicable at the time of granting the options which
ranged from 1.50% to 3.83%. The weighted average of the risk-free rates
utilized in this calculation was 2.81%.
16
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
12. INCOME TAXES
The components of the income tax provision for the years ended December
31, 2005 and 2004 are as follows:
2005 2004
CURRENT TAXES
Federal $ 1,940,255 $2,657,465
State and city 506,189 389,360
Foreign 12,644 -
Total current taxes 2,459,088 3,046,825
DEFERRED TAXES
Federal (521,664) (651,461)
State and city (125,660) (156,927)
Total deferred taxes (647,324) (808,388)
Income tax expense $ 1,811,764 $2,238,437
The components of the deferred tax asset (liability) recorded on the
consolidated balance sheets as of December 31, 2005 and 2004 are as
follows:
2005 2004
DEFERRED INCOME TAX ASSETS
Accounts receivable allowance $ 29,247 $ 29,247
Capitalized inventory costs 250,402 289,334
Inventory reserve 352,916 346,530
Accrued bonus - 92,699
Unrealized foreign exchange loss 330,050 -
Charitable contribution carryforward 554,197 787,185
Other 143,760 77,635
------------ -----------
Total deferred income tax assets 1,660,572 1,622,630
------------ -----------
DEFERRED INCOME TAX LIABILITIES
Depreciation (810,455) (881,070)
Unrealized foreign exchange gain - (540,891)
Trademarks/patents and other intangibles (5,859,832) (5,925,857)
Prepaid pension (80,795) (62,739)
------------ -----------
Total deferred income tax liabilities (6,751,082) (7,410,557)
------------ -----------
Net deferred income tax liabilities $ (5,090,510) $(5,787,927)
============ ===========
17
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. income tax rate to the income
before income taxes as of December 31, are as follows:
2005 2004
Federal income tax at the statutory rate $ 1,613,445 $2,296,989
Nondeductible items and other perms 10,376 28,098
State income taxes, net of
federal tax benefit 363,140 153,406
Charitable contribution carryforward
and other (175,197) (240,056)
------------ ----------
$ 1,811,764 $2,238,437
============ ==========
13. RETIREMENT PLANS
The Company maintained two distinct defined contribution savings plan,
the "Existing Plan" and the "Savings Plan." Effective June 2004, the
Company terminated the Existing Plan and Savings Plan and transferred
the assets into a separate defined contribution savings plan, the
"Revised Plan." Each plan qualified under Section 401(k) of the Internal
Revenue Code, for employees meeting certain service requirements.
Participants could contribute up to 15% of their gross wages not to
exceed, in any given year, the limitation set by Internal Revenue
Service regulations. Each plan provided for matching contributions to be
made by the Company up to a maximum amount of a participant's
compensation. Such amounts are 6% for the Existing Plan and 3% for the
Savings Plan through the date the plans were active. The Company will
determine the "Revised Plan's" discretionary matching contribution at
the end of the fiscal year based on the preliminary results of the
Company's financial performance from year to year. As of December 31,
2005, the Company's matching contribution is a 45% match of employees'
first 6% of contributions. Company contributions to the plans in 2005
and 2004, were approximately $160,000 and $172,000, respectively.
Through December 1, 1997, the Company had a defined benefit pension plan
(the "Plan") which covered substantially all employees. Effective
December 1, 1997, the Company curtailed all future benefits. The defined
benefits provided under the Plan were based on years of service and
compensation levels. Pension costs under the Plan are actuarially
computed and are recorded in accordance with Statement of Financial
Accounting Standards No. 87, EMPLOYER'S ACCOUNTING FOR PENSIONS. The
Company makes an annual contribution to the Plan equal to, at least, the
minimum required by law and reflects estimates of long-term funding
requirements to maintain the Plan, as determined by an independent
actuary.
18
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
The components of net periodic pension cost for the company-sponsored
defined benefit plan are:
2005 2004
Interest on the projected benefit obligation $ 22,552 $ 21,569
Expected return on plan assets (25,217) (22,534)
Amortization of unrecognized net loss 14,405 9,944
Transition asset (592) (635)
--------- ---------
Net periodic pension cost, before
settlement expenses 11,148 8,344
Settlement expense under FAS 88 - 13,683
--------- ---------
Net periodic pension cost $ 11,148 $ 22,027
========= =========
Assumptions used to determine benefit obligations of the
company-sponsored defined benefit pension plan were:
2005 2004
Measurement date December 31, 2005 December 31, 2004
Discount rate 5.5% 6.0%
Rate of increase in
compensation levels N/A N/A
Assumptions used to determine net periodic benefit cost of the
company-sponsored defined benefit pension plan were:
2005 2004
Measurement date December 31, 2004 December 31, 2003
Discount rate 6.0% 6.5%
Expected return on
plan assets 7.0% 7.0%
The Company's expected rate of return on plan assets assumption was
developed based on historical returns for the major asset classes. Given
the current low interest rate environment, the Company selected 7.0% as
the expected long-term rate of return.
