Attached files
file | filename |
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EX-99.3 - EX-99.3 - CRYOLIFE INC | d503121dex993.htm |
EX-99.1 - EX-99.1 - CRYOLIFE INC | d503121dex991.htm |
EX-23.1 - EX-23.1 - CRYOLIFE INC | d503121dex231.htm |
8-K/A - FORM 8-K/A - CRYOLIFE INC | d503121d8ka.htm |
EXHIBIT 99.2
JOTEC AG AND SUBSIDIARIES
Unaudited Condensed Consolidated Financial Statements
September 30, 2017 and 2016
28
JOTEC AG AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
September 30, 2017 |
December 31, 2016 |
|||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
| 2,234 | | 2,910 | ||||
Trade receivables, net of allowance of 129 and 55, respectively |
10,086 | 8,563 | ||||||
Income tax receivable |
148 | 186 | ||||||
Inventories |
12,836 | 10,472 | ||||||
Prepaid expenses and other current assets |
561 | 594 | ||||||
|
|
|
|
|||||
Total current assets |
25,865 | 22,725 | ||||||
|
|
|
|
|||||
Property, plant and equipment, net |
11,256 | 8,416 | ||||||
Intangible assets, net |
3,290 | 1,200 | ||||||
Deferred income taxes |
1,570 | 2,357 | ||||||
Notes receivable |
| 1,240 | ||||||
|
|
|
|
|||||
Total long term assets |
16,116 | 13,213 | ||||||
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|
|
|
|||||
Total assets |
| 41,981 | | 35,938 | ||||
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|
|
|
29
September 30, 2017 |
December 31, 2016 |
|||||||
(Unaudited) | ||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Trade payables |
| 1,448 | | 1,721 | ||||
Taxes payable |
921 | 848 | ||||||
Other payables |
141 | 242 | ||||||
Accrued expenses |
3,142 | 548 | ||||||
Accrued compensation |
661 | 852 | ||||||
Current portion of capital lease obligation |
776 | 735 | ||||||
Current portion of long-term debt |
474 | 285 | ||||||
Other current liabilities |
1,257 | 1,909 | ||||||
|
|
|
|
|||||
Total current liabilities |
8,820 | 7,140 | ||||||
|
|
|
|
|||||
Long-term debt |
25,137 | 27,005 | ||||||
Long-term capital lease obligation |
5,565 | 3,257 | ||||||
Retirement benefit obligation |
140 | 125 | ||||||
Deferred income taxes |
329 | 21 | ||||||
Government benefits |
194 | 239 | ||||||
Other long-term liabilities |
892 | 1,006 | ||||||
|
|
|
|
|||||
Total long term liabilities |
32,257 | 31,653 | ||||||
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|
|
|
|||||
Total liabilities |
41,077 | 38,793 | ||||||
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|
|
|||||
Shareholders equity: |
||||||||
Common stock, 10 CHF par value, 108,000 shares authorized, issued and outstanding as of September 30, 2017 and as of December 31, 2016 |
881 | 881 | ||||||
Capital surplus |
16,666 | 16,666 | ||||||
Accumulated deficit |
(15,068 | ) | (18,906 | ) | ||||
Accumulated other comprehensive income |
(1,658 | ) | (1,577 | ) | ||||
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|
|
|||||
Total JOTEC shareholders equity |
821 | (2,936 | ) | |||||
|
|
|
|
|||||
Non controlling interests |
83 | 81 | ||||||
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|
|
|
|||||
Total shareholders equity |
904 | (2,855 | ) | |||||
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|
|||||
Total liabilities and shareholders equity |
| 41,981 | | 35,938 | ||||
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|
|
|
See accompanying notes to consolidated financial statements.
