Full Press Release Details
Consolidated Financial Statements as of
Years Ended January 3, 2015 and December 31, 2013, and
Independent Auditors Report
| Page | ||||
| INDEPENDENT AUDITORS REPORT | 1 | |||
| CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JANUARY 3, 2015 AND DECEMBER 31, 2013: | ||||
| Consolidated Balance Sheets | 2 | |||
| Consolidated Statements of Operations | 3 | |||
| Consolidated Statements of Comprehensive Loss | 4 | |||
| Consolidated Statements of Stockholder s Equity | 5 | |||
| Consolidated Statements of Cash Flows | 6-7 | |||
| Notes to Consolidated Financial Statements | 8 |
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholder of Accellent Inc.
Wilmington, Massachusetts
We have audited the accompanying
consolidated financial statements of Accellent Inc. and subsidiaries (the Company ), which comprise the consolidated balance sheets as of January 3, 2015 and December 31, 2013, and the related consolidated statements of
operations, comprehensive loss, stockholder s equity, and cash flows for the fiscal years then ended.
Management s Responsibility for the
Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits 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 consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the Company s preparation and fair presentation of the consolidated 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 Company 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 consolidated financial statements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
January 3, 2015 and December 31, 2013, and the results of its operations and its cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
Boston, Massachusetts
Consolidated Balance Sheets
(in thousands, except per share data)
| As of | ||||||||
| January 3, 2015 | December 31, 2013 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 44,191 | $ | 72,240 | ||||
| Accounts receivable, net of allowances of $5,119 and $2,601 at January 3, 2015 and December 31, 2013, respectively | 78,078 | 59,624 | ||||||
| Inventory | 89,191 | 61,688 | ||||||
| Deferred income taxes | 4,404 | |||||||
| Prepaid expenses and other current assets | 6,192 | 2,973 | ||||||
| Total current assets | 222,056 | 196,525 | ||||||
| Property, plant and equipment, net | 186,637 | 116,957 | ||||||
| Goodwill | 719,842 | 556,315 | ||||||
| Other intangible assets, net | 193,782 | 119,808 | ||||||
| Deferred financing costs and other assets, net | 23,443 | 11,625 | ||||||
| Total assets | $ | 1,345,760 | $ | 1,001,230 | ||||
| Liabilities and Stockholder s Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 8,350 | $ | 7 | ||||
| Accounts payable | 27,531 | 19,229 | ||||||
| Accrued payroll and benefits | 20,865 | 11,928 | ||||||
| Accrued interest | 3,460 | 19,303 | ||||||
| Accrued expenses and other current liabilities | 31,847 | 20,927 | ||||||
| Total current liabilities | 92,053 | 71,394 | ||||||
| Long-term debt | 1,040,388 | 713,652 | ||||||
| Deferred income taxes | 38,936 | 33,925 | ||||||
| Other liabilities | 9,480 | 7,783 | ||||||
| Total liabilities | 1,180,857 | 826,754 | ||||||
| Commitments and contingencies (Note 19) | ||||||||
| Stockholder s equity: | ||||||||
| Common stock, par value $0.01 per share, 50,000 shares authorized; 1 share issued and outstanding at January 3, 2015 and December 31, 2013 | ||||||||
| Additional paid-in capital | 717,345 | 640,703 | ||||||
| Accumulated other comprehensive loss | (41,071 | ) | (1,186 | ) | ||||
| Accumulated deficit | (511,371 | ) | (465,041 | ) | ||||
| Total stockholder s equity | 164,903 | 174,476 | ||||||
| Total liabilities and stockholder s equity | $ | 1,345,760 | $ | 1,001,230 |
See notes to consolidated financial statements.
Consolidated Statements of Operations
| Fiscal Years | ||||||||
| 2014 | 2013 | |||||||
| Net sales | $ | 752,264 | $ | 525,712 | ||||
| Cost of sales (exclusive of amortization) | 573,616 | 389,766 | ||||||
| Gross profit | 178,648 | 135,946 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 82,676 | 52,105 | ||||||
| Research and development | 8,763 | 2,027 | ||||||
| Impairment of intangible assets and goodwill | 26,800 | 63,128 | ||||||
| Restructuring | 3,138 | 280 | ||||||
| Amortization of intangible assets | 25,039 | 14,939 | ||||||
| Loss on disposal of property and equipment | 40 | 1,088 | ||||||
| Total operating expenses | 146,456 | 133,567 | ||||||
| Income from operations | 32,192 | 2,379 | ||||||
| Other expense, net: | ||||||||
| Interest expense, net | (63,096 | ) | (69,145 | ) | ||||
| Loss on debt extinguishment | (53,421 | ) | ||||||
| Other, net | (887 | ) | (1,036 | ) | ||||
| Total other expense, net | (117,404 | ) | (70,181 | ) | ||||
| Loss from operations before income taxes | (85,212 | ) | (67,802 | ) | ||||
| Provision (benefit) for income taxes | (38,882 | ) | 4,527 | |||||
| Net loss from continuing operations | (46,330 | ) | (72,329 | ) | ||||
| Net loss from discontinued operations | (63 | ) | ||||||
| Net loss | $ | (46,330 | ) | $ | (72,392 | ) |
See notes to consolidated financial statements.