19
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
Since the plan is frozen, the projected benefit obligation equals the
accumulated benefit obligation. The funded status and amounts recognized
in the consolidated balance sheet for this plan were:
2005 2004
CHANGE IN BENEFIT OBLIGATION
Net benefit obligation at the beginning of the year $(375,860) $(346,619)
Interest cost (22,552) (21,569)
Settlements - 27,306
Actuarial loss (105,843) (34,978)
--------- ---------
Net benefit obligation at the end of the year (504,255) (375,860)
--------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 322,995 242,910
Actual return on plan assets 14,468 27,780
Employer contributions 25,413 79,611
Settlements - (27,306)
--------- ---------
Fair value of plan assets at end of year 362,876 322,995
--------- ---------
Funded status (141,379) (52,865)
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL
POSITION CONSIST OF
Prepaid benefit cost 149,736 135,471
Accrued benefit liability (291,115) (188,336)
Accumulated other comprehensive income 291,115 188,336
Intangible asset - -
--------- ---------
Net amount recognized $ 149,736 $ 135,471
========= =========
Increase (decrease) in minimum liability included in
other comprehensive income $ 102,779 $ (43,008)
========= =========
The Company expects to contribute $57,452 to its pension plan during the
year ended December 31, 2006.
The following benefit payments are expected to be paid:
YEAR PENSION
ENDING BENEFITS
2006 $ 18,171
2007 18,171
2008 18,171
2009 18,171
2010 20,252
2011-2015 191,902
-----------
$ 284,838
===========
20
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
PLAN ASSETS
The Company's pension plan weighted-average asset allocations at
December 31, 2005 and 2004, by asset category are as follows:
2005 2004
Equity securities 60% 65%
Debt securities 37% 32%
Other 3% 3%
-------- --------
100% 100%
======== ========
14. RELATED PARTY TRANSACTIONS
The Company and the majority unit holder are parties to a management
agreement that provides for the Company to pay an advisory fee of
$400,000 per annum, plus expenses, to the majority unit holder. This
expense is included in selling, general and administrative on the
statement of operations and other comprehensive income (loss).
Certain executives of the Company had notes payable totaling
approximately $97,000 and $134,000 at December 31, 2005 and 2004,
respectively. These amounts are included in prepaid expenses and other
current assets on the balance sheet. Approximately $37,000 was repaid
during the year ended December 31, 2005 and the balance of $97,000 was
repaid in January 2006.
15. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain office equipment under both operating and
capital leases. Future minimum lease payments on the leases are as
follows:
CAPITAL OPERATING TOTAL
2006 $ 18,173 $ 32,163 $ 50,336
2007 24,828 32,163 56,991
2008 5,468 32,163 37,631
2009 3,708 22,766 26,474
2010 1,545 - 1,545
------------- ------------- -----------
$ 53,722 $ 119,255 $ 172,977
============= ============= ===========
Rent expense was $42,293 and $37,681 for the years ended December 31,
2005 and 2004, respectively.
CONSULTING CONTRACT
The Company owes amounts under a consulting contract that requires the
Company to make payments totaling $400,000 to an individual over a five
year period through February 2006. The remaining portion of such amount
is recorded in accounts payable and accrued expenses.
21
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
LITIGATION
The Company is subject to various lawsuits and claims with respect to
labor, vendor and other matters arising out of the normal course of
business. While the impact on future financial results is not subject to
reasonable estimation because considerable uncertainty exists,
management believes that the ultimate liabilities resulting from such
lawsuits and claims will not materially affect the Company's
consolidated results of operations, financial position or cash flow.
16. ACQUISITIONS
On January 14, 2004, the Company purchased the inventory and rights of
the Mader line of surgical instruments from Hu-Freidy Manufacturing
Company, Inc. for consideration of approximately $1,472,000, which was
principally allocated to the cost of the inventory received.
22
ITEM 9.01(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
ASP/MILTEX LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2006 AND 2005
ASP/MILTEX LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
--------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
2006 2005
----------- -----------
ASSETS
Current assets
Cash 216,101
Accounts receivable, net of allowance for doubtful
accounts of $75,000 in 2006 and 2005 $ 6,951,511 $ 7,729,230
Inventory 15,505,256 14,711,127
Deferred income taxes 1,413,557 1,660,572
Prepaid expenses and other current assets 973,973 940,610
Assets held for sale 402,501 0
----------- -----------
Total current assets 25,246,798 25,257,640
Other assets 350,797 383,727
Property and equipment, net 6,769,328 7,298,620
Deferred financing costs, net 1,097,515 1,197,083
Goodwill 38,897,136 38,897,136
Other intangibles, net 19,841,968 20,285,212
----------- -----------
Total assets $92,203,542 $93,319,418
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Cash overdraft $ 210,989 $ 0
Accounts payable and accrued expenses 5,330,223 8,535,948
Current portion of long-term debt 8,372,309 6,428,449
----------- -----------
Total current liabilities 13,913,521 14,964,397
Long-term debt 21,622,531 23,087,509
Other liabilities 681,919 684,304
Deferred income taxes 6,751,082 6,751,082
----------- -----------
Total liabilities 42,969,053 45,487,292
Commitments and contingencies
Members' equity 49,234,489 47,832,126
----------- -----------
Total liabilities and members' equity $92,203,542 $93,319,418
=========== ===========
The accompanying notes and the notes to the company's audited financial
statements are an integral part of these consolidated financial statements.