30
JOTEC AG AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
Nine Months Ended September 30, |
||||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
Revenue |
| 33,073 | | 29,615 | ||||
Cost of goods sold |
10,265 | 8,851 | ||||||
|
|
|
|
|||||
Gross profit |
22,808 | 20,764 | ||||||
|
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|
|
|||||
General, administrative, and marketing |
15,858 | 13,978 | ||||||
Research and development |
3,518 | 2,345 | ||||||
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|
|
|
|||||
Total operating expenses |
19,376 | 16,323 | ||||||
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|
|
|
|||||
Operating Income |
3,432 | 4,440 | ||||||
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|
|
|
|||||
Interest expense |
1,909 | 1,979 | ||||||
Interest income |
(745 | ) | (32 | ) | ||||
Other expense, net |
(3,233 | ) | 501 | |||||
|
|
|
|
|||||
Income before income taxes |
5,501 | 1,992 | ||||||
Income tax expense |
1,658 | 1,027 | ||||||
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|
|
|
|||||
Net income |
| 3,843 | | 965 | ||||
|
|
|
|
|||||
Net income allocated to non controlling interests |
| (5 | ) | | (3 | ) | ||
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|
|
|
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Net income (loss) applicable to common stock |
| 3,838 | | 962 | ||||
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Other comprehensive income |
||||||||
Exchange differences on translation of foreign operations |
(81 | ) | 23 | |||||
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|
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Total other comprehensive income |
(81 | ) | 23 | |||||
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|
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Comprehensive income |
| 3,762 | | 988 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
31
JOTEC AG AND SUBSIDIARIES
CONSOLIDATED STATEMENTS SHAREHOLDERS EQUITY
(in thousands)
Attributable to equity holders of the parent | ||||||||||||||||||||||||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||||||||||
Common Stock | Other | Equity | Non | |||||||||||||||||||||||||||||||||
Shares |
|
Amount | Capital Surplus |
Accumulated Deficit |
Comprehensive (Loss) Income |
Holders of the Parent |
Controlling Interests |
Total Equity |
||||||||||||||||||||||||||||
Balance as of January 1, 2016 |
108,000 | | 881 | | 16,645 | | (19,184 | ) | | (1,420 | ) | | (3,078 | ) | | (9 | ) | | (3,087 | ) | ||||||||||||||||
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Net income |
| | | 278 | | 278 | 24 | 302 | ||||||||||||||||||||||||||||
Other comprehensive income (loss) |
| | | | (157 | ) | (157 | ) | | (157 | ) | |||||||||||||||||||||||||
Contribution to the capital surplus |
| | 21 | | | 21 | | 21 | ||||||||||||||||||||||||||||
Acquisition of non controlling interests |
| | | | | | 77 | 77 | ||||||||||||||||||||||||||||
Other |
| | | | | | (11 | ) | (11 | ) | ||||||||||||||||||||||||||
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Balance as of September 30, 2016 |
108,000 | | 881 | | 16,666 | | (18,906 | ) | | (1,577 | ) | | (2,936 | ) | | 81 | | (2,855 | ) | |||||||||||||||||
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(Unaudited) |
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Net income |
| | | 3,838 | | 3,838 | 5 | 3,843 | ||||||||||||||||||||||||||||
Other comprehensive income (loss) |
(81 | ) | (81 | ) | | (81 | ) | |||||||||||||||||||||||||||||
Other |
| | | | | | (3 | ) | (3 | ) | ||||||||||||||||||||||||||
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Balance as of September 30, 2017 |
108,000 | | 881 | | 16,666 | | (15,068 | ) | | (1,658 | ) | | 821 | | 83 | | 904 | |||||||||||||||||||
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See accompanying notes to consolidated financial statements.
