Attached files
file | filename |
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8-K/A - FORM 8-K/A - Sagent Pharmaceuticals, Inc. | d834861d8ka.htm |
EX-99.3 - EX-99.3 - Sagent Pharmaceuticals, Inc. | d834861dex993.htm |
EX-99.2 - EX-99.2 - Sagent Pharmaceuticals, Inc. | d834861dex992.htm |
EX-23.1 - EX-23.1 - Sagent Pharmaceuticals, Inc. | d834861dex231.htm |
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On April 30, 2013, Sagent Pharmaceuticals, Inc., a Delaware corporation (the Company or Sagent) entered into a Share Purchase Agreement with Chengdu Kanghong Pharmaceuticals (Group) Co. Ltd. (Kanghong) pursuant to which the Company agreed to acquire Kanghongs 50% interest in Kanghong Sagent (Chengdu) Pharmaceutical Co. Ltd. (KSCP) in exchange for $25 million, payable in installments through September 2015. The acquisition was subject to customary closing conditions, including approval by the Chengdu Hi-Tech Industrial Development Zone Bureau of Investment Services (BIS). On June 4, 2013, the Company received final approval for the transaction from the BIS. Accordingly, the transaction was completed. As a result of the completion of the transaction, KSCP became a wholly-owned subsidiary of the Company.
On October 1, 2014, the Company through its, wholly-owned subsidiary, Sagent Acquisition Corp., a Canadian company, acquired all of the issued and outstanding shares of the capital stock of 7685947 Canada Inc., and its subsidiary, Omega Laboratories Limited (collectively, Omega), a privately held Canadian pharmaceutical and specialty healthcare products company for C$93.0 million ($82.9 million) subject to post closing adjustments. As a result of the completion of the transaction, Omega became a wholly-owned subsidiary of the Company.
The following unaudited pro forma condensed combined balance sheet presents our historical financial position combined with Omega as if the acquisition had occurred on September 30, 2014, and includes adjustments which give effect to events that are directly attributable to the transaction and that are factually supportable, regardless of whether they have a continuing impact or are nonrecurring.
The following unaudited pro forma condensed combined statements of operations present the combined results of our operations with Omega and KSCP as if the acquisitions had occurred as of January 1, 2013 and include adjustments that are directly attributable to the acquisitions, are expected to have a continuing impact on the combined results, and are factually supportable. The unaudited pro forma condensed combined financial statements are not necessarily indicative of what our financial position or results of operations actually would have been had we completed the acquisitions at the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company.
For purposes of this pro forma financial information Sagent translated the results of operations of its foreign subsidiaries into U.S. dollars using average exchange rates for the year ended December 31, 2013 and the nine months ended September 30, 2014. Sagent translated balance sheet accounts into U.S. dollars using period end exchange rates at the end of September 30, 2014. Based on its review of Omegas historical financial statements, Sagent is not aware of any further adjustment that we would need to make to Omegas historical financial statements relating to foreign currency translation. The pro forma adjustments in this table have been translated from Canadian dollars to U.S. dollars using Sagents historic exchange rates. The average exchange rate applicable during the periods presented for the unaudited pro forma condensed combined statement of operations and the period end exchange rate for the unaudited pro forma condensed combined balance sheet are as follows:
US$/C$1 | ||||||
December 31, 2013 |
Average Spot Rate | 0.9711 | ||||
September 30, 2014 |
Average Spot Rate | 0.9144 | ||||
September 30, 2014 |
Period End Rate | 0.8914 |
The unaudited pro forma condensed combined financial statements should be read in conjunction with the:
| the accompanying notes to the unaudited pro forma condensed combined financial statements; and |