2
ASP/MILTEX LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31
--------------------------------------------------------------------------------
2006 2005
----------- -----------
Net sales $15,623,070 $13,312,373
Cost of sales 8,699,979 8,140,327
----------- -----------
Gross profit 6,923,091 5,172,046
----------- -----------
OPERATING EXPENSES
Selling, General and Administrative 3,831,561 3,395,694
Depreciation and amortization 570,287 361,134
----------- -----------
Total operating expenses 4,401,848 3,756,828
----------- -----------
Income from operations 2,521,243 1,415,218
----------- -----------
OTHER INCOME (EXPENSES)
Interest expense (743,293) (825,295)
Gain (loss) on forward foreign exchange
contracts - net 448,022 (896,525)
----------- -----------
Total other expense - net (295,271) (1,721,820)
----------- -----------
Income (loss) before provision for
income taxes 2,225,972 (306,601)
Provision for income tax expense (benefit) 823,610 (117,122)
----------- -----------
Net income (loss) $ 1,402,362 ($ 189,479)
----------- -----------
The accompanying notes and the notes to the company's audited financial
statements are an integral part of these consolidated financial statements.
3
ASP/MILTEX LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31
--------------------------------------------------------------------------------
2006 2005
----------- -----------
Cash flows from operating activities
Net income (loss) $1,402,362 ($189,479)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 704,765 481,068
Amortization of financing costs 99,568 99,647
Unrealized gain (loss) on forward foreign
exchange contracts (664,305) 1,030,053
Deferred income taxes 247,015 (423,677)
Loss of sales of property and equipment 0 1,007
Changes in operating assets and liabilities:
Accounts receivable 777,719 2,362,516
Inventory (794,129) (767,916)
Prepaid expenses and other current assets (33,363) 52,552
Other assets (26,708) 23,033
Accounts payable and accrued expenses (2,508,489) (3,329,823)
Other liabilities (2,385) 0
----------- -----------
Net cash used in operating activities (797,950) (661,020)
----------- -----------
Cash flows from investing activities
Proceeds on sale of property and equipment 0 150
Purchases of property and equipment (103,127) (296,396)
----------- -----------
Net cash used in investing activities (103,127) (296,246)
----------- -----------
Cash flows from financing activities
Proceeds from borrowings on credit facilities 3,106,547 2,960,346
Proceeds from borrowings on cash overdraft 210,989 266,619
Payments on borrowings on credit facilities (2,632,560) (2,401,375)
----------- -----------
Net cash provided by financing activities 684,976 825,590
----------- -----------
Net decrease in cash (216,101) (131,676)
CASH
Beginning of period $216,101 $131,676
End of period $0 $0
=========== ===========
The accompanying notes and the notes to the company's audited financial
statements are an integral part of these consolidated financial statements.
4
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BUSINESS
ASP/Miltex LLC, together with its wholly-owned subsidiaries, Miltex
Holdings, Inc., ASP/Miltex Group Holdings, Inc. and Miltex Dental, Inc.
(collectively, the "Company"), is a manufacturer and distributor of
medical and dental instruments to health care product dealers throughout
domestic and international markets. ASP/Miltex LLC has no separate assets
or liabilities from Miltex Holdings, Inc. ASP/Miltex Group Holdings, Inc.
and Miltex Dental, Inc. are subsidiaries of Miltex Holdings, Inc. The
subsidiaries of ASP/Miltex Group Holdings, Inc. are, ASP/Miltex Holdings,
Inc., Miltex, Inc., Miltex Technologies, Inc., Miltex GmbH and Meisterhand
Instrument GmbH, a subsidiary of Miltex GmbH acquired in January 2005. The
subsidiaries of Miltex Dental, Inc. are, Miltex Dental Technologies, Inc.,
Miltex Dental Instruments, Inc. and Endosolutions, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principals
("GAAP") for interim financial statements and on the same basis of
presentation as the Company's annual financial statements. Accordingly,
they do not include all of the information required by GAAP for complete
consolidated financial statements.
