Attached files
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8-K/A - FORM 8-K/A - ERESEARCHTECHNOLOGY INC /DE/ | c03742e8vkza.htm |
EX-23.1 - EXHIBIT 23.1 - ERESEARCHTECHNOLOGY INC /DE/ | c03742exv23w1.htm |
EX-99.1 - EXHIBIT 99.1 - ERESEARCHTECHNOLOGY INC /DE/ | c03742exv99w1.htm |
EX-99.3 - EXHIBIT 99.3 - ERESEARCHTECHNOLOGY INC /DE/ | c03742exv99w3.htm |
Exhibit 99.2
RESEARCH SERVICES (A DIVISION OF CAREFUSION CORPORATION)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
Three | Three | |||||||
Months Ended | Months Ended | |||||||
(in thousands) | March 31, 2010 | March 31, 2009 | ||||||
Product Revenue |
$ | 6,630 | $ | 2,623 | ||||
Service Revenue |
9,769 | 4,246 | ||||||
Total Revenue |
16,399 | 6,869 | ||||||
Cost of Products and Services Sold |
8,095 | 4,272 | ||||||
Gross Margin |
8,304 | 2,597 | ||||||
Selling, General and Administrative Expenses |
6,245 | 3,331 | ||||||
Research and Development Expenses |
627 | 149 | ||||||
Operating Income (Loss) |
1,432 | (883 | ) | |||||
Interest (Expense)/Income and Other, Net |
1,088 | 182 | ||||||
Income (Loss) Before Income Taxes |
2,520 | (701 | ) | |||||
Provision for Income Taxes |
(746 | ) | (20 | ) | ||||
Net Income (Loss) |
$ | 1,774 | $ | (721 | ) | |||
See accompanying notes to condensed combined financial statements
RESEARCH SERVICES (A DIVISION OF CAREFUSION CORPORATION)
CONDENSED COMBINED BALANCE SHEETS
(unaudited)
CONDENSED COMBINED BALANCE SHEETS
(unaudited)
March 31, | December 31, | |||||||
(in thousands) | 2010 | 2009 | ||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and Cash Equivalents |
$ | 95 | $ | 19 | ||||
Trade Receivables |
12,347 | 11,279 | ||||||
Inventories, Net |
3,473 | 3,544 | ||||||
Prepaid Expenses and Other Assets |
741 | 517 | ||||||
Total Current Assets |
16,656 | 15,359 | ||||||
Property and Equipment, Net |
10,468 | 11,391 | ||||||
Goodwill |
39,905 | 42,550 | ||||||
Intangible Assets, Net |
17,579 | 19,641 | ||||||
Other Assets |
417 | 446 | ||||||
Total Assets |
$ | 85,025 | $ | 89,387 | ||||
LIABILITIES AND PARENT COMPANY EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts Payable |
$ | 2,055 | $ | 1,952 | ||||
Current Portion of Long-Term Debt to Parent |
2,018 | | ||||||
Other Current Liabilities |
3,798 | 3,815 | ||||||
Total Current Liabilities |
7,871 | 5,767 | ||||||
Long-Term Debt to Parent |
| 2,152 | ||||||
Deferred Income Taxes and Other Liabilities |
3,713 | 3,519 | ||||||
Total Liabilities |
11,584 | 11,438 | ||||||
Commitments and Contingencies (note 6) |
||||||||
Parent Company Equity: |
||||||||
Parent Company Investment |
74,371 | 73,625 | ||||||
Accumulated Other Comprehensive (Loss) Income |
(930 | ) | 4,324 | |||||
Total Parent Company Equity |
73,441 | 77,949 | ||||||
Total Liabilities and Parent Company Equity |
$ | 85,025 | $ | 89,387 | ||||
See accompanying notes to condensed combined financial statements
2
RESEARCH SERVICES (A DIVISION OF CAREFUSION CORPORATION)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
Three | Three | |||||||
Months Ended | Months Ended | |||||||
(in thousands) | March 31, 2010 | March 31, 2009 | ||||||
Cash Flows from Operating Activities: |
||||||||
Net Income (Loss) |
$ | 1,774 | $ | (721 | ) | |||
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities: |
||||||||
Depreciation and Amortization |
2,871 | 1,303 | ||||||
Loss on Disposal of Property and Equipment |
610 | 290 | ||||||
Other Non-Cash Items |
147 | 64 | ||||||
Change in Operating Assets and Liabilities: |
||||||||
(Increase) Decrease in Trade Receivables |
(1,163 | ) | 3,868 | |||||
Decrease (Increase) in Inventories |
19 | (574 | ) | |||||
Increase/(Decrease) in Accounts Payable |
112 | (289 | ) | |||||
Other Accrued Liabilities and Operating Items, Net |
(223 | ) | (520 | ) | ||||
Net Cash Provided by Operating Activities |
4,147 | 3,421 | ||||||
Cash Flows from Investing Activities: |
||||||||
Purchases of Property and Equipment |
(1,820 | ) | (502 | ) | ||||
Purchases of Intangible Assets |
(1,221 | ) | (2,127 | ) | ||||
Net Cash Used in Investing Activities |
(3,041 | ) | (2,629 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Net Cash Transfer to Parent |
(1,028 | ) | (817 | ) | ||||
Net Cash Used in Financing Activities |
(1,028 | ) | (817 | ) | ||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(2 | ) | 8 | |||||
Net Increase/(Decrease) in Cash and Cash Equivalents |
76 | (17 | ) | |||||
Cash and Cash Equivalents at Beginning of Period |
19 | 122 | ||||||
Cash and Cash Equivalents at End of Period |
$ | 95 | $ | 105 | ||||
Supplemental Information: |