| the consolidated financial statements of Sagent included in our Annual Report on Form 10-K for the year ended December 31, 2013 and the condensed consolidated financial statements of Sagent included in our Quarterly Report on Form 10-Q as of and for the three and nine months ended September 30, 2014 and the notes relating thereto; and |
| the consolidated financial statements of Omega for the year ended December 31, 2013 and the notes thereto, included as Exhibit 99.2 to this Current Report on Form 8-K, and the consolidated financial statements of Omega as of and for the nine months ended September 30, 2014 and the notes relating thereto, included as Exhibit 99.3 to this Current Report on Form 8-K; and |
| the consolidated financial statements of KSCP as of June 4, 2013 and for the period from January 1, 2013 to June 4, 2013 and the notes relating thereto, included our Annual Report on Form 10-K for the year ended December 31, 2013. |
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 2013
(In thousands, except per-share data)
Sagent | KSCP | Omega C$ ASPE |
Omega US$ ASPE |
Adjustments | (Note) | Pro Forma Combined |
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Net revenue |
$ | 244,750 | $ | $ | 36,130 | $ | 35,084 | $ | (783 | ) | 4(i) | $ | 279,051 | |||||||||||||
Cost of sales |
167,228 | 20,096 | 19,514 | 8,602 | 4(d), 4(e), 4(f), 4(i) |
195,344 | ||||||||||||||||||||
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Gross profit |
77,522 | 16,034 | 15,570 | (9,385 | ) | 83,707 | ||||||||||||||||||||
Operating expenses: |
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Pre-production expenses |
597 | (597 | ) | 3(g) | | |||||||||||||||||||||
Product development |
20,275 | 4,159 | 3(g), 4(b)i, 4(e), 4(i) |
24,434 | ||||||||||||||||||||||
Research and development |
1,972 | 1,915 | (1,915 | ) | 4(i) | |||||||||||||||||||||
Oncology plant related |
2,043 | 1,984 | (1,984 | ) | 4(i) | |||||||||||||||||||||
Selling, general and administrative |
36,198 | 2,211 | 8,026 | 7,794 | (1,944 | ) | 3(a),3(c), 4(e), 4(f), 4(i) |
44,259 | ||||||||||||||||||
Equity in net (income) loss of joint ventures |
(2,395 | ) | (1,825 | ) | 3(d) | (4,220 | ) | |||||||||||||||||||
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Total operating expenses |
54,078 | 2,808 | 12,041 | 11,693 | (4,106 | ) | 64,473 | |||||||||||||||||||
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Termination fee |
5,000 | | 5,000 | |||||||||||||||||||||||
Gain on previously held equity interest |
2,936 | (2,936 | ) | 3(e) | | |||||||||||||||||||||
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Income (loss) from operations |
31,380 | (2,808 | ) | 3,993 | 3,877 | (8,215 | ) | 24,234 | ||||||||||||||||||
Interest income and other |
39 | 2 | (562 | ) | 4(g), 4(i) | (521 | ) | |||||||||||||||||||
Financial expenses |
(3,685 | ) | (3,578 | ) | 3,578 | 4(b)iii, 4(i) | | |||||||||||||||||||
Interest expense |
(930 | ) | (460 | ) | 3(b), 4(i) | (1,390 | ) | |||||||||||||||||||
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Income (loss) before income taxes |
30,489 | (2,806 | ) | 308 | 299 | (5,659 | ) | 22,323 | ||||||||||||||||||
Provision for income taxes |
895 | | 929 | 902 | (654 | ) | 3(f), 4(h), 4(b)i |
1,143 | ||||||||||||||||||
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Net income (loss) |
$ | 29,594 | $ | (2,806 | ) | $ | (621 | ) | $ | (603 | ) | $ | (5,005 | ) | $ | 21,180 | ||||||||||
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Net income per common share: |
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Basic |
$ | 1.01 | $ | 0.73 | ||||||||||||||||||||||
Diluted |
$ | 0.99 | $ | 0.71 | ||||||||||||||||||||||
Weighted-average of shares used to compute net income per common share: |
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Basic |
29,213 | 29,213 | ||||||||||||||||||||||||
Diluted |
29,937 | 29,937 |
See notes to pro forma financial statements
Unaudited Pro Forma Condensed Combined Statement of Operations
For the nine months ended September 30, 2014
(In thousands, except per-share data)
Sagent | Omega C$ ASPE |
Omega US$ ASPE |
Adjustments | (Note) | Pro Forma Combined |
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Net revenue |
