Attached files
Exhibit 99.9
(b) Pro forma financial information
Unaudited Pro Forma Combined Condensed Consolidated Financial Statements
On March 18, 2011, Utah Medical Products, Inc. (UTMD) purchased all of the outstanding shares of Femcare Group Ltd (Femcare) of the United Kingdom, and its subsidiaries (the Acquisition) for a purchase price of $41 million, including consideration for patent rights and non-competition agreements. The Acquisition was effected pursuant to Stock Purchase Agreements, dated March 18, 2011.
The unaudited pro forma combined condensed consolidated balance sheet as of December 31, 2010 is presented as if the acquisition of Femcare had occurred on December 31, 2010. The unaudited pro forma combined condensed consolidated statements of operations for the year ended December 31, 2010 are presented as if the acquisition of Femcare had occurred on January 1, 2010 with acquisition-related adjustments reflected in the period presented. The unaudited pro forma combined condensed consolidated financial information has been prepared by UTMD’s management. Certain amounts of Femcare’s historical financial statements have been reclassified to conform to
UTMD’s presentation.
The Acquisition has been accounted for using the acquisition method of accounting and, accordingly, the total estimated purchase consideration of the acquisition was allocated to tangible assets and identifiable intangible assets acquired and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets acquired and liabilities assumed was recorded as goodwill. Determination of the Femcare purchase price and allocation of the Femcare purchase price used in the unaudited pro forma combined condensed consolidated financial statements are based upon preliminary estimates and
assumptions. These preliminary estimates and assumptions could change significantly during the measurement period as UTMD finalizes the valuation of the net intangible assets and intangible assets acquired and liabilities assumed. Any change could result in material variances between future financial results and the amounts presented in these unaudited pro forma combined condensed consolidated financial statements, including variances in fair values recorded, as well as expenses associated with these items.
The unaudited pro forma combined condensed consolidated statements of operations do not reflect nonrecurring acquisition-related charges resulting from the acquisition transaction.
The unaudited pro forma combined condensed consolidated statements are for information purposes only and do not purport to represent what the Company’s actual results would have been if the acquisition had been completed as of the date indicated above or that may be achieved in the future. The unaudited pro forma combined condensed consolidated statement of operations does not include the effects of any cost savings from operating efficiencies and synergies that may result from the acquisition.
The unaudited pro forma combined condensed consolidated financial statements, including the notes thereto, should be read in conjunction with UTMD’s historical financial statements, filed with the SEC, its Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 3, 2011, and its Quarterly Report on Form 10-Q for the three months ended March 31, 2011 filed on May 10, 2011.
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UTAH MEDICAL PRODUCTS, INC.
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UNAUDITED PRO FORMA COMBINED
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CONDENSED CONSOLIDATED BALANCE SHEET
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(In thousands)
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Historical as of
December 31, 2010
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Utah
Medical
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Femcare
Group
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Pro forma
adjustments
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Pro forma
combined
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ASSETS
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Current assets:
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Cash
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$ | 3,818 | $ | 5,499 | $ | (2,547 | ) |
(A)
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$ | 6,770 | |||||||
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Investments, available-for-sale
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14,718 | - | (14,718 | ) |
(A)
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- | |||||||||||
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Accounts and other receivables, net
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3,164 | 1,591 | (2 | ) |
(B)
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4,753 | |||||||||||
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Inventories
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3,097 | 1,035 | 4,132 | ||||||||||||||
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Prepaid expenses and other current assets
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161 | 635 | (203 | ) |
(B)
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593 | |||||||||||
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Other current assets
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185 | 2 | (2 | ) |
(B)
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185 | |||||||||||
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Total current assets
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25,142 | 8,762 | (17,472 | ) | 16,432 | ||||||||||||
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Property and equipment, net
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8,750 | 616 | 9,365 | ||||||||||||||
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Goodwill - net
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7,191 | 8,482 | 289 |
(C)
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15,963 | ||||||||||||
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Intangible assets - net
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- | 9,738 | 27,466 |
(D)
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37,203 | ||||||||||||
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Other intangible assets - net
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155 | 101 | 256 | ||||||||||||||
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Total assets
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$ | 41,238 | $ | 27,699 | $ | 10,282 | $ | 79,220 | |||||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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$ | 398 | $ | 860 | $ | 1,257 | |||||||||||
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Accrued expenses
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1,290 | 1,612 | (469 | ) |
(B)
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2,433 | |||||||||||
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Current portion of notes payable
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215 | 281 | 5,016 |
(E)
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5,513 | ||||||||||||
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Other
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- | 518 | (241 | ) |
(B)
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277 | |||||||||||
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Total current liabilities
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1,903 | 3,271 | 4,307 | 9,481 | |||||||||||||
