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 MARCH 31, 2005
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 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 April 27, 2005, there were 51,936,672 shares of the registrant’s Common Stock, par value $.01 per share, outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVITROGEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
| March 31, 2005 |
December 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 640,784 | $ | 198,396 | ||||
| Short-term investments |
378,419 | 779,279 | ||||||
| Restricted cash and investments |
5,840 | 5,706 | ||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $5,836 and $5,242, respectively |
182,295 | 165,754 | ||||||
| Inventories |
127,293 | 122,787 | ||||||
| Deferred income tax assets |
27,971 | 31,866 | ||||||
| Prepaid expenses and other current assets |
33,696 | 28,440 | ||||||
| Total current assets |
1,396,298 | 1,332,228 | ||||||
| Long-term investments |
40,925 | 109,088 | ||||||
| Property and equipment, net |
225,541 | 222,193 | ||||||
| Goodwill |
1,466,117 | 1,424,671 | ||||||
| Intangible assets, net |
437,384 | 440,182 | ||||||
| Deferred income tax assets |
1,109 | 1,051 | ||||||
| Other assets |
86,259 | 84,922 | ||||||
| Total assets |
$ | 3,653,633 | $ | 3,614,335 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: |
||||||||
| Current portion of long-term obligations |
$ | 1,803 | $ | 12,390 | ||||
| Accounts payable |
66,550 | 64,261 | ||||||
| Accrued expenses and other current liabilities |
97,983 | 119,024 | ||||||
| Income taxes |
19,081 | 510 | ||||||
| Total current liabilities |
185,417 | 196,185 | ||||||
| Long-term debt |
1,319,561 | 1,319,315 | ||||||
| Pension liabilities |
15,086 | 15,307 | ||||||
| Deferred income tax liabilities |
156,055 | 153,716 | ||||||
| Other long-term liabilities |
12,947 | 16,561 | ||||||
| Total liabilities |
1,689,066 | 1,701,084 | ||||||
| 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; 56,705,030 and 56,274,648 shares issued, respectively |
567 | 562 | ||||||
| Additional paid-in-capital |
2,052,702 | 2,029,222 | ||||||
| Deferred compensation |
(13,587 | ) | (14,887 | ) | ||||
| Accumulated other comprehensive income |
51,671 | 72,214 | ||||||
| Retained earnings |
51,405 | 4,331 | ||||||
| Less cost of treasury stock; 4,831,562 shares |
(178,191 | ) | (178,191 | ) | ||||
| Total stockholders’ equity |
1,964,567 | 1,913,251 | ||||||
| Total liabilities and stockholders’ equity |
$ | 3,653,633 | $ | 3,614,335 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
INVITROGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
| For the Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| (Unaudited) | ||||||||
| Revenues |
$ | 277,081 | $ | 251,324 | ||||
| Cost of revenues |
106,422 | 109,339 | ||||||
| Gross profit |
170,659 | 141,985 | ||||||
| Operating Expenses: |
||||||||
| Sales and marketing |
48,480 | 45,454 | ||||||
| General and administrative |
30,004 | 27,023 | ||||||
| Research and development |
21,241 | 15,748 | ||||||
| Purchased intangibles amortization |
25,901 | 28,228 | ||||||
| Purchased in-process research and development |
1,200 | — | ||||||
| Total operating expenses |
126,826 | 116,453 | ||||||
| Operating income |
43,833 | 25,532 | ||||||
| Other income (expense): |
||||||||
| Interest income |
5,876 | 5,854 | ||||||
| Interest expense |
(7,258 | ) | (9,481 | ) | ||||
| Loss on early retirement of debt |
— | (6,775 | ) | |||||
| Other income (expense), net |
25,673 | 32 | ||||||
| Total other income (expense), net |
24,291 | (10,370 | ) | |||||
| Income before provision for income taxes |
68,124 | 15,162 | ||||||
| Income tax provision |
(21,050 | ) | (4,653 | ) | ||||
| Net income |
$ | 47,074 | $ | 10,509 | ||||
| Earnings per common share: |
||||||||
| Basic |
$ | 0.91 | $ | 0.20 | ||||
| Diluted |
$ | 0.82 | $ | 0.19 | ||||
| Weighted average shares used in per share calculation: |
||||||||
| Basic |
51,455 | 51,697 | ||||||
| Diluted |
60,229 | 55,005 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
INVITROGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| For the Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| (Unaudited) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 47,074 | $ | 10,509 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities, net of effects of businesses acquired: |
||||||||
| Depreciation |
9,247 | 8,866 | ||||||
| Amortization of intangible assets |
26,897 | 28,907 | ||||||
| Amortization of deferred debt issue costs |
870 | 922 | ||||||
| Amortization of premiums on investments, net of accretion of discounts |
1,926 | 2,269 | ||||||
| Amortization of deferred compensation |
1,525 | 897 | ||||||
| Deferred income taxes |
(6,094 | ) | (9,137 | ) | ||||
| In-process research and development |
1,200 | — | ||||||
| Other non-cash adjustments |
2,088 | 13,940 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Trade accounts receivable |
(14,901 | ) | (24,453 | ) | ||||
| Inventories |
(2,914 | ) | 4,393 | |||||
| Prepaid expenses and other current assets |
6,028 | (419 | ) | |||||
| Other assets |
(2,404 | ) | (670 | ) | ||||
| Accounts payable |
(3,953 | ) | (10,116 | ) | ||||
| Accrued expenses and other liabilities |
(22,006 | ) | 408 | |||||
| Income taxes |
18,427 | 4,084 | ||||||
| Net cash provided by operating activities |
63,010 | 30,400 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Maturities of available-for-sale securities |
598,088 | 337,399 | ||||||
| Purchases of available-for-sale securities |
(134,692 | ) | (344,700 | ) | ||||
| Net cash paid for acquired businesses |
(63,243 | ) | (466,232 | ) | ||||
| Purchases of property and equipment |