32
JOTEC AG AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
| 3,843 | | 965 | ||||
Adjustments to reconcile net income to net cash provided by / used in operating activities |
||||||||
Interest income receivable |
(237 | ) | | |||||
Accrued interest |
1,626 | 1,347 | ||||||
Depreciation, amortization and impairment |
1,515 | 1,275 | ||||||
(Reversal of impairment) impairment of loans provided to equity investment |
(2,846 | ) | 803 | |||||
Loss on disposal of non-current assets |
4 | 3 | ||||||
Change in deferred taxes |
1,094 | 618 | ||||||
Changes in operating assets and liabilities |
||||||||
Provisions, accrued expenses and compensation |
2,419 | (292 | ) | |||||
Inventories |
(2,364 | ) | (2,540 | ) | ||||
Trade receivables |
(1,523 | ) | (1,837 | ) | ||||
Other assets |
32 | (283 | ) | |||||
Trade payables |
(274 | ) | (416 | ) | ||||
Other liabilities |
(913 | ) | (69 | ) | ||||
Net tax receivable / payable |
112 | 100 | ||||||
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Cash flows provided by (used in) operating activities |
2,488 | (326 | ) | |||||
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Cash flows from investing activities: |
||||||||
Purchases of property, plant, equipment, and intangible assets |
(6,574 | ) | (580 | ) | ||||
Proceeds from disposal of assets |
111 | | ||||||
Collection of (investment in) notes receivable |
4,087 | (1,256 | ) | |||||
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Cash flows used in investing activities |
(2,376 | ) | (1,836 | ) | ||||
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Cash flows from financing activities: |
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Capital lease obligation |
2,829 | | ||||||
Repayment of capital lease obligations |
(543 | ) | (581 | ) | ||||
Proceeds from bank debt |
590 | 580 | ||||||
Repayments of bank debt |
(167 | ) | (125 | ) | ||||
Repayments on shareholder loans |
(4,459 | ) | | |||||
Proceeds from shareholder loans |
1,200 | 800 | ||||||
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Cash flows (used in) provided by financing activities |
(550 | ) | 674 | |||||
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Cash and cash equivalents at the end of the period |
||||||||
Net change in cash and cash equivalents |
(438 | ) | (1,488 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(238 | ) | (23 | ) | ||||
Cash and cash equivalents at the beginning of the period |
2,910 | 3,318 | ||||||
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Cash and cash equivalents at the end of the period |
| 2,234 | | 1,807 | ||||
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Supplementary information on cash flow |
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Cash paid for income taxes |
| 428 | | (309 | ) | |||
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Cash paid for interest |
| 283 | | (632 | ) | |||
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See accompanying notes to consolidated financial statements.
33
JOTEC AG AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Business and Corporate Information
The accompanying consolidated financial statements of JOTEC AG (the Company) and its subsidiaries (collectively, JOTEC or the Group) have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) as issued by the Financial Accounting Standards Board (FASB), and include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained. All significant inter-company accounts and transactions have been eliminated in consolidation. For those consolidated subsidiaries where JOTEC ownership is less than 100%, the outside shareholders interests are shown as non-controlling interests in equity.
The accompanying Summary Consolidated Balance Sheet as of December 31, 2016 has been derived from audited financial statements. The accompanying unaudited summary consolidated financial statements as of, and for the nine months ended, September 30, 2017 and 2016 have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, such statements do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These summary consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in JOTEC consolidated financial statements for the year ended December 31, 2016.
New Accounting Pronouncements
Recently adopted
In July 2015, the FASB issued ASU 2015-11, simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 is effective for the Company for annual periods in fiscal years beginning after December 15, 2016. The Company adopted the new standard beginning January 1, 2017, and determined that the adoption did not have a material effect on the Groups consolidated financial statements.
Not yet effective
In July 2015, the FASB issued ASU 2015-11, simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 is effective for the Company for annual periods in fiscal years beginning after December 15, 2016. The Company concluded that adoption of the new standard effective January 1, 2017 did not have a material effect on the Companys consolidated financial statements.
In February 2016, the Financial Accounting Standards Board (FASB) amended its Accounting Standards Codification and created a new Topic 842, Leases. The final guidance requires lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income statements similar to the current Topic 840, Leases. It is effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. The Group is evaluating the impact the adoption of this standard will have on its financial position, results of operations, and cash flows.
