Revvity, Inc 8-K/A, filed Nov 4, 2021
Revvity, Inc. (RVTY)
About this 8-K/A
Revvity, Inc filed this 8-K/A on November 4, 2021, reporting on events of September 16, 2021.
Items reported
- Item 2.01: Completed an acquisition or sale of assets
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
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Item 2.01. Completion of Acquisition or Disposition of Assets.
On September 21, 2021, PerkinElmer, Inc. (the “Company”) filed a Current Report on Form 8-K reporting that on September 17, 2021 the Company, through its direct, wholly owned subsidiaries, Burton Acquisition I, Inc. (“Merger Sub I”) and Burton Acquisition II, Inc. (together with Merger Sub I, the “Merger Subs”), completed its acquisition of BioLegend, Inc. (“BioLegend”) pursuant to the Agreement and Plan of Merger dated as of July 25, 2021 (the “Merger Agreement”) by and among the Company, the Merger Subs, BioLegend and Gene Lay, solely in his capacity as the stockholder representative thereunder.
This Current Report on Form 8-K/A amends the original Form 8-K to provide the historical financial statements of BioLegend required under Item 9.01(a) and the pro forma financial information required under Item 9.01(b).
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
The audited consolidated financial statements of BioLegend, Inc. and subsidiaries (“BioLegend”) as of and for the year ended December 31, 2020 are filed as Exhibit 99.3 to this Current Report on Form 8-K/A and are incorporated by reference herein. The unaudited condensed consolidated financial statements of BioLegend as of and for the six months ended June 30, 2021 are filed as Exhibit 99.4 to this Current Report on Form 8-K/A and are incorporated by reference herein. The consent of BioLegend’s independent auditors is attached hereto as Exhibit 23.1.
(b) Pro Forma Financial Information
The unaudited pro forma condensed combined financial information of the Company and BioLegend for the year ended January 3, 2021 and for the six months ended July 4, 2021 is included as Exhibit 99.5 to this Current Report on Form 8-K/A and is incorporated by reference herein.
(d) Exhibits
| (1) | The exhibits and schedules to the Merger Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish copies of any of such exhibits or schedules to the SEC upon request. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| PERKINELMER, INC. | ||||||
| Date: November 4, 2021 | By: | /s/ Joel S. Goldberg | ||||
| Name: | Joel S. Goldberg | |||||
| Title: | Senior Vice President, Administration, General Counsel and Secretary | |||||
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registration Statements of PerkinElmer, Inc.:
| (1) | Registration Statement No. 333-61615 on Form S-8; |
| (2) | Registration Statement No. 333-65367 on Form S-8; |
| (3) | Registration Statement No. 333-81759 on Form S-8; |
| (4) | Registration Statement No. 333-61938 on Form S-8; |
| (5) | Registration Statement No. 333-73350 on Form S-8; |
| (6) | Registration Statement No. 333-92228 on Form S-8; |
| (7) | Registration Statement No. 333-129407 on Form S-8; |
| (8) | Registration Statement No. 333-158877 on Form S-8; |
| (9) | Registration Statement No. 333-231071 on Form S-8; and, |
| (10) | Registration Statement No. 333-230425 on Form S-3. |
of our report dated June 8, 2021, relating to the consolidated financial statements of BioLegend, Inc. and subsidiaries as of and for the year ended December 31, 2020 appearing in this Current Report on Form 8-K/A of PerkinElmer, Inc.
| /s/ Ernst & Young LLP |
| San Diego, California |
| November 4, 2021 |
Exhibit 99.3
BioLegend, Inc. and subsidiaries
Index to financial statements
| Audited Consolidated Financial Statements |
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| Report of Independent Auditors |
2 | |||
| Consolidated Balance Sheet as of December 31, 2020 |
3 | |||
| Consolidated Statement of Income for the Year Ended December 31, 2020 |
4 | |||
| Consolidated Statement of Comprehensive Income for the Year Ended December 31, 2020 |
5 | |||
| Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2020 |
6 | |||
| Consolidated Statement of Cash Flows for the Year Ended December 31, 2020 |
7 | |||
| Notes to Consolidated Financial Statements |
8 | |||
1
Report of independent auditors
The Board of Directors and Stockholders
BioLegend, Inc. and subsidiaries
We have audited the accompanying consolidated financial statements of BioLegend, Inc. and subsidiaries, which comprise the consolidated balance sheet as of December 31, 2020, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the year then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of BioLegend, Inc. and subsidiaries at December 31, 2020, and the consolidated results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
San Diego, California
June 8, 2021
2
BioLegend, Inc. and subsidiaries
Consolidated balance sheet
(in thousands, except share amounts)
| December 31, 2020 |
||||
| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | 134,426 | ||
| Short-term investments |
89,992 | |||
| Accounts receivable, net |
28,980 | |||
| Inventories |
51,192 | |||
| Prepaid expenses and other current assets |
5,047 | |||
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| Total current assets |
309,637 | |||
| Property, plant, and equipment, net |
137,445 | |||
| Goodwill |
8,250 | |||
| Intangible assets, net |
248 | |||
| License fees, net |
9,414 | |||
| Deferred income taxes |
144 | |||
| Deposits and other assets |
782 | |||
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| Total assets |
$ | 465,920 | ||
| Liabilities and Stockholders’ Equity |
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| Current liabilities: |
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| Accounts payable |
$ | 8,228 | ||
| Accrued expenses |
21,750 | |||
| Notes payable to stockholders |
1,050 | |||
| Other payable and other current liabilities |
9,373 | |||
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| Total current liabilities |
40,401 | |||
| Deferred income tax liability |
5,340 | |||
| Other non-current liabilities |
2,682 | |||
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| Total liabilities |
48,423 | |||
| Commitments and contingencies (Note 16) |
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| Stockholders’ equity: |
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| Convertible preferred stock—Series A, no par value—2,062,500 shares authorized; 1,900,000 shares outstanding at December 31, 2020; liquidation preference of $1,520 at December 31, 2020 |
1,520 | |||
| Convertible preferred stock—Series B, no par value—1,875,000 shares authorized; 1,291,000 shares outstanding at December 31, 2020; liquidation preference of $2,066 at December 31, 2020 |
2,066 | |||
| Common stock, no par value—100,000,000 shares authorized; 3,986,400 shares outstanding at December 31, 2020 |
918 | |||
| Additional paid-in capital |
1,458 | |||
| Accumulated other comprehensive loss |
(343 | ) | ||
| Retained earnings |
412,330 | |||
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| Total stockholders’ equity attributable to BioLegend, Inc. common stockholders |
417,949 | |||
| Non-controlling interests |
(452 | ) | ||
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| Total stockholders’ equity |
417,497 | |||
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| Total liabilities and stockholders’ equity |
$ | 465,920 | ||
The accompanying notes are an integral part of these consolidated financial statements.
3
BioLegend, Inc. and subsidiaries
Consolidated statement of income
(in thousands)
| Year ended December 31, |
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| 2020 | ||||
| Net sales |
$ | 241,886 | ||
| Cost of goods sold |
72,219 | |||
|
|
|
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| Gross profit |
169,667 | |||
| Operating Expenses |
||||
| Selling and marketing |
14,332 | |||
| General and administrative |
21,716 | |||
| Research and development |
24,039 | |||
|
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|
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| Total operating expenses |
60,087 | |||
| Income from operations |
109,580 | |||
| Other income (expense): |
||||
| Interest income |
371 | |||
| Interest expense |
(334 | ) | ||
| Foreign exchange gain, net |
1,007 | |||
| Other, net |
384 | |||
|
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|
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| Total other income, net |
1,428 | |||
|
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| Income before income taxes |
111,008 | |||
| Income tax provision |
20,773 | |||
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| Net income |
90,235 | |||
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| Net loss attributable to non-controlling interests |
(400 | ) | ||
| Net income attributable to BioLegend, Inc. common stockholders |
$ | 90,635 | ||
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|
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The accompanying notes are an integral part of these consolidated financial statements.
4
BioLegend, Inc. and subsidiaries
Consolidated statement of comprehensive income
(in thousands)
| Year ended December 31, |
||||
| 2020 | ||||
| Net income |
$ | 90,235 | ||
| Other comprehensive income: |
||||
| Foreign currency translation adjustment |
961 | |||
| Unrealized gain on short-term investments |
1 | |||
|
|
|
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| Total other comprehensive income |
962 | |||
|
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|
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| Comprehensive income |
91,197 | |||
| Comprehensive loss attributable to non-controlling interests |
(400 | ) | ||
|
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|
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| Comprehensive income attributable to BioLegend, Inc. |
$ | 91,597 | ||
The accompanying notes are an integral part of these consolidated financial statements.
5
BioLegend, Inc. and subsidiaries
Consolidated statement of stockholders’ equity
(in thousands, except share amounts)
| Convertible preferred stock series A |
Convertible preferred stock series B |
Common stock | Additional paid-in capital |
Accumulated other comprehensive (loss) income |
Retained earnings |
Total stockholders’ equity attributable to BioLegend, Inc. common stockholders |
Non-controlling interests |
Total stockholders’ equity |
||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 |
1,900,000 | $ | 1,520 | 1,321,000 | $ | 2,114 | 4,178,900 | $ | 707 | $ | 1,355 | $ | (1,305 | ) | $ | 342,643 | $ | 347,034 | $ | (52 | ) | $ | 346,982 | |||||||||||||||||||||||||
| Exercise of stock options— common |
— | — | — | — | 14,500 | 272 | — | — | — | 272 | — | 272 | ||||||||||||||||||||||||||||||||||||
| Stock repurchases |
— | — | (30,000 | ) | (48 | ) | (207,000 | ) | (61 | ) | — | — | (20,948 | ) | (21,057 | ) | — | (21,057 | ) | |||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | 103 | — | — | 103 | — | 103 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | — | — | 962 | — | 962 | — | 962 | ||||||||||||||||||||||||||||||||||||
| Net income (loss) |
— | — | — | — | — | — | — | — | 90,635 | 90,635 | (400 | ) | 90,235 | |||||||||||||||||||||||||||||||||||
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| Balance, December 31, 2020 |
1,900,000 | $ | 1,520 | 1,291,000 | $ | 2,066 | 3,986,400 | $ | 918 | $ | 1,458 | $ | (343 | ) | $ | 412,330 | $ | 417,949 | $ | (452 | ) | $ | 417,497 | |||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
BioLegend, Inc. and subsidiaries
Consolidated statement of cash flows
(in thousands)
| Year ended December 31, |
||||
| 2020 | ||||
| Cash flows from operating activities: |
||||
| Net income |
$ | 90,235 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||
| Depreciation and amortization |
8,567 | |||
| Deferred rent |
(31 | ) | ||
| Stock-based compensation |
103 | |||
| Loss on foreign exchange contracts |
1 | |||
| Deferred income taxes |
204 | |||
| Loss on disposal of property and licenses |
190 | |||
| Changes in operating assets and liabilities: |
||||
| Accounts receivable |
(201 | ) | ||
| Inventories |
(6,145 | ) | ||
| Prepaid expenses and other current assets |
2,940 | |||
| Deposits and other assets |
(130 | ) | ||
| Accounts payable |
(882 | ) | ||
| Accrued expenses, other payable and other current liabilities |
13,879 | |||
| Other non-current liabilities |
1,434 | |||
|
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| Net cash provided by operating activities |
110,164 | |||
|
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| Cash flows from investing activities: |
||||
| Purchases of short-term investments |
(89,992 | ) | ||
| Proceeds from maturities of short-term investments |
44,946 | |||
| Acquisition of property, plant and equipment |
(2,895 | ) | ||
| Purchase of licenses |
(8,225 | ) | ||
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| Net cash used in investing activities |
(56,166 | ) | ||
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| Cash flows from financing activities: |
||||
| Proceeds from exercise of stock options—common |
272 | |||
| Payment of share repurchases |
(21,057 | ) | ||
| Proceeds from Paycheck Protection Program loan |
8,597 | |||
| Repayment of Paycheck Protection Program loan |
(8,597 | ) | ||
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| Net cash used in financing activities |
(20,785 | ) | ||
| Effect of exchange rate changes on cash and cash equivalents |
962 | |||
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| Net increase in cash and cash equivalents |
34,175 | |||
| Cash and cash equivalents, beginning of year |
100,251 | |||
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| Cash and cash equivalents, end of year |
$ | 134,426 | ||
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| Supplemental disclosure of cash flow information: |
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| Cash paid for interest |
$ | 215 | ||
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| Cash paid for income taxes |
$ | 9,756 | ||
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| Supplemental disclosures of non-cash investing activities: |
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| Acquisition of property, plant and equipment included in accounts payable and accrued expenses |
$ | 71 | ||
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The accompanying notes are an integral part of these consolidated financial statements.
7
BioLegend, Inc. and subsidiaries
Notes to consolidated financial statements
1. Business
BioLegend, Inc. was incorporated in the State of California on June 17, 2002. The principal business of BioLegend, Inc. and its subsidiaries (the “Company”, “BioLegend”, “our” or “we”) is to develop, manufacture and sell antibodies and reagents for biomedical research, manufactured in our headquarters in San Diego, California. Our mission is to accelerate research and discovery by providing the highest quality products at an outstanding value, along with superior customer service and technical support.
Our expertise covers a diverse set of research areas including immunology, neuroscience, cancer, stem cells, and cell biology. Our product development program, which includes technology licensing, collaborations, and internal hybridoma development, produces strategic reagents for use in a variety of applications.
2. Basis of presentation and summary of significant accounting policies
Basis of Presentation
The Company’s consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our consolidated financial position, results of operations, and cash flows as of and for the year ended December 31, 2020 have been made.
Reference is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”). This is the source of authoritative US GAAP recognized by the FASB to be applied to non-governmental entities.
Principles of consolidation
The consolidated financial statements include the Company’s accounts and the accounts of its wholly-owned subsidiaries and controlled entities including partially-owned variable interest entities (“VIE”). All intercompany transactions and balances have been eliminated and a non-controlling interests is recognized in the consolidated balance sheet and consolidated statement of income and consolidated statement of comprehensive income for the portion of the subsidiary’s financial results not owned by the Company.
Variable interest entities
The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or VIE. Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently, (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity and (iii) the legal entity is structured with substantive voting rights. A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. The Company has a controlling financial interest in a VIE when the Company has a variable interest or interests that provide it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company evaluates its relationships with its VIEs on an ongoing basis to determine whether or not it has a controlling financial interest.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in the accompanying consolidated financial statements include the net realizable value of inventory. Actual results could differ from these estimates.
8
Foreign currency
The consolidated financial statements are presented in U.S. Dollars, which is the Company’s functional currency. The functional currency of certain of the Company’s foreign subsidiaries is the local currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Income and expense items are translated at the average exchange rate for the period. Gains and losses resulting from translation are recorded in accumulated other comprehensive loss as a separate component of the consolidated statement of stockholders’ equity.
Transactions denominated in a currency other than the entity’s functional currency are remeasured into the entity’s functional currency. Foreign currency exchange gains and losses related to transactions denominated in a currency other than the Company’s, or its subsidiaries’ functional currency are included in foreign exchange gain, net in the consolidated statement of income.
Fair value measurements
The Company records its financial assets and liabilities at fair value, which is defined under the applicable accounting standards as the exchange price that would be received for an asset or paid for a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses valuation techniques to measure fair value, maximizing the use of observable outputs and minimizing the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Other inputs that are directly or indirectly observable in the marketplace; and
Level 3: Unobservable inputs which are supported by little or no market activity.