||||||||
Cash Payments for Interest |
$ | 6 | $ | 35 | ||||
Income Taxes (note 5) |
See accompanying notes to condensed combined financial statements
3
NOTE 1. BASIS OF PRESENTATION
General. References in these notes to the combined financial statements to Research Services,
we, us, our, the business and our business refer to CareFusion Corporations Research
Services division. All references to notes mean the notes to the combined financial statements
presented herein.
Our Business. We are a global medical technology business primarily based in Hoechberg, Germany
that provides devices and complementary services that enable pharmaceutical and biotechnology
companies to electronically capture, process and distribute clinical data more efficiently through
all phases of the development of a new drug. We are a market leader offering customized products
for respiratory, cardiac safety, and electronic patient reported outcomes (ePRO) measurements as
well as services that collect, transmit, analyze and process such patient data. Our primary
products are MasterScope® CT, FlowScreen® CT, AM3®, CorScreen®, VIAPen Digital Pen and VIAPad
eDiary.
We operated as a division of VIASYS Healthcare, Inc. (Viasys) until Cardinal Health, Inc.
(Cardinal Health) acquired Viasys and us in June 2007. Cardinal Health separated its clinical
and medical products businesses (including our Research Services business) into the new CareFusion
Corporation (CareFusion) via a spinoff transaction in August 2009. From the time of Viasys
ownership until May 2010, we primarily operated within CareFusion Germany 234 GmbH (CareFusion
Germany 234), a German subsidiary that also includes certain operations of other CareFusion
divisions. CareFusion Germany 234 was demerged into two entities: the existing CareFusion Germany
234 and the new Research Services GmbH in May 2010 (the Demerger). Our assets and liabilities
that were held within CareFusion Germany 234 were contributed to the new Research Services GmbH in
May 2010. We also conduct operations at a smaller scale in other CareFusion subsidiaries.
Basis of Presentation. The accompanying unaudited condensed combined financial statements have
been prepared on a stand-alone basis and are derived from the financial statements and accounting
records of CareFusion/Cardinal Health. They have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial information. Accordingly,
they do not include all of the information and disclosures required by accounting principles
generally accepted in the United States, or US GAAP, for complete financial statements. These
unaudited condensed financial statements should be read in conjunction with our audited financial
statements and the notes thereto for the year ended December 31, 2009. The accompanying unaudited
condensed combined financial statements have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments (consisting of
normal recurring accruals) which are necessary for a fair presentation of the financial position,
operating results and cash flows for the interim date and interim periods presented. Results for
the interim periods are not necessarily indicative of the results to be achieved for the entire
year or future periods.
All significant intercompany transactions between us and CareFusion/Cardinal Health have been
included in these condensed combined financial statements and are, except for long-term debt,
considered to be effectively settled for cash in the condensed combined financial statements at the
time the transaction is recorded. The total net effect of the settlement of these intercompany
transactions is reflected in the combined statements of cash flows as a financing activity and in
the condensed combined balance sheets as Parent Company Investment.
We have historically been organized and managed in a manner similar to a stand-alone operation with
limited services provided by CareFusion/Cardinal Health. Those limited services related to
employee benefit programs, including bonus and share-based compensation. The cost of these
services has been allocated to us and included in the condensed combined financial statements. We
consider the basis on which the expenses have been allocated to be a reasonable reflection of the
utilization of services provided to or the benefit received by us during the periods presented. A
more detailed discussion of the relationship with CareFusion/Cardinal Health, including a
description of the costs which have been allocated to us, as well as the method of allocation, is
included in note 7.