$ | 205,422 | $ | 26,517 | $ | 24,248 | $ | (378 | ) | 4(i) | $ | 229,292 | ||||||||||
Cost of sales |
143,676 | 14,174 | 12,961 | 3,718 | 4(e), 4(f), 4(i) |
160,355 | ||||||||||||||||
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Gross profit |
61,746 | 12,343 | 11,287 | (4,096 | ) | 68,937 | ||||||||||||||||
Operating expenses: |
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Product development |
17,734 | | | 2,997 | 4(b)i, 4(e), 4(i) |
20,731 | ||||||||||||||||
Research and development |
| 1,951 | 1,784 | (1,784 | ) | 4(b)(i), 4(i) |
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Oncology plant related |
| 1,428 | 1,306 | (1,306 | ) | 4(i) | | |||||||||||||||
Selling, general and administrative |
31,622 | 7,125 | 6,515 | (701 | ) | 4(e), 4(f), 4(i) |
37,436 | |||||||||||||||
Acquisition related costs |
872 | | | (872 | ) | 4(c) | | |||||||||||||||
Equity in net (income) loss of joint ventures |
(2,476 | ) | | | | (2,476 | ) | |||||||||||||||
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Total operating expenses |
47,752 | 10,504 | 9,605 | (1,666 | ) | 55,691 | ||||||||||||||||
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Income (loss) from operations |
13,994 | 1,839 | 1,682 | (2,430 | ) | 13,246 | ||||||||||||||||
Interest income and other |
(465 | ) | | | (435 | ) | 4(g), 4(i) | (900 | ) | |||||||||||||
Financial expenses |
(2,397 | ) | (2,192 | ) | 2,192 | 4(b)iii, 4(i) | | |||||||||||||||
Interest expense |
(641 | ) | | | (123 | ) | 4(i) | (764 | ) | |||||||||||||
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Income (loss) before income taxes |
12,888 | (558 | ) | (510 | ) | (796 | ) | 11,582 | ||||||||||||||
Provision for income taxes |
2,774 | 208 | 190 | 92 | 4(b)i, 4(h) | 3,056 | ||||||||||||||||
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Net income (loss) |
$ | 10,114 | $ | (766 | ) | $ | (700 | ) | $ | (888 | ) | $ | 8,526 | |||||||||
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Net income per common share: |
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Basic |
$ | 0.32 | $ | 0.27 | ||||||||||||||||||
Diluted |
$ | 0.31 | $ | 0.26 | ||||||||||||||||||
Weighted-average of shares used to compute net income per common share: |
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Basic |
31,861 | 31,861 | ||||||||||||||||||||
Diluted |
32,748 | 32,748 |
See notes to pro forma financial statements
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2014
(In thousands, except per-share data)
Sagent | Omega C$ ASPE |
Omega US$ ASPE |
Adjustments | Note | Pro Forma Combined |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ | 136,280 | $ | | $ | | $ | (82,864 | ) | 4(a) | $ | 53,416 | ||||||||||
Short-term investments |
18,995 | | | | 18,995 | |||||||||||||||||
Accounts receivable, net of chargebacks and other deductions |
33,880 | 4,461 | 3,976 | | 37,856 | |||||||||||||||||
Inventories, net |
43,301 | 12,531 | 11,170 | 2,844 | 4(a) | 57,315 | ||||||||||||||||
Due from related party |
2,716 | | | | 2,716 | |||||||||||||||||
Income taxes receivable |
263 | 234 | (234 | ) | 4(i) | |||||||||||||||||
Prepaid expenses and other current assets |
4,598 | 511 | 455 | 234 | 4(i) | 5,287 | ||||||||||||||||
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Total current assets |
239,770 | 17,766 | 15,835 | (80,020 | ) | 175,585 | ||||||||||||||||
Property, plant, and equipment, net |
56,859 | 14,237 | 12,690 | 424 | 4(a) | 69,973 | ||||||||||||||||
Investment in joint ventures |
4,539 | | 4,539 | |||||||||||||||||||
Intangible assets, net |
9,050 | 1,210 | 1,079 | 56,503 | 4(a), 4(b)(i), 4(f) |
66,632 | ||||||||||||||||
Goodwill |
6,038 | | | 25,550 | 4(a) | 31,588 | ||||||||||||||||
Other assets |
309 | | | | 309 | |||||||||||||||||
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Total assets |
$ | 316,565 | $ | 33,213 | $ | 29,604 | $ | 2,457 | $ | 348,626 | ||||||||||||
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Liabilities and stockholders equity |
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Current liabilities: |
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Accounts payable |
$ | 27,314 | $ | 7,064 | $ | 6,297 | $ | 425 | 4(i) | $ | 34,036 | |||||||||||
Bank overdraft |