(11,865 | ) | (6,608 | ) | ||||
| Payments for intangible assets |
(253 | ) | (542 | ) | ||||
| Net cash provided by (used in) investing activities |
388,035 | (480,683 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from long-term obligations |
700 | 440,650 | ||||||
| Principal payments on long-term obligations |
(10,881 | ) | (172,654 | ) | ||||
| Proceeds from sale of common stock |
19,076 | 24,495 | ||||||
| Net cash provided by financing activities |
8,895 | 292,491 | ||||||
| Effect of exchange rate changes on cash |
(17,552 | ) | 3,025 | |||||
| Net increase (decrease) in cash and cash equivalents |
442,388 | (154,767 | ) | |||||
| Cash and cash equivalents, beginning of period |
198,396 | 588,678 | ||||||
| Cash and cash equivalents, end of period |
$ | 640,784 | $ | 433,911 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
INVITROGEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Basis of Presentation |
Financial Statement Preparation
The unaudited condensed consolidated financial statements have been prepared by Invitrogen Corporation according to the rules and regulations of the Securities and Exchange Commission (SEC), and therefore, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed with the Securities and Exchange Commission on February 23, 2005.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Invitrogen Corporation and its majority owned or controlled subsidiaries collectively referred to as Invitrogen (the Company). All significant intercompany accounts and transactions have been eliminated.
Long-Lived Assets
The Company periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of its long-lived assets. The criteria used for these evaluations include management’s estimate of the asset’s continuing ability to generate income from operations and positive cash flow in future periods as well as the strategic significance of any intangible asset to the Company’s business objectives. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets, which is determined by applicable market prices, when available.
Other income (expense), net
Other income (expense), net consists of the following:
| For the Three Months Ended March 31, | ||||||
| (in thousands) (unaudited) | 2005 |
2004 | ||||
| Gain on forward contract |
$ | 21,003 | $ | — | ||
| Sale of equity investment |
2,796 | — | ||||
| Foreign currency gain on intercompany loan |
2,200 | — | ||||
| Other |
326 | 32 | ||||
| $ | 25,673 | $ | 32 | |||
Computation of Earnings Per Share
Basic earnings per share was computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur from the following items:
| • | Convertible subordinated notes and contingently convertible notes where the effect of those securities is dilutive; |
| • | Dilutive stock options; and |
| • | Unvested restricted stock |
5
In September 2004, the Emerging Issues Task Force reached a final consensus on Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” (EITF 04-8). Contingently convertible debt instruments are financial instruments that add a contingent feature to a convertible debt instrument. The conversion feature is triggered when one or more specified contingencies occur and at least one of these contingencies is based on market price. Prior to the issuance of EITF 04-8, FASB Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (SFAS 128) had been widely interpreted to allow the exclusion of common shares underlying contingently convertible debt instruments from the calculation of diluted earnings per share in instances where conversion depends on the achievement of a specified market price of the issuer’s shares. The consensus requires that these underlying common shares be included in the diluted earnings per share computations, if dilutive, regardless of whether the market price contingency or any other contingent factor has been met. The consensus, which is effective for reporting periods that ended after December 15, 2004, requires the restatement of diluted earnings per share for all prior periods presented. The Company has two series of contingently convertible debt instruments: the first series, $450.0 million principal amount of 1 1/2% convertible senior notes due February 15, 2024 (2024 Notes) and the second series, $350.0 million principal amount of 2% convertible senior notes due August 1, 2023 (2023 Notes), which contain certain contingent conversion features, including certain market value triggers. Accordingly, EITF 04-8 has been applied to the Company’s diluted earnings per share calculation for the three months ended March 31, 2005 and 2004.
In December 2004, the Company completed an exchange of 83% and 91% of the 2023 and 2024 Notes (the New Notes), respectively. The New Notes require the Company to settle the par value of such notes in cash and deliver shares only for the differential between the stock price on the date of conversion and the base conversion price. As such, Emerging Issues Task Force Issue No. 90-19, “Convertible Bonds with Issuer Option to Settle for Cash Upon Conversion” (EITF 90-19) and EITF 04-8 require the Company to use the treasury stock equivalent method to calculate diluted earnings per share. The treasury stock equivalent method requires the Company to include, in its calculation of diluted earnings per share, shares issuable if the notes were to be converted at the end of the reporting period in which they were outstanding. Under the treasury stock equivalent method, the number of shares of the Company’s common stock deemed to be outstanding for the purpose of calculating diluted earnings per share is increased when the average closing sale price of our common stock at the end of a reporting period exceeds the base conversion prices o