INVITROGEN CORP - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR

[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number: 0-25317

INVITROGEN CORPORATION
(Exact name of registrant as specified in its charter)

Delaware

33-0373077

(State or other jurisdiction of

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

incorporation or organization)


1600 Faraday Avenue, Carlsbad, CA		92008
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (760) 603-7200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ].

As of November 6, 2002 there were 51,576,524 shares of the registrant’s Common Stock, par value $.01 per share, outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
	ITEM 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
EXHIBIT 10.5
EXHIBIT 10.50
EXHIBIT 99.1
EXHIBIT 99.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value data)


				September 30,			December 31,
				2002			2001

				(Unaudited)
			ASSETS
Current Assets:
	Cash and cash equivalents			$	626,336		$	878,214
	Short-term investments held-to-maturity				77,978			99,647
	Restricted cash and investments				7,862			16,975
	Trade accounts receivable, net of allowance for doubtful accounts of $3,971 and $5,281, respectively				97,183			86,857
	Inventories				84,338			80,597
	Deferred income taxes				33,821			30,044
	Prepaid expenses and other current assets				27,564			12,135

		Total current assets			955,082			1,204,469
Property and equipment, net					130,593			125,786
Goodwill					752,784			740,220
Net intangible assets					359,482			441,267
Deferred income tax assets					557			707
Long-term investments held-to-maturity					425,798			93,900
Other assets					59,380			60,863

		Total assets		$	2,683,676		$	2,667,212

			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Lines of credit			$	—		$	2,746
	Current portion of long-term obligations				2,240			293
	Accounts payable				20,816			20,643
	Accrued expenses and other current liabilities				73,202			76,602
	Income taxes				39,454			26,298

		Total current liabilities			135,712			126,582
Long-term obligations, deferred credits and reserves					12,059			15,240
Pension liabilities					16,393			16,128
Deferred income tax liabilities					130,911			163,277
2¼% Convertible Subordinated Notes due 2006					500,000			500,000
5½% Convertible Subordinated Notes due 2007					172,500			172,500

		Total liabilities			967,575			993,727

Minority interest					3,055			2,407

Commitments and contingencies Stockholders’ Equity:
	Preferred stock; $0.01 par value, 6,405,884 shares authorized; no shares issued or outstanding				—			—
	Common stock; $0.01 par value, 125,000,000 shares authorized; 52,824,340 and 53,000,472 shares issued, respectively				532			530
	Additional paid-in-capital				1,870,165			1,870,107
	Deferred compensation				(32	)		(205	)
	Accumulated other comprehensive income (loss)				10,498			(7,063	)
	Accumulated deficit				(154,774	)		(192,291	)
	Less cost of treasury stock; 392,650 shares in 2002				(13,343	)		—

		Total stockholders’ equity			1,713,046			1,671,078

		Total liabilities and stockholders’ equity		$	2,683,676		$	2,667,212

The accompanying notes are an integral part of these consolidated financial statements.

INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)(Unaudited)


				For the Three Months Ended						For the Nine Months Ended
				September 30,						September 30,

				2002			2001			2002			2001

Revenues				$	162,588		$	156,005		$	486,767		$	476,034
Cost of revenues (includes $0, $0, $0 and $2,583, respectively, of costs for purchase accounting inventory revaluation)					67,432			68,382			202,962			216,419

	Gross margin				95,156			87,623			283,805			259,615

Operating Expenses:
	Sales and marketing				30,783			27,393			90,420			83,282
	General and administrative				18,347			19,416			50,657			49,717
	Research and development				8,705			9,081			24,022			29,095
	Goodwill amortization				—			43,673			—			131,942
	Other purchased intangibles amortization				16,071			22,342			48,214			72,811
	Business integration costs:
		Huntsville closure			173			—			13,938			—
		Merger-related			50			4,013			2,175			9,004

			Total operating expenses		74,129			125,918			229,426			375,851

			Income (loss) from operations		21,027			(38,295	)		54,379			(116,236	)

Other income (expense):
	Interest income				7,256			5,228			20,189			16,024
	Interest expense				(6,039	)		(2,625	)		(18,123	)		(7,953	)
	Other income (expense), net				460			426			(347	)		3,298

		Total other income and expense, net			1,677			3,029			1,719			11,369

Income (loss) before provision for income taxes and minority interest					22,704			(35,266	)		56,098			(104,867	)
Provision for income taxes					(7,418	)		(1,930	)		(17,727	)		(6,237	)
Minority interest					(351	)		(225	)		(854	)		(980	)

			Net income (loss)	$	14,935		$	(37,421	)	$	37,517		$	(112,084	)

Earnings (loss) per common share:
	Basic			$	0.28		$	(0.71	)	$	0.71		$	(2.14	)

	Diluted			$	0.28		$	(0.71	)	$	0.70		$	(2.14	)

Weighted average shares used in per share calculation:
	Basic				53,151			52,749			53,093			52,420
	Diluted				53,448			52,749			53,446			52,420

The accompanying notes are an integral part of these consolidated financial statements.

INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)(Unaudited)


					For the Nine Months Ended
					September 30,

					2002			2001

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)				$	37,517		$	(112,084	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of effects of businesses divested:
		Depreciation				14,426			13,745
		Amortization of goodwill				—			131,942
		Amortization of intangible assets				50,603			73,252
		Amortization of deferred compensation				153			1,996
		Deferred income taxes				(18,051	)		(14,398	)
		Non-cash business integration costs				9,527			781
		Other non-cash adjustments				2,598			(63	)
		Changes in operating assets and liabilities:
			Restricted cash			8,145			—
			Trade accounts receivable			(5,445	)		(18,793	)
			Inventories			(2,338	)		(452	)
			Prepaid expenses and other current assets			(783	)		3,629
			Other assets			875			6,142
			Accounts payable			(279	)		(1,576	)
			Accrued expenses and other current liabilities			(6,783	)		(32,152	)
			Income taxes			9,229			27,898

				Net cash provided by operating activities		99,394			79,867

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of held-to-maturity securities					(606,905	)		(1,705	)
	Maturities of held-to-maturity securities					295,185			—
	Proceeds from sale of held-to-maturity securities					969			—
	Proceeds from sale of business, net of cash sold					1,145			11,616
	Net cash acquired from business combinations					—			2,978
	Payment received on note receivable					261			—
	Purchases of property and equipment					(43,006	)		(25,147	)
	Proceeds from sale of property, plant and equipment					795			55,810
	Payments for intangible assets					(2,250	)		(5,696	)

				Net cash provided by (used in) investing activities		(353,806	)		37,856

CASH FLOWS FROM FINANCING ACTIVITIES:
	Net principal proceeds from (payments on) lines of credit					(2,755	)		2,645
	Proceeds from long-term obligations					—			4
	Principal payments on long-term obligations					(419	)		(1,023	)
	Proceeds from sale of common stock					3,892			25,887
	Purchase of treasury stock					(9,467	)		—

				Net cash provided by (used in) financing activities		(8,749	)		27,513
	Effect of exchange rate changes on cash					11,283			(1,017	)

				Net increase (decrease) in cash and cash equivalents		(251,878	)		144,219
	Cash and cash equivalents, beginning of period					878,214			418,899

	Cash and cash equivalents, end of period				$	626,336		$	563,118

The accompanying notes are an integral part of these consolidated financial statements.

INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

GENERAL

The consolidated financial statements include the accounts of Invitrogen Corporation and its majority owned or controlled subsidiaries, collectively referred to as the Company or Invitrogen. All significant intercompany accounts and transactions have been eliminated in consolidation. The interim financial statements have been prepared by Invitrogen, without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows as of and for the periods indicated.

These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K and 10-K/A, filed with the Securities and Exchange Commission on March 11, 2002 and April 5, 2002, respectively.

Certain reclassifications have been made to conform prior period financial information to the current presentation. These reclassifications had no effect on reported income or losses. The Consolidated Balance Sheets and Consolidated Statements of Operations for 2001 include separate reporting for intangible assets, goodwill and related amortization expense to conform to accounting principles that were effective beginning in 2002 (see Note 1.). Revenues, gross margin and income (loss) from operations have been reclassified between segments for 2001 to conform to 2002 changes in segment categorization of certain products.

1. Goodwill and Other Intangible Assets — Adoption of Statement 142

In June 2001, the Financial Accounting Standards Board issued Statement No. 141, or SFAS No. 141, “Business Combinations,” and Statement No. 142, or SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 addresses the accounting for acquisitions of businesses and is effective for acquisitions occurring on or after July 1, 2001. SFAS No. 142 addresses the method of identifying and measuring goodwill and other intangible assets acquired in a business combination, eliminates further amortization of goodwill, and requires periodic evaluations of impairment of goodwill balances. In addition, the useful lives of recognized intangible assets acquired in transactions completed before July 1, 2001 were reassessed and the remaining amortization periods adjusted accordingly. SFAS No. 142 was effective January 1, 2002.

The net book value assigned to our assembled workforce intangible asset at December 31, 2001, which totaled $33.4 million, has been reclassified and reported as goodwill and is no longer amortized beginning January 1, 2002. Additionally, the net book value of our purchased tradenames and trademarks assigned to the GIBCO tradename, which totaled $7.5 million at December 31, 2001, is no longer amortized beginning January 1, 2002, in accordance with SFAS No. 142, due to its indefinite life. Based on the current values assigned to goodwill, assembled workforce and the GIBCO tradename, the elimination of amortization of goodwill and indefinite-lived intangible assets will have a positive impact on reported net income for the year ended December 31, 2002 of approximately $179.2 million, net of tax. SFAS No. 142 requires an initial evaluation for impairment of goodwill balances upon adoption of the new accounting pronouncement. We completed our initial review for potential impairment of goodwill that existed at January 1, 2002, and determined that no impairment of goodwill existed at January 1, 2002.

Acquired Intangible Assets

Acquired intangible assets consist of the following:

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[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Delaware		33-0373077
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)