The carrying amounts of the Company’s cash and cash equivalents, short-term investments, trade receivables, U.S. equities related to investments made and held in accordance with the executive deferred compensation plan and trade and other payables are considered to be representative of their respective fair values because of the short-term nature of those instruments. See Note 9 for additional disclosure related to financial assets and liabilities measured at fair value on a recurring basis. For our cash, cash equivalents and short-term investments, we measure the fair value of money market funds and certain marketable equity securities on quoted prices in active markets for identical assets or liabilities.
Cash and cash equivalents
Cash and cash equivalents are comprised of short-term, highly-liquid investments with maturities of 90 days or less at the date of purchase.
Short-term investments
Short-term investments consist of U.S. Treasury securities, with maturities greater than 90 days. The Company classifies short-term investments as available-for-sale securities at the time of purchase and evaluates such classification as of each balance sheet date. All short-term investments are recorded at estimated fair value, with unrealized gains and losses, net of income taxes, reported as accumulated other comprehensive income (loss) until realized on the consolidated statement of stockholders’ equity. Realized gains and losses from the sale of available-for-sale securities or the amounts, net of tax, reclassified out of accumulated other comprehensive income, if any, are determined on a specific identification basis.
Concentrations of risk
Financial instruments that potentially subject the Company to a concentration of credit and business risk consist of cash and cash equivalents, accounts receivable, and inventory.
The Company’s accounts receivable are unsecured and are generally derived from revenue denominated in multiple currencies. The Company’s accounts receivable maintains reserves for potential credit losses as an allowance for doubtful accounts. Actual credit losses may differ from management’s estimates. Management believes that the Company is not exposed to any significant credit risk, as the customer base is diverse. However, one customer of the Company represents greater than 22% of the customer receivable balance as of December 31, 2020. In the event the Company is unable to recover this outstanding balance, the implications would be material to the consolidated financial statements. For the year ended December 31, 2020, one customer represented 10% of the Company’s net sales.
9
The Company maintains cash balances at various financial institutions located throughout the world in areas that the Company maintains offices. The cash balances at these banks are largely uninsured and may subject the Company to higher credit risk. The Company also invests excess cash in various short-term, low risk financial instruments.
The Company purchases an ingredient for certain products from one vendor under a long-term license and supply agreement. The ingredient was used in products representing 26% of sales for the year ended December 31, 2020. In the event that the supply of this ingredient was disrupted, the Company’s ability to supply product to certain customers could also be disrupted.
Accounts receivable
Accounts receivable include trade accounts receivables from the Company’s customers, net of an allowance for doubtful accounts. Accounts receivable are recorded at the invoiced amount and do not bear interest. An allowance for doubtful accounts is established based on various factors including credit profiles of the Company’s customers, historical payments, and current economic trends. The allowance for doubtful accounts balance represents management’s estimate of uncollectible accounts based upon specific identification and historical information. Once a receivable is deemed to be uncollectible, such balance is charged against the allowance. Recoveries of trade receivables previously written-off are recorded when payment is received and are charged to income as a reduction to general and administrative expense in the consolidated statement of income. As of December 31, 2020, allowance for doubtful accounts totaled $0.3 million.
Inventories
Inventory is stated at the lower of cost or net realizable value, on a first-in, first-out basis. Inventory includes raw materials, work-in-process and finished goods. Costs for work-in-process and finished goods include raw materials, direct and indirect labor, and manufacturing overhead. The Company regularly monitors for excess and obsolete inventory based on its estimates of expected sales volumes, production capacity and expiration of raw materials, work-in-process and finished products and reduces the carrying value of inventory accordingly. The Company writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected manufacturing requirements. Any write-downs of inventories are charged to cost of goods sold.
A change in the estimated timing or amount of demand for the Company’s products could result in a reduction to the recorded value of inventory on hand. Any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results. As of December 31, 2020, the inventory reserve totaled $6.7 million.
Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. Expenditures for maintenance and repairs, including renewals of maintenance service contracts are expensed as incurred. Expenditures for additions and improvements are capitalized. When property, plant and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation and amortization are removed from the respective accounts, and any gain or loss is included in operations. Depreciation and amortization of property, plant and equipment is calculated using the straight-line basis over the following estimated useful lives:
| Buildings |
39 years | |
| Land improvements |
39 years | |
| Laboratory equipment |
5 years | |
| Furniture, fixtures and office equipment |
5 years | |
| Computer equipment |
3 years | |
| Leasehold improvements |
Shorter of the lease term or estimated useful lives |
Licenses
The Company licenses technology for the use in the development and manufacturing of antibodies and other research reagent products. The Company capitalizes the upfront fees attributed to these technology licenses which are amortized on a straight-line basis over the shorter of the estimated useful life of the related technology or the term of the license.
Goodwill
Goodwill represents the excess of consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. The Company conducts a goodwill impairment analysis at least annually or more frequently if changes in facts and circumstances indicate that the fair value of the Company’s reporting unit may be less than the carrying amount. To analyze goodwill for impairment, goodwill must be assigned to individual reporting units. Identification of reporting units includes an analysis of the components that comprise any operating segments, which considers, among other things, the manner in which we operate our business and the availability of discrete financial information. Components of an operating segment are aggregated to form one reporting unit if the components have similar economic characteristics. We periodically review our reporting unit to ensure that it continues to reflect the manner in which we operate our business.
10
Qualitative factors are then assessed to determine whether it is necessary to perform the quantitative goodwill impairment test. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If, after assessing the totality of these qualitative factors, the Company determines it is more likely than not that the fair value of its reporting unit is less than its carrying amount, then an additional quantitative assessment will be deemed necessary. The quantitative impairment test compares the fair value of a reporting unit with the carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, goodwill is impaired and the loss is recorded.
The Company’s annual evaluation for impairment of goodwill consists of one reporting unit. The Company performed its annual impairment test in the fourth quarter of 2020 and, based on the analysis, no impairment loss was recorded.
Intangible assets
Intangible assets with finite useful lives are stated at fair value, net of accumulated amortization. Intangible assets are amortized using the straight-line method and estimated useful lives are determined based on the expected cash flows from the assets. Useful lives are determined to be six years for customer relationships; and ten years for developed technology.
Long-lived assets
Long-lived assets consist of property, plant and equipment and intangible assets. The Company evaluates the recoverability of its long-lived assets in accordance with authoritative guidance on accounting for the impairment or disposal of long-lived assets, which requires impairment losses to be recorded when indicators of impairment are present and the fair value of those assets is determined to be less than the carrying amount of the assets. If indicators of impairment exist, the carrying value of assets is adjusted to their estimated fair value and assets held for sale are adjusted to their estimated fair values less selling expenses.
Estimating the future cash flows requires the Company to make assumptions and use judgment, including growth rates, terminal capitalization rates and other assumptions. The Company routinely reviews long-lived assets for impairment. For the year ended December 31, 2020, the Company did not record any impairment losses on property, plant and equipment; however, the Company did record immaterial impairment charges for licenses related to products that were discontinued, unable to generate sufficient revenue or unable to be put in service.
In addition to recoverability assessments, the Company reviews the remaining estimated useful lives of its long-lived assets. Any reduction in the useful life assumption will result in increased depreciation and amortization expense in the period when such determinations are made, as well as in subsequent periods.
Derivatives
The Company is exposed to foreign exchange rate risks in the normal course of business. The Company enters into foreign exchange contracts to manage foreign currency risks related to monetary assets and liabilities that are denominated in currencies other than the functional currency of the reporting entity. As of December 31, 2020, all such contracts entered into were not designated as hedging instruments and were not required to be tested for effectiveness, as hedge accounting was not elected. The Company had foreign exchange forward contracts in place as of December 31, 2020 to manage foreign currency risks to monetary assets and liabilities denominated in the Euro, Swiss Franc, and the U.S. Dollar (in entities where the functional currency is not the U.S. Dollar). These foreign exchange contracts were settled by February 2021.
As of December 31, 2020, the total notional amounts of outstanding forward contracts in place for foreign currency purchases was $8.3 million. Gains and losses on the foreign exchange contracts are included in foreign exchange gain, net on the consolidated statement of comprehensive income.
Income taxes
The provision for income taxes is computed using the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to timing differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are determined using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be recognized. In evaluating the ability to recover deferred tax assets within the jurisdictions in which they arise, the Company considers all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, history of earnings and reliable forecasting projections of pre-tax book income for the foreseeable future, and the impact of any feasible and prudent tax planning strategies.
11
The calculation of the Company’s tax liabilities involves dealing with uncertainties of the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of the available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments.
Revenue recognition
The Company derives the majority of its revenues from sales of products to primarily end user researchers at biotechnology and life science companies, universities, and resellers (distributors). The Company’s customers can be domestic or international. This variation in customer type, size, and location can cause variations in the timing or uncertainty of revenue and cash flows. The Company’s products address a diverse area of research areas, such as immunology, neuroscience, cancer, stem cells, and cell biology.
The Company recognizes revenue from contracts with customers in accordance with the core principles of ASC 606, Revenue from Contracts with Customers, by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company identifies performance obligations in its contracts with customers, which only includes sales of products. The Company determines the transaction price based on the amount it expects to be entitled to in exchange for transferring the promised goods to the customer. The transaction price is allocated to each distinct performance obligation in an amount that depicts the relative amount of consideration the Company expects to receive in exchange for satisfying each performance obligation. Revenue is recognized when performance obligations are satisfied.
Net revenue from product sales is recognized at the point in time the product ships and control passes to the customer. Shipping and handling activities occur after a customer obtains control of a product and are considered activities to fulfill a promise to transfer the good.
The Company’s products can be sold with a right to receive a rebate based on cumulative amounts purchased by the customer over a certain period; we may also provide other credits or incentives. These amounts are accounted for as variable consideration when determining the amount of revenue to recognize. Rebates and credits are estimated at contract inception and updated at the end of each year if additional information becomes available. Both rebates and credits and changes to the Company’s estimated variable consideration were not material for the periods presented. The Company elected to exclude taxes collected (which are subsequently remitted to governmental authorities) from the transaction price of its customer contracts. Revenues are recognized net of these amounts.
12
Disaggregation of revenue
The following table summarizes the net sales by region for the year ended December 31 (in thousands):
| 2020 | ||||
| North America |
$ | 132,641 | ||
| Europe |
54,859 | |||
| Asia |
48,352 | |||
| Other |
6,034 | |||
|
|
|
|||
| Total net sales |
$ | 241,886 | ||
Cost of goods sold
Cost of goods sold consists primarily of manufacturing related costs incurred in the production process, including personnel and related costs, inventory write-downs, costs of materials, labor and overhead, packaging and delivering costs, royalties and allocated costs, including facilities, IT, depreciation and amortization of intangibles.
Shipping and handling costs
Shipping and handling costs billed to customers are included as a component of net sales. Shipping and handling revenue was $3.4 million in 2020. Shipping and handling costs incurred by the Company are included in cost of goods sold. Shipping and handling costs were $4.5 million in 2020.
Research and development expense
Research and development expense is related to activities related to new product development efforts and includes personnel expense, supplies, contractor fees, license fees, facilities costs, and utilities. Expenditures relating to research and development are expensed in the period incurred.
Advertising expense
Advertising costs are expensed as incurred. Advertising expense was $0.8 million in 2020 and was included in selling and marketing expenses in the consolidated statement of income.
Stock-based compensation expense
Stock-based compensation expense is comprised of stock options, which are issued under the Company’s 2002 and 2012 equity incentive plans. Stock-based compensation related to stock options is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period of the respective award. In the event an award is fully vested when issued, the expense is recognized immediately. The Company utilizes the Black-Scholes option-pricing model for determining the estimated fair value of stock options. The Black-Scholes option-pricing model requires the use of assumptions including the Company’s stock price, expected term of the options, the risk-free interest rate, the expected volatility of our stock and expected dividend yields. Forfeitures are recognized as incurred.
Convertible preferred stock
The Company evaluated the Series A and B Convertible Preferred Stock for liability or equity classification under ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because the Series A and B Convertible Preferred Stock did not meet the definition of liability instruments defined thereunder. Additionally, the Series A and B Preferred Stock is not redeemable for cash or other assets (i) on a fixed or determinable date, (ii) at the option of the holder, and (iii) upon the occurrence of an event that is not solely within the control of the Company. Further, there are no redemption features. As such, the Series A and B Convertible Preferred Stock are classified as permanent equity.
Comprehensive income
Comprehensive income is defined as a change in stockholders’ equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s total comprehensive income consists of net income, foreign currency translation adjustments and unrealized gains and losses on short-term investments.
13
Recently adopted accounting pronouncements
In January 2017, the FASB adopted Accounting Standards Update (“ASU”) 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value for a reporting unit is determined in the same manner as the amount of goodwill recognized in a business acquisition of the reporting unit. Under the amendments in ASU 2017-04, an entity shall recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The updated guidance requires adoption on a prospective basis. ASU 2017-04 is currently effective for the Company beginning January 1, 2022. Early adoption is permitted. The Company early adopted this ASU on January 1, 2020. There was no material effect on the consolidated financial statements upon adoption.
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718). This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This ASU was effective for fiscal periods beginning after December 15, 2019. The Company adopted this ASU on January 1, 2020. There was no material effect on the consolidated financial statements upon adoption.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurements (Topic 820), Disclosure Framework—Changes to Disclosure Requirements for Fair Value Measurement, to modify disclosure requirements on fair value measurements. These amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period present in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted this ASU on January 1, 2020. There was no material effect on the consolidated financial statements upon adoption.
Recently issued accounting standards not yet adopted
In February 2016, the FASB issued ASU 2016-02, Leases. The new standard requires lessees to recognize most leases on their balance sheet as lease liabilities with corresponding right-of-use assets and eliminates certain real estate specific provisions. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the new guidance as of the adoption date, rather than as of the earliest period presented. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the effective date, unless the lease was modified, to not reassess (i) the existence of a lease, (ii) lease classification or (iii) determination of initial direct costs, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In November 2019 and June 2020, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, and ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, respectively, which among other things, deferred the effective date for this standard. As amended, this standard is effective for fiscal years beginning after December 15, 2021 with early adoption permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements but do not expect it will result in a material change to the consolidated financial statements as a whole.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendment in this update replaced the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade and loan receivables and available-for-sale debt securities. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. In November 2019, the FASB issued ASU 2019-10, which among other things, amended the effective date for credit losses for all other entities to be effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements but do not expect it will result in a material change to the consolidated financial statements as a whole.
In December 2019, the FASB released ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU is being issued as part of its Simplification Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of U.S. GAAP without compromising information provided to users of financial statements. This ASU is effective for periods after December 15, 2021, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2019-12 on our consolidated financial statements.
14
3. Variable interest entities and non-controlling interests
Lymphotrek LLC (“LTK”) and esBioLab LLC (“esBioLab”) meet the definition of a VIE as the entities do not have enough equity to finance its activities without additional subordinated financial support. The Company consolidates LTK and esBioLab as the primary beneficiary, as it has (i) the power to direct activities of a VIE that most significantly impact the VIE’s economic performance and (ii) the right to receive benefits from the VIE that could potentially be significant to the VIE, resulting from its control of the board of directors, and voting control of the entity via a voting agreement among its shareholders, and its equity holdings. The Company is not obligated to provide further financial support to Lymphotrek and esBioLab and creditors have no recourse in the general credit of the Company.