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Long term debt
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909 | 38,966 | (17,776 | ) |
(E)
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22,099 | |||||||||||
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Deferred tax liability - intangible assets
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- | 2,755 | 6,016 |
(F)
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8,771 | ||||||||||||
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Other long term liabilities
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634 | - | 443 |
(B)
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1,078 | ||||||||||||
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Total liabilities
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3,446 | 44,991 | (7,010 | ) | 41,428 | ||||||||||||
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Stockholders' equity:
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Preferred stock
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- | 9 | (9 | ) |
(G)
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- | |||||||||||
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Common stock
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36 | 7 | (7 | ) |
(G)
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36 | |||||||||||
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Accumulated other comprehensive (loss)
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(1,275 | ) | - | - | (1,275 | ) | |||||||||||
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Additional paid-in capital
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107 | 634 | (634 | ) |
(G)
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107 | |||||||||||
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Treasury shares
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- | (206 | ) | 206 |
(G)
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- | |||||||||||
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Retained earnings (accumulated deficit)
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38,924 | (17,735 | ) | 17,735 |
(G)
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38,924 | |||||||||||
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Total stockholders' equity
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37,792 | (17,292 | ) | 17,292 | 37,792 | ||||||||||||
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Total liabilities and stockholders' equity
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$ | 41,238 | $ | 27,699 | $ | 10,282 | $ | 79,220 | |||||||||
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See notes to unaudited pro forma combined condensed consolidated financial statements.
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UTAH MEDICAL PRODUCTS, INC.
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UNAUDITED PRO FORMA COMBINED CONDENSED
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CONSOLIDATED STATEMENT OF OPERATIONS
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(In thousands, except per share amounts)
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Historical
For the Twelve Months Ended
December 31, 2010
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Utah Medical
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Femcare Group
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Pro forma
adjustments
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Pro forma
combined
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Sales, net
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$ | 25,121 | $ | 15,367 | $ | $ | 40,488 | ||||||||||
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Cost of goods sold
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11,911 | 4,709 | 16,620 | ||||||||||||||
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Gross profit
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13,209 | 10,658 | 23,867 | ||||||||||||||
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Operating expense:
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Sales and marketing
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1,537 | 2,234 | 3,772 | ||||||||||||||
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Research and development
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397 | 417 | 813 | ||||||||||||||
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General and administrative
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2,354 | 6,376 | (545 | ) |
(H)
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8,185 | |||||||||||
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Total operating expense
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4,288 | 9,027 | (545 | ) | 12,770 | ||||||||||||
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Income from operations
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8,922 | 1,631 | 545 | 11,097 | |||||||||||||
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Other income (expense):
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Dividend and interest income
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48 | 19 | 67 | ||||||||||||||
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Capital gains and (losses) on investments
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(9 | ) | - | (9 | ) | ||||||||||||
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Royalty income
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- | 125 | 125 | ||||||||||||||
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Interest expense
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(25 | ) | (3,456 | ) | 2,402 |
(I)
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(1,079 | ) | |||||||||
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Other, net
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104 | - | 104 | ||||||||||||||
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Total other income (expense)
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119 | (3,312 | ) | 2,402 | (791 | ) | |||||||||||
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Income before provision for income taxes
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9,041 | (1,682 | ) | 2,947 | 10,306 | ||||||||||||
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Provision for income taxes
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3,026 | (173 | ) | 425 |
(J)
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3,279 | |||||||||||
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Net income
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$ | 6,014 | $ | (1,509 | ) | $ | 2,522 | $ | 7,027 | ||||||||
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Earnings per common share (basic):
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$ | 1.66 | $ | 1.94 | |||||||||||||
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Earnings per common share (diluted):
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$ | 1.65 | $ | 1.93 | |||||||||||||
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Shares outstanding - basic
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3,621 | 3,621 | |||||||||||||||
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Shares outstanding - diluted
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3,643 | 3,643 | |||||||||||||||
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See notes to unaudited pro forma combined condensed consolidated financial statements.
