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 JUNE 30, 2003


[ ]		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 incorporation or organization)		(I.R.S. Employer Identification No.)

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 [ ].

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] or No [ ]

As of July 31, 2003 there were 50,257,279 shares of the registrant’s Common Stock, par value $.01 per share, outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
		Item 1. 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 10.55
EXHIBIT 10.56
EXHIBIT 10.57
EXHIBIT 10.58
EXHIBIT 10.59
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

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


					June 30,			December 31,
					2003			2002

				ASSETS	(Unaudited)
Current Assets:
		Cash and cash equivalents			$	541,070		$	537,817
		Short-term investments				308,107			184,188
		Restricted cash and investments				6,883			9,370
		Trade accounts receivable, net of allowance for doubtful accounts of $4,474 and $4,431, respectively				119,021			95,104
		Inventories				98,045			85,531
		Deferred income taxes				35,119			28,679
		Prepaid expenses and other current assets				29,162			27,762

			Total current assets			1,137,407			968,451
Property and equipment, net						149,000			136,151
Goodwill						764,062			768,459
Intangible assets, net						383,289			344,180
Long-term investments held-to-maturity						165,842			338,488
Other assets						60,504			59,237

			Total assets		$	2,660,104		$	2,614,966

				LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
		Current portion of long-term obligations			$	165		$	2,456
		Accounts payable				19,341			20,430
		Accrued expenses and other current liabilities				88,818			87,591
		Income taxes				19,226			30,478

			Total current liabilities			127,550			140,955
Long-term obligations, deferred credits and reserves						18,577			24,664
Pension liabilities						22,648			21,997
Deferred income tax liabilities						119,382			108,737
21/4% Convertible Subordinated Notes due 2006						500,000			500,000
51/2% Convertible Subordinated Notes due 2007						172,500			172,500

			Total liabilities			960,657			968,853

Minority interest						3,987			3,503

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; 53,399,883 and 53,268,496 shares issued, respectively					534			533
	Additional paid-in-capital					1,874,916			1,871,795
	Deferred compensation					(2,790	)		—
	Accumulated other comprehensive income					30,919			14,906
	Accumulated deficit					(110,781	)		(144,624	)
	Less cost of treasury stock; 3,221,009 shares and 3,296,009 shares, respectively					(97,338	)		(100,000	)

			Total stockholders’ equity			1,695,460			1,642,610

			Total liabilities and stockholders’ equity		$	2,660,104		$	2,614,966

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

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


					For the Three Months						For the Six Months
					Ended June 30,						Ended June 30,

					2003			2002			2003			2002

Revenues					$	192,387		$	164,290		$	373,029		$	324,179
Cost of revenues						73,510			67,594			144,963			135,530

		Gross margin				118,877			96,696			228,066			188,649

Operating Expenses:
	Sales and marketing					39,049			30,175			74,868			59,637
	General and administrative					22,817			16,682			42,661			32,310
	Research and development					12,564			7,683			23,189			15,317
	Other purchased intangibles amortization					18,831			16,072			35,507			32,143
	Business integration costs					73			14,527			393			15,890

				Total operating expenses		93,334			85,139			176,618			155,297

				Income from operations		25,543			11,557			51,448			33,352

Other income (expense):
	Interest income					5,860			6,852			12,034			12,933
	Interest expense					(6,213	)		(6,057	)		(12,702	)		(12,084	)
	Other income (expense), net					613			(680	)		336			(807	)

			Total other income and expense, net			260			115			(332	)		42

Income before provision for income taxes and minority interest						25,803			11,672			51,116			33,394
Provision for income taxes						(8,387	)		(3,308	)		(16,664	)		(10,309	)
Minority interest						(485	)		(301	)		(609	)		(503	)