| 477 | 425 | (425 | ) | 4(i) | | |||||||||||||||
Due to related party |
7,528 | | | | 7,528 | |||||||||||||||||
Accrued profit sharing |
7,231 | | | | 7,231 | |||||||||||||||||
Accrued liabilities |
14,137 | | | | 14,137 | |||||||||||||||||
Current portion of deferred purchase consideration |
8,624 | | | | 8,624 | |||||||||||||||||
Short-term debt |
| 4,530 | 4,038 | | 4,038 | |||||||||||||||||
Redeemable shares |
| 4,000 | 3,565 | (3,565 | ) | 4(b)(ii) | | |||||||||||||||
Redeemable shares issued by a subsidiary |
| 30,135 | 26,862 | (26,862 | ) | 4(b)(iii) | | |||||||||||||||
Current portion of long-term debt |
| 616 | 549 | | 549 | |||||||||||||||||
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Total current liabilities |
64,834 | 46,822 | 41,736 | (30,427 | ) | 76,143 | ||||||||||||||||
Long term liabilities: |
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Long-term debt |
| 2,329 | 2,076 | | 2,076 | |||||||||||||||||
Deferred income taxes |
| 1,478 | 1,317 | 17,359 | 4(a) | 18,676 | ||||||||||||||||
Other long-term liabilities |
1,981 | | | | 1,981 | |||||||||||||||||
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Total liabilities |
66,815 | 50,629 | 45,129 | (13,068 | ) | 98,876 | ||||||||||||||||
Temporary equity |
| | | | 4(b)(ii), 4(b)(iii), |
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Stockholders equity: |
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Common stock |
319 | | | | 319 | |||||||||||||||||
Redeemable shares |
| 218 | 194 | (194 | ) | 4(b)(ii) | | |||||||||||||||
Non-controlling interest |
| (441 | ) | (393 | ) | 393 | 4(j) | | ||||||||||||||
Additional paid-in capital |
353,358 | | | | 4(j), 4(b)(ii) |
353,358 | ||||||||||||||||
Accumulated other comprehensive income |
17 | | | | 17 | |||||||||||||||||
Accumulated retained earnings (deficit) |
(103,944 | ) | (17,193 | ) | (15,326 | ) | 15,326 | 4(j), 4(c) |
(103,944 | ) | ||||||||||||
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Total stockholders equity |
249,750 | (17,416 | ) | (15,525 | ) | 15,525 | 249,750 | |||||||||||||||
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Total liabilities and stockholders equity |
$ | 316,565 | $ | 33,213 | $ | 29,604 | $ | 2,457 | $ | 348,626 | ||||||||||||
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See notes to pro forma financial statements
NOTE 1. BASIS OF PRESENTATION:
The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC and are intended to show how the acquisitions might have affected the historical financial statements if both had been completed on January 1, 2013 for the purposes of the condensed combined statements of operations and as if the Omega acquisition had been completed on September 30 for purposes of the condensed combined balance sheet. The pro forma adjustments reflecting the completion of both the Omega acquisition and the KSCP acquisition are based upon the accounting rules for business combinations, specifically, the acquisition method of accounting in accordance with U.S. GAAP, and upon the assumptions set forth herein.
The unaudited pro forma financial information should be read in conjunction with the following underlying financial information from which it was extracted without material adjustment: (a) the condensed consolidated financial statements of Sagent Pharmaceuticals, Inc. as of and for the three and nine months ended September 30, 2014 included in the Quarterly Report on Form 10-Q, filed with the SEC on November 5, 2014; (b) the audited consolidated financial statements of Sagent Pharmaceuticals, Inc. as of and for the year ended December 31, 2013, included in our Annual Report on Form 10-K for the year ended December 31, 2013; (c) the audited financial statements of Omega as of and for the year ended December 31, 2013 included in Exhibit 99.2 to this Current Report on Form 8-K; (d) the condensed consolidated financial statements of Omega as of and for the nine months ended September 30, 2014, included in Exhibit 99.3 to this Current Report on Form 8-K; and (e) the financial statements of KSCP as of June 4, 2013 and for the period from January 1, 2013 to June 4, 2013, included in the Sagent Annual Report on Form 10-K for the year ended December 31, 2013.
