Attached files
Exhibit 99.2
Align Technology, Inc.
Unaudited Pro Forma Consolidated Combined Financial Statements
The following unaudited pro forma consolidated combined balance sheet as of December 31, 2010 and the unaudited pro forma consolidated combined statement of operations for the year ended December 31, 2010 are based on historical statements of Align Technology, Inc. (“Align”) and Cadent Holdings, Inc. (“Cadent”), after giving effect of Align’s acquisition of Cadent on April 29, 2011 for $187,000,000 in cash, and applying the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma consolidated combined financial statements.
The unaudited pro forma consolidated combined balance sheet as of December 31, 2010 is presented as if our acquisition of Cadent had occurred on December 31, 2010. The unaudited pro forma consolidated combined statement of operations is presented as if our acquisition of Cadent had occurred on January 1, 2010. These consolidated combined financial statements are based on estimates and assumptions set forth in the notes to such statements, which are preliminary and have been made solely for purposes of developing such pro forma information.
Align’s acquisition of Cadent has been accounted for using the acquisition method of accounting. The estimated purchase price has been allocated to the acquired net tangible and intangible assets and liabilities assumed based on their estimated fair values at the date of the acquisition, and any excess allocated to goodwill.
The unaudited pro forma combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations in future periods. The unaudited pro forma consolidated financial statements should be read in conjunctions with Align’s historical consolidated financial statements and notes thereto contained in Align’s Annual Report on Form 10-K for its fiscal year ended December 31, 2010 and Cadent’s historical consolidated financial statements and notes thereto contained herein for its fiscal years ended December 31, 2010 and December 31, 2009, which are included in Exhibit 99.1 to this Form 8-K/A.
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ALIGN TECHNOLOGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET
As of December 31, 2010
(in thousands)
| Historical | ||||||||||||||||||
| As of
December 31, 2010 |
Pro Forma | Pro Forma | ||||||||||||||||
| Align | Cadent (1) | Adjustments | Notes |
Combined | ||||||||||||||
| ASSETS |
||||||||||||||||||
| Current assets: |
||||||||||||||||||
| Cash and cash equivalents |
$ | 294,664 | $ | 8,368 | $ | (187,000 | ) | [A] | $ | 116,032 | ||||||||
| Marketable securities, short-term |
8,615 | — | — | 8,615 | ||||||||||||||
| Accounts receivable, net |
65,430 | 6,409 | (209 | ) | [B] | 71,630 | ||||||||||||
| Inventories |
2,544 | 2,490 | — | 5,034 | ||||||||||||||
| Prepaid expenses and other current assets |
17,358 | 404 | 2,592 | [D], [K] | 20,354 | |||||||||||||
| Total current assets |
388,611 | 17,671 | (184,617 | ) | 221,665 | |||||||||||||
| Marketable securities, long-term |
9,089 | — | — | 9,089 | ||||||||||||||
| Property and equipment, net |
30,684 | 2,645 | 1,313 | [C] | 34,642 | |||||||||||||
| Goodwill |
478 | — | 135,497 | [F] | 135,975 | |||||||||||||
| Intangible assets, net |
2,188 | — | 52,100 | [F] | 54,288 | |||||||||||||
| Deferred tax asset |
42,439 | — | 1,195 | [D] | 43,634 | |||||||||||||
| Other assets |
3,454 | 1,696 | — | 5,150 | ||||||||||||||
| Total assets |
$ | 476,943 | $ | 22,012 | $ | 5,488 | $ | 504,443 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) |
||||||||||||||||||
| Current liabilities: |
||||||||||||||||||
| Notes payable and capital lease obligations |
$ | — | $ | 4,703 | $ | (4,703 | ) | [K] | $ | — | ||||||||
| Accounts payable |
7,768 | 4,490 | — | 12,258 | ||||||||||||||
| Accrued liabilities |
51,358 | 5,890 | 6,379 | [N] | 63,627 | |||||||||||||
| Deferred revenues |
33,848 | 1,589 | (292 | ) | [E] | 35,145 | ||||||||||||
| Total current liabilities |
92,974 | 16,672 | 1,384 | 111,030 | ||||||||||||||
| Other long-term liabilities |
6,222 | 13,496 | 2,112 | [D], [K], [M] | 21,830 | |||||||||||||
| Total liabilities |
99,196 | 30,168 | 3,496 | 132,860 | ||||||||||||||
| Stockholders’ equity (deficiency): |
||||||||||||||||||
| Convertible preferred stock |
— | 145,164 | (145,164 | ) | [G] | — | ||||||||||||
| Common stock |
8 | — | — | 8 | ||||||||||||||
| Additional paid-in capital |
555,851 | 3,422 | (3,422 | ) | [G] | 555,851 | ||||||||||||
| Accumulated other comprehensive income, net |
134 | — | — | 134 | ||||||||||||||
| Accumulated deficit |
(178,246 | ) | (156,742 | ) | 150,578 | [G] | (184,410 | ) | ||||||||||
| Total stockholders’ equity (deficiency) |
377,747 | (8,156 | ) | 1,992 | 371,583 | |||||||||||||
| Total liabilities and stockholders’ equity |
$ | 476,943 | $ | 22,012 | $ | 5,488 | $ | 504,443 | ||||||||||
| (1) | Certain reclassifications were made to conform to Align’s financial statement presentation. |
See accompanying notes to unaudited pro forma consolidated combined financial statements.