In March 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-09, Improvements to Employee Share-Based Payment Accounting as part of its simplification initiative, which involves several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Group expects that the change will not have any impact on the Groups results of operations.
In May 2014 the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Adoption of the new standard is effective for reporting periods beginning after December 15, 2017, and early adoption is permitted. The standard permits the use of either the full retrospective or modified retrospective transition method. The Group is performing its initial evaluation of its standard arrangements with customers and its arrangements specific to certain of the Groups product lines or product offerings. The Group is continuing to evaluate the effect that ASU 2014-09 will have on its financial position, results of operations, cash flows, and related disclosures.
34
JOTEC AG AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
2. Acquisition of Non-Compete and Other Intangibles
On March 9, 2017 JOTEC AG, JOTEC do Brazil and Neomex Hospitalar LTDA., Campinas, Brazil entered in a master purchase agreement whereby the Company acquired a non-compete and other intangibles for JOTEC products in the Brazilian market from the former sales agent Neomex. The purchase price for these intangibles was 2,500,000 with an obligation for additional purchase price consideration under certain circumstances.
3. Inventories
Inventories at September 30, 2017 and December 31, 2016 are comprised of the following (in thousands):
September 30, 2017 |
December 31, 2016 |
|||||||
Raw materials and supplies |
| 2,458 | | 2,569 | ||||
Unfinished goods and work in progress |
2,217 | 1,243 | ||||||
Finished goods |
8,161 | 6,660 | ||||||
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|
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Total inventories |
| 12,836 | | 10,472 | ||||
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|
|
The Group recorded write-downs to inventory of 729,000 and 437,000 for the nine months ended September 30, 2017 and 2016, respectively. Inventory held on consignment was 2,544,000 and 2,254,000 at September 30, 2017 and December 31, 2016.
4. Property, Plant and Equipment and Intangibles
Property, plant and equipment consist of the following (in thousands):
September 30, 2017 |
December 31, 2016 |
|||||||
Building and land improvements |
| 6,809 | | 6,605 | ||||
Technical equipment and machines |
5,417 | 5,173 | ||||||
Other equipment, furniture and fixtures |
3,664 | 3,659 | ||||||
Software |
1,219 | 1,171 | ||||||
Payments on account and assets under construction |
527 | 420 | ||||||
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|
|||||
Total property, plant and equipment |
17,636 | 17,028 | ||||||
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|
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Less accumulated depreciation |
6,380 | 8,612 | ||||||
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Total property, plant and equipment, net |
| 11,256 | | 8,416 | ||||
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Intangible Assets
As of September 30, 2017 and December 31, 2016 gross carrying values, accumulated amortization, and approximate amortization periods of the Companys definite lived intangible assets are as follows (in thousands):
Gross acquisition cost |
Accumulated amortization |
|||||||
September 30, 2017 |
||||||||
Purchased franchises and licenses in industrial and similar rights and assets |
| 466 | | 451 | ||||
Non-compete and other intangibles |
3,946 | 671 | ||||||
|
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|
|||||
| 4,412 | | 1,122 | |||||
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|
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35
JOTEC AG AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Gross acquisition cost |
Accumulated amortization |
|||||||
December 31, 2016 |
||||||||
Purchased franchises and licenses in industrial and similar rights and assets |
| 477 | | 453 | ||||
Non-compete and other intangibles |
1,506 | 330 | ||||||
|
|
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|
|||||
| 1,983 | | 783 | |||||
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|
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Amortization Expense
Amortization expense recorded in general, administrative, and marketing expenses for the nine months ended September 30 is as follows (in thousands):
Nine Months Ended September 30, |
||||||||
2017 | 2016 | |||||||
Amortization expense |
| 341 | | 175 |
As of September 30, 2017 scheduled amortization of intangible assets is as follows (in thousands):
Remainder of 2017 |
2018 | 2019 | 2020 | 2021 | Thereafter | |||||||||||||||||||
Amortization expense |
| 99 | | 415 | | 415 | | 387 | | 387 | | 1,565 |
5. Capital Lease Obligation and Operating Lease Commitments
The Company leases buildings and equipment, primarily consisting of:
| the lease of two properties (land and buildings) in Lotzenäcker 23 and Lotzenäcker 25, Hechingen, Germany, which includes the companys production facility or corporate office buildings. |
| lease of production equipment and machinery |
The Company has capital leases for one building at the Group headquarters in Hechingen (building Lotzenäcker 23) with a shareholder (see note 10) and for several production machines and equipment. These leases have renewal clause providing for annual 1 year auto renewals unless the lease is terminated, but no purchase options and escalation clauses.