As of December 31, 2020, the Company has non-controlling interests in consolidated partially-owned entities. These balances are reported as separate components of stockholders’ equity, in non-controlling interests in the consolidated balance sheet. As of and for the year ended December 31, 2020, assets, liabilities and results of operations of consolidated, partially-owned entities were not material.
4. Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value assigned to the assets acquired and liabilities assumed. Goodwill was $8.3 million as of December 31, 2020. See Note 2 for impairment analysis for the year ended December 31, 2020.
5. Inventories
Inventories consisted of the following at December 31 (in thousands):
| 2020 | ||||
| Raw materials |
$ | 14,302 | ||
|
Work-in-process |
18,059 | |||
| Finished goods |
18,831 | |||
|
|
|
|||
| Total |
$ | 51,192 | ||
6. Property, plant and equipment, net
Property, plant and equipment consisted of the following at December 31 (in thousands):
| 2020 | ||||
| Land and land improvements |
$ | 21,486 | ||
| Buildings |
107,257 | |||
| Leasehold improvements |
2,497 | |||
| Laboratory equipment |
22,949 | |||
| Computer equipment |
3,654 | |||
| Furniture, fixtures and office equipment |
1,360 | |||
| Construction in progress |
131 | |||
|
|
|
|||
| Total property, plant and equipment, gross |
159,334 | |||
| Accumulated depreciation and amortization |
(21,889 | ) | ||
|
|
|
|||
| Total property, plant and equipment, net |
$ | 137,445 | ||
Depreciation expense was $6.7 million for the year ended December 31, 2020.
15
7. Intangible assets, net
The carrying values of amortized intangible assets are as follows (in thousands):
| Gross amount |
Accumulated amortization |
Total | ||||||||||
| As of December 31, 2020 |
||||||||||||
| Customer relationships |
$ | 5,800 | $ | (5,800 | ) | $ | — | |||||
| Developed technology |
665 | (417 | ) | 248 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total intangible assets, net |
$ | 6,465 | $ | (6,217 | ) | $ | 248 | |||||
Amortization expense of $0.1 million was included in cost of goods sold and $0.7 million was included in general and administrative expense for the year ended December 31, 2020.
The estimated future amortization of acquired intangible assets, as of December 31, 2020, is as follows (in thousands):
| 2021 |
$ | 67 | ||
| 2022 |
67 | |||
| 2023 |
67 | |||
| 2024 |
47 | |||
|
|
|
|||
| $ | 248 |
8. License fees, net
The Company’s capitalized license fees and related accumulated amortization are as follows as of December 31, (in thousands):
| 2020 | ||||
| License fees |
$ | 14,690 | ||
| Less: accumulated amortization |
(5,276 | ) | ||
|
|
|
|||
| License fees, net |
$ | 9,414 | ||
Amortization expense was $1.1 million, for the year ended December 31, 2020 and was recorded as research and development expense.
The estimated future amortization of license fees, as of December 31, 2020, is as follows (in thousands):
| 2021 |
$ | 902 | ||
| 2022 |
894 | |||
| 2023 |
878 | |||
| 2024 |
856 | |||
| 2025 |
834 | |||
| Thereafter |
5,050 | |||
|
|
|
|||
| $ | 9,414 |
As of December 31, 2020, the weighted average life of remaining license fees is 11.3 years.
16
9. Fair value measurements and short-term investments
The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
| Total carrying value as of December 31, 2020 |
Fair value measurements using inputs considered as |
|||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Assets |
||||||||||||||||
| U.S. Treasuries |
$ | 89,992 | $ | 89,992 | $ | — | $ | — | ||||||||
| U.S. equities(1) |
628 | 628 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Assets |
$ | 90,620 | $ | 90,620 | $ | — | $ | — | ||||||||
| (1) | U.S. equities are related to investments made and held in accordance with the executive deferred compensation plan and are included in deposits and other assets on the consolidated balance sheet. See Note 14. |
The Company used Level 2 inputs to estimate the fair value of its derivatives, with notional values of $8.3 million as of December 31, 2020. Those inputs were quoted prices for similar derivatives, which were provided by the Company’s financial advisory service providers. No other fair value hierarchy levels were utilized. There were no transfers between Level 1, Level 2 or Level 3 during the year ended December 31, 2020.
Unrealized gains and losses were recorded as follows as of December 31, 2020 (in thousands):
| Amortized cost |
Unrealized gain |
Unrealized loss |
Market value | |||||||||||||
| Assets |
||||||||||||||||
| U.S. Treasuries |
$ | 89,991 | $ | 1 | $ | — | $ | 89,992 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Assets |
$ | 89,991 | $ | 1 | $ | — | $ | 89,992 | ||||||||
17
10. Accrued expenses and other payable and other current liabilities
Accrued expenses consisted of the following as of December 31, (in thousands):
| 2020 | ||||
| Accrued payroll and employee benefits |
$ | 7,667 | ||
| Accrued royalties payable |
6,137 | |||
| Accrued payables |
4,542 | |||
| Customer advances |
3,050 | |||
| Other |
354 | |||
|
|
|
|||
| Accrued expenses |
$ | 21,750 | ||
Other payable and other current liabilities consisted of the following as of December 31, (in thousands):
| 2020 | ||||
| Income taxes payable |
$ | 8,483 | ||
| Other taxes payable |
841 | |||
| Other |
49 | |||
|
|
|
|||
| Other payable and other current liabilities |
$ | 9,373 | ||
11. Notes payable to stockholders
The Company had two notes payable to stockholders, who are related parties, totaling $1.1 million as of 2020 that accrued interest on the unpaid principal balance of the notes at the rate of 8% per annum. The notes payable to stockholders were originally scheduled to mature in 2019 but were subsequently extended to mature in 2020. Then, in 2020, the notes payable to stockholders were again extended to mature in 2021. Accrued interest was paid annually, and all principal payments were paid upon maturity in March 2021. Interest expense was $0.1 million for the year ended December 31, 2020, which is included in interest expense in the consolidated statement of income.
12. Other loans and line of credit
On October 27, 2017, the Company entered into a revolving line of credit. The line of credit allows for borrowings of up to $75.0 million, including swingline capacity of up to $10.0 million. The Company also has an expansion option for an additional $75.0 million. All assets of the Company were pledged as security for the line of credit. All borrowings are to be paid with interest on a quarterly basis. At the time of borrowing, the Company may choose LIBOR or the U.S. Prime rate, plus applicable spreads. The Company must also pay a commitment fee for any unutilized borrowings on the revolving line of credit. All principal payments are payable upon maturity of the line at October 26, 2022, five years from the original agreement date.
The revolving line of credit has customary affirmative covenants, including certain financial reporting requirements as well as notification requirements tied to material events. It also includes customary negative covenant requirements, including annual capital expenditure limitations and other financial covenants. The Company is in compliance with all covenants of the agreement.
The Company had no current loan outstanding as of December 31, 2020. The Company had an unutilized facility amount of $75.0 million as of December 31, 2020. Interest expense, related to loan commitment fees and including interest on notes payable to stockholders, was $0.3 million, for the year ended December 31, 2020.
In March 2020, as part of the CARES Act, the Paycheck Protection Program was introduced to provide US payroll relief during the height of the coronavirus pandemic. The Company applied for this program in late March 2020, and subsequently, received a loan from the federal government in the amount of $8.6 million in April 2020. The general terms of the loan were a 1.0% interest rate and a two-year maturity. Additionally, the loan included a provision that provides for loan forgiveness to the extent that funds were used to make certain payroll, rent and utility payments. The Company repaid this loan in May 2020 after determining that the forgiveness criteria would not be met. As of December 31, 2020, there was no outstanding balance on the loan.
18
13. Stockholders’ equity
Common stock
The Company is authorized to issue 100,000,000 shares of common stock. Total shares of common stock issued were 4,754,600 as of December 31, 2020. Total shares outstanding were 3,986,400 as of December 31, 2020.
During 2020, the Company repurchased 207,000 shares of common stock at estimated fair value in the amount of $18.3 million.
Common stock reserved for future issuance
Common stock reserved for future issuance is as follows as of December 31, (in common stock equivalent shares):
| 2020 | ||||
| Series A convertible preferred stock |
1,900,000 | |||
| Series B convertible preferred stock |
1,291,000 | |||
| Common stock options issued and outstanding |
59,000 | |||
| Authorized for future issuance under the Company’s equity incentive plan |
97,000 | |||
|
|
|
|||
| Total |
3,347,000 | |||
Convertible preferred stock
The Company is also authorized to issue 8,937,500 shares of preferred stock, for which 2,062,500 shares are designated as Series A convertible preferred stock, 1,875,000 shares are designated as Series B convertible preferred stock, and the remaining 5,000,000 shares are undesignated. As of December 31, 2020, 2,025,000 shares of Series A convertible preferred stock and 1,517,500 shares of Series B convertible preferred stock were issued. As of December 31, 2020, 1,900,000 shares of the Series A convertible preferred stock and 1,291,000 shares of the Series B convertible preferred stock were outstanding.
Each share of Series A and Series B convertible preferred stock is convertible, at the option of the holder, into a number of fully paid shares of common stock as determined by dividing the applicable original issue price, appropriately adjusted for any stock splits, stock dividends, and recapitalization, by the conversion price. The original issue price is $0.80 per share for the Series A convertible preferred stock and $1.60 per share for the Series B convertible preferred stock. The conversion price is $0.80 per share for the Series A convertible preferred stock and $1.60 per share for the Series B convertible preferred stock, subject to adjustments as defined in the Company’s Amended and Restated Certificate of Incorporation. The Series A and Series B convertible preferred stock will automatically convert to common stock upon the closing of a public offering of the common stock. In addition, the Series A and Series B convertible preferred stock will automatically convert to common stock upon the vote or written consent of the holders of at least a majority of the outstanding shares of Series A and Series B convertible preferred stock voting together as a single class. Holders of Series A convertible preferred stock have a liquidation preference of $0.80 per share (as adjusted proportionately for any stock dividends, combinations, splits, etc.) and holders of Series B convertible preferred stock have a liquidation preference of $1.60 per share (as adjusted proportionately for any stock dividends, combinations, splits, etc.). Each holder of preferred stock shall be entitled to equal voting rights of the common stockholders based on the conversion rate established. Holders of Series A and Series B convertible preferred stock may be entitled to receive dividends at the rate of $0.064 and $0.128 per share, respectively, per annum. Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative.
The Company’s Board of Directors declared no cash dividends on its Series A convertible preferred stock and Series B convertible preferred stock for preferred stockholders in 2020. There were no annual dividends paid in 2020. No dividends were accrued as of December 31, 2020.
During 2020, the Company repurchased 30,000 of Series B convertible preferred shares at estimated fair value in the amount of $2.6 million (net of an approximately $0.1 million liquidation preference).
14. Stock-based compensation and other benefit plans
Equity incentive plan
On December 20, 2002, the Company’s Board of Directors established the 2002 Stock Incentive Plan (the “2002 Plan”). The 2002 Plan provided for the grant of nonqualified stock options or incentive stock options (“Options”) and restricted stock awards to employees of the Company, as well as to Board members and service providers. The maximum number of shares of common stock issued pursuant to the 2002 Plan was 421,250 common shares for the issuance of Options under the 2002 Plan. Options to purchase 5,000 common shares were outstanding under the 2002 Plan as of December 31, 2020. The Company’s ability to grant awards under the 2002 Plan was automatically terminated on December 20, 2012. The 2002 Plan will continue to govern the terms and conditions of the outstanding equity awards granted under the 2002 Plan.
19
On December 21, 2012, the Company’s Board of Directors established the 2012 Stock Incentive Plan (the “2012 Plan”) (collectively, with the 2002 Plan, the “Plans”). The 2012 Plan reserved an additional 200,000 common shares for the issuance of Options under the 2012 Plan. The 2012 Plan automatically terminates on December 20, 2022 and may be terminated earlier by the CEO and the Board of Directors. Options to purchase 54,000 common shares were outstanding under the 2012 Plan as of December 31, 2020.
The Plans allow for “early option exercise” prior to vesting. In the event the recipient fails to vest or upon voluntary or involuntary termination of services, the Company has the right, but not the obligation, to repurchase unvested shares at the lower of the original purchase price or current fair market value. The repurchase right lapses as shares vest or upon termination of services. There were no shares subject to repurchase rights arising from nonqualified stock options as of December 31, 2020.
The Plans are administered by the CEO and the Board of Directors, who have the authority to approve the number of options granted, type of awards to be granted, the time at which awards are exercisable, the method of payments and any other terms and conditions of the awards. Options and restricted stock granted by the Board of Directors under the Plans are granted with exercise prices based on the estimated fair value of the underlying common stock. The exercise period commences on the date of grant or hire date, or in the case of Board members and service providers, the grant date or commencement of services, as determined by the Board of Directors.
Upon notice of exercise and receipt of proper consideration, shares are issued from the shares reserved for issuance by the Company. The Company maintains a right of first refusal, but not an obligation, to repurchase the shares issued to or exercised by terminated employees at fair market value.
Stock option activity under the Plans for the year ended December 31, 2020, consists of the following:
| Number of shares |
Weighted average exercise price |
Weighted average contractual life (years) |
||||||||||
| Outstanding at December 31, 2019 |
86,000 | $ | 23.41 | 5.3 | ||||||||
| Forfeited |
(12,500 | ) | 22.29 | |||||||||
| Exercised |
(14,500 | ) | 18.76 | |||||||||
|
|
|
|
|
|||||||||
| Outstanding and expected to vest at December 31, 2020 |
59,000 | $ | 24.79 | 4.4 | ||||||||
|
|
|
|
|
|||||||||
| Vested and exercisable at December 31, 2020 |
49,000 | $ | 22.26 | 4.0 | ||||||||
The total intrinsic value of options exercised during 2020 was $1.2 million. The intrinsic value of an equity award is the difference between the fair value of the underlying stock and its exercise price. No stock options were granted or expired during 2020.
Pursuant to the Plans, the Company may award restricted common stock to Company employees, Board members and service providers. The awards are administered by the CEO and the Board of Directors, who approve the awards at their discretion.
The restricted common stock awards contain a repurchase provision that lapses at a rate of 20% over five years commencing on a date determined by the CEO and the Board of Directors. If an employee ceases employment, or if a consultant no longer performs services for the Company, the Company retains the right to repurchase the number of shares subject to the repurchase provision at the grant date fair value, within 90 days after the recipient’s termination of service. The Company also retains a right of first refusal when restricted stock shares are sold. As of December 31, 2020, the Company had 4,010,000 restricted shares of common stock outstanding. No shares were issued, cancelled, or subject to vesting during the year ended December 31, 2020.
Stock-based compensation cost of $0.1 million was included in general and administrative expense for the year ended December 31, 2020. As of December 31, 2020, there was $0.1 million of unrecognized compensation cost related to non-vested stock options which will be recognized over the weighted average period over of 1.3 years.
20
Stock appreciation rights plan
The BioLegend, Inc. 2018 Cash Stock Appreciation Rights (“SARs”) Plan (the “SAR Plan”) was adopted by the Board of Directors effective September 10, 2018. The purpose of the SAR Plan is to promote the best interests of the Company by (i) assisting the Company and its subsidiaries in the recruitment and retention of persons with ability and initiative and (ii) providing an incentive to such persons to contribute to the growth and success of the Company’s and its subsidiaries’ businesses by associating the interests of such persons with those of the Company and its stockholders.