These consolidated financial statements have been prepared by management,
are unaudited, and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual
report for the year ended December 31, 2005. In the opinion of management,
all adjustments (consisting of normal recurring accruals and other
adjustments) considered necessary for a fair statement have been included.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of consolidated assets and consolidated liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of consolidated
revenues and consolidated expenses during the reporting period.
Significant estimates made by management include allowance for doubtful
accounts, inventory obsolescence, depreciation, amortization and accrued
expenses. Actual consolidated results could differ from those estimates.
5
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
STOCK OPTIONS
On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment Compensation" ("FAS 123(R)")
which requires compensation expense be recognized for all share-based
payments made to employees based on the fair value of the award at the
date of grant. The Company adopted FAS 123(R) using the prospective method
in which compensation expense for all new or modified stock awards,
measured by the grant-date fair value of the awards, will be charged to
earnings prospectively over the remaining vesting period, based on the
estimated number of awards that are expected to vest. Under this
transition method, the results of operations of prior periods have not
been restated. Because there have been no modifications or new issuances
of awards since adoption, the impact is not material to the three months
ended March 31, 2006.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified for consistent
presentation.
3. RESTRUCTURING
On August 22, 2005, Company's management announced a plan to consolidate
the operations from the Missoula, MT manufacturing facility into the York,
PA facility. The consolidation was completed on January 31, 2006, and the
Missoula facility has been placed on the market for sale. The Missoula
facility asset is categorized as "assets held for sale" on the March 31,
2006 balance sheet. The costs associated with the move are substantially
complete, totaling approximately $257,000, of which approximately $86,000
was incurred in the first quarter of 2006.
6
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. INVENTORY CONSISTED OF THE FOLLOWING:
MARCH 31, DECEMBER 31,
2006 2005
---- ----
Raw Material $443,074 $367,896
Work in process 1,074,039 1,118,138
Merchandise for resale 14,893,143 14,130,093
----------- -----------
16,410,256 15,616,127
Less: Allowance for obsolescence (905,000) (905,000)
----------- -----------
$15,505,256 $14,711,127
=========== ===========
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
MARCH 31, DECEMBER 31,
2006 2005
---- ----
Land $450,000 $625,000
Building and improvements 3,273,207 3,533,946
Machinery and equipment 4,407,175 4,364,981
Computer equipment 2,129,742 2,067,449
Furniture and fixtures 803,864 800,328
Construction in progress 64,816 64,816
Equipment under capital lease 55,066 55,066
---------- ----------
Property and equipment, gross 11,183,870 11,511,586
Less: Accumulated depreciation and
amortization (4,414,542) (4,212,966)
---------- ----------
Property and equipment, net $6,769,328 $7,298,620
========== ==========
Depreciation and amortization expense for the quarter ended March 31, 2006
was $234,813.
6. DERIVATIVE INSTRUMENTS
The Company has two types of derivative instruments which include interest
rate cap contracts and forward foreign exchange contracts.
INTEREST RATE SWAP AGREEMENT AND INTEREST RATE CAP CONTRACT
The Company uses interest rate cap contracts to adjust the proportion of
total debt that is subject to variable interest rates. The Company has
interest rate cap contracts that are currently in effect and expire on
March 31, 2008.
Under the cap contract, the Company's interest rate is "capped" at an
agreed-upon rate for the notional principal amount as designated in the
contract.
7
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
While the cap contracts are utilized to reduce exposure to changes in the
amount of future cash flows associated with the Company's interest
payments on its variable-rate debt obligations, these instruments do not
qualify for hedge accounting under FAS 133. Accordingly, the contracts are
reflected at fair value in the consolidated balance sheet and all changes
in fair value are included in interest expense in the consolidated
statement of operations.
The Company has entered into an interest rate cap contract, effective
April 1, 2006, which capped LIBOR interest at 5.0% for three-fourths of
the outstanding balances of the Term "A," Term "B," and Term "C" loans
expiring on March 31, 2008. At March 31, 2006, the fair value of such
interest rate cap contracts was $104,069, of which $39,127 was included in
prepaid expenses and other assets, and $69,942 was included in other
noncurrent assets.
FORWARD FOREIGN EXCHANGE CONTRACTS
The Company purchases approximately 40% of their inventory from Germany in
transactions denominated in Euros. The Company uses forward foreign
exchange contracts to reduce its exposure to changes in currency exchange
rates. Forward contracts are purchased with lead times varying from one
month to two years and are based on an estimate of foreign currency needs
for future periods. These contracts do not qualify for hedge accounting
under FAS 133 and are recorded at fair value on the Company's consolidated
balance sheet and all of the related gains or losses are recognized in net
income. Realized and unrealized gains and losses are recognized in the
gain (loss) on forward exchange contracts, net on the statements of
operations.