Future minimum capital lease payments for buildings and equipment are as follows (in thousands):
September 30, 2017 |
||||
Up to 1 Year |
| 867 | ||
1 to 2 Years |
884 | |||
2 to 3 Years |
779 | |||
3 to 4 Years |
712 | |||
4 to 5 Years |
654 | |||
More than 5 Years |
5,406 | |||
|
|
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Total |
| 9,302 | ||
|
|
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Less amount representing interest (at rates ranging from 2.0% to 4.0%) |
(2,961 | ) | ||
|
|
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Present value of net minimum capital lease payments |
6,341 | |||
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Less current portion of minimum lease payments |
(776 | ) | ||
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|
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Long-term obligations under capital leases |
| 5,565 | ||
|
|
36
JOTEC AG AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Building and production equipment capitalized values and accumulated amortization are as follows (in thousands):
September 30, 2017 |
December 31, 2016 |
|||||||
Historical costs capitalized |
| 6,882 | | 6,693 | ||||
Cumulative depreciation |
3,582 | 3,024 | ||||||
|
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|
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Carrying amount |
| 3,300 | | 3,669 | ||||
|
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|
|
On June 19, 2017, the lease agreement for the property Lotzenäcker 23 in Hechingen was extended between the owner of the property and shareholder Lars Sunnanväder and JOTEC GmbH from June 2017 until December 31, 2030. All other terms of the lease agreement remained unchanged. Due to this modification, the accounting for the capital lease of the building Lotzenäcker 23 was adjusted in June 2017, resulting in an increase of the capital lease obligation by 2,829,000, an increase of the carrying value of the leased building asset by 3,163,000, and in income from the modification for the leased asset in the amount of 336,000.
The future minimum lease payments on non-cancellable operating lease agreements at September 30, are:
2017 | ||||
Within a year |
| 533 | ||
After a year but no more than five years |
1,699 | |||
More than five years |
2,721 | |||
|
|
|||
| 4,953 | |||
|
|
6. Shareholder Loans
(in thousands) | September 30, 2017 |
December 31, 2016 |
Loan Repayment Date |
Interest Rate |
||||||||||||
Original loan date |
||||||||||||||||
12/31/2007 |
| 17,880 | | 21,756 | December 2020 | 2.00 | % | |||||||||
12/22/2008 |
220 | 220 | December 2020 | 2.00 | % | |||||||||||
12/30/2008 |
220 | 220 | December 2020 | 2.00 | % | |||||||||||
12/31/2008 |
1,340 | 1,340 | December 2020 | 2.00 | % | |||||||||||
2/20/2014 |
1,154 | 1,154 | December 2019 | 3.25 | % | |||||||||||
2/28/2015 |
466 | 466 | December 2019 | 3.25 | % | |||||||||||
3/23/2015 |
466 | 466 | December 2019 | 3.25 | % | |||||||||||
5/28/2016 |
800 | 800 | December 2020 | 1.50 | % | |||||||||||
|
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|
|||||||||||||
Nominal amount |
| 22,546 | | 26,422 | ||||||||||||
|
|
|
|
|||||||||||||
Carrying value |
| 22,412 | | 24,565 | ||||||||||||
|
|
|
|
All shareholder loans are unsecured. As of December 31, 2016, a subordination agreement was provided for 13,845,000 of the shareholder loans. The subordinated portion of the outstanding loan balance was reduced through an agreement in January 2017, resulting in a subordinated amount of CHF 8,000,000 or 7,339,000 at September 30, 2017. The shareholder loans were provided during the period 2007 to 2016 with fixed interest rates of 1.5 to 3.25%. The Group determined that the rates of the shareholder loans were less than those which the Group would have been able to negotiate with a third-party lender for debt with the same terms. Accordingly, the group has recorded the difference in the fair value of the loan, calculated using an imputed interest rate of 11%, and the stated loan contract value as additional paid in capital.