The SAR Plan provides for cash incentive awards measured by appreciation in the value of the common stock of the Company, subject to the terms and conditions of the SAR Plan. The SAR Plan does not provide any right to receive common stock or other equity of the Company, or any direct or indirect interest therein. Therefore, the amount owed to employees is treated as a liability in accordance with ASC 480, Distinguishing Liabilities from Equity. The SAR Plan qualifies under liability accounting because the SARs are unconditional obligations of the Company to settle the awards in cash.
The SARs are subject to a 3-year vesting period and have a life of 10 years. The SAR Plan includes an appreciation limit, which is a capped determination of fair market value with respect to such SAR (i.e. with respect to calculating the pay-out upon exercise or cash settlement). The growth in fair market value with respect to such SAR from any one calendar year to the next is limited for this purpose to 15%; provided however, that if there is an exercise or cash settlement of such SAR occurring concurrent with (and not before) an initial public offering (“IPO”) or a change in control. In such case, then growth in fair market value will either, depending on the participant, have no cap or be capped at 100% that calendar year. Upon the consummation of an IPO or a change in control, the vesting of the outstanding SARs shall be automatically accelerated in full (i.e., 100%) and the SARs, to the extent not previously exercised, shall be settled in cash on the effective date of the IPO or change in control.
As of December 31, 2020, the Company currently has 24 plan participants and a total of 70,000 shares distributed with a vested value of $1.1 million. None of the automatic acceleration events were deemed probable to occur as of December 31, 2020.
The following table sets forth the expense related to the SAR plan included in the accompanying consolidated statement of income for the year ended December 31 (in thousands):
| 2020 | ||||
| Cost of goods sold |
$ | 180 | ||
| Selling and marketing |
94 | |||
| General and administrative |
187 | |||
| Research and development |
260 | |||
|
|
|
|||
| $ | 721 | |||
Unrecognized compensation expense as of December 31, 2020 was $0.8 million.
Executive deferred compensation plan
In January 2020, the Company instituted a new Executive Deferred Compensation Plan (the “EDC Plan”). Participation is limited to a select group of management and other highly compensated employees of the Company and its participating subsidiaries and affiliated companies. The Company determines who is eligible to participate in the EDC Plan. Participants may defer up to 75% of their base salary and up to 100% of any bonus, commissions, or other compensation on a pre-tax basis. At its sole discretion, the Company may credit participant accounts with Company contributions. As of December 31, 2020, there was a liability of $0.6 million associated with the EDC plan and is included in other non-current liabilities on the accompanying consolidated balance sheet. The earnings associated with the EDC plan were $0.1 million for the year ended December 31, 2020 and are included in other income (expense) as other, net in the accompanying consolidated statement of income.
Employee benefit plan
The Company maintains a safe harbor 401(k) plan covering all United States employees that meet certain eligibility requirements and conforms to IRS provisions for 401(k) plans. The Company matched 100% of the first 4% of employee contributions in 2020. The Company’s contributions to the plan were $1.4 million for the year ended December 31, 2020.
21
15. Income taxes
United States and foreign income before income taxes was as follows for the year ended December 31 (in thousands):
| 2020 | ||||
| United States |
$ | 106,522 | ||
| Foreign |
4,486 | |||
|
|
|
|||
| Total |
$ | 111,008 | ||
The provision for income taxes was as follows for the year ended December 31 (in thousands):
| 2020 | ||||
| Current tax provision |
||||
| Federal |
$ | 17,619 | ||
| State |
2,004 | |||
| Foreign |
946 | |||
|
|
|
|||
| Current tax provision |
20,569 | |||
| Deferred tax provision |
||||
| Federal |
156 | |||
| State |
47 | |||
| Foreign |
1 | |||
|
|
|
|||
| Deferred tax provision |
204 | |||
|
|
|
|||
| Net income tax expense |
$ | 20,773 | ||
The reconciliation of the U.S. federal statutory tax expense to the combined effective tax (benefit) provision is as follows:
| 2020 | ||||
| Statutory rate of tax benefit |
21.0 | % | ||
| State income taxes, net of federal benefit |
3.2 | % | ||
| Permanent and other items |
0.2 | % | ||
| Foreign-derived intangible income |
(3.2 | %) | ||
| Research credits |
(2.3 | %) | ||
| Other |
(0.2 | %) | ||
|
|
|
|||
| Income tax provision |
18.7 | % | ||
Significant components of the Company’s net deferred tax liabilities as of December 31 are as follows (in thousands):
| 2020 | ||||
| Deferred tax assets |
||||
| Inventory |
$ | 4,006 | ||
| State taxes |
180 | |||
| Accrued expense |
777 | |||
| Reserves |
500 | |||
| Other |
284 | |||
|
|
|
|||
| Total deferred tax assets |
5,747 | |||
| Deferred tax liabilities: |
||||
| Acquired intangibles |
(864 | ) | ||
| Tax depreciation over book depreciation |
(10,079 | ) | ||
|
|
|
|||
| Total deferred tax liabilities |
(10,943 | ) | ||
|
|
|
|||
| Net deferred tax liabilities |
$ | (5,196 | ) | |
22
A valuation allowance is recorded to reduce deferred tax assets to the amount that is more than likely not to be realized based on an assessment of positive and negative evidence, including an estimate of future taxable income necessary to realize future deductible amounts. Management analyzed the need for a valuation allowance and concluded all gross deferred tax assets are realizable.
At December 31, 2020, the Company did not have any federal, state or foreign net operating loss or credit carryforwards.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for the year ended December 31, excluding interest and penalties, is as follows (in thousands):
| 2020 | ||||
| Balance at beginning of year |
$ | 1,104 | ||
| Increases related to prior year tax positions |
82 | |||
| Increases related to current year tax positions |
365 | |||
| Decreases related to prior year tax positions |
(312 | ) | ||
|
|
|
|||
| Balance at end of year |
$ | 1,239 | ||
As of December 31, 2020, the entire balance of $1.2 million of unrecognized tax benefits would reduce the Company’s annual effective tax rate if recognized.
The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of its income tax provision. Accrued interest and penalties associated with uncertain tax positions were approximately $0.1 million as of December 31, 2020. It is not anticipated that there will be a significant change in the unrecognized tax benefits over the next 12 months.
The Company is subject to taxation in the United States and various states along with other foreign countries. The Company has not been notified that it is under audit by any federal, state or foreign taxing authorities. The Company is no longer subject to income tax examination for U.S. Federal income tax purposes for years prior to 2017. The statutes of limitation for U.S. state and foreign jurisdictions the Company files returns in generally range from 4 to 6 years and from 3 to 7 years, respectively.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which provides certain income tax benefits, including the ability to carryback federal net operating losses (“NOLs”) generated in 2018 through 2020 for an extended five year period and increase the limitation for the deduction of interest expense from 30% to 50% of modified taxable income. The CARES Act also provides other economic benefits such as allowing employers to defer payment of the employer’s portion of payroll taxes for 2020 and a refundable employee retention credit of up to $5,000 per eligible employee wages. The CARES Act did not have a material impact on the Company’s consolidated financial statements.
Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $12.0 million as of December 31, 2020. Those earnings are considered to be indefinitely reinvested; accordingly, no provision for state, local and foreign withholding income taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to state and local taxes and withholding taxes payable to the various foreign countries. The Company expects to be able to take a 100% dividend received deduction to offset any U.S. Federal income tax liability on the undistributed earnings. The amount of unrecognized state and local deferred income tax liability is approximately $0.2 million. Withholding taxes of approximately $0.2 million would be payable upon remittance of all previously unremitted earnings as of December 31, 2020.
16. Commitments and contingencies
Commitments
The Company has operating leases for its facilities in California, the United Kingdom, Taiwan, Japan, and China, extending through 2024. As of December 31, 2020, future minimum payments under these operating leases are as follows for the years ending December 31 (in thousands):
| Year |
Minimum Payments |
|||
| 2021 |
$ | 406 | ||
| 2022 |
181 | |||
| 2023 |
97 | |||
| 2024 |
56 | |||
| 2025 |
5 | |||
|
|
|
|||
| Total |
$ | 745 | ||
23
Total expenses related to operating leases were $0.7 million for the year ended December 31, 2020 and are included in operating expenses in the accompanying consolidated statement of income.
Many of the Company’s technology licenses are subject to future royalties which generally range from 5% to 25% of applicable net sales. Royalty expense was $20.8 million for 2020 and is included in cost of goods sold in the accompanying consolidated statement of income. At December 31, 2020, the Company had a total royalty liability of $10.2 million, of which $4.1 million was included in accounts payable based upon the payment terms of the license agreements and $6.1 million was included in accrued expenses.
Contingencies
The Company is involved in various legal proceedings arising in the normal course of business. The Company accrues for a loss contingency when it determines that it is probable, after consultation with counsel, that a liability has been incurred and the amount of such loss can be reasonably estimated. The Company believes that the results of any such contingencies, either individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Risks and uncertainties
The World Health Organization declared in March 2020 that the recent outbreak of the coronavirus disease (“COVID-19”) constitutes a pandemic. The COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The global impact of COVID-19 continues to rapidly evolve, and the Company will continue to monitor the situation and the effects on its business and operations closely. The Company does not yet know the full extent of potential impacts on its business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic continues and persists for an extended period of time. Given the uncertainty, the Company cannot reasonably estimate the impact on its future results of operations, cash flows, or financial condition.
17. Subsequent events
The Company has evaluated subsequent events through June 8, 2021, which is the date the consolidated financial statements were issued.
On May 4, 2021, the Company paid $5.5 million to purchase a 27.5% equity interest in YuanDian Biolabs Co., LTD. The transaction is still pending regulatory approval, but if approved, it is expected to be accounted for as an equity method investment.
24
Exhibit 99.4
BioLegend, Inc. and subsidiaries
Index to financial statements
| Unaudited Interim Condensed Consolidated Financial Statements |
||||
| Unaudited Condensed Consolidated Balance Sheet as of June 30, 2021 |
2 | |||
| Unaudited Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2020 and 2021 |
3 | |||
| Unaudited Condensed Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 2020 and 2021 |
4 | |||
| Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2020 and 2021 |
5 | |||
| Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2021 |
7 | |||
| Notes to Unaudited Condensed Consolidated Financial Statements |
8 | |||
1
BioLegend, Inc. and subsidiaries
Condensed consolidated balance sheet
(unaudited)
(in thousands, except share amounts)
| June 30, 2021 |
||||
| Assets |
||||
| Current assets: |
||||
| Cash and cash equivalents |
$ | 261,615 | ||
| Accounts receivable, net |
38,565 | |||
| Inventories |
55,178 | |||
| Prepaid expenses and other current assets |
8,252 | |||
|
|
|
|||
| Total current assets |
363,610 | |||
| Property, plant and equipment, net |
136,575 | |||
| Goodwill |
8,250 | |||
| Intangible assets, net |
215 | |||
| License fees, net |
9,117 | |||
| Deferred income taxes |
146 | |||
| Deposits and other assets |
8,913 | |||
|
|
|
|||
| Total assets |
$ | 526,826 | ||
|
|
|
|||
| Liabilities and Stockholders’ Equity |
||||
| Current liabilities: |
||||
| Accounts payable |
$ | 10,681 | ||
| Accrued expenses |
22,269 | |||
| Other payable and other current liabilities |
3,205 | |||
|
|
|
|||
| Total current liabilities |
36,155 | |||
| Deferred income tax liability |
4,881 | |||
| Other non-current liabilities |
3,716 | |||
|
|
|
|||
| Total liabilities |
44,752 | |||
| Commitments and contingencies (Note 13) |
||||
| Stockholders’ equity: |
||||
| Convertible preferred stock – Series A, no par value—2,062,500 shares authorized; 1,900,000 shares outstanding at June 30, 2021; liquidation preference of $1,520 at June 30, 2021 |
1,520 | |||
| Convertible preferred stock – Series B, no par value—1,875,000 shares authorized; 1,291,000 shares outstanding at June 30, 2021; liquidation preference of $2,066 at June 30, 2021 |
2,066 | |||
| Common stock, no par value—100,000,000 shares authorized; 3,986,400 shares outstanding at June 30, 2021 |
918 | |||
| Additional paid-in capital |
1,491 | |||
| Accumulated other comprehensive income |
192 | |||
| Retained earnings |
476,710 | |||
|
|
|
|||
| Total stockholders’ equity attributable to BioLegend, Inc. common stockholders |
482,897 | |||
| Non-controlling interests |
(823 | ) | ||
|
|
|
|||
| Total stockholders’ equity |
482,074 | |||
|
|
|
|||
| Total liabilities and stockholders’ equity |
$ | 526,826 | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
BioLegend, Inc. and subsidiaries
Condensed consolidated statements of income
(unaudited)
(in thousands)
| Six months ended June 30, |
||||||||
| 2020 | 2021 | |||||||
| Net sales |
$ | 106,125 | $ | 159,145 | ||||
| Cost of goods sold |
33,430 | 44,918 | ||||||
|
|
|
|
|
|||||
| Gross profit |
72,695 | 114,227 | ||||||
| Operating expenses |
||||||||
| Selling and marketing |
7,151 | 7,785 | ||||||
| General and administrative |
11,469 | 12,092 | ||||||
| Research and development |
11,988 | 13,552 | ||||||
|
|
|
|
|
|||||
| Total operating expenses |
30,608 | 33,429 | ||||||
|
|
|
|
|
|||||
| Income from operations |
42,087 | 80,798 | ||||||
| Other income (expense): |
||||||||
| Interest income |
316 | 18 | ||||||
| Interest expense |
(169 | ) | (164 | ) | ||||
| Foreign exchange gain (loss), net |
(551 | ) | (845 | ) | ||||
| Other, net |
506 | 256 | ||||||
|
|
|
|
|
|||||
| Total other income (expense), net |
102 | (735 | ) | |||||
|
|
|
|
|
|||||
| Income before income taxes |
42,189 | 80,063 | ||||||
| Income tax provision |
8,036 | 16,054 | ||||||
|
|
|
|
|
|||||
| Net income |
34,153 | 64,009 | ||||||
|
|
|
|
|
|||||
| Net loss attributable to non-controlling interests |
(194 | ) | (371 | ) | ||||
| Net income attributable to BioLegend, Inc. common stockholders |
$ | 34,347 | $ | 64,380 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
BioLegend, Inc. and subsidiaries
Condensed consolidated statements of comprehensive income
(unaudited)
(in thousands)
| Six months ended June 30, |
||||||||
| 2020 | 2021 | |||||||
| Net income |
$ | 34,153 | $ | 64,009 | ||||
| Other comprehensive income: |
||||||||
| Foreign currency translation adjustment |
813 | 535 | ||||||
|
|
|
|
|
|||||
| Total other comprehensive income |
813 | 535 | ||||||
|
|
|
|
|
|||||
| Comprehensive income |
34,966 | 64,544 | ||||||
| Comprehensive loss attributable to non-controlling interests |
(194 | ) | (371 | ) | ||||
|
|
|
|
|
|||||
| Comprehensive income attributable to BioLegend, Inc. |
$ | 35,160 | $ | 64,915 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
BioLegend, Inc. and subsidiaries
Condensed consolidated statements of stockholders’ equity
(unaudited)
(in thousands, except share amounts)
For the Six Months Ended June 30, 2020
| Convertible preferred stock series A |
Convertible preferred stock series B |
Common stock | Additional paid-in |
Accumulated other comprehensive |
Retained |
Total stockholders’ equity attributable to BioLegend, Inc. common |
Non-controlling |
Total stockholders’ |
||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | (loss) income | earnings | stockholders | interests | equity | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 |
1,900,000 | $ | 1,520 | 1,321,000 | $ | 2,114 | 4,178,900 | $ | 707 | $ | 1,355 | $ | (1,305 | ) | $ | 342,643 | $ | 347,034 | $ | (52 | ) | $ | 346,982 | |||||||||||||||||||||||||
| Exercise of stock options— common |
— | — | — | — | 7,000 | 129 | — | — | — | 129 | — | 129 | ||||||||||||||||||||||||||||||||||||
| Stock repurchases |
— | — | — | — | (199,500 | ) | (60 | ) | — | — | (17,645 | ) | (17,705 | ) | — | (17,705 | ) | |||||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | 56 | — | — | 56 | — | 56 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | — | — | 813 | — | 813 | — | 813 | ||||||||||||||||||||||||||||||||||||
| Net income (loss) |
— | — | — | — | — | — | — | — | 34,347 | 34,347 | (194 | ) | 34,153 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Balance, June 30, 2020 |
1,900,000 | $ | 1,520 | 1,321,000 | $ | 2,114 | 3,986,400 | $ | 776 | $ | 1,411 | $ | (492 | ) | $ | 359,345 | $ | 364,674 | $ | (246 | ) | $ | 364,428 | |||||||||||||||||||||||||
5
For the Six Months Ended June 30, 2021
| Preferred stock series A |
Preferred stock series B |
Common stock | Additional paid-in |
Accumulated other comprehensive |