At March 31, 2006, the Company had outstanding forward contracts in
varying amounts (with expirations through December 2007) to purchase
approximately 15,225,000 Euros. The Company also had range option
contracts (with expirations through December 2006), with put and call
amounts of 3,825,000 Euros and 2,630,000 Euros respectively. In addition,
the Company had outstanding forward contracts in varying amounts (with
expirations through June 2007) to purchase approximately 525 million Yen.
At March 31, 2006, the fair value of such forward contracts was a net
unrealized loss of $213,000, which was included in accounts payable and
accrued expenses.
8
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. LONG-TERM DEBT
Long-term debt consisted of the following:
MARCH 31, DECEMBER 31,
2006 2005
----------- ------------
Revolving credit facility; due June 30, 2006; maximum
line of $10,000,000; floating interest rate at index
plus an applicable margin of 1.75% or LIBOR plus an
applicable margin of 3.25% $2,493,861 $550,000
Term A Loan; due June 30, 2007; quarterly principal
payments; floating interest rate at index plus an
applicable margin of 2.00% or LIBOR plus an applicable
margin of 3.50% 5,913,209 7,255,538
Term B Loan; due June 30, 2008; quarterly principal
payments; floating interest rate at index plus an
applicable margin of 2.50% or LIBOR plus an applicable
margin of 4.00% 15,025,384 15,067,688
Term C Loan; due June 30, 2008; quarterly principal
payments; floating interest rate at index plus an
applicable margin of 2.50% or LIBOR plus an applicable
margin of 4.00% 6,205,541 6,268,541
Pennsylvania IDA loan, due June 1, 2010; monthly
payments of principal and interest; interest at 2% 305,266 322,794
Obligation under capital lease 51,579 51,397
----------- -----------
Total long-term debt 29,994,840 29,515,958
Less: Current Portion (8,372,309) (6,428,449)
----------- -----------
$21,622,531 $23,087,509
=========== ===========
Principal payments on all the loans are
as follows:
2006 $6,907,331
2007 13,091,428
2008 9,884,520
2009 78,472
2010 33,089
-----------
Total of remaining principal payments $29,994,840
===========
9
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8. STOCK OPTION PLAN
The Company issues non-qualified options to ASP/Miltex Group Holdings,
Inc. ("ASP/Miltex Group") and Miltex Dental, Inc. ("Dental") to certain
members of management. Under the plan, shares of common stock, $.01 par
value, have been reserved for issuance for each company. The exercise
prices of the awards are based on the fair value of each share at the
grant date. The options vest 100% upon a change of control, 100% after six
years, or prorata over five years based on achieving certain performance
targets tied to consolidated EBITDA. As of March 31, 2006 and 2005, one
management member had vested options. No other options have vested as the
Company has not met such performance targets.
102,631 share options for ASP/Miltex have been granted with an exercise
price of $6.09, as well as 102,631 share options for Miltex Dental Inc.
with an exercise price of $3.50. 22,935 shares each of ASP/Miltex and
Miltex Dental Inc., which were issued to one management member, have
vested. Of the 102,631 granted share options, 8,792 were cancelled in the
first quarter of 2006 for each of ASP/Miltex and Miltex Dental due to
employee terminations.
The following is a summary of the transactions relating to the plans:
ASP/MILTEX GROUP MILTEX DENTAL
---------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
Outstanding at January 1, 2005 102,631 $6.09 102,631 $3.50
Granted 0 6.09 0 3.50
Canceled 0 6.09 0 3.50
-------- --------- -------- ----------
Outstanding at Dec. 31, 2005 102,631 6.09 102,631 3.50
Granted 0 6.09 0 3.50
Canceled (8,792) 6.09 (8,792) 3.50
-------- --------- -------- ----------
Outstanding at March 31, 2006 93,839 $6.09 93,839 $3.50
======== ========= ======== ==========
The following table summarizes information about stock options as of March
31, 2006:
OPTIONS WEIGHTED OPTIONS
OUTSTANDING AVERAGE EXERCISABLE
AT REMAINING AT
MARCH 31, CONTRACTUAL MARCH 31,
EXERCISE PRICE 2006 LIFE 2006
----------- ----------- -----------
ASP/Miltex Group $6.09 93,839 2.75 years 22,935
Miltex Dental $3.50 93,839 2.75 years 22,935
On January 1, 2006, the Company adopted FAS 123(R) using the prospective
method. Under the prospective method, only new or modified stock awards
are charged to earnings as compensation expense over the remaining vesting
period. Because there have been no modifications or new issuances of
awards since adoption, the Company has not recognized any compensation
expense.
