SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of December, 2003
--------------
TRINITY BIOTECH PLC
-------------------
(Translation of registrant's name into English)
IDA BUSINESS PARK,
BRAY,
CO. WICKLOW, IRELAND
(Address of Principal Executive Officers)
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Trinity Biotech plc ("Trinity" or the "Company") develops, acquires,
manufactures and markets diagnostic test kits for the clinical laboratory and
point-of-care ("POC") segments of the diagnostic market. The broad line of test
kits is primarily used to detect infectious diseases, sexually transmitted
diseases, blood coagulation disorders and autoimmune disorders. Through its own
sales force as well as a network of international distributors, the Company
markets over 500 different diagnostic products in approximately 80 countries.
Trinity was incorporated as a public limited company (plc) registered in Ireland
in 1992. The Company was organised to acquire, develop and market technologies
for rapid in-vitro blood and saliva diagnostics for HIV and other infectious
diseases. The Company commenced operations in 1992 and, in October 1992,
completed an initial public offering of its securities in the USA in which it
raised net proceeds in excess of US$5 million. In October 1993, Trinity took a
controlling interest in Disease Detection International Inc ("DDI") and, in
October 1994, merged Trinity's wholly owned US subsidiary into DDI so that DDI
became a wholly owned subsidiary of Trinity. DDI was the surviving entity in the
merger and was subsequently renamed Trinity Biotech Inc ("TBI"). In December
1994, Trinity acquired the remaining 50% of FHC Corporation ("FHC"), which its
subsidiary TBI did not own. In 1995, Trinity raised net proceeds of US$6 million
as a result of a private placement of the Company's shares. In February 1997,
Trinity purchased the entire share capital of Clark Laboratories Inc.,
("Clark"), which now trades as Trinity Biotech USA. In June 1997, Trinity
acquired Centocor UK Holdings Limited ("Centocor"), a company based in Guildford
in the U.K. Centocor was a 100% subsidiary of Centocor, Inc., a U.S.
biotechnology company. In 1998, the Company made four product line acquisitions.
The acquisition of the Microzyme and Macra Lp(a) product lines in June 1998 and
the acquisition of the MicroTrak and Cambridge Diagnostics HIV product lines in
September 1998. The manufacture of these product lines has been transferred to
the Company's Jamestown, NY and Bray, Co. Wicklow, Ireland manufacturing
facilities. Also, in September 1998, Trinity disposed of its interest in its
pregnancy sales contract with Warner Lambert to Applied Biotech Inc, a
subsidiary of Sybron International Corporation. In March 2000 the Company
purchased 100% of the share capital of Mardx Diagnostics Inc ("Mardx") and in
December 2000 the assets and goodwill of Bartels Inc were acquired. The Bartels
plant in Seattle closed in June 2001 and production has been transferred to the
Californian, New York and Irish factories. In October 2001, the Company
purchased the Amerlex hormone business of Ortho Clinical Diagnostics and, in
December 2001, the Company acquired the assets and goodwill of the Biopool
hemostasis business. The manufacture of the Biopool product line has since been
transferred to the Bray, Ireland facility. In October 2001, Trinity established
a direct sales operation in Germany, Trinity Biotech GmbH. In August 2002,
Trinity acquired the hemostasis division of Sigma Diagnostics, part of
Sigma-Aldrich. The Sigma diagnostics hemostasis business comprised a
comprehensive portfolio of reagents manufactured in St Louis, Missouri and the
Amelung range of automated and semi-automated instruments manufactured in Lemgo,
Germany. Trinity also acquired the specialty clinical chemistry product line
from Sigma Diagnostics in November 2002. This business consists of several niche
products that are clearly differentiated in the marketplace. Trinity is
currently in the process of transferring the manufacture of the Sigma hemostasis
reagent product line and the Sigma clinical chemistry product line from St Louis
to the Bray, Ireland facility.
In October 2000, Trinity subscribed for a 33.3% shareholding in HiberGen Limited
("HiberGen"). In July 2001 the Company subscribed for a further 300,000 Ordinary
Shares in HiberGen, thereby increasing its shareholding to 40%. In April 2002
the Company increased its shareholding to 42.9% by the acquisition of a further
165,000 Ordinary Shares in HiberGen. In November 2003, the Company announced
that the recent fundraising process undertaken by HiberGen had not been
successful and that HiberGen had ceased trading. The Company intends to write
off the carrying amount of the investment in quarter four of the 2003 financial
year.