Consolidated Statements of Comprehensive Loss
| Fiscal Years | ||||||||
| 2014 | 2013 | |||||||
| Net loss | $ | (46,330 | ) | $ | (72,392 | ) | ||
| Other comprehensive income (loss), net of income taxes: | ||||||||
| Foreign currency translation adjustments | (34,884 | ) | 1,374 | |||||
| Pension actuarial gain (loss) | (2,123 | ) | 170 | |||||
| Amortization of pension actuarial loss | 38 | 34 | ||||||
| Curtailment of pension | 338 | |||||||
| Unrealized loss on derivatives | (3,254 | ) | ||||||
| Unrealized gain on investment | 32 | |||||||
| Realized gain on investment | (242 | ) | ||||||
| Other comprehensive income (loss), net of income taxes | (39,885 | ) | 1,368 | |||||
| Comprehensive loss | $ | (86,215 | ) | $ | (71,024 | ) |
See notes to consolidated financial statements.
Consolidated Statements of Stockholder s Equity
(in thousands, except per share data)
| Common Stock $0.01 par value | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholder s Equity | ||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||
| Balance, January 1, 2013 | 1 | $ | $ | 639,610 | $ | (2,554 | ) | $ | (392,649 | ) | $ | 244,407 | ||||||||||||
| Proceeds from issuance of parent company stock to employees | 75 | 75 | ||||||||||||||||||||||
| Vesting of restricted stock | 407 | 407 | ||||||||||||||||||||||
| Share-based compensation | 651 | 651 | ||||||||||||||||||||||
| Exercise of employee stock options | 70 | 70 | ||||||||||||||||||||||
| Repurchase of parent company stock | (110 | ) | (110 | ) | ||||||||||||||||||||
| Other comprehensive income, net | 1,368 | 1,368 | ||||||||||||||||||||||
| Net loss | (72,392 | ) | (72,392 | ) | ||||||||||||||||||||
| Balance at December 31, 2013 | 1 | 640,703 | (1,186 | ) | (465,041 | ) | 174,476 | |||||||||||||||||
| Issuance of parent company stock in acquisition | 75,000 | 75,000 | ||||||||||||||||||||||
| Proceeds from issuance of parent company stock to employees | 95 | 95 | ||||||||||||||||||||||
| Vesting of restricted stock | 387 | 387 | ||||||||||||||||||||||
| Share-based compensation | 1,143 | 1,143 | ||||||||||||||||||||||
| Repurchase of parent company stock | (12 | ) | (12 | ) | ||||||||||||||||||||
| Settlement of roll-over stock options | 29 | 29 | ||||||||||||||||||||||
| Other comprehensive loss, net | (39,885 | ) | (39,885 | ) | ||||||||||||||||||||
| Net loss | (46,330 | ) | (46,330 | ) | ||||||||||||||||||||
| Balance at January 3, 2015 | 1 | $ | $ | 717,345 | $ | (41,071 | ) | $ | (511,371 | ) | $ | 164,903 |
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
| Fiscal Years | ||||||||
| 2014 | 2013 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (46,330 | ) | $ | (72,392 | ) | ||
| Net loss from discontinued operations | (63 | ) | ||||||
| Net loss from continuing operations | (46,330 | ) | (72,329 | ) | ||||
| Adjustments to reconcile net loss to net cash flows provided by operating activities (net of acquisition): | ||||||||
| Depreciation and amortization | 50,803 | 33,016 | ||||||
| Amortization of debt discounts and non-cash interest accrued | 3,318 | 3,289 | ||||||
| Impact of inventory valuation step-up in an acquisition | 6,263 | |||||||
| Change in allowance for bad debts | (11 | ) | ||||||
| Impairment of intangible assets and goodwill | 26,800 | 63,128 | ||||||
| Loss on disposal of property and equipment | 40 | 1,088 | ||||||
| Realized gain on available for sale security | (242 | ) | ||||||
| Deferred income tax expense | (42,837 | ) | 2,820 | |||||
| Non-cash compensation expense | 1,649 | 768 | ||||||
| Loss on debt extinguishment | 53,421 | |||||||
| Changes in operating assets and liabilities (net of effects of an acquisition): | ||||||||
| Accounts receivable | 1,670 | (10,140 | ) | |||||
| Inventory | (3,148 | ) | (4,421 | ) | ||||
| Prepaid expenses and other assets | (1,078 | ) | (762 | ) | ||||
| Accounts payable, accrued expenses and other liabilities | (10,868 | ) | 8,092 | |||||
| Net cash provided by operating activities of continuing operations | 39,703 | 24,296 | ||||||
| Net cash used in operating activities of discontinued operations | (262 | ) | ||||||
| Net cash provided by operating activities | 39,703 | 24,034 | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of a business, net of cash acquired | (303,871 | ) | ||||||