10
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9. INCOME TAXES
The components of the income tax provision for the quarters ended March
31, 2006 and 2005 are as follows:
2006 2005
-------- ---------
CURRENT TAXES
Federal $515,900 $274,286
State and city 60,695 32,269
Foreign 0 0
-------- ---------
Total Current Taxes 576,595 306,555
-------- ---------
DEFERRED TAXES
Federal 221,013 (379,079)
State and city 26,002 (44,598)
-------- ---------
Total Deferred Taxes 247,015 (423,677)
-------- ---------
Income Tax Expense $823,610 ($117,122)
======== =========
11
ASP/MILTEX LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. SUBSEQUENT EVENT
On May 12, 2006, American Securities Capital Partners sold Miltex
Holdings, Inc. and Subsidiaries to Integra Lifesciences Holding Corp. for
total consideration of $102,700,000. Prior to or as part of the
transaction, all debt was retired, all interest rate and foreign currency
hedge contracts were unwound and realized, and all stock options were
settled.
12
ITEM 9.01(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
On May 12, 2006, Integra LifeSciences Corporation (the "Buyer"), a wholly owned
subsidiary of the Company, completed the acquisition of the outstanding stock of
Miltex. The total purchase price was $102.7 million and included $1.7 million of
transaction related costs. The Miltex acquisition is accounted for under
Statement of Financial Accounting Standards No. 141, "Business Combinations".
Miltex is one of the largest suppliers of hand-held, non-powered surgical and
dental instruments, designed for use at surgical facilities, dental offices,
ambulatory surgery centers and veterinarian offices. Miltex offers a broad
selection of high-quality instruments. Miltex primarily sources finished
products from a network of over 150 skilled instrument manufacturers, many of
whom exclusively supply products to Miltex for the North American market. Most
of these purchasing activities are conducted from its Reitheim-Weilheim, Germany
facilities. Miltex also manufactures certain dental products at its York,
Pennsylvania facilties. Miltex employed approximately 190 people as of May 12,
2006. Certain officers of Miltex entered into employment agreements at the
closing. Excluded from the purchase was Miltex's closed facility in Missoula,
Montana, the ownership of which was transferred to a third party prior to
closing.
The Company's management believes the acquisition is a strategic fit with the
Company's instrument segment as Miltex, which participates in the alternate
site, dental and veterinary markets, is expected to provide a broader platform
to grow the business line. It is also expected that Miltex will continue to
operate on a stand-alone basis. Therefore, no major structural changes to the
business are expected and all identifiable assets and employees have been
retained.
The unaudited pro forma condensed combined balance sheet as of March 31, 2006
was prepared by combining the historical balance sheet of the Company at March
31, 2006 with the historical balance sheet of Miltex at March 31, 2006, giving
effect to the acquisition as though it was completed on March 31, 2006.
The unaudited pro forma condensed combined statements of operations for the year
ended December 31, 2005 and the three months ended March 31, 2006 were prepared
by combining the Company's historical statements of operations for the year
ended December 31, 2005 and the three months ended March 31, 2006 with Miltex's
historical statements of operations for the year ended December 31, 2005 and the
three months ended March 31, 2006, respectively, giving effect to the
acquisition as though it was completed on January 1, 2005. These unaudited pro
forma condensed combined statements of operations do 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.
In addition, the Company has included the Radionics Division of Tyco Healthcare
Group LP ("Radionics") in the pro forma statements of operations for the year
ended December 31, 2005 and the three months ended March 31, 2006 (including pro
forma adjustments) giving effect to the acquisition as though it was completed
on January 1, 2005. As the transaction closed on March 3, 2006, the assets and
liabilities of Radionics are fully reflected in the balance sheet as of March
31, 2006 and the results of operating from January 1, 2006 to March 3, 2006 were
derived from Radionics historical unaudited financial statements for that
period. The Company filed a Form 8-K/A on May 12, 2006 for the Radionics
acquisition.