The KSCP acquisition has been accounted for as an acquisition, with Sagent as the acquirer and KSCP as the acquiree, assuming that the KSCP acquisition had been completed at January 1, 2013, the beginning of the periods presented, for the unaudited pro forma condensed combined statement of operations. Results of KSCP subsequent to June 4, 2013, the date of the acquisition, are included within the consolidated results of the Company. As a result, there are no adjustments for KSCP to the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2014 or the unaudited pro forma condensed combined balance sheet at September 30, 2014.
The Omega acquisition has been accounted for as an acquisition, with Sagent as the acquirer and Omega as the acquiree, assuming that the Omega acquisition had been completed at January 1, 2013, the beginning of the periods presented, for the unaudited pro forma condensed combined statement of operations, and on September 30, 2014 for the unaudited pro forma condensed combined balance sheet.
This unaudited pro forma financial information is not intended to reflect the financial position and results of operations which would have actually resulted had the KSCP and Omega acquisitions been effected on the dates indicated. Further, the pro forma results of operations are not necessarily indicative of the results of operations that may be obtained in the future.
All amounts are in thousands of US dollars (US$), except share amounts or where Canadian dollars (C$) are otherwise indicated.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The unaudited pro forma financial information has been compiled in a manner consistent with the accounting policies adopted by Sagent. These accounting policies differ in certain respects from those of KSCP and Omega.
NOTE 3. PRO FORMA ADJUSTMENTS KSCP:
(a) Transaction costs
An adjustment to selling, general and administrative expenses for $478 was made to eliminate transaction costs related to the KSCP acquisition in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 because such costs directly related to the transaction and are non-recurring.
(b) Interest expense
An adjustment was recorded to increase interest expense related to deferred consideration associated with the acquisition of KSCP by $261 in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013. The interest charges are based on the accretion that would be charged to interest expense for the deferred purchase consideration had the transaction closed on January 1, 2013 and the timing of the remaining payments remained the same. An interest rate of 4.75% was used to calculate the accretion charge. The remaining payments were comprised of the following:
December 31, 2013 |
$ | 2,500 | ||
September 30, 2014 |
3,500 | |||
September 1, 2015 |
9,000 |
(c) Depreciation expense
Property, plant and equipment was increased by $2,197 to its fair value. An adjustment to increase estimated depreciation expense related to this step up to fair value of $13 was made to selling, general and administrative expenses in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013.
(d) Equity in net income (loss) of joint ventures
An adjustment to eliminate our share of KSCP results that we had recognized using the equity method of accounting for our previously held 50% equity interest in KSCP included in equity in net income of joint venture of $1,825 was made in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013.
(e) Remeasurement of previously held equity interest in KSCP
The gain on our previously held equity interest in KSCP of $2,936 has been eliminated from the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 as it is directly related to the transaction and is non-recurring.
(f) Provision for income taxes
Represents the tax effect of the above pro forma adjustments as calculated at the statutory rate. The tax effect of the adjustments is determined to be zero because both Sagent and KSCP currently maintain a full valuation allowance against deferred tax assets. No adjustment has been made to the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013.
(g) Reclassifications
Certain balances were reclassified from the financial statements of KSCP to conform their presentation to Sagents.
The following reclassifications were made to the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013:
Increase (Decrease) |
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Product development |
$ | 597 | ||
Pre-production expenses |
(597 | ) |
NOTE 4. PRO FORMA ADJUSTMENTS OMEGA ACQUISITION:
(a) Omega Acquisition
On October 1, 2014, we, through our wholly-owned subsidiary, Sagent Acquisition Corp., a Canadian company, acquired all of the issued and outstanding shares of the capital stock of 7685947 Canada Inc. and Omega Laboratories Limited (collectively, Omega), a privately held Canadian pharmaceutical and specialty healthcare products company for C$92,964 ($82,864). Under the acquisition method of accounting, the total consideration transferred for the 100% equity interest has been preliminarily allocated to the net identifiable assets based on the estimated fair value at the date of acquisition. The excess of the consideration transferred over the net identifiable assets, after considering the tax effects of temporary differences due to the fair value adjustments, has been recorded as goodwill. The final cost allocation may differ materially from the preliminary assessment.