| Capital expenditures | (29,825 | ) | (21,170 | ) | ||||
| Proceeds from the sale of property and equipment | 351 | 963 | ||||||
| Proceeds from the sale of security | 242 | |||||||
| Net cash used in investing activities of continuing operations | (333,345 | ) | (19,965 | ) | ||||
| Net cash provided by investing activities of discontinued operations | 7,987 | |||||||
| Net cash used in investing activities | (333,345 | ) | (11,978 | ) |
| Cash flows from financing activities: | ||||||||
| Proceeds from borrowings on long-term debt | 1,055,000 | |||||||
| Repayments of long-term debt and capital lease obligations | (721,272 | ) | (11 | ) | ||||
| Borrowings under revolving line of credit | 27,000 | |||||||
| Repayment of principal under revolving line of credit | (27,000 | ) | ||||||
| Proceeds from sale of parent company stock | 95 | |||||||
| Repurchase of parent company common stock | (12 | ) | (110 | ) | ||||
| Proceeds from the exercise of options in parent company stock | 25 | |||||||
| Purchase of interest rate cap | (524 | ) | ||||||
| Fees on prepayment of long-term debt | (42,400 | ) | ||||||
| Payment of debt issuance costs | (23,982 | ) | ||||||
| Net cash provided by (used in) financing activities | 266,905 | (96 | ) | |||||
| Effect of exchange rate changes | (1,312 | ) | 378 | |||||
| Net increase (decrease) in cash and cash equivalents | (28,049 | ) | 12,338 | |||||
| Cash, beginning of year | 72,240 | 59,902 | ||||||
| Cash, end of year | $ | 44,191 | $ | 72,240 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | 75,342 | $ | 65,784 | ||||
| Cash paid for income taxes, net of refunds | $ | 11,988 | $ | 1,514 | ||||
| Issuance of parent company stock in acquisition | $ | 75,000 | $ | |||||
| Property and equipment purchases included in accrued expenses | $ | 1,269 | $ | 1,894 |
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Fiscal Years Ended January 3, 2015 and December 31, 2013
Description of Business
Accellent Inc. (the Company ) is a wholly owned subsidiary of Accellent Acquisition Corp., which in turn is a wholly owned
subsidiary of Accellent Holdings Corp. ( Accellent Holdings ), which in turn is a wholly owned subsidiary of Lake Region Medical Holdings, Inc. ( LRM Holdings ). On March 12, 2014, the Company completed the acquisition of
Lake Region Manufacturing, Inc. ( Lake Region ), a Minnesota entity doing business as Lake Region Medical (the Lake Region Medical Acquisition ). The Lake Region Medical Acquisition was completed through a Contribution and
Merger Agreement among the Company, Accellent Holdings, LRM Holdings ( Buyer ), Lake Region and the other parties thereto (the Contribution and Merger Agreement ). Accellent Holdings formed Buyer and Accellent Inc. formed Lake
Region Merger Sub Inc. ( Merger Sub ) for purposes of consummating the transaction. Pursuant to the Contribution and Merger Agreement, Merger Sub merged with and into Lake Region, with Lake Region surviving as a wholly owned subsidiary of
the Company ( Lake Region Merger ). In September 2014, the Company commenced doing business as Lake Region Medical. LRM Holdings, since its formation, and Accellent Holdings, prior to the formation of LRM Holdings, is referred to herein as
the parent company .
The Company provides its customers in the medical device industry design and engineering, precision
component manufacturing, device assembly and supply chain management services and is a manufacturer of interventional and diagnostic wire-formed medical devices and components specializing in minimally
invasive devices for cardiovascular, endovascular and neurovascular applications for customers worldwide. The Company has extensive resources focused on providing its customers with reliable, high-quality, cost-efficient, integrated outsourced
solutions. Sales are focused primarily in the United States of America ( U.S. ) and Western European markets. Headquartered in Wilmington, Massachusetts, the Company has manufacturing facilities in North America, Europe, and Asia. The
Company operates in two segments: Advanced Surgical ( AS Segment ) and Cardio & Vascular ( C&V Segment ).