Our condensed combined financial statements may not be indicative of our future performance and do
not necessarily reflect what the results of operations, financial position and cash flows would
have been had we operated as a stand-alone company during the periods presented.
4
NOTE 2. INVENTORIES
Inventories, accounted for at the lower of cost or market on the first-in, first-out method,
consisted of the following:
March 31, | December 31, | |||||||
(in thousands) | 2010 | 2009 | ||||||
Finished Goods |
$ | 1,675 | $ | 1,657 | ||||
Work-in-Process |
797 | 505 | ||||||
Raw Materials |
1,717 | 2,074 | ||||||
4,189 | 4,236 | |||||||
Reserve for Excess and Obsolete Inventories |
(716 | ) | (692 | ) | ||||
Inventories, Net |
$ | 3,473 | $ | 3,544 | ||||
NOTE 3. PROPERTY AND EQUIPMENT, NET
Property and Equipment, net consisted of the following:
March 31, | December 31, | |||||||
(in thousands) | 2010 | 2009 | ||||||
Leasehold Improvements |
$ | 260 | $ | 272 | ||||
Machinery and Equipment |
15,288 | 16,111 | ||||||
Furniture and Fixtures |
1,776 | 1,867 | ||||||
17,324 | 18,250 | |||||||
Accumulated Depreciation |
(6,856 | ) | (6,859 | ) | ||||
Property and Equipment, Net |
$ | 10,468 | $ | 11,391 | ||||
Depreciation expense was $1.3 million and $0.8 million for the three months ended March 31, 2010
and 2009, respectively.
NOTE 4. GOODWILL AND INTANGIBLE ASSETS
The following table summarizes the changes in the carrying amount of goodwill:
(in thousands) | Total | |||
Balance as of December 31, 2009 |
$ | 42,550 | ||
Foreign Currency Translation Adjustments |
(2,645 | ) | ||
Balance as of March 31, 2010 |
$ | 39,905 | ||
Intangible assets are amortized over their useful lives which range from three to 10 years. The
detail of intangible assets is as follows:
Weighted | ||||||||||||||||
Average Life | Gross | Accumulated | ||||||||||||||
(in thousands) | (years) | Intangibles | Amortization | Net Intangibles | ||||||||||||
December 31, 2009 |
||||||||||||||||
Capitalized Software |
3 | $ | 19,782 | $ | (3,292 | ) | $ | 16,490 | ||||||||
Licenses |
10 | 3,820 | (669 | ) | 3,151 | |||||||||||
Total Intangibles |
$ | 23,602 | $ | (3,961 | ) | $ | 19,641 | |||||||||
March 31, 2010 |
||||||||||||||||
Capitalized Software |
$ | 19,151 | $ | (4,439 | ) | $ | 14,712 | |||||||||
Licenses |
3,583 | (716 | ) | 2,867 | ||||||||||||
Total Intangibles |
$ | 22,734 | $ | (5,155 | ) | $ | 17,579 | |||||||||
Amortization expense was $1.5 million and $0.5 million for the three months ended March 31, 2010
and 2009, respectively.
5
NOTE 5. INCOME TAXES
Income taxes are computed on a basis consistent with the interim period tax expense requirements of
Accounting Standards Codification (ASC) 270, Interim Reporting (ASC 270). Substantially all
of our operations have historically been included within CareFusion Germany 234s German income tax
return. CareFusion Germany 234 files income tax returns in Germany and is subject to audit by
taxing authorities for tax years ending December 31, 2005 through the current fiscal year.
The effective tax rate was 29.6% and (2.9%), respectively, for the three months ended March 31,
2010 and 2009. As all income taxes are paid by CareFusion Germany 234, there are no supplemental
cash flow disclosures regarding the amount of taxes paid. The difference in the effective rate and
the German corporate tax rate of 28.1% for the three months ended March 31, 2009 is primarily
attributable to our inability to recognize an asset for tax loss carry-forwards resulting from
deducting certain research and development costs for tax purposes that are capitalized for US GAAP
reporting as, following our separation from CareFusion Germany 234, we will commence operations as
a new taxable entity.