These pro forma condensed combined financial statements are presented for
illustrative purposes only. The pro forma adjustments are based upon available
information and assumptions that the Company believes are reasonable. These pro
forma condensed combined 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
March 31, 2006
In thousands
INTEGRA
LIFESCIENCES
HOLDINGS PRO FORMA
CORPORATION MILTEX ADJUSTMENTS NOTE COMBINED
------------ ----------- ------------ ------ ------------
ASSETS:
Current Assets:
Cash and cash equivalents $ 22,393 $ -- $ -- $ 22,393
Short-term investments 63,787 -- (38,703) (a) 25,084
Accounts receivable, net 56,607 6,952 63,559
Inventories, net 77,153 15,505 1,269 (b) 93,927
Deferred tax assets 11,728 1,413 12 (h) 13,153
Prepaids and other current assets 11,158 974 12,132
------------ ----------- ------------ ------------
Total current assets 242,826 24,844 (37,422) 230,248
Non-current investments 11,683 -- -- 11,683
Property, plant and equipment, net 29,079 7,172 527 (c) 36,778
Identifiable intangible assets, net 108,069 19,842 10,658 (d) 138,569
Goodwill 94,075 38,897 13,978 (d) 146,950
Other non-current assets 5,899 1,448 (1,097) (f) 6,250
------------ ----------- ------------ ------------
Total Assets $ 491,631 $ 92,203 $ (13,356) $ 570,478
============ =========== ============ ============
Liabilities:
Borrowings under senior credit facility $ 16,000 $ -- $ 64,000 (a) $ 80,000
Current portion of long-term debt 8,372 (8,372) (e) -
Accounts payable, trade 10,054 1,261 11,315
Income taxes payable 476 476
Deferred revenue 5,792 5,792
Accrued expenses and other current liabilities 21,446 4,280 (213) (g) 25,513
------------ ----------- ------------ ------------
Current Liabilities 53,768 13,913 55,415 123,096
Long term debt 118,169 21,623 (21,623) (e) 118,169
Deferred tax liabilities 3,946 6,751 2,086 (h) 12,783
Other non-current liabilities 6,700 682 7,382
------------ ----------- ------------ ------------
Total Liabilities 182,583 42,969 35,878 261,430
Stockholders' Equity:
Common stock and paid-in capital, net of treasury stock 266,324 30,588 (30,588) (e) 266,324
Accumulated other comprehensive income (loss) (2,910) (130) 130 (e) (2,910)
Retained earnings 45,634 18,776 (18,776) (e) 45,634
------------ ----------- ------------
Total Stockholders' equity 309,048 49,234 (49,234) 309,048
------------ ----------- ------------ ------------
Total Liabilities and Stockholders' equity $ 491,631 $ 92,203 $ (13,356) $ 570,478
============ =========== ============ ============
See notes to the 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 IMPACT OF PRO FORMA
CORPORATION RADIONICS MILTEX ADJUSTMENTS NOTE COMBINED
------------ ------------ ----------- ------------ ------ ------------
TOTAL REVENUE $ 277,935 $ 68,727 $ 61,981 $ -- $ 408,643
COSTS AND EXPENSES:
Cost of product revenues 107,052 25,884 35,624 91 (2),(4) 168,622
Research and development 11,960 3,416 15,376
Sales, general and administrative 98,273 23,110 14,371 135,754
Intangible asset amortization 4,545 3,749 1,090 135 (2),(6) 9,548
------------ ------------ ----------- ------------ -----------
Total costs and expenses 221,830 56,159 51,085 226 329,300
Operating income 56,105 12,568 10,896 (226) 79,343
Interest income 3,900 (1,818) -- (968) (1) 1,114
Interest (expense) (4,165) (880) (3,322) (672) (3) (9.039)
Other income (expense), net (739) -- (2,829) -- (3,568)
------------ ------------ ----------- ------------ -----------
Income before taxes 55,101 9,870 4,745 (1,866) 67,850
Income tax expense (benefit) 17,907 2,875 1,812 (728) (5) 21,866
------------ ------------ ----------- ------------ -----------
Net income $ 37,194 $ 6,995 $ 2,933 $ (1,138) $ 45,984
Weighted average shares outstanding
Basic 30,195 30,195
Diluted 34,565 34,565
Net income per share
Basic $ 1.23 $ 1.52
Diluted $ 1.15 $ 1.40
See notes to the pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 31, 2006
In thousands, except per share amounts
INTEGRA
LIFESCIENCES
HOLDINGS IMPACT OF PRO FORMA
CORPORATION RADIONICS MILTEX ADJUSTMENTS NOTE COMBINED
------------ ------------ ----------- ------------ ------ ------------
TOTAL REVENUE $ 77,135 $ 10,548 $ 15,623 $ -- $ 103,306
COSTS AND EXPENSES:
Cost of product revenues 27,937 4,017 8,700 23 (2),(4) 40,677
Research and development 3,173 597 3,770
Sales, general and administrative 31,120 3,930 3,932 38,982
Intangible asset amortization 1,281 -- 470 (164) (2),(6) 1,587
------------ ------------ ----------- ------------ ------------
Total costs and expenses 63,511 8,544 13,102 (141) 85,016
Operating income 13,624 2,004 2,521 141 18,290
Interest income 1,024 (300) (1) 724
Interest (expense) (1,682) (743) (255) (3) (2,680)
Other income (expense), net 32 -- 448 -- 480
------------ ------------ ----------- ------------ ------------
Income before taxes 12,998 2,004 2,226 (414) 16,814
Income tax expense (benefit) 4,293 661 824 (161) (5) 5,617
------------ ------------ ----------- ------------ ------------
Net income $ 8,705 $ 1,343 $ 1,402 $ (253) $ 11,197
Weighted average shares outstanding
Basic 29,585 29,585
Diluted 33,828 33,828
Net income per share
Basic $ 0.29 $ 0.38
Diluted $ 0.28 $ 0.36
See notes to the 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 sheet, the $102.7 million purchase
price, including $1.7 million of 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 May
12, 2006. Certain elements of the purchase price allocation are considered
preliminary, particularly as it relates to the final valuation of certain
identifiable intangible assets and there could be significant adjustments when
the valuation is finalized. The preliminary purchase price allocation is as
follows (in thousands):
Inventory $ 16,774
Other current assets 9,707
Property and equipment, net 7,699
Intangible assets 30,500
Goodwill 49,564
Other assets 295
Liabilities assumed (11,836)
--------
Total purchase price $102,703
The acquired intangible assets consist primarily of customer relationships,
trade names, patents and unpatented technology (know how). The Miltex trade
name, which totaled approximately $13.5 million, is considered an indefinite
lived asset and will not be amortized. The remaining intangible assets, which
totaled approximately $17 million, will be amortized over lives ranging from 4
to 15 years, as follows (in thousands):
Amount Life
------- --------
Customer-related $15,000 15 years
Trade names (Moyco, Union Broach, Thompson) 300 4 years
Trade name (Endosolutions) 300 15 years
Trade name (Vantage) 200 15 years
Trade name (Meisterhand) 100 15 years
Patents 700 10 years
Unpatented technology (know how) 400 10 years
-------
$17,000
The goodwill recorded is based on the benefits the Company expects to generate
from the future cash flows of the ongoing Miltex business.