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ALIGN TECHNOLOGY, INC.
UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2010
(in thousands)
| Historical | ||||||||||||||||||
| Year Ended December 31, 2010 |
Pro
Forma Adjustments |
Pro
Forma Combined |
||||||||||||||||
| Align | Cadent (1) | Notes |
||||||||||||||||
| Net revenues: |
||||||||||||||||||
| Invisalign and Scanners |
$ | 366,955 | $ | 13,710 | $ | — | $ | 380,665 | ||||||||||
| Non-case and Services |
20,171 | 24,189 | — | 44,360 | ||||||||||||||
| Total net revenues |
387,126 | 37,899 | — | 425,025 | ||||||||||||||
| Cost of revenues: |
||||||||||||||||||
| Invisalign and Scanners |
74,418 | 9,012 | 862 | [C], [I] | 84,292 | |||||||||||||
| Non-case and Services |
9,291 | 11,920 | 520 | [H] | 21,731 | |||||||||||||
| Total cost of revenues |
83,709 | 20,932 | 1,382 | 106,023 | ||||||||||||||
| Gross profit |
303,417 | 16,967 | (1,382 | ) | 319,002 | |||||||||||||
| Operating expenses: |
||||||||||||||||||
| Sales and marketing |
114,013 | 7,693 | (925 | ) | [C], [H] | 120,781 | ||||||||||||
| General and administrative |
64,790 | 6,367 | (87 | ) | [C] | 71,070 | ||||||||||||
| Research and development |
25,997 | 5,143 | (48 | ) | [C] | 31,092 | ||||||||||||
| Litigation settlement costs |
4,549 | — | — | 4,549 | ||||||||||||||
| Insurance settlement |
(8,666 | ) | — | — | (8,666 | ) | ||||||||||||
| Amortization of acquired intangibles |
— | — | 3,619 | [I] | 3,619 | |||||||||||||
| Total operating expenses |
200,683 | 19,203 | 2,559 | 222,445 | ||||||||||||||
| Profit (loss) from operations |
102,734 | (2,236 | ) | (3,941 | ) | 96,557 | ||||||||||||
| Interest income |
555 | 32 | (430 | ) | [J] | 157 | ||||||||||||
| Interest expense |
(19 | ) | (1,871 | ) | 1,723 | [K] | (167 | ) | ||||||||||
| Other income (expense) |
(1,267 | ) | 513 | (741 | ) | [K] | (1,495 | ) | ||||||||||
| Net profit (loss) before provision for income taxes |
102,003 | (3,562 | ) | (3,389 | ) | 95,052 | ||||||||||||
| Provision for (benefit from) income taxes |
27,750 | — | 712 | [L] | 28,462 | |||||||||||||
| Net profit (loss) |
$ | 74,253 | $ | (3,562 | ) | $ | (4,101 | ) | $ | 66,590 | ||||||||
| Net profit per share: |
||||||||||||||||||
| Basic |
$ | 0.98 | $ | 0.88 | ||||||||||||||
| Diluted |
$ | 0.95 | $ | 0.85 | ||||||||||||||
| Shares used in computing net profit per share: |
||||||||||||||||||
| Basic |
75,825 | 75,825 | ||||||||||||||||
| Diluted |
78,080 | 78,080 | ||||||||||||||||
| (1) | Certain reclassifications were made to conform to Align’s financial statement presentation. |
See accompanying notes to unaudited pro forma consolidated combined financial statements.
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ALIGN TECHNOLOGY, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
On April 29, 2011, Align Technology, Inc. (“Align”) completed the previously announced acquisition of Cadent Holdings, Inc. (“Cadent”) pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) announced by Align on March 29, 2011. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Align acquired Cadent by means of a merger of Cadent with a wholly owned subsidiary of Align, with Cadent continuing as the surviving corporation and a wholly owned subsidiary of Align. The aggregate purchase price was approximately $187.0 million, which was paid in cash.