37
JOTEC AG AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Government Supported Bank Debt
In June 2015, JOTEC GmbH obtained two loans of Sparkasse Zollernalb, which are government sponsored by the Kreditanstalt für Wiederaufbau Bank (KFW). Both KFW loans have a term of 9 years and the interest rates are 2.45% and 1.4%. These interest rates compare to a market interest rate of 3.8% for similar debt provided to the Group. The difference between the initial carrying value of the loan and the proceeds received is treated as a government grant. The benefit of the below market rate of interest was measured as the difference between the initial carrying value of the loan determined applying a market interest rate and the proceeds received.
The total government grant value for the first KFW loan is 124,000 and 249,000 for the second KFW loan. The remaining balance of this government grant was 254,000 and 299,000 as of September 30, 2017 and December 31, 2016, respectively. Other operating income for the nine months ended September 30, 2017 and 2016 includes 45,000 and 38,000, respectively from the straight-line recognition of this government grant.
Nominal Value (EUR) September 30, 2017 |
Carrying Value (EUR) September 30, 2017 |
Nominal Value (EUR) December 31, 2016 |
Carrying Value (EUR) December 31, 2016 |
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Lendor |
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Sparkasse Zollernalb (KFW Loan 1) |
1,444 | 1,381 | 1,611 | 1,532 | ||||||||||||
Sparkasse Zollernalb (KFW Loan 2) |
2,000 | 1,810 | 1,410 | 1,190 | ||||||||||||
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Total |
3,444 | 3,191 | 3,021 | 2,722 | ||||||||||||
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|
The KFW loans require quarterly principal installments of 119,000, plus interest at 1.4% and 2.45% on Loan 1 and Loan 2, respectively.
7. Income Taxes
Our effective income tax rate was 30% and 48% for the nine months ended September 30, 2017 and 2016, respectively. Our income tax rate for the nine months ended September 30, 2017 was impacted by differing tax rates for certain subsidiaries and no recognition of deferred tax assets for losses incurred by JOTEC UK. Our income tax rate for the nine months ended September 30, 2016 was impacted by unrecognized deferred tax loss carryforwards of 17,000, tax effects due to differing tax rates of 337,000 and other effects of 53,000.
Deferred Income Taxes
As of September 30, 2017 we maintained a total of 241,000 in valuation allowances against deferred tax assets, related to tax loss carryforward of the JOTEC UK subsidiary, and had a net deferred tax asset of 1,570,000. As of December 31, 2016 we had a total of 130,000 in valuation allowances against deferred tax assets, related to net operating loss carryforwards, and a net deferred tax asset of 2,336,000.