2. Pro Forma Adjustments
Certain reclassifications have been made to the Miltex historical financial
statements to conform to the Company's financial statement presentation. In
addition, certain reclassifications have been made to the Company's 2005
statement of operations to conform to the current financial statement
presentation.
The following are the descriptions of the pro forma condensed combined balance
sheet adjustments:
a) To finance the acquisition, the Company liquidated $38.7 million of
its short-term investments and borrowed $64 million under its
existing credit facility.
b) This adjustment is made primarily to increase Miltex's finished
goods inventory as of May 12, 2006 to estimated selling prices less
the sum of (a) costs of disposal and (b) a reasonable profit
allowance for the selling effort of the Company.
c) These adjustments are made to increase Miltex's property, plant and
equipment as of May 12, 2006 to its estimated fair value and to
remove $402,500 of net book value associated with the closed
Missoula, Montana facility excluded from the purchase.
d) These adjustments are made to reflect the estimated fair value of
the intangible assets and remaining goodwill as of May 12, 2006 and
an adjustment to eliminate historical intangible assets and goodwill
of Miltex.
e) This adjustment is made to eliminate Miltex's debt and stockholder's
equity as of May 12, 2006.
f) This adjustment is made to eliminate the deferred financing costs
associated with Miltex's long-term debt.
g) This adjustment is made to eliminate the unrealized foreign exchange
losses related to Miltex's hedges which were terminated prior to the
closing as a condition to the transaction.
h) These adjustments are recorded to reflect the deferred tax assets
and liabilities arising from the book and tax differences resulting
primarily from the recognition of intangible assets, net operating
losses, unrealized foreign exchange losses and charitable
contributions.
The following are descriptions of the pro forma condensed combined statement of
operations adjustments:
1) These adjustments reflect the decrease in interest income earned by
the Company ($38.7 million multiplied by the Company's average
return of 2.5% for 2005 and 3.1% for the first three months of
2006).
2) This adjustment records amortization expense of $1.2 million for
2005 and $0.3 million for the first three months of 2006 for the $17
million of intangible assets subject to amortization (see table
above) on a straight-line basis over their amortizable lives ranging
from 4 to 15 years. Amortization of unpatented technology (know how)
of $40,000 for 2005 and $10,000 for the first three months of 2006
is included in cost of products sold.
3) These adjustments represent the net of increase in interest expense
associated with the $64 million borrowing under the Company's
existing credit facility (at a variable rate of 6.25% for 2005 and
6.25% for the first three months of 2006) as a result of the payment
of the purchase price as if paid on January 1, 2005 net of the
interest expense on Miltex long-term debt. A change of one-eighth of
one percent in the interest rate on the Company's borrowing would
impact interest expense by $80,000 in 2005 and $20,000 for the first
three months of 2006.
4) These adjustments record the depreciation for the $982,000 step up
in the fair value of fixed assets ($98,000 in 2005 and $25,000 for
the first three months of 2006) and the elimination of depreciation
associated with the closed Missoula, Montana facility excluded from
the transaction ($6,945 in 2005 and $1,736 for the first three
months of 2006).
5) This adjustment is based on the pre-tax income effect of the pro
forma adjustments using the historical statutory tax rate.
6) These adjustments eliminate the amortization of existing Miltex
intangible assets ($1,090,000 in 2005 and $470,000 for the three
months ended March 31, 2006).
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, hereunto duly authorized.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
DATE: JULY 28, 2006 BY: /s/ STUART M. ESSIG
-----------------------------
STUART M. ESSIG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXHIBIT INDEX
Exhibit Number Description of Exhibit
-------------- ----------------------
23.1 Consent of PricewaterhouseCoopers LLP