Purchase Price |
Amount US$ | |||
Cash |
$ | 82,864 | ||
Less: book value of net assets acquired |
(14,110 | ) | ||
Less: fair value adjustments |
(60,850 | ) | ||
Plus: deferred income taxes |
17,646 | |||
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Residual Goodwill |
$ | 25,550 |
Except as it relates to inventory, property, plant and equipment, and intangible assets, the carrying value of assets and liabilities in Omegas historical financial statements are considered to be a proxy for the fair value of those assets and liabilities due to their short term nature. As this allocation is based on preliminary estimates, additional adjustments to record the fair value of all assets and liabilities and adjustments for consistency of accounting policies may be required. The following adjustments were made to increase Omegas inventory, property, plant and equipment and intangible assets, reflecting our preliminary estimate of fair value.
Amount US$ | ||||
Allocation of fair value adjustments: |
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Inventory |
$ | 2,844 | ||
Property, plant and equipment |
424 | |||
Intangibles |
57,582 | |||
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Total fair value adjustments |
$ | 60,850 |
The estimated deferred tax impact of the above fair value adjustments, $17,646, has been recorded as a deferred tax liability in the unaudited pro forma condensed combined balance sheet at September 30, 2014. No other adjustment was made to the assets and liabilities of Omega under U.S. GAAP. An adjustment to goodwill representing the total preliminary excess of the purchase consideration over the fair value of the assets acquired for $25,550 was made in the unaudited pro forma condensed combined balance sheet at September 30, 2014. This allocation is based on preliminary estimates; the final acquisition cost allocation may differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the assets and liabilities will be allocated to goodwill.
(b) Adjustments to U.S. GAAP
The Omega financial statements were prepared pursuant to Canadian Accounting Standards for Private Enterprises (ASPE) and therefore must be adjusted to U.S. GAAP for purposes of the these pro forma financial statements by making the following adjustments:
(i) Intangible assets
Pursuant to ASPE, Omega capitalized as intangible assets certain deferred development and other deferred costs related to the construction of a new plant. Under U.S. GAAP, these costs would be expensed as incurred. An adjustment of $450 and $173 to record the net impact of the reversal of amortization expense and record actual costs incurred during the periods has been made to research and development in the unaudited pro forma combined condensed consolidated statement of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014, respectively.
Income tax expense was reduced $211 in the unaudited pro forma combined condensed consolidated statement of operations for the year ended December 31, 2013 and increased $46 in the unaudited pro forma combined condensed consolidated statement of operations for the nine months ended September 30, 2014 related to the above U.S. GAAP adjustments.
An adjustment to reduce intangible assets by $1,079 for assets that would not qualify as intangible assets under U.S. GAAP, a $287 decrease to deferred tax liabilities for the related tax impact and a corresponding offset to retained earnings of $792 was made to the unaudited pro forma condensed combined balance sheet at September 30, 2014.
(ii) Redeemable shares
Under ASPE, Omega has classified its Class D, E, F, I, J and M shares, each of which is redeemable at the option of the holder of the shares, as equity. Omegas Class K shares have been recorded as a current liability under ASPE at their redemption amount. Under U.S. GAAP, the embedded redemption options result in these instruments not qualifying for equity classification, however, they do not create unconditional obligations of Omega, and therefore the shares should be classified as temporary equity in the financial statements. The following U.S. GAAP adjustment has been recorded to the unaudited pro forma condensed combined balance sheet at September 30, 2014:
Increase (Decrease) |
||||
Redeemable shares |
$ | (3,565 | ) | |
Share capital |
(194 | ) | ||
Temporary equity |
34,367 | |||
Additional paid-in-capital |
(30,608 | ) |
(iii) Non-controlling interest
Under ASPE, Omega has classified the Class A and C shares issued by Omega Laboratories Ltd., each of which is owned by one non-controlling shareholder, as a current liability and remeasured to the current redemption amount through the statement of operations. Under U.S. GAAP, the embedded put option does not create an unconditional obligation of Omega, and therefore the shares should be classified as temporary equity in the financial statements of Omega, and changes to the fair value would be recorded within additional-paid-in-capital. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014 have been adjusted to eliminate the fair value adjustment of redeemable shares issued by a subsidiary, recorded in financial expenses, of $3,224 and $1,829, respectively.