Basis of Presentation
Effective January 1, 2014, the Company changed its financial reporting year end from the calendar twelve months ending December 31 to
the date determined by an annual reporting cycle whereby each fiscal year will typically consist of four 13-week quarters. As a result of this change, fiscal year 2014 began on January 1, 2014, ended on January 3, 2015, and included an
additional week in the fourth quarter resulting in a 53-week fiscal year with 368 days. The change in fiscal year did not have a material impact on the financial results for the year ended January 3, 2015. Fiscal year 2013 presented in the
accompanying consolidated financial statements included 52 weeks. Unless otherwise indicated, references to fiscal years 2014 and 2013 are to the Company s fiscal years ended January 3, 2015 and December 31, 2013, respectively.
Principles of Consolidation
These consolidated financial statements include the accounts of the Company, the parent company and the Company s wholly
owned subsidiaries, including those of Lake Region since March 13, 2014. All intercompany transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S., requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities during the reporting periods, the reported amounts of revenue and expenses during the reporting periods, and the disclosure of contingent assets and liabilities at
the date of the financial statements. On an ongoing basis, the Company bases estimates and assumptions on historical experience, currently available information, and various other factors that management believes to be reasonable under the
circumstances. Actual results may differ materially from these estimates and assumptions.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank deposit accounts and highly liquid investments with an original or remaining maturity of 90
days or less when acquired. At January 3, 2015 and December 31, 2013, the Company had no cash equivalents.
The Company provides credit to its customers in the normal course of business. The Company maintains an
allowance for doubtful accounts for those receivables that it determines are no longer collectible. The Company estimates its losses from uncollectable accounts based upon recent historical experience, the length of time the receivable has been
outstanding and other specific information as it becomes available. The allowance for doubtful accounts was $0.6 million at January 3, 2015 and December 31, 2013.
Inventories are stated at the lower of cost (on first-in, first-out basis) or market and include the cost of materials, labor and manufacturing
overhead. Costs related to abnormal amounts of idle facility expense, freight, handling costs, and wasted material are recognized as current period expenses. In addition to stating inventory at the lower of cost or market, the Company also evaluates
inventory each reporting period for excess quantities and obsolescence, establishing reserves when necessary based upon historical experience, assessment of economic conditions and expected demand. Once recorded, these reserves are considered
permanent adjustments to the carrying value of inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures
which significantly increase the value of, or extend the useful lives of property, plant and equipment, are capitalized, while replaced assets are retired when removed from service. Acquired assets to be placed in service are those assets where
either (i) the Company has yet to begin using the asset in operations or (ii) additional costs are necessary to complete the asset for the use in operation. Depreciation expense is recorded on assets when they are placed in
Depreciation is calculated using the straight-line method over the estimated useful lives of depreciable assets. Useful lives of
depreciable assets, by class, are as follows:
| Buildings | 20 years | |
| Machinery and equipment | 3 to 10 years | |
| Leasehold improvements | Lessor of useful life or remaining lease term | |
| Computer equipment and software | 3 years | |
| Automobiles | 3 years |
The Company evaluates the useful lives and potential impairment of property, plant and equipment whenever
events or changes in circumstances indicate that either the useful life or carrying value may be impaired. Events and circumstances which may indicate impairment include a change in the use or condition of the asset, regulatory changes impacting the
future use of the asset, or projected operating or cash flow losses, or an expectation that an asset could be disposed of prior to the end of its useful life. If the carrying value of the asset is not recoverable based on an analysis of cash flow, a
charge for impairment is recorded equal to the amount by which the carrying value of the asset exceeds its fair value, less costs to sell. In these instances, fair value is estimated utilizing either a market approach considering quoted market
prices for identical or similar assets, or the income approach determined using discounted projected cash flows. Additionally, the Company analyzes the remaining useful lives of potential impaired assets and adjusts these lives when appropriate.
Goodwill represents the amount of cost over the fair value of the net assets of acquired businesses. Goodwill is carried at the reporting unit
level and subject to an annual impairment test (or more often if impairment indicators arise), using an estimated fair value-based approach. Fair value is estimated using a combined weighted average of a market based (utilizing fair value multiples
of comparable publicly traded companies) and an income based approach (utilizing discounted projected after tax cash flows). In applying the income based approach, the Company makes assumptions about the amount and timing of
future expected cash flows, growth rates and appropriate discount rates. The amount and timing of future cash flows are based on the Company s most recent long-term financial projections.
The Company s discount rate is determined using estimates of market participant risk-adjusted weighted-average costs of capital and reflects the risks associated with achieving future cash flows. If the estimated fair value of the reporting