The following table summarizes the allocation of the preliminary purchase price as of April 29, 2011 (in thousands):
| Assets |
$ | 13,088 | ||
| Property, plant and equipment |
3,541 | |||
| Acquired indentifiable intangible assets: |
||||
| Tradenames (one to fifteen-year useful lives) |
10,300 | |||
| Existing technology (eleven to thirteen-year useful lives) |
11,900 | |||
| Customer relationships (ten to twelve-year useful lives) |
29,900 | |||
| Goodwill |
135,497 | |||
| Liabilities assumed |
(17,226 | ) | ||
| Total |
$ | 187,000 | ||
The preliminary allocation is based on estimates, assumptions, valuations and other studies which have not progressed to a stage where there is sufficient information to make a definitive allocation. Accordingly, the allocation will remain preliminary until Align has all information to finalize the allocation of the purchase price.
Goodwill of $135.5 million represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets, and represents the expected synergistic benefits of the transaction and the knowledge and experience of the workforce in place. Under the applicable accounting guidance, goodwill will not be amortized but will be tested for impairment on an annual basis or more frequently if certain indicators are present.
2. PRO FORMA ADJUSTMENTS
The accompanying unaudited consolidated combined financial statements have been prepared as if the acquisition was completed on December 31, 2010 for the purposes of the balance sheet and January 1, 2010 for the purposes of the statement of operations and reflects the following pro forma adjustments
[A] To record cash paid for the acquisition of Cadent (in thousands):
| Cash consideration |
$ | (176,360 | ) | |
| Settlement of Cadent’s term loans, lease obligations, banking fees |
(10,640 | ) | ||
| Decrease in cash and cash equivalents |
$ | (187,000 | ) | |
[B] To adjust Cadent’s accounts receivable to reflect fair value.
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[C] To record the difference between the historical amounts of Cadent’s property and equipment and preliminary estimated fair values of Cadent’s property and equipment acquired and the resulting change in depreciation expense.
[D] Align recorded a deferred tax liability of $9.1 million related to the acquired intangible assets. As a result of the acquisition, $3.9 million of valuation allowance related to Cadent’s U.S. deferred tax assets was released due to Align’s historical and expected taxable income and the ability to utilize Cadent’s deferred tax assets. The valuation allowance related to Cadent’s foreign deferred tax assets is maintained due to a lack of historical profitability and uncertain future profitability. Of the $3.9 million of Cadent’s deferred tax assets released, $2.6 million relate to U.S. Federal and state net operating losses.
[E] To adjust Cadent’s deferred revenue to fair value, representing the legal performance obligations under Cadent’s existing contracts.
[F] To record goodwill and the acquired intangible assets for the acquisition of Cadent. See Note 1.
[G] To record the following adjustments to stockholders’ equity (in thousands):
| Eliminate Cadent’s convertible preferred stock |
$ | (145,164 | ) | |
| Eliminate Cadent’s additional paid-in-capital |
(3,422 | ) | ||
| Eliminate Cadent’s accumulated deficit |
145,360 | |||
| Record total direct acquisition costs incurred by Align, net of tax |
5,218 | |||
| Total adjustment to stockholders’ deficiency |
$ | 1,992 | ||
[H] To reclassify Cadent’s training expenses into cost of sales for the fiscal year ended December 31, 2010 in order to conform to Align’s business policy.
[I] To record amortization of intangible assets for the fiscal year ended December 31, 2010 (in thousands, except for estimated useful lives).
| Amount | Estimated Useful Life (in years) |
First Year Amortization |
Expense Type | |||||||||
| Trade names |
$ | 10,300 | 1-15 | $ | 901 | Operating expenses | ||||||
| Existing technology |
11,900 | 1-14 | 1,115 | Cost of revenue | ||||||||
| Customer relationships |
29,900 | 11 | 2,718 | Operating expenses | ||||||||
| Total |
$ | 52,100 | $ | 4,734 | ||||||||
[J] To adjust Align’s interest income for cash paid for the acquisition of Cadent.
[K] To eliminate Cadent’s debt as set forth in the settlement agreement and the related financing costs.
[L] To record the tax provision to reflect the pro forma income tax impact at the appropriate jurisdictional statutory tax rate in which the pro forma adjustments are expected to be recorded. The pro forma combined provision for income taxes does not reflect the amounts that would have resulted had Align and Cadent filed consolidated tax returns during the period presented. The effective tax rate for the combined pro forma is approximately 29.9%.
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[M] To eliminate the non-refundable funds paid by Align to Cadent in connection with an exclusivity agreement.
[N] To record the direct acquisition costs incurred by Align.
3. NET PROFIT PER SHARE
The pro forma basic and diluted profit per share amounts presented in the unaudited pro forma combined consolidated statement of operations are based upon the weighted-average number of Align’s common shares outstanding.
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