Retained |
Total stockholders’ equity attributable to BioLegend, Inc. common |
Non-controlling |
Total stockholders’ |
||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | (loss) income | earnings | stockholders | interests | equity | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 |
1,900,000 | $ | 1,520 | 1,291,000 | $ | 2,066 | 3,986,400 | $ | 918 | $ | 1,458 | $ | (343 | ) | $ | 412,330 | $ | 417,949 | $ | (452 | ) | $ | 417,497 | |||||||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | — | 33 | — | — | 33 | — | 33 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | — | — | 535 | — | 535 | — | 535 | ||||||||||||||||||||||||||||||||||||
| Net income (loss) |
— | — | — | — | — | — | — | — | 64,380 | 64,380 | (371 | ) | 64,009 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Balance, June 30, 2021 |
1,900,000 | $ | 1,520 | 1,291,000 | $ | 2,066 | 3,986,400 | $ | 918 | $ | 1,491 | $ | 192 | $ | 476,710 | $ | 482,897 | $ | (823 | ) | $ | 482,074 | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
BioLegend, Inc. and subsidiaries
Condensed consolidated statements of cash flows
(unaudited)
(in thousands)
| Six months ended June 30, |
||||||||
| 2020 | 2021 | |||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 34,153 | $ | 64,009 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
4,381 | 3,978 | ||||||
| Loss on equity method investment |
— | 4 | ||||||
| Stock-based compensation |
56 | 33 | ||||||
| Loss on foreign exchange contracts |
100 | 116 | ||||||
| Deferred income taxes |
— | (461 | ) | |||||
| Loss on disposal of property and licenses |
125 | 102 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(1,001 | ) | (9,586 | ) | ||||
| Inventories |
(6,058 | ) | (3,985 | ) | ||||
| Prepaid expenses and other current assets |
1,749 | (3,321 | ) | |||||
| Deposits and other assets |
443 | (1,164 | ) | |||||
| Accounts payable |
(2,387 | ) | 1,515 | |||||
| Accrued expenses, other payable and other current liabilities |
3,713 | (6,152 | ) | |||||
| Other non-current liabilities |
224 | 1,038 | ||||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
35,498 | 46,126 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchases of short-term investments |
(89,959 | ) | — | |||||
| Proceeds from maturities of short-term investments |
44,946 | 89,992 | ||||||
| Acquisition of property, plant and equipment |
(1,829 | ) | (1,668 | ) | ||||
| Purchase of licenses |
(8,108 | ) | (259 | ) | ||||
| Equity method investment |
— | (5,500 | ) | |||||
|
|
|
|
|
|||||
| Net cash (used in) provided by investing activities |
(54,950 | ) | 82,565 | |||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Repayment of notes payable to shareholders |
— | (1,050 | ) | |||||
| Deferred financing costs |
— | (972 | ) | |||||
| Proceeds from exercise of stock options—common |
129 | — | ||||||
| Payment of share repurchases |
(17,705 | ) | — | |||||
| Proceeds from Paycheck Protection Program Loan |
8,597 | — | ||||||
| Repayment of Paycheck Protection Program Loan |
(8,597 | ) | — | |||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(17,576 | ) | (2,022 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
813 | 520 | ||||||
|
|
|
|
|
|||||
| Net (decrease) increase in cash and cash equivalents |
(36,215 | ) | 127,189 | |||||
| Cash and cash equivalents, beginning of period |
100,251 | 134,426 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of period |
$ | 64,036 | $ | 261,615 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for interest |
$ | 140 | $ | 164 | ||||
|
|
|
|
|
|||||
| Cash paid for income taxes |
$ | 614 | $ | 3,584 | ||||
|
|
|
|
|
|||||
| Supplemental disclosure of non-cash investing and financing activities: |
||||||||
| Acquisition of property, plant and equipment included in accounts payable and accrued expenses |
$ | 195 | $ | 1,009 | ||||
| Deferred financing costs included in accounts payable |
$ | — | $ | 500 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
BioLegend, Inc. and subsidiaries
Notes to unaudited condensed consolidated financial statements
1. Business
BioLegend, Inc. was incorporated in the State of California on June 17, 2002. The principal business of BioLegend, Inc. and its subsidiaries (the “Company”, “BioLegend”, “our” or “we”) is to develop, manufacture and sell antibodies and reagents for biomedical research, manufactured in our headquarters in San Diego, California. Our mission is to accelerate research and discovery by providing the highest quality products at an outstanding value, along with superior customer service and technical support.
Our expertise covers a diverse set of research areas including immunology, neuroscience, cancer, stem cells, and cell biology. Our product development program, which includes technology licensing, collaborations, and internal hybridoma development, produces strategic reagents for use in a variety of applications.
2. Basis of presentation and summary of significant accounting policies
Basis of presentation
The Company’s condensed consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our consolidated financial position as of June 30, 2021 and results of operations as of and for the six months ended June 30, 2020 and 2021 and cash flows for the six months ended June 30, 2020 and 2021 have been made.
Reference is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”). This is the source of authoritative US GAAP recognized by the FASB to be applied to non-governmental entities.
Unaudited interim condensed consolidated financial statements
The accompanying condensed consolidated balance sheet as of June 30, 2021, the condensed consolidated statements of income, comprehensive income and stockholders’ equity for the six months ended June 30, 2020 and 2021 and cash flows for the six months ended June 30, 2020 and 2021, and the related interim condensed consolidated disclosures are unaudited. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements for the year ended December 31, 2020, and include all adjustments necessary to state fairly the financial position as of June 30, 2021, the results of operations for the six months ended June 30, 2020 and 2021, and cash flows for the six months ended June 30, 2020 and 2021, and the condensed consolidated statements of stockholders’ equity for the six months ended June 30, 2020 and 2021. The results for the six months ended June 30, 2020 and 2021 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted. Therefore, these interim condensed financial statements should be read in conjunction with the Company’s audited consolidated financial statements.
Principles of consolidation
The condensed consolidated financial statements include the Company’s accounts and the accounts of its wholly-owned subsidiaries and controlled entities including partially-owned variable interest entities (“VIE”). All intercompany transactions and balances have been eliminated and a non-controlling interests are recognized in the condensed consolidated balance sheet and condensed consolidated statements of income and condensed consolidated statements of comprehensive income for the portion of the subsidiary’s financial results not owned by the Company.
Deferred offering costs
Deferred offering costs, which consist of direct incremental legal, consulting, banking and accounting fees primarily relating to the Company’s contemplated initial public offering (“IPO”), are capitalized and will be offset against proceeds upon the consummation of the offering within stockholders’ equity. In the event an anticipated offering is terminated, deferred offering costs will be expensed. As of June 30, 2021, there were $1.5 million of deferred offering costs within deposits and other assets on the unaudited condensed consolidated balance sheet.
8
Variable interest entities and equity method investments
The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or VIE. Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently, (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity and (iii) the legal entity is structured with substantive voting rights. A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. The Company has a controlling financial interest in a VIE when the Company has a variable interest or interests that provide it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company evaluates its relationships with its VIEs on an ongoing basis to determine whether or not it has a controlling financial interest.
The Company uses the equity method to account for investments in entities that it does not control, but in which the Company’s ownership exceeds 20% or it otherwise has the ability to exercise significant influence over operating and financial policies. Under the equity method of accounting, the investment is initially recorded at cost and is adjusted for the portion of earnings or losses allocable to the Company after the date of the initial investment. The Company’s proportionate share of the net income or loss of these companies is included in other, net on the condensed consolidated statements of income. Equity method investments are included in deposits and other assets on the condensed consolidated balance sheet.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in the accompanying condensed consolidated financial statements include the net realizable value of inventory. Actual results could differ from these estimates.
Foreign currency
The condensed consolidated financial statements are presented in U.S. Dollars, which is the Company’s functional currency. The functional currency of certain of the Company’s foreign subsidiaries is the local currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Income and expense items are translated at the average exchange rate for the period. Gains and losses resulting from translation are recorded in accumulated other comprehensive (loss) gain as a separate component of the condensed consolidated statements of stockholders’ equity.
Transactions denominated in a currency other than the entity’s functional currency are remeasured into the entity’s functional currency. Foreign currency exchange gains and losses related to transactions denominated in a currency other than the Company’s, or its subsidiaries’ functional currency are included in foreign exchange loss, net in the condensed consolidated statements of income.
Fair value measurements
The Company records its financial assets and liabilities at fair value, which is defined under the applicable accounting standards as the exchange price that would be received for an asset or paid for a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses valuation techniques to measure fair value, maximizing the use of observable outputs and minimizing the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Other inputs that are directly or indirectly observable in the marketplace; and
Level 3: Unobservable inputs which are supported by little or no market activity.
9
The carrying amounts of the Company’s cash and cash equivalents, short-term investments, trade receivables, U.S. equities related to investments made and held in accordance with the executive deferred compensation plan and trade and other payables are considered to be representative of their respective fair values because of the short-term nature of those instruments. See Note 6 for additional disclosure related to financial assets and liabilities measured at fair value on a recurring basis. For our cash, cash equivalents and short-term investments, we measure the fair value of money market funds and certain marketable equity securities on quoted prices in active markets for identical assets or liabilities.
Short-term investments
Short-term investments consist of U.S. Treasury securities, with maturities greater than 90 days. The Company classifies short-term investments as available-for-sale securities at the time of purchase and evaluates such classification as of each balance sheet date. All short-term investments are recorded at estimated fair value, with unrealized gains and losses, net of income taxes, reported as accumulated other comprehensive income (loss) until realized on the condensed consolidated statements of stockholders’ equity. Realized gains and losses from the sale of available-for-sale securities or the amounts, net of tax, reclassified out of accumulated other comprehensive income, if any, are determined on a specific identification basis.
Concentrations of risk
Financial instruments that potentially subject the Company to a concentration of credit and business risk consist of cash and cash equivalents, accounts receivable, and inventory.
The Company’s accounts receivable are unsecured and are generally derived from revenue denominated in multiple currencies. The Company’s accounts receivable maintains reserves for potential credit losses as an allowance for doubtful accounts. Actual credit losses may differ from management’s estimates. Management believes that the Company is not exposed to any significant credit risk, as the customer base is diverse. However, one customer of the Company represents greater than 17% of the customer receivable balance as of June 30, 2021. In the event the Company is unable to recover this outstanding balance, the implications would be material to the unaudited condensed consolidated financial statements. For the six months ended June 30, 2020 and 2021, one customer represented greater than 10% of net sales.
The Company maintains cash balances at various financial institutions located throughout the world in areas that the Company maintains offices. The cash balances at these banks are largely uninsured and may subject the Company to higher credit risk. The Company also invests excess cash in various short-term, low risk financial instruments.
The Company purchases an ingredient for certain products from one vendor under a long-term license and supply agreement. The ingredient was used in products representing 25.6% and 26.2% of net sales for the six months ended June 30, 2020 and 2021, respectively. In the event that the supply of this ingredient was disrupted, the Company’s ability to supply product to certain customers could also be disrupted.
Accounts receivable
Accounts receivable include trade accounts receivables from the Company’s customers, net of an allowance for doubtful accounts. Accounts receivable are recorded at the invoiced amount and do not bear interest. An allowance for doubtful accounts is established based on various factors including credit profiles of the Company’s customers, historical payments and current economic trends. The allowance for doubtful accounts balance represents management’s estimate of uncollectible accounts based upon specific identification and historical information. Once a receivable is deemed to be uncollectible, such balance is charged against the allowance. Recoveries of trade receivables previously written-off are recorded when payment is received and are charged to income as a reduction to general and administrative expense in the condensed consolidated statements of income. As of June 30, 2021, allowance for doubtful accounts totaled $0.4 million.
Inventories
Inventory is stated at the lower of cost or net realizable value, on a first-in, first-out basis. Inventory includes raw materials, work-in-process and finished goods. Costs for work-in-process and finished goods include raw materials, direct and indirect labor and manufacturing overhead. The Company regularly monitors for excess and obsolete inventory based on its estimates of expected sales volumes, production capacity and expiration of raw materials, work-in-process and finished products and reduces the carrying value of inventory accordingly. The Company writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected manufacturing requirements. Any write-downs of inventories are charged to cost of goods sold.
A change in the estimated timing or amount of demand for the Company’s products could result in a reduction to the recorded value of inventory on hand. Any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results. As of June 30, 2021, the inventory reserve totaled $7.1 million.
10
Derivatives
The Company is exposed to foreign exchange rate risks in the normal course of business. The Company enters into foreign exchange contracts to manage foreign currency risks related to monetary assets and liabilities that are denominated in currencies other than the functional currency of the reporting entity. All such contracts entered into were not designated as hedging instruments and were not required to be tested for effectiveness, as hedge accounting was not elected. The Company had foreign exchange forward contracts in place to manage foreign currency risks to monetary assets and liabilities denominated in the Euro, Swiss Franc, and the U.S. Dollar (in entities where the functional currency is not the U.S. Dollar). These foreign exchange contracts were settled by February 2021.
As of June 30, 2021, there were no outstanding forward contracts in place for foreign currency purchases. Gains and losses on the foreign exchange contracts are included in foreign exchange gain (loss), net on the condensed consolidated statements of income. The Company recorded foreign currency derivative losses of $0.1 million for each of the six months ended June 30, 2020 and 2021.
Income taxes
The provision for income taxes is computed using the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to timing differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are determined using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be recognized.
The calculation of the Company’s tax liabilities involves dealing with uncertainties of the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of the available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments. In evaluating the ability to recover deferred tax assets within the jurisdictions in which they arise, the Company considers all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, history of earnings and reliable forecasting projections of pre-tax book income for the foreseeable future, and the impact of any feasible and prudent tax planning strategies.