The unaudited pro forma condensed combined balance sheet has been adjusted to classify the shares as temporary equity at September 30, 2014 as follows:
Increase (Decrease) |
||||
Redeemable shares |
$ | (26,862 | ) | |
Temporary equity |
26,862 |
(c) Transaction costs
An adjustment to eliminate transaction costs of $872 incurred has also been made to the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2014 because these costs are directly related to the transaction and are non-recurring.
(d) Inventory
Inventory was increased by $2,844 to its fair value. An adjustment to increase cost of goods sold for $3,099 was made to the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013.
(e) Depreciation
Property, Plant and Equipment was increased by $423 to its fair value. An adjustment to increase the related estimated depreciation expense of $249 and $177 was made to the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014, respectively, as follows:
Year ended December 31, 2013 |
Nine months ended September 30, 2014 |
|||||||
Cost of sales |
$ | 59 | $ | 42 | ||||
Product development |
113 | 80 | ||||||
Selling, general and administrative |
77 | 55 |
(f) Intangible assets and amortization
Amortizable intangible assets were revalued to a fair value of $57,582. An adjustment to increase the estimated amortization expense of $4,671 and $3,298 was made to the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014, respectively, as follows:
Year ended December 31, 2013 |
Nine months ended September 30, 2014 |
|||||||
Cost of sales |
$ | 4,541 | $ | 3,207 | ||||
Selling, general and administrative |
129 | 91 |
(g) Interest income and other
An adjustment to decrease interest income and other by $407 and $287 related to the decreased interest income earned on cash and cash equivalents used to fund the acquisition was made to the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014, respectively. An interest rate of 0.45% was used.
An adjustment to increase interest income and other by $89 was recorded to eliminate a bank charge recorded upon the change in control of certain of Omegas mortgages in the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2014 as the charge is directly related to the acquisition and is non-recurring.
(h) Provision for income taxes
Represents the tax effect of the above pro forma adjustments on pretax income after adjusting for non-controlling interest, as calculated at the statutory rate of 29%.
(i) Reclassifications
Certain amounts were reclassified from the financial statements of Omega to conform their presentation to Sagent.
The following reclassifications were made to the unaudited pro forma condensed combined balance sheet at September 30, 2014:
Increase (Decrease) |
||||
Accounts payable |
425 | |||
Bank overdraft |
(425 | ) | ||
Income taxes receivable |
(234 | ) | ||
Prepaid expenses |
234 |
The following reclassifications were made to the unaudited pro forma condensed combined statement of operations for year ended December 31, 2013 and the nine months ended September 30, 2014:
Year ended December 31, 2013 |
Nine months ended September 30, 2014 |
|||||||
Increase (Decrease) | Increase (Decrease) | |||||||
Net revenue |
$ | (783 | ) | $ | (378 | ) | ||
Selling, general and administrative |
(783 | ) | (378 | ) | ||||
Cost of sales |
903 | 469 | ||||||
Selling, general and administrative |
(903 | ) | (469 | ) | ||||
Product development |
3,899 | 2,917 | ||||||
Research and development |
(1,915 | ) | (1,611 | ) | ||||
Oncology plant related |
(1,984 | ) | (1,306 | ) | ||||
Interest income and other |
(155 | ) | (148 | ) | ||||
Financial expenses |
354 | 272 | ||||||
Interest expense |
(199 | ) | (124 | ) |
(j) Elimination of Omegas Equity
Adjustments to eliminate Omegas equity by recording a reduction to temporary equity of $61,230, a reduction to non-controlling interest of $393, an increase to additional paid-in-capital of $30,608 and an increase to retained earnings/accumulated deficit of $30,229 were made to the unaudited pro forma condensed combined balance sheet at September 30, 2014 to reflect the acquisition of 100% of the outstanding equity at that date.