NOTE 6. COMMITMENTS AND CONTINGENCIES
In addition to commitments and obligations in the ordinary course of business, we are subject to
various claims, other potential legal actions for damages, investigations relating to governmental
laws and regulations and other matters arising out of the normal conduct of our business. We
accrue for contingencies related to litigation in accordance with ASC 450-20, Loss Contingencies
which requires us to assess contingencies to determine the degree of probability and range of
possible loss. An estimated loss contingency is accrued in our financial statements if it is
probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing
contingencies is highly subjective and requires judgments about future events. We regularly review
contingencies to determine the adequacy of the accruals and related disclosures. The amount of
ultimate loss may differ from these estimates. We are not currently aware of any such
contingencies that could potentially have a material adverse effect on our condensed combined
financial statements.
NOTE 7. RELATED PARTY TRANSACTIONS
Allocation of General Corporate Expenses. We have historically been organized and managed in a
manner similar to a stand-alone operation with limited services provided by CareFusion/Cardinal
Health. Those limited services related to employee benefit programs, including share-based
compensation. The cost of these services has been allocated to us on the basis of direct usage.
During the three month periods ended March 31, 2010 and 2009, we were allocated $0.8 million and
$0.7 million, respectively, of corporate expenses incurred by CareFusion/Cardinal Health which are
included within Selling, General and Administrative Expenses in the condensed combined statements
of operations.
The expense allocations have been determined on a basis that we consider to be a reasonable
reflection of the utilization of services provided or the benefit received by us during the periods
presented. The allocations may not, however, reflect the expense we would have incurred as an
independent company for the periods presented. Actual costs that may have been incurred if we had
been a stand-alone company would depend on a number of factors, including the chosen organization
structure, what functions were outsourced or performed by employees and strategic decisions made in
areas such as information technology and infrastructure.
6
During the three months ended March 31, 2010 and 2009, the following expenses we were allocated to
us from CareFusion/Cardinal Health:
Three Months | ||||||||
Ended March 31, | ||||||||
(in thousands) | 2010 | 2009 | ||||||
Nature of expense |
||||||||
Finance |
$ | 257 | $ | 218 | ||||
Information technology |
149 | 166 | ||||||
Human resources |
86 | 122 | ||||||
Quality control |
83 | 78 | ||||||
Shipping |
70 | 75 | ||||||
Training |
60 | 53 | ||||||
Facilities |
39 | 55 | ||||||
Gain on early retirement obligation |
| (140 | ) | |||||
Other |
30 | 35 | ||||||
Total |
$ | 774 | $ | 662 | ||||
Parent Company Equity. Net Transfers to Parent are included within Parent Company Investment on
the condensed combined balance sheets and the condensed combined statements of cash flows.
Corporate Push-Down of Assets and Liabilities. The condensed combined financial statements also
include the push-down of certain assets and liabilities that have historically been held at the
CareFusion/Cardinal Health corporate level but which are specifically identifiable or otherwise
allocable to us. The cash and cash equivalents held by CareFusion and Cardinal Health at the
corporate level were not allocated to us for any of the periods presented. Cash and cash
equivalents recorded in the condensed combined balance sheets represent balances maintained by our
wholly-owned subsidiary Biosigna. Transfers of cash to and from CareFusion and Cardinal Health are
reflected as a component of Parent Company Investment in the condensed combined balance sheets.
NOTE 8. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) consisted of the following:
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
(in thousands) | 2010 | 2009 | ||||||
Net Income (Loss) |
$ | 1,774 | $ | (721 | ) | |||
Foreign Currency Translation Adjustments |
(5,254 | ) | (2,835 | ) | ||||
Comprehensive Loss, Net of Tax |
$ | (3,480 | ) | $ | (3,556 | ) | ||
7
NOTE 9. PRODUCT WARRANTIES
We offer warranties on certain products for various periods of time. We accrue for the estimated
cost of product warranties at the time revenue is recognized. Our product warranty liability
reflects managements best estimate of probable liability based on current and historical product
sales data and warranty costs incurred.
The table below summarizes the changes in the carrying amount of the liability for product
warranties, which is recorded within Other Current Liabilities in the condensed combined balance
sheets:
(in thousands) | Total | |||
Balance at December 31, 2009 |
$ | 307 | ||
Warranty Accrual |
162 | |||
Warranty Claims Paid |
(157 | ) | ||
Foreign Currency Translation Adjustments |
(24 | ) | ||
Balance at March 31, 2010 |
$ | 288 | ||
NOTE 10. SUBSEQUENT EVENTS
In April 2010, CareFusion and eResearch Technology (ERT) signed an agreement for CareFusion to
sell Research Services to ERT for $81 million in cash, subject to adjustments for working capital
and indebtedness. The transaction closed in May 2010.
In preparing the condensed combined financial statements, we evaluated subsequent events occurring
through May 28, 2010, the date the financial statements were available to be issued.
8