Revenue recognition
The Company derives the majority of its revenues from sales of products to primarily end user researchers at biotechnology and life science companies, universities, and resellers (distributors). The Company’s customers can be domestic or international. This variation in customer type, size, and location can cause variations in the timing or uncertainty of revenue and cash flows. The Company’s products address a diverse area of research areas, such as immunology, neuroscience, cancer, stem cells, and cell biology.
The Company recognizes revenue from contracts with customers in accordance with the core principles of ASC 606, Revenue from Contracts with Customers, by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
11
The Company identifies performance obligations in its contracts with customers, which only includes sales of products. The Company determines the transaction price based on the amount it expects to be entitled to in exchange for transferring the promised goods to the customer. The transaction price is allocated to each distinct performance obligation in an amount that depicts the relative amount of consideration the Company expects to receive in exchange for satisfying each performance obligation. Revenue is recognized when performance obligations are satisfied. All of the Company’s revenue is recognized at the point in time control transfers to the customer.
Net revenue from product sales is recognized at the point in time the product ships and control passes to the customer. Shipping and handling activities occur after a customer obtains control of a product and are considered activities to fulfill a promise to transfer the good.
The Company products can be sold with a right to receive a rebate based on cumulative amounts purchased by the customer over a certain period, we may also provide other credits or incentives. These amounts are accounted for as variable consideration when determining the amount of revenue to recognize. Rebates and credits are estimated at contract inception and updated at the end of each year if additional information becomes available. Both rebates and credits and changes to the Company’s estimated variable consideration were not material for the periods presented. The Company elected an accounting policy to exclude taxes collected (which are subsequently remitted to governmental authorities) from the transaction price of its customer contracts. Revenues are recognized net of these amounts.
Disaggregation of revenue
The following table summarizes the net sales by region (in thousands):
| Six months ended June 30, |
||||||||
| 2020 | 2021 | |||||||
| North America |
$ | 58,623 | $ | 86,937 | ||||
| Europe |
24,116 | 37,645 | ||||||
| Asia |
20,675 | 31,415 | ||||||
| Other |
2,711 | 3,148 | ||||||
|
|
|
|
|
|||||
| Total net sales |
$ | 106,125 | $ | 159,145 | ||||
Net sales in the Company’s country of domicile, the United States, were $56.1 million and $83.3 million for the six months ended June 30, 2020 and 2021, respectively.
Research and development expense
Research and development expense is related to new product development efforts and includes personnel expense, supplies, contractor fees, license fees, facilities costs, and utilities. Expenditures relating to research and development are expensed in the period incurred.
Stock-based compensation expense
Stock-based compensation expense is comprised of stock options, which are issued under the Company’s 2002 and 2012 equity incentive plans. Stock-based compensation related to stock options is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period of the respective award. In the event an award is fully vested when issued, the expense is recognized immediately. The Company utilizes the Black-Scholes option-pricing model for determining the estimated fair value of stock options. The Black-Scholes option-pricing model requires the use of assumptions including the Company’s stock price, expected term of the options, the risk-free interest rate, the expected volatility of our stock and expected dividend yields. Forfeitures are recognized as incurred.
Convertible preferred stock
The Company evaluated the Series A and B Convertible Preferred Stock for liability or equity classification under ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because the Series A and B Convertible Preferred Stock did not meet the definition of liability instruments defined thereunder. Additionally, the Series A and B Preferred Stock is not redeemable for cash or other assets (i) on a fixed or determinable date, (ii) at the option of the holder, and (iii) upon the occurrence of an event that is not solely within the control of the Company. Further, there are no redemption features. As such, the Series A and B Convertible Preferred Stock are classified in permanent equity.
12
Recently adopted accounting pronouncements
In December 2019, the FASB released Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies aspects of the income tax accounting guidance including requirements related to separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, interim-period accounting for enacted changes in tax law and the year-to-date loss limitation in interim-period tax accounting. The guidance includes retrospective, modified retrospective and prospective basis application dependent on the requirements of specific amendments. This ASU is effective for fiscal periods beginning after December 15, 2021. The Company early adopted ASU 2019-12 on January 1, 2021. The adoption did not have a material impact on our condensed consolidated financial statements.
Recent issued accounting standards not yet adopted
In February 2016, the FASB issued ASU 2016-02, Leases. The new standard requires lessees to recognize most leases on their balance sheet as lease liabilities with corresponding right-of-use assets and eliminates certain real estate specific provisions. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the new guidance as of the adoption date, rather than as of the earliest period presented. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the effective date, unless the lease was modified, to not reassess (i) the existence of a lease, (ii) lease classification or (iii) determination of initial direct costs, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In November 2019 and June 2020, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates and ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, respectively, which among other things, deferred the effective date for this standard. As amended, this standard is effective for fiscal years beginning after December 15, 2021 with early adoption permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements but do not expect it will result in a material change to the condensed consolidated financial statements as a whole.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendment in this update replaced the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade and loan receivables and available-for-sale debt securities. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. In November 2019, the FASB issued ASU 2019-10, which among other things, amended the effective date for credit losses for all other entities to be effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-13 on our condensed consolidated financial statements but does not expect it will result in a material change to the condensed consolidated financial statements as a whole.
3. Inventories
Inventories consisted of the following (in thousands):
| June 30, 2021 |
||||
| Raw materials |
$ | 15,620 | ||
|
Work-in-process |
20,860 | |||
| Finished goods |
18,698 | |||
|
|
|
|||
| Total |
$ | 55,178 | ||
13
4. Property, plant and equipment, net
Property, plant and equipment consisted of the following (in thousands):
| June 30, 2021 |
||||
| Land and land improvements |
$ | 21,486 | ||
| Buildings |
107,257 | |||
| Leasehold improvements |
3,283 | |||
| Laboratory equipment |
24,189 | |||
| Computer equipment |
3,794 | |||
| Furniture, fixtures and office equipment |
1,439 | |||
| Construction in progress |
392 | |||
|
|
|
|||
| Total property, plant and equipment, gross |
161,840 | |||
| Accumulated depreciation and amortization |
(25,265 | ) | ||
|
|
|
|||
| Total property, plant and equipment, net |
$ | 136,575 | ||
Depreciation expense was $3.3 million $3.4 million for the six months ended June 30, 2020 and 2021, respectively.
5. License fees, net
The Company capitalized license fees and related accumulated amortization as follows (in thousands):
| June 30, 2021 |
||||
| License fees |
$ | 14,704 | ||
| Less: accumulated amortization |
(5,587 | ) | ||
|
|
|
|||
| License fees, net |
$ | 9,117 | ||
Amortization expense was $0.5 million, for each of the six months ended June 30, 2020 and 2021, and was recorded as research and development expense. The estimated future amortization of license fees, as of June 30, 2021, is as follows (in thousands):
| Remainder of 2021 |
$ | 481 | ||
| 2022 |
954 | |||
| 2023 |
930 | |||
| 2024 |
908 | |||
| 2025 |
873 | |||
| Thereafter |
4,971 | |||
|
|
|
|||
| $ | 9,117 |
As of June 30, 2021, the weighted average life of remaining license fees is 10.4 years.
6. Fair value measurements and short-term investments
The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
| Total carrying value as of June 30, 2021 |
Fair value measurements using inputs considered as |
|||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Assets |
||||||||||||||||
| U.S. equities(1) |
$ | 1,670 | $ | 1,670 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Assets |
$ | 1,670 | $ | 1,670 | $ | — | $ | — | ||||||||
| (1) | U.S. equities are related to investments made and held in accordance with the executive deferred compensation plan. |
There were no unrealized gains or losses as of June 30, 2021.
14
7. Accrued expenses and other payable and other current liabilities
Accrued expenses consisted of the following (in thousands):
| June 30, 2021 |
||||
| Accrued payroll and employee benefits |
$ | 7,331 | ||
| Accrued royalties payable |
6,817 | |||
| Accrued payables |
5,212 | |||
| Customer advances |
2,629 | |||
| Other |
280 | |||
|
|
|
|||
| Accrued expenses |
$ | 22,269 | ||
Other payable and other current liabilities consisted of the following (in thousands):
| June 30, 2021 |
||||
| Income taxes payable |
$ | 2,458 | ||
| Other taxes payable |
699 | |||
| Other |
48 | |||
|
|
|
|||
| Other payable and other current liabilities |
$ | 3,205 | ||
8. Notes payable to stockholders
The Company had two notes payable to stockholders, who are related parties, totaling $1.1 million that accrued interest on the unpaid principal balance of the notes at the rate of 8% per annum. Accrued interest was paid annually, and all principal payments were paid upon maturity in March 2021. Interest expense was $42,000 and $14,000 for the six months ended June 30, 2020 and 2021, respectively, which was included in interest expense in the condensed consolidated statements of income.
9. Other loans and line of credit
On October 27, 2017, the Company entered into a revolving line of credit. The line of credit allows for borrowings of up to $75.0 million, including swingline capacity of up to $10.0 million. The Company also has an expansion option for an additional $75.0 million. All assets of the Company were pledged as security for the line of credit. All borrowings are to be paid with interest on a quarterly basis. At the time of borrowing, the Company may choose LIBOR or the U.S. Prime rate, plus applicable spreads. The Company must also pay a commitment fee for any unutilized borrowings on the revolving line of credit. All principal payments are payable upon maturity of the line at October 26, 2022, five years from the original agreement date.
The revolving line of credit has customary affirmative covenants, including certain financial reporting requirements as well as notification requirements tied to material events. It also includes customary negative covenant requirements, including annual capital expenditure limitations and other financial covenants. The Company is in compliance with all covenants of the agreement.
The Company had no current loan outstanding as of June 30, 2021. The Company had an unutilized facility amount of $75.0 million as of June 30, 2021. Interest expense related to loan commitment fees and including interest on notes payable to stockholders was $0.2 million and $0.2 million for the six months ended June 30, 2020 and 2021, respectively.
15
In March 2020, as part of the CARES Act, the Paycheck Protection Program was introduced to provide US payroll relief during the height of the coronavirus pandemic. The Company applied for this program in late March 2020, and subsequently, received a loan from the federal government in the amount of $8.6 million in April 2020. The general terms of the loan are a 1.0% interest rate and a two year maturity. Additionally, the loan includes a provision that provides for loan forgiveness to the extent that funds are used to make certain payroll, rent and utility payments. The Company repaid this loan in May 2020 after determining that the forgiveness criteria would not be met. As of June 30, 2021, there was no outstanding balance on the loan.
10. Stockholders’ equity
Common stock
The Company is authorized to issue 100,000,000 shares of common stock. Total shares of common stock issued were 4,754,600 as of June 30, 2021. Total shares outstanding were 3,986,400 as of June 30, 2021.
During the six months ended June 30, 2020, the Company repurchased 199,500 shares of common stock at estimated fair value in the amount of $17.7 million. These repurchases were recorded in the condensed consolidated statement of stockholders’ equity.
There were no common stock repurchases during the six months ended June 30, 2021.
Common stock reserved for future issuance
Common stock reserved for future issuance is as follows as of (in common stock equivalent shares):
| June 30, 2021 |
||||
| Series A convertible preferred stock |
1,900,000 | |||
| Series B convertible preferred stock |
1,291,000 | |||
| Common stock options issued and outstanding |
59,000 | |||
| Authorized for future issuance under the Company’s equity incentive plan |
97,000 | |||
|
|
|
|||
| Total |
3,347,000 | |||
Convertible preferred stock
The Company is also authorized to issue 8,937,500 shares of convertible preferred stock, for which 2,062,500 shares are designated as Series A convertible preferred stock, 1,875,000 shares are designated as Series B convertible preferred stock, and the remaining 5,000,000 shares are undesignated. As of June 30, 2021, 2,025,000 shares of Series A convertible preferred stock and 1,517,500 shares of Series B convertible preferred stock were issued. As of June 30, 2021, 1,900,000 shares of the Series A convertible preferred stock and 1,291,000 shares of the Series B convertible preferred stock were outstanding.
Each share of Series A and Series B convertible preferred stock is convertible, at the option of the holder, into a number of fully paid shares of common stock as determined by dividing the applicable original issue price, appropriately adjusted for any stock splits, stock dividends, and recapitalization, by the conversion price. The original issue price is $0.80 per share for the Series A convertible preferred stock and $1.60 per share for the Series B convertible preferred stock. The conversion price is $0.80 per share for the Series A convertible preferred stock and $1.60 per share for the Series B convertible preferred stock, subject to adjustments as defined in the Company’s Amended and Restated Certificate of Incorporation. The Series A and Series B convertible preferred stock will automatically convert to common stock upon the closing of a public offering of the common stock. In addition, the Series A and Series B convertible preferred stock will automatically convert to common stock upon the vote or written consent of the holders of at least a majority of the outstanding shares of Series A and Series B convertible preferred stock voting together as a single class. Holders of Series A convertible preferred stock have a liquidation preference of $0.80 per share (as adjusted proportionately for any stock dividends, combinations, splits, etc.) and holders of Series B convertible preferred stock have a liquidation preference of $1.60 per share (as adjusted proportionately for any stock dividends, combinations, splits, etc.). Each holder of preferred stock shall be entitled to equal voting rights of the common stockholders based on the conversion rate established. Holders of Series A and Series B convertible preferred stock may be entitled to receive dividends at the rate of $0.064 and $0.128 per share, respectively, per annum. Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative.
16
The Company’s Board of Directors declared no cash dividends on its Series A convertible preferred stock and Series B convertible preferred stock for preferred stockholders, in the six months ended June 30, 2020 and 2021. There were no annual dividends paid in the six months ended June 30, 2020 and 2021. No dividends were accrued as of June 30, 2021.
11. Stock-based compensation and other benefit plans
Equity incentive plan
On December 20, 2002, the Company’s Board of Directors established the 2002 Stock Incentive Plan (the “2002 Plan”). The 2002 Plan provided for the grant of nonqualified stock options or incentive stock options (“Options”) and restricted stock awards to employees of the Company, as well as to Board members and service providers. The maximum number of shares of common stock issued pursuant to the 2002 Plan was 421,250 common shares for the issuance of Options under the 2002 Plan. Options to purchase 5,000 common shares were outstanding under the 2002 Plan as of June 30, 2021. The Company’s ability to grant awards under the 2002 Plan was automatically terminated on December 20, 2012. The 2002 Plan will continue to govern the terms and conditions of the outstanding equity awards granted under the 2002 Plan.
On December 21, 2012, the Company’s Board of Directors established the 2012 Stock Incentive Plan (the “2012 Plan”) (collectively, with the 2002 Plan, the “Plans”). The 2012 Plan reserved an additional 200,000 common shares for the issuance of Options under the 2012 Plan. The 2012 Plan automatically terminates on December 20, 2022 and may be terminated earlier by the CEO and the Board of Directors. Options to purchase 54,000 common shares were outstanding under the 2012 Plan as of June 30, 2021.
The Plans allow for “early option exercise” prior to vesting. In the event the recipient fails to vest, the Company has the right, but not the obligation, to repurchase unvested shares at the lower of the original purchase price or current fair market value. The repurchase right lapses as shares vest. There were no shares subject to repurchase rights arising from nonqualified stock options as of June 30, 2021.