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UTAH MEDICAL PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation. On March 18, 2011, UTMD acquired Femcare pursuant to purchase agreements. The unaudited pro forma combined condensed consolidated balance sheet as of December 31, 2010 is based on historical financial statements of UTMD and Femcare. The unaudited pro forma combined condensed consolidated balance sheet as of December 31, 2010 is presented as if the acquisition had occurred on December 31, 2010. Historical Femcare
balance sheet amounts assume a USD/GBP exchange rate of 1.5609. The unaudited pro forma combined condensed consolidated financial information has been prepared by UTMD management. Certain amounts from Femcare’s historical consolidated financial statements have been reclassified to conform with UTMD’s presentation. Currency amounts in this report are in thousands, except per-share amounts and where noted.
The unaudited pro forma combined condensed consolidated statements of operations for the year ended December 31, 2010 are based on historical financial statements for the year then ended after giving effect to the acquisition adjustments. The unaudited pro forma combined condensed consolidated statements of operations are presented as it the Femcare acquisition had occurred on January 1, 2010. Historical Femcare statements of operations amounts assume an average USD/GBP exchange rate of 1.5506.
2. Purchase Price Allocation. On March 18, 2011, UTMD acquired Femcare in an all cash transaction valued at approximately $41 million, inclusive of all common equity and preferred equity preferences. Femcare markets medical devices and instruments for gynecology, urology and general surgery, and is best known for its leading global brand the Filshie Clip – a female surgical contraception device (tubal ligation). UTMD expects the business combination will provide diversification, expansion and integration benefits
that each company separately did not have the opportunity to achieve.
The purchase price of $41 million is subject to adjustments. A two-year $3.2 million escrow was set aside from the purchase price to back the warranties and representations of the sellers. UTMD is in the process of finalizing its valuation of certain tangible and intangible assets and residual goodwill acquired in the transaction which may result in a claim against the escrow and adjustment to the purchase price. UTMD intends to complete its purchase price allocation no later than one year from the date of acquisition. If a subsequent adjustment after one year is needed, it will be recorded as an expense or income. The purchase price allocation below
may change as more defined analyses are completed and additional information about fair value of assets and liabilities becomes available. The purchase price was preliminarily allocated as follows:
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Assets Acquired
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Accounts receivable
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$ | 2,176 | ||||
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Prepaid expenses
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344 | |||||
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Inventory
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1,319 | |||||
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Property and equipment
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606 | |||||
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Identifiable Intangibles
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Patents
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97 | |||||
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Non-compete agreements
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162 | |||||
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Trademarks, trade names
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11,559 | |||||
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Customer relationships
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11,559 | |||||
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Regulatory approvals & product certifications
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15,419 | |||||
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Goodwill
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9,084 | |||||
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Total assets acquired
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52,325 | |||||
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Liabilities Assumed
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Accounts payable
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1,107 | |||||
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Accrued expenses
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1,049 | |||||
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Deferred tax liability
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9,084 | |||||
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Total liabilities assumed
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11,241 | |||||
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Net assets acquired
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$ | 41,084 | ||||
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With respect to the assets acquired from Femcare, UTMD will amortize the patents and non-compete agreements over 10 and 5 years, respectively. The other $38,537 in identifiable intangibles will be amortized over 15 years. The $9,084 in deferred tax liability and goodwill results from the difference between the book basis and tax basis of the accumulated amortization of identifiable intangible assets. The deferred tax liability will decline to zero over 15 years as the tax basis of the intangibles declines. The goodwill, which is not deductible for income tax purposes, will not be amortized, but will be written down if and when the value becomes
impaired.