				Net income	$	16,931		$	8,063		$	33,843		$	22,582

Earnings per common share:
	Basic				$	0.34		$	0.15		$	0.68		$	0.43

	Diluted				$	0.34		$	0.15		$	0.67		$	0.42

Weighted average shares used in per share calculation:
	Basic					50,057			53,104			50,028			53,063
	Diluted					50,462			53,401			50,352			53,445

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

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


					For the Six Months Ended
					June 30,

					2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income				$	33,843		$	22,582
	Adjustments to reconcile net income to net cash provided by operating activities, net of effects of businesses acquired and divested:
		Depreciation				12,246			9,342
		Amortization of intangible assets				37,093			33,727
		Deferred income taxes				(15,151	)		(12,257	)
		Non-cash business integration costs				—			9,510
		Other non-cash amortization and adjustments				8,780			5,292
		Changes in operating assets and liabilities:
			Restricted cash			—			7,965
			Trade accounts receivable			(19,812	)		(12,733	)
			Inventories			(2,857	)		(3,873	)
			Prepaid expenses and other current assets			(1,563	)		(3,940	)
			Other assets			338			(971	)
			Accounts payable			(1,982	)		946
			Accrued expenses and other current liabilities			4,537			(554	)
			Income taxes			6,336			9,366

				Net cash provided by operating activities		61,808			64,402

CASH FLOWS FROM INVESTING ACTIVITIES:
	Maturities of held-to-maturity securities					178,540			257,717
	Purchases of held-to-maturity securities					(125,238	)		(435,972	)
	Proceeds from sale of held-to-maturity securities					—			969
	Net cash received from (paid for) business combinations					(105,106	)		1,146
	Payment received on note receivable					—			261
	Purchases of property and equipment					(13,264	)		(30,804	)
	Proceeds from sale of property, plant and equipment					2,695			235
	Payments for intangible assets					(100	)		(600	)

				Net cash used in investing activities		(62,473	)		(207,048	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Net principal payments on lines of credit					—			(2,585	)
	Principal payments on long-term obligations					(2,304	)		(359	)
	Proceeds from sale of common stock					2,568			2,514
	Purchase of treasury stock					(5,354	)		—

				Net cash used in financing activities		(5,090	)		(430	)
	Effect of exchange rate changes on cash					9,008			9,808

				Net increase (decrease) in cash and cash equivalents		3,253			(133,268	)
	Cash and cash equivalents, beginning of period					537,817			878,214

	Cash and cash equivalents, end of period				$	541,070		$	744,946

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

INVITROGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

The consolidated financial statements include the accounts of Invitrogen Corporation and its majority owned or controlled subsidiaries, collectively referred to as 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, filed with the Securities and Exchange Commission on March 7, 2003.

2. Business Combinations and Integrations

PanVera Asset Acquisition

On March 28, 2003, Invitrogen completed its acquisition of products and technology rights from PanVera LLC, a wholly-owned subsidiary of Vertex Pharmaceuticals, Inc. The products and rights acquired include biochemical and cellular assay capabilities and PanVera’s commercial portfolio of proprietary reagents, probes and proteins. As part of the transaction, Invitrogen also acquired PanVera’s research, development and manufacturing facility in Madison, Wisconsin. The transaction has been accounted for as a purchase, and, accordingly, the results of operations have been included in the accompanying consolidated financial statements from the date of acquisition. Invitrogen paid $93.2 million in cash, $6.3 million into an escrow account that was used to pay off debt assumed, $1.3 million to acquire equipment under operating leases and $1.4 million in closing costs. The remaining, unpaid closing costs of $0.4 million as of June 30, 2003, are expected to be paid during the next three months in 2003. Invitrogen has also accrued for $1.7 million to be paid for final balance sheet adjustments for a total purchase price of $103.9 million. We are still completing the review of the purchase price allocation and, on a preliminary basis, the excess of purchase price over the acquired net tangible assets was $73.9 million at June 30, 2003, of which $70.3 million has been allocated to purchased intangibles to be amortized over a weighted average life of 8 years and $3.6 million has been allocated to goodwill in the Consolidated Balance Sheets.