The Plans are administered by the CEO and the Board of Directors, who have the authority to approve the number of options granted, type of awards to be granted, the time at which awards are exercisable, the method of payments and any other terms and conditions of the awards. Options and restricted stock granted by the Board of Directors under the Plans are granted with exercise prices based on the estimated fair value of the underlying common stock. The exercise period commences on the date of grant or hire date, or in the case of Board members and service providers, the grant date or commencement of services, as determined by the Board of Directors.
Upon notice of exercise and receipt of proper consideration, shares are issued from the shares reserved for issuance by the Company. The Company maintains a right of first refusal, but not an obligation, to repurchase the shares issued to or exercised by terminated employees at fair market value.
Stock option activity under the Plans for the six months ended June 30, 2021 consists of the following:
| Number of shares |
Weighted average exercise price |
Weighted average contractual life (years) |
||||||||||
| Outstanding and expected to vest at December 31, 2020 |
59,000 | $ | 24.79 | 4.4 | ||||||||
| Outstanding and expected to vest at June 30, 2021 |
59,000 | $ | 24.79 | 3.9 | ||||||||
| Vested and exercisable at June 30, 2021 |
55,417 | $ | 23.84 | 3.8 | ||||||||
The total intrinsic value of options exercised during the six months ended June 30, 2020 were $0.7 million. There were no options exercised during the six months ended June 30, 2021.
Pursuant to the Plans, the Company may award restricted common stock to Company employees, Board members and service providers. The awards are administered by the CEO and the Board of Directors, who approve the awards at their discretion.
The restricted common stock awards contain a repurchase provision that lapses at a rate of 20% over five years commencing on a date determined by the CEO and the Board of Directors. If an employee ceases employment, or if a consultant no longer performs services for the Company, the Company retains the right to repurchase the number of shares subject to the repurchase provision at the grant date fair value, within 90 days after the recipient’s termination of service. The Company also retains a right of first refusal when restricted stock shares are sold. As of June 30, 2021, the Company had 4,010,000 restricted shares of common stock outstanding. No shares were issued, cancelled, or subject to vesting during the six months ended June 30, 2020 and 2021, respectively.
17
Stock-based compensation expense for the six months ended June 30, 2020 and 2021 was $56,000 and approximately $33,000, respectively, and was included in general and administrative expense. As of June 30, 2021, there was $0.1 million of unrecognized compensation cost related to non-vested stock options which will be recognized over the weighted average period over of 0.8 years.
Stock appreciation rights plan
The BioLegend, Inc. 2018 Cash Stock Appreciation Rights (“SARs”) Plan (the “SAR Plan”) was adopted by the Board of Directors effective September 10, 2018. The purpose of the SAR Plan is to promote the best interests of the Company by (i) assisting the Company and its subsidiaries in the recruitment and retention of persons with ability and initiative and (ii) providing an incentive to such persons to contribute to the growth and success of the Company’s and its subsidiaries’ businesses by associating the interests of such persons with those of the Company and its stockholders.
The SAR Plan provides for cash incentive awards measured by appreciation in the value of the common stock of the Company, subject to the terms and conditions of the SAR Plan. The SAR Plan does not provide any right to receive common stock or other equity of the Company, or any direct or indirect interest therein. Therefore, the amount owed to employees is treated as a liability in accordance with ASC 480, Distinguishing Liabilities from Equity. The SAR Plan qualifies under liability accounting because the SARs are unconditional obligations of the Company to settle the awards in cash.
The SARs are subject to a 3 year vesting period and a life of 10 years. The SAR Plan includes an appreciation limit, which is a capped determination of fair market value with respect to such SAR (i.e. with respect to calculating the pay-out upon exercise or cash settlement). The growth in fair market value with respect to such SAR from any one calendar year to the next is limited for this purpose to 15%; provided however, that if there is an exercise or cash settlement of such SAR occurring concurrent with (and not before) an initial public offering (“IPO”) or a change in control. In such case, then growth in fair market value will either, depending on the participant, have no cap or be capped at 100% that calendar year. Upon the consummation of an IPO or a change in control, the vesting of the outstanding SARs shall be automatically accelerated in full (i.e. 100%) and the SARs, to the extent not previously exercised, shall be settled in cash on the effective date of the IPO or change in control.
As of June 30, 2021, the Company had 22 plan participants and a total of 62,000 shares distributed with a vested value of $1.7 million. None of the automatic acceleration events were deemed probable to occur as of June 30, 2021.
The following table sets forth the expense related to the SAR plan included in the accompanying consolidated statements of income (in thousands):
| Six months ended June 30, |
||||||||
| 2020 | 2021 | |||||||
| Cost of goods sold |
$ | 94 | $ | 164 | ||||
| Selling and marketing |
90 | 87 | ||||||
| General and administrative |
130 | 166 | ||||||
| Research and development |
46 | 210 | ||||||
|
|
|
|
|
|||||
| $ | 360 | $ | 627 | |||||
Unrecognized compensation expense as of June 30, 2021 was $0.4 million.
12. Income taxes
The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company does not provide for U.S. deferred income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are reinvested indefinitely.
The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter. The Company’s quarterly tax provision, and its quarterly estimate of its annual effective tax rate, are subject to significant volatility due to several factors, including the Company’s ability to accurately predict its pre-tax income in multiple jurisdictions.
18
Income tax expense for the six months ended June 30, 2020 and 2021, was $8.0 million and $16.1 million, respectively. For the six months ended June 30, 2020 and 2021, the Company’s effective tax rate was 18.7% and 20.0%, respectively. The variance from the statutory federal tax rate of 21% for the six months ended June 30, 2020 and 2021, was primarily due to state taxes and non-deductible items, offset by a benefit recorded under the foreign derived intangible income provisions and research and development tax credits.
In response to the COVID-19 pandemic, the United States passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in March 2020, and on March 11, 2021, the United States enacted the American Rescue Plan Act of 2021. These acts include various income and payroll tax measures. Neither the income tax nor the payroll tax measures had a materially impact on our condensed consolidated financial statements.
13. Commitments and contingencies
Commitments
The Company has operating leases for its facilities in California, the United Kingdom, Taiwan, Japan, and China, extending through 2024. As of June 30, 2021, future minimum payments under these operating leases are as follows for the years ending December 31 (in thousands):
| Remainder of 2021 |
$ | 474 | ||
| 2022 |
181 | |||
| 2023 |
97 | |||
| 2024 |
56 | |||
| 2025 |
5 | |||
|
|
|
|||
| Total |
$ | 813 |
Total expense related to operating leases were $0.5 million and $0.4 million for the six months ended June 30, 2020 and 2021, respectively, and are included in operating expenses in the accompanying condensed consolidated statements of income.
Many of the Company’s technology licenses are subject to future royalties which generally range from 5% to 25% of applicable net sales. Royalty expense was $8.9 million and $13.3 million for the six months ended June 30, 2020 and 2021, respectively, and is included in cost of goods sold in the accompanying condensed consolidated statements of income. At June 30, 2021 the Company had a total royalty liability of $9.2 million, of which $2.3 million was included in accounts payable based upon the payment terms of the license agreements and $6.8 million was included in accrued expenses.
Contingencies
The Company is involved in various legal proceedings arising in the normal course of business. The Company accrues for a loss contingency when it determines that it is probable, after consultation with counsel, that a liability has been incurred and the amount of such loss can be reasonably estimated. The Company believes that the results of any such contingencies, either individually or in the aggregate, will not have a material adverse effect on the Company’s condensed consolidated financial position, results of operations or cash flows.
Risks and uncertainties
The World Health Organization declared in March 2020 that the recent outbreak of the coronavirus disease (“COVID-19”) constitutes a pandemic. The COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The global impact of COVID-19 continues to rapidly evolve, and the Company will continue to monitor the situation and the effects on its business and operations closely. The Company does not yet know the full extent of potential impacts on its business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic continues and persists for an extended period of time. Given the uncertainty, the Company cannot reasonably estimate the impact on its future results of operations, cash flows, or financial condition.
14. Subsequent events
The Company has evaluated subsequent events through November 4, 2021, which is the date the condensed consolidated financial statements were issued.
On August 31, 2021, the Company cancelled its revolving line of credit in anticipation of the below merger.
19
On September 17, 2021, PerkinElmer, Inc. (the “PerkinElmer”), through its direct, wholly owned subsidiaries, Burton Acquisition I, Inc. ( “Merger Sub I”) and Burton Acquisition II, Inc. (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”), completed its acquisition of the Company pursuant to the Agreement and Plan of Merger dated as of July 25, 2021 (the “Merger Agreement”) by and among PerkinElmer, the Merger Subs, the Company and the Company’s Chief Executive Officer, solely in his capacity as the stockholder representative thereunder. On September 17, 2021, in accordance with the Merger Agreement, Merger Sub I was merged with and into the Company (the “First Merger”), with the Company surviving the First Merger as a wholly owned subsidiary of PerkinElmer, and, immediately following the First Merger, the Company was merged with and into Merger Sub II (the “Second Merger” and, together with the First Merger, the “Merger”), with Merger Sub II surviving the Second Merger as a wholly owned subsidiary of PerkinElmer.
In connection with the consummation of the Merger, PerkinElmer paid an aggregate purchase price of approximately $5.7 billion, net of cash acquired of approximately $292 million, reflecting preliminary working capital and other adjustments (the “Aggregate Consideration”) that are subject to final adjustment following the closing. The Aggregate Consideration was paid in a combination of $3.3 billion in cash and shares of PerkinElmer’s common stock having a value of approximately $2.6 billion based on the $187.56 per share closing price of PerkinElmer’s common stock on the New York Stock Exchange on September 17, 2021 (the “Stock Consideration”). The Stock Consideration consisted of 14,066,771 shares of PerkinElmer’s common stock and was issued on September 17, 2021 in a private placement pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) of the Securities Act.
20
Exhibit 99.5
PERKINELMER, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS FOR
PERKINELMER, INC. AND BIOLEGEND, INC.
(Unaudited)
(amounts in thousands, unless otherwise noted)
PerkinElmer, Inc. and its subsidiaries are referred to herein collectively as the “Company”. On September 17, 2021, the Company, through its direct, wholly owned subsidiaries, Burton Acquisition I, Inc. and Burton Acquisition II, Inc., completed its acquisition of BioLegend, Inc. (“BioLegend”).
The unaudited pro forma condensed combined financial information for the year ended January 3, 2021 and the six months ended July 4, 2021 is based on the historical financial statements of the Company and BioLegend after applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information. Therefore, this financial information is qualified by reference to and should be read in conjunction with the historical financial statements and the accompanying disclosures of the Company for the year ended January 3, 2021 and for the six months ended July 4, 2021 and of BioLegend for the year ended December 31, 2020 and for the six months ended June 30, 2021.
The unaudited pro forma condensed combined statements of operations for the year ended January 3, 2021 and for the six months ended July 4, 2021 are presented as if the acquisition and related financing activities had occurred on December 30, 2019. The unaudited pro forma condensed combined balance sheet as of July 4, 2021 is presented as if the acquisition and related financing activities had occurred on July 4, 2021. The pro forma adjustments give effect to events that are directly attributable to the transaction and are expected to have a material and continuing impact on the financial results of the combined companies. The pro forma adjustments are based on available information and certain assumptions that the Company believes are reasonable. Adjustments have been made for transaction costs that have been incurred but have not yet been recognized in the historical combined financial information.
The unaudited pro forma financial condensed combined financial information illustrates the acquisition using the purchase method of accounting and the effects of the related financing transactions. The Company is still in the process of valuing the assets acquired and liabilities assumed. As such, the allocation of the purchase price is preliminary, has been made solely for the purpose of preparing this pro forma information and is subject to change. Adjustments may be made to the values of the acquired assets and liabilities as additional information is obtained about the facts and circumstances that existed at the valuation date. The differences that may occur between the preliminary estimates and the final acquisition accounting could have a material impact on the accompanying unaudited pro forma condensed combined financial information.
Assumptions underlying the pro forma adjustments are described in the accompanying notes. The Company has prepared the unaudited pro forma condensed combined financial information for illustrative purposes only. It has been prepared in accordance with the regulations of the Securities and Exchange Commission and is not necessarily indicative of what the results of operations actually would have been had the Company completed the BioLegend acquisition on the date indicated, nor does it purport to project the future operating results of the combined company. The actual results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma condensed combined financial information does not reflect any operating efficiencies and cost savings that the Company may achieve with respect to the combined operations.