8. Other Long-Term Liabilities
Other long-term liabilities include the following obligation (in thousands):
September 30, 2017 |
December 31, 2016 |
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Obligation Fumedica Swiss Agreement |
| 1,042 | | 1,120 | ||||
Less current portion of long-term other liabilities |
(150 | ) | (114 | ) | ||||
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Other long-term liabilities |
| 892 | | 1,006 | ||||
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Until January 2014 Fumedica AG had the exclusive right to deliver and sell JOTEC products in the Swiss market. Starting in 2014 the Group established its own office entity to perform all sales activities in the Swiss market. In January 2014 the Group terminated the sales agreement with Fumedica. As part of the agreement Fumedica provides JOTEC a non-compete agreement, customer base data, and existing inventory and future adminstrative services. In exchange, the parties agreed in January 2016 (but with retrospective date of the cancellation of the sales agreement in 2014) on a compensation payment to make by JOTEC, calculated as follows:
| 10% of future annual sales (net of VAT and after deductions) during the period January 2015 to December 2027 |
38
JOTEC AG AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
| maximum payment of CHF 1.8 million over the entire term |
| minimum annual payment of CHF 125,000 (for 2017 and 2018), of CHF 150,000 (from 2019 to 2021) and of CHF 175,000 (from 2022 to 2027). |
Based on this agreement the Group capitalized an intangible asset for the non-compete and other intangibles in the Swiss market and the present value of the future expected payments for the compensation is recorded as an obligation due to Fumedica AG. The intangibles are amortized over an expected useful life of 10 years. The obligation is accreted back to the nominal amount using an interest rate of 3.8% and is reduced by the annual payments (either 10% of the respective annual sales or the agreed minimum amounts, whatever is lower).
9. Sale of Investment and Notes Receivable NVT
JOTEC AG owned a 24.51% share of the common stock of NVT. The historical cost of this investment was CHF 125,000 which was subsequently reduced to a zero carrying value due to the accumulated losses of NVT exceeding the historical investment. This investment in NVT was sold to other NVT AG investors in March 2017 for CHF 539,000, resulting in a gain.
JOTEC AG extended loans to NVT during the years after initial investment, which were included in Notes receivable in the Group consolidated financial statements. The carrying value of these loans to NVT were 1,240,000 after impairment, nominal value of 4,087,000, in March 2017 when the notes receivable were sold to other NVT investors at the nominal value. The resulting gain is included in Other expense, net in the statements of operations and comprehensive income (loss).
10. Related Party Disclosures
A member of the Companys Board of Directors and a shareholder of the Company with significant influence, Mr. Lars Sunnanväder, is the owner of the property Lotzenäcker 23 and Lotzenäcker 25 in Hechingen that is rented to JOTEC GmbH. The obligation of the Lease contract for Lotzenäcker 23, Hechingen amounts to 7,014,000 at the inception of the Lease in 2011 and the lease payment for the nine months ended September 30, 2017 and twelve months ended December 31, 2016 were 531,000 and 708,000, respectively. The obligation of the Lease contract for Lotzenäcker 25, Hechingen amounts to 3,918,000 at the inception of the Lease and the lease payment for the nine months ended September 30, 2017 and twelve months ended December 31, 2016 were 196,000 and 261,000, respectively.
JOTEC AG has outstanding shareholder loan agreements with shareholders and their close relatives. The total interest expenses paid to the shareholders and their close relatives for the nine months ended September 30, 2017 and twelve months ended December 31, 2016 were 301,000 and 538,000 respectively. For the open balance and interest rates from these shareholder loans we refer to the table in note 6.
NVT has the same shareholder as JOTEC AG. JOTEC is providing management and administration services to NVT Group. For these services the Group charged NVT Group fees for the nine months ended September 30, 2017 and twelve months ended December 31, 2016 of 259,000 and 329,000 respectively.
In January 2016 the Group agreed in the purchase of certain intangibles from Fumedica AG, Muri, Switzerland for a maximum amount of CHF 1,800,000; for further details regarding this agreement we refer to note 8. The open balance from this contractual obligation amounts to 1,042,000 and to 1,120,000 at September 30, 2017 and December 31, 2016, respectively.
39
JOTEC AG AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
11. Subsequent Events
On December 1, 2017, 100% of the outstanding shares of JOTEC AG were acquired under terms of a securities purchase agreement, dated as of October 10, 2017, by and among CryoLife, Inc., certain of its subsidiaries, and the security holders of JOTEC AG. In conjunction with the acquisition, Cryolife acquired the outstanding shareholder loans, which were reclassified as intercompany loans from CryoLife as of that date.
40