Invitrogen’s announced integration plan, which is subject to ongoing review, includes the termination of 7 employees. Costs necessary to integrate the businesses of Invitrogen and PanVera that are expected to benefit future operations are expensed as business integration costs after management has completed and approved the restructuring plans and associated costs. No such costs were recognized during the three months ended June 30, 2003, and future expenses, mainly for retention, are expected to be minimal. As of June 30, 2003, Invitrogen had $0.2 million remaining in accrued merger and restructuring related costs that are included in accrued expenses and other current liabilities in the Consolidated Balance Sheets. Activity for accrued acquisition and business integration costs for the six months ended June 30, 2003 is as follows:


	Opening Balance					Balance at June 30,
(in thousands)(unaudited)	Sheet Accruals		Amounts Paid in Cash			2003

Severance and related employee charges	$	231	$	(61	)	$	170
Direct costs of the acquisition		1,832		(1,450	)		382

	$	2,063	$	(1,511	)	$	552

The following unaudited pro forma information assumes that the acquisition of PanVera assets and underlying business occurred on January 1, 2002. These unaudited pro forma results have been prepared for comparative

purposes only and do not purport to be indicative of the results of operations that would have actually resulted had the acquisition been in effect on January 1, 2002, or of future results of operations. The unaudited pro forma results for the three and six months ended June 30, 2002 and six months ended June 30, 2003 are as follows:


		For the Three
		Months Ended		For the Six Months
(in thousands, except per share data)(unaudited)		June 30,		Ended June 30,

		2002⁽¹⁾		2003		2002⁽¹⁾

Revenues		$	176,115	$	376,941	$	350,187
Net income			10,093		31,456		24,915
Earnings per share:
	Basic	$	0.19	$	0.63	$	0.47
	Diluted	$	0.19	$	0.62	$	0.47

⁽¹⁾

Included in revenues for the PanVera acquired business are $4.3 million and $10.5 million for the three and six months ended June 30, 2002, respectively, for the sale of perpetual licenses. These revenues are not expected to recur in 2003.

InforMax Integration

Invitrogen completed its review of acquired intangible assets related to its December 6, 2002, acquisition of InforMax, Inc., and has allocated $6.6 million to purchased intangibles as of June 30, 2003, to be amortized over three years. The excess of purchase price over the acquired net assets was $4.0 million at June 30, 2003, and has been recorded as goodwill in the Consolidated Balance Sheets. This excess is subject to change pending the outcome of negotiations on certain current leases held by InforMax that Invitrogen determined to be unnecessary for future operations, and negotiations to sublease those properties. At the time InforMax was acquired by Invitrogen, InforMax held nine leases in five cities, with future minimum lease commitments, net of sublease income that totaled $20.5 million. As of June 30, 2003, the Company has subleased four of the leases, partially terminated two leases, and reduced net future lease commitments for the remaining unused leases to $10.0 million.

Invitrogen’s management has approved an integration plan which included the termination of 50 employees, the relocation or transfer to other sites of 104 employees mainly to our Frederick, Maryland facility and the closure of duplicate facilities in Maryland. Costs necessary to integrate the businesses of Invitrogen and InforMax that are expected to benefit future operations are expensed as business integration costs after management has completed and approved the restructuring plans and associated costs. Restructuring costs totaled $0.1 million and $0.4 million for the three and six months ended June 30, 2003, respectively, and have been recognized as expense in business integration costs in the consolidated Statements of Income. Additional business integration costs associated with Invitrogen’s ongoing integration of InforMax are estimated to be $0.1 million during the remainder of 2003, principally for retention and costs to close facilities. As of June 30, 2003, Invitrogen had $0.6 million remaining in accrued merger and restructuring related costs that are included in accrued expenses and other current liabilities in the Consolidated Balance Sheets. Activity for accrued merger and business integration costs for the six months ended June 30, 2003 is as follows:

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