Estimated amortization expense for the identifiable intangibles is expected to be $2,584 per year for each of the next five years, assuming an average USD/GBP exchange rate of 1.60.
The Company expects to incur about $300 in total acquisition related expenses, comprised primarily of legal costs and long-term debt issuance costs related to loans from JPMorgan Chase Bank, N.A., all of which are being expensed as they occur. Expenses that facilitated the acquisition transaction have been capitalized for income tax purposes.
3. Long-Term Debt. On March 17, 2011, UTMD obtained a $14,000 loan from JPMorgan Chase Bank, N.A. (Chase), to help finance the purchase price of Femcare. The terms and conditions of the loan require UTMD to a) repay the loan in equal monthly payments over 5 years, b) pay interest based on the 30-day LIBOR rate plus a margin starting at 2.80% and ranging from 2.00% to 3.75%, depending on the ratio of its funded debt to EBITDA (Leverage Ratio), c) pledge 65% of all foreign subsidiaries’ stock, d) provide first priority liens on all
domestic business assets, e) maintain its Interest Coverage Ratio at 1.15 to 1.00 or better, f) maintain its Tangible Net Worth (TNW) above a minimum threshold 20% below UTMD’s TNW at closing on March 18, and g) maintain its Leverage Ratio at 2.75 to 1.00 or less.
On March 18, 2011, Femcare obtained an £8,000 ($12,934) loan from JP Morgan Chase, London Branch, to help refinance its debt as part of UTMD’s purchase of Femcare. Terms and conditions of the loan are the same as those listed above for the $14,000 U.S. loan.
4. Pro Forma Adjustments. The following is a summary of pro forma adjustments reflected in the unaudited pro forma combined condensed consolidated financial statements based on preliminary estimates, which may change as additional information is obtained:
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A.
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To record cash amounts paid to the prior owners of Femcare by UTMD as well as cash removed from Femcare by the former owners. UTMD liquidated its investments to raise the required cash.
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B
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To recognize amounts which were the responsibility of Femcare’s former owners as part of the acquisition.
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C.
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To record the estimated fair value of goodwill resulting from the acquisition (see note 2, above).
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D.
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To remove Femcare’s existing intangible assets and associated accumulated amortization, all of which was associated with the former owner’s purchase of Femcare in 2004, and to record the estimated value of the intangibles assets resulting from the acquisitions (see note 2, above).
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E.
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To remove Femcare’s existing notes payable, all of which were retired at the time of the acquisition, and to record the debt issued in connection with the acquisition (see note 3, above).
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F.
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Deferred tax liabilities were recognized based on differences between the tax basis of the identifiable intangible assets acquired and the values recorded for financial reporting purposes. Pro forma tax rates between 23% and 28% were used, in accordance with scheduled UK corporate tax rates, which decrease from 28% on January 1, 2011 to 23% on April 1, 2014.
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G.
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Represents the elimination of Femcare’s historical stockholders’ equity.
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H.
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To remove $2,976 in 2010 amortization expense on Femcare goodwill eliminated by the acquisition, to remove nonrecurring acquisition related expenses, and to record $2,505 in incremental amortization of identifiable intangibles (see note 2, above) resulting from the acquisition.
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I.
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To remove Femcare’s 2010 interest expense, all of which was related to debt eliminated in the acquisition, and to recognize incremental interest expense on debt issued as a result of the acquisition. Interest expense was estimated based on the average one-month LIBOR rate prevailing during the year ended December 31, 2010 for the portion of the debt that is subject to a floating rate, and on the fixed rates UTMD will pay over the term of the loans on the portion of the debt that has been fixed.
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J.
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To record the impact on tax expense of the pro forma adjustments.
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5