PERKINELMER, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JANUARY 3, 2021
(Unaudited)
| Historical, as reported | ||||||||||||||||||||
| PerkinElmer | BioLegend | Transaction Accounting Adjustments |
Pro forma Combined |
|||||||||||||||||
| (In thousands, except share and per share data) | ||||||||||||||||||||
| Revenue |
$ | 3,782,745 | $ | 241,886 | $ | — | $ | 4,024,631 | ||||||||||||
| Cost of revenue |
1,672,868 | 72,219 | 130,700 | (c), (d), (f) | 1,875,787 | |||||||||||||||
| Selling, general and administrative expenses |
917,894 | 36,048 | 150,973 | (a), (c), (d) | 1,104,915 | |||||||||||||||
| Research and development expenses |
205,389 | 24,039 | — | 229,428 | ||||||||||||||||
| Restructuring and other costs, net |
8,013 | — | — | 8,013 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating income from continuing operations |
978,581 | 109,580 | (281,674 | ) | 806,487 | |||||||||||||||
| Interest and other expense (income), net |
72,217 | (1,428 | ) | 59,077 | (b), (e) | 129,866 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income from continuing operations before income taxes |
906,364 | 111,008 | (340,751 | ) | 676,621 | |||||||||||||||
| Provision for income taxes |
178,266 | 20,773 | (73,990 | ) | (h) | 125,049 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income from continuing operations |
$ | 728,098 | $ | 90,235 | $ | (266,761 | ) | $ | 551,572 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Basic earnings per share: |
||||||||||||||||||||
| Continuing operations |
$ | 6.53 | $ | 4.39 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Diluted earnings per share: |
||||||||||||||||||||
| Continuing operations |
$ | 6.50 | $ | 4.37 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| Weighted average shares of common stock outstanding: |
||||||||||||||||||||
| Basic |
111,514 | 14,067 | (g) | 125,581 | ||||||||||||||||
| Diluted |
112,085 | 14,067 | (g) | 126,152 | ||||||||||||||||
The notes are an integral part of the unaudited pro forma condensed combined financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 4, 2021
(Unaudited)
| Historical, as reported | ||||||||||||||||||
| PerkinElmer | BioLegend | Transaction Accounting Adjustments |
Pro forma Combined |
|||||||||||||||
| (In thousands, except share and per share data) | ||||||||||||||||||
| Revenue |
$ | 2,536,160 | $ | 159,145 | $ | — | $ | 2,695,305 | ||||||||||
| Cost of revenue |
1,065,820 | 44,918 | 34,453 | (d) | 1,145,191 | |||||||||||||
| Selling, general and administrative expenses |
533,229 | 19,877 | 56,776 | (d) | 609,882 | |||||||||||||
| Research and development expenses |
126,040 | 13,552 | — | 139,592 | ||||||||||||||
| Restructuring and other costs, net |
10,807 | — | — | 10,807 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income from continuing operations |
800,264 | 80,798 | (91,230 | ) | 789,832 | |||||||||||||
| Interest and other (income) expense, net |
(6,275 | ) | 735 | 17,875 | (e) | 12,335 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from continuing operations before income taxes |
806,539 | 80,063 | (109,105 | ) | 777,497 | |||||||||||||
| Provision for income taxes |
181,228 | 16,054 | (26,000 | ) | (h) | 171,282 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from continuing operations |
$ | 625,311 | $ | 64,009 | $ | (83,105 | ) | $ | 606,215 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Basic earnings per share: |
||||||||||||||||||
| Continuing operations |
$ | 5.58 | $ | 4.81 | ||||||||||||||
|
|
|
|
|
|||||||||||||||
| Diluted earnings per share: |
||||||||||||||||||
| Continuing operations |
$ | 5.56 | $ | 4.79 | ||||||||||||||
|
|
|
|
|
|||||||||||||||
| Weighted average shares of common stock outstanding: |
||||||||||||||||||
| Basic |
112,000 | 14,067 | (g) | 126,067 | ||||||||||||||
| Diluted |
112,456 | 14,067 | (g) | 126,523 | ||||||||||||||
The notes are an integral part of the unaudited pro forma condensed combined financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JULY 4, 2021
(Unaudited)
| Historical, as reported | ||||||||||||||||||
| PerkinElmer |
BioLegend |
Transaction Accounting Adjustments |
Pro forma Combined |
|||||||||||||||
| (In thousands, except share and per share data) | ||||||||||||||||||
| Current assets: |
||||||||||||||||||
| Cash and cash equivalents |
$ | 572,810 | $ | 261,615 | $ | (313,071 | ) | (a), (m), (n) | $ | 521,354 | ||||||||
| Accounts receivable, net |
992,602 | 38,565 | — | 1,031,167 | ||||||||||||||
| Inventories, net |
513,429 | 55,178 | 66,360 | (l) | 634,967 | |||||||||||||
| Other current assets |
181,151 | 8,252 | — | 189,403 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current assets |
2,259,992 | 363,610 | (246,711 | ) | 2,376,891 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Property, plant and equipment, net |
379,065 | 136,575 | 10,544 | (i) | 526,184 | |||||||||||||
| Operating lease right-of-use assets |
208,494 | — | — | 208,494 | ||||||||||||||
| Intangible assets, net |
1,561,534 | 215 | 2,534,985 | (j), (k) | 4,096,734 | |||||||||||||
| Goodwill |
3,844,070 | 8,250 | 3,552,580 | (k), (m) | 7,404,900 | |||||||||||||
| Other assets, net |
486,306 | 18,176 | — | 504,482 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
$ | 8,739,461 | $ | 526,826 | $ | 5,851,398 | $ | 15,117,685 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Current liabilities: |
||||||||||||||||||
| Current portion of long-term debt |
$ | 4,669 | $ | — | $ | — | $ | 4,669 | ||||||||||
| Accounts payable |
324,711 | 10,681 | — | 335,392 | ||||||||||||||
| Accrued expenses and other current liabilities |
793,443 | 25,474 | (1,571 | ) | (a), (m), (n) | 817,346 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current liabilities |
1,122,823 | 36,155 | (1,571 | ) | 1,157,407 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Long-term debt |
2,348,523 | — | 3,085,524 | (m), (n) | 5,434,047 | |||||||||||||
| Long-term liabilities |
838,974 | 8,597 | 665,564 | (p) | 1,513,135 | |||||||||||||
| Operating lease liabilities |
189,334 | — | — | 189,334 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
4,499,654 | 44,752 | 3,749,517 | 8,293,923 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Commitments and contingencies |
||||||||||||||||||
| Stockholders’ equity: |
||||||||||||||||||
| Convertible preferred stock |
— | 3,586 | (3,586 | ) | (o) | — | ||||||||||||
| Common stock |
112,025 | 918 | 13,149 | (m), (o) | 126,092 | |||||||||||||
| Capital in excess of par value |
103,394 | 1,491 | 2,622,811 | (m), (o) | 2,727,696 | |||||||||||||
| Retained earnings |
4,116,825 | 476,710 | (534,896 | ) | (a), (n), (o) | 4,058,639 | ||||||||||||
| Accumulated other comprehensive (loss) income |
(92,437 | ) | 192 | 3,580 | (n), (o) | (88,665 | ) | |||||||||||
| Non-controlling interests |
— | (823 | ) | 823 | (o) | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total stockholders’ equity |
4,239,807 | 482,074 | 2,101,881 | 6,823,762 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities and stockholders’ equity |
$ | 8,739,461 | $ | 526,826 | $ | 5,851,398 | $ | 15,117,685 | ||||||||||
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The notes are an integral part of the unaudited pro forma condensed combined financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS FOR
PERKINELMER, INC. AND BIOLEGEND, INC.
(Unaudited)
(amounts in thousands, unless otherwise noted)
| Note 1: | Description of Transaction |
On September 17, 2021, PerkinElmer, Inc. (the “Company”), through its direct, wholly owned subsidiaries, Burton Acquisition I, Inc. ( “Merger Sub I”) and Burton Acquisition II, Inc. (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”), completed its acquisition of BioLegend, Inc. (“BioLegend”) pursuant to the Agreement and Plan of Merger dated as of July 25, 2021 (the “Merger Agreement”) by and among the Company, the Merger Subs, BioLegend and Gene Lay, solely in his capacity as the stockholder representative thereunder. On September 17, 2021, in accordance with the Merger Agreement, Merger Sub I was merged with and into BioLegend (the “First Merger”), with BioLegend surviving the First Merger as a wholly owned subsidiary of the Company, and, immediately following the First Merger, BioLegend was merged with and into Merger Sub II (the “Second Merger” and, together with the First Merger, the “Merger”), with Merger Sub II surviving the Second Merger as a wholly owned subsidiary of the Company.
Prior to the closing of the Merger, on September 10, 2021, the Company issued $500 million aggregate principal amount of 0.550% Senior Notes due 2023, $800 million aggregate principal amount of 0.850% Senior Notes due 2024, $500 million aggregate principal amount of 1.900% Senior Notes due 2028 and $500 million aggregate principal amount of 2.250% Senior Notes due 2031 in a public offering. The Company received an aggregate net proceeds of $2.28 billion, which was used to partially fund the cash consideration. On August 11, 2021, the Company entered into an unsecured delayed draw term loan credit facility with Bank of America, N.A., as Administrative Agent and the Lenders party thereto, that provides for a $500 million committed term loan credit facility. The Company made a drawdown of the full $500 million from the term loan credit facility on September 16, 2021. On August 24, 2021, the Company entered into an unsecured revolving credit facility that provides for a $1.5 billion committed unsecured revolving credit facility available through August 24, 2026. The Company made a draw on the revolving credit facility of $310 million on September 16, 2021.
In connection with the consummation of the Merger, the Company paid an aggregate purchase price of approximately $5.7 billion, net of cash acquired of approximately $292 million, reflecting preliminary working capital and other adjustments (the “Aggregate Consideration”) that are subject to final adjustment following the closing. The Aggregate Consideration was paid in a combination of $3.3 billion in cash and shares of the Company’s common stock having a value of approximately $2.6 billion based on the $187.56 per share closing price of the Company’s common stock on the New York Stock Exchange on September 17, 2021 (the “Stock Consideration”). The Stock Consideration consisted of 14,066,771 shares of the Company’s common stock and was issued on September 17, 2021 in a private placement pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) of the Securities Act. The $3.3 billion cash consideration was funded through a combination of $2.28 billion in proceeds from the issuance of Senior Notes, $500 million proceeds from the term loan credit facility, $310 million proceeds from the revolving credit facility, and cash on hand.
| Note 2: | Basis of Presentation |
The unaudited pro forma condensed combined financial information for the year ended January 3, 2021 and for the six months ended July 4, 2021 is based on the historical financial statements of the Company and BioLegend after applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information. Therefore, this financial information is qualified by reference to and should be read in conjunction with the historical financial statements and the accompanying disclosures of the Company and of BioLegend.
The Company and BioLegend have different fiscal year ends. The Company’s fiscal year ends on the Sunday nearest December 31. The Company reports fiscal years under a 52/53 week format. Under this method, certain years will contain 53 weeks. The fiscal year ending January 2, 2022 will include 52 weeks, and the fiscal year ended January 3, 2021 included 53 weeks. BioLegend’s fiscal year always ends on December 31. Accordingly, the unaudited pro forma condensed combined financial information for the fiscal year ended January 3, 2021 combines the historical results of (i) the Company for the fiscal year ended January 3, 2021 and (ii) BioLegend for the fiscal year ended December 31, 2020. The unaudited pro forma condensed combined financial information for the six months ended July 4, 2021 combines the historical results of (i) the Company for the fiscal period January 4, 2021 through July 4, 2021 and (ii) BioLegend for the fiscal period January 1, 2021 through June 30, 2021. The difference in fiscal periods for the Company and BioLegend is considered to be insignificant and no related adjustments have been made in the preparation of this unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined statements of operations for the year ended January 3, 2021 and for the six months ended July 4, 2021 are presented as if the acquisition and the related financing activities had occurred on December 30, 2019. The unaudited pro forma condensed combined balance sheet as of July 4, 2021 is presented as if the acquisition and the related financing activities had occurred on July 4, 2021. The pro forma adjustments give effect to events that are directly attributable to the transaction and are expected to have a material and continuing impact on the financial results of the combined companies. The pro forma adjustments are based on available information and certain assumptions that the Company believes are reasonable. Adjustments have been made for transaction costs that have been incurred or are expected to be incurred but have not yet been recognized in the historical combined financial information.
The following table summarizes the Company’s pro forma purchase price allocation which includes the estimated fair values of the assets acquired, including goodwill and intangible assets, and liabilities assumed as if the acquisition had occurred as of the pro forma balance sheet date. The purchase price allocation presented is for illustrative purposes only and these amounts are not intended to represent or be indicative of the purchase price allocation that would have been reported had the BioLegend acquisition been completed as of the pro forma balance sheet date. In addition, the pro forma purchase price allocation is preliminary and may differ significantly from the final valuation of net tangible and intangible assets acquired.
| (In thousands) | ||||
| Fair value of business combination: |
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| Cash payments |
$ | 3,335,810 | ||
| Common stock issued |
2,638,364 | |||
| Other liability |
6,800 | |||
| Less: cash acquired |
(261,610 | ) | ||
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| Total |
$ | 5,719,364 | ||
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| Identifiable assets acquired and liabilities assumed: |
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| Current assets |
$ | 168,355 | ||
| Property, plant and equipment |
147,119 | |||
| Other assets |
18,030 | |||
| Identifiable intangible assets: |
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| Core technology |
543,400 | |||
| Trade names |
38,000 | |||
| Customer relationships |
1,714,800 | |||
| Clone library |
239,000 | |||
| Goodwill |
3,560,830 | |||
| Deferred taxes |
(670,299 | ) | ||
| Liabilities assumed |
(39,871 | ) | ||
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| Total |
$ | 5,719,364 | ||
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The unaudited pro forma condensed combined financial information illustrates the acquisition using the purchase method of accounting and the effects of the related financing transactions. The Company is still in the process of valuing the assets acquired and liabilities assumed. As such, the allocation of the purchase price is preliminary, has been made solely for the purpose of preparing this pro forma information and is subject to change. Adjustments may be made to the values of the acquired assets and liabilities as additional information is obtained about the facts and circumstances that existed at the valuation date. The differences that may occur between the preliminary estimates and the final acquisition accounting could have a material impact on the accompanying unaudited pro forma condensed combined financial information.
The Company has prepared the unaudited pro forma condensed combined financial information for illustrative purposes only. It has been prepared in accordance with the regulations of the Securities and Exchange Commission and is not necessarily indicative of what the results of operations actually would have been had the Company completed the BioLegend acquisition on the date indicated, nor does it purport to project the future operating results of the combined company. The actual results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma condensed combined financial information does not reflect any operating efficiencies and cost savings that the Company may achieve with respect to the combined operations.
| Note 3: | Accounting Policies |
The Company is still in the process of evaluating BioLegend’s accounting policies. As a result of this review, it may become necessary to conform accounting policies for the combined entity, which could have an impact on the combined financial statements. The unaudited pro forma condensed combined financial information does not assume adjustments for any remaining differences in accounting policies.
| Note 4: | Transaction Accounting Adjustments |
The adjustments included in the unaudited pro forma condensed combined statements of operations for the fiscal year ended January 3, 2021 and for the six months ended July 4, 2021, and the adjustments included in the unaudited pro forma condensed combined balance sheet as of July 4, 2021 are as follows:
| (a) | To record the transaction costs of $43.2 million incurred for the acquisition. |
| (b) | To record the bridge financing and debt pre-issuance hedging costs of $23.3 million immediately expensed for the bridge financing obtained in advance of the consummation of the acquisition. |
| (c) | To record the reversal of $0.7 million of BioLegend’s intangible asset amortization expense. |
| (d) | To record the estimated amortization expense of acquired intangibles ($172.8 million for the pro forma condensed combined statement of operations for the fiscal year ended January 3, 2021, and $91.2 million for the pro forma condensed combined statement of operations for the six months ended July 4, 2021). |
Amortization expense is calculated utilizing the accelerated method and is expensed over an average period ranging from 1 to 18 years (expected useful lives).
| (e) | To record the estimated interest expense due to the debt financing for the acquisition ($35.8 million for the pro forma condensed combined statement of operations for the fiscal year ended January 3, 2021, and $17.9 million for the pro forma condensed combined statement of operations for the six months ended July 4, 2021). |
| (f) | To record the additional cost of goods sold of $66.4 million for inventory sold as a result of the step up in fair value adjustment at acquisition. |
| (g) | To adjust the weighted average shares of common stock outstanding for the shares issued as part of the acquisition purchase price. |
| (h) | Income tax impact of the pro forma adjustments using the blended federal and state statutory rate. |
| (i) | To record the step up in fair value adjustment of property, plant, and equipment acquired amounting to $10.5 million. |
| (j) | To record the intangible assets acquired based on the preliminary estimated fair value and the related income tax impact. Approximate amounts of significant intangible assets acquired and estimated useful lives include core technology of $543.4 million (13 years), customer relationships of $1,714.8 million (18 years), trade names of $38.0 million (9 years) and clone library of $239.0 million (13 years). |
| (k) | To remove BioLegend’s historical intangible assets and goodwill. |
| (l) | To record the step up in fair value adjustment of inventory acquired amounting to $66.4 million. |
| (m) | To record the gross purchase price of $6.0 billion paid in a combination of $3.3 billion in cash and $2.6 billion in shares of the Company’s common stock. The $3.3 billion cash consideration paid in connection with the closing of the Merger was funded through a combination of $2.28 billion in proceeds from the issuance of senior notes, $500.0 million proceeds from the term loan credit facility, $310 million of proceeds from the Company’s revolving credit facility, and cash on hand of $250 million. The $2.6 billion in common stock issued consists of the 14,066,771 shares of the Company’s common stock issued on September 17, 2021 based on the $187.56 per share closing price of the Company’s common stock on the New York Stock Exchange on September 17, 2021. |
| (n) | To record the capitalized debt issuance costs of $10.7 million and $19.6 million of other issuance costs related to the financing for the acquisition. |
| (o) | To eliminate BioLegend’s historical stockholders’ equity. |
| (p) | To recognize the deferred tax liabilities related to the fair value adjustments for property, plant and equipment, intangible assets and inventories. The fair value adjustments were tax effected at the estimated applicable blended statutory tax rate. The effective tax rate may be materially different. |