In May 1999, Trinity obtained a secondary listing on the Irish Stock Exchange
and in April 2000 raised US$13.4m by the issue of 4 million Class 'A' Ordinary
Shares to institutional investors.
In June 2003, Trinity raised US$10 million through a club banking facility which
was provided by Bank of Scotland and Allied Irish Banks.
In July 2003, Trinity completed a private placement of US$20m of convertible
debenture notes.
1
Trinity's financial statements include the attributable results of seven trading
entities - Trinity Biotech Manufacturing Limited, Biopool US Inc, Trinity
Biotech (USA), MarDx Diagnostics Inc, Trinity Biotech GmbH, Trinity Biotech (UK
Sales) Limited and Biopool AB. These entities are engaged in the manufacture and
sale of diagnostic test kits. A share of the loss of the associate undertaking,
HiberGen, is also included in the financial statements. The following discussion
should be read in conjunction with the unaudited condensed interim financial
statements and notes thereto. The financial statements have been prepared in
accordance with Irish generally accepted accounting principles (except for the
classification of cashflows set out in the unaudited condensed consolidated
statement of cashflows), which conform in all material respects to US GAAP
except as indicated in the notes to the condensed financial statements.
Restatement of Form 20-F
In December 2003, Trinity filed a restated Form 20-F/A restating its financial
statements for 2000, 2001 and 2002. These financial statements were restated to
make corrections in the accounting for certain items. This resulted in a
reduction of profit of US$699,055 for financial year 2000, an increase in profit
of US$917,929 for the financial year 2001, a reduction in profit of US$113,406
for the financial year 2002, and a reduction in shareholders' equity at January
1, 2000 of US$622,475. For the three years in question the cumulative profit
increased by US$105,468. Where comparative figures are used for 2002 in this
document the restated figures have been used.
Results of Operations
Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002
Trinity's consolidated revenues for the six month period ended June 30, 2003
were US$33,293,870, an increase of US$10,104,310 compared to consolidated
revenues of US$23,189,560 for the six months ended June 30, 2002. This increase
in revenues is primarily due to sales on the product lines acquired from Sigma
in the second half of 2002.
The gross margin from product sales for the six month period ended June 30, 2003
was 48.9% compared to 49.7% for the same period in 2002. This decrease is
attributable to a slightly lower gross margin (c. 48%) being earned on sales on
the product lines acquired from Sigma in the second half of 2002.
The increase in selling, general and administrative costs of US$3,000,546 to
US$8,213,453 between the 6 month period ended June 30, 2002 and the six month
period ended June 30, 2003 has been caused by (i) additional incremental costs
of US$711,014 relating to a direct sales force established in St. Louis,
Missouri, following the acquisition of the hemostasis division of Sigma
Diagnostics in August 2002, (ii) increased costs of US$1,063,048 in Trinity
Biotech Germany following the acquisition of the hemostasis instrument
manufacturing facility in Lemgo, Germany, again as part of the acquisition of
the hemostasis division of Sigma Diagnostics in August 2002, (iii) employee
number and activity growth in Trinity's principal Irish based subsidiary,
Trinity Biotech Manufacturing Limited, due to an increase in the range of
products being manufactured and sold from the facility resulting in an increase
of US$1,105,096, (iv) the establishment of a UK based sales office in
Oxfordshire in October 2002 which contributed US$251,625 to selling, general and
administrative costs in the six month period to June 30, 2003 and (v) as offset
by reductions in selling, general and administrative costs of US$130,237,
principally relating to redundancy costs incurred in the Company's Swedish
subsidiary, Biopool AB in the six month period ended June 30, 2002 for which
there was no equivalent in the six month period ended June 30, 2003.
Research and development ("R&D") expenditure for the six month period ended June
30, 2003 increased by US$910,272 to US$2,829,133 when compared to the similar 6
month period in 2002. Expenditure to June 2003 represented 8.5% of consolidated
revenues for the period and is thus at a similar level to that incurred for the
comparable period in 2002 (8.3% of consolidated revenue). The absolute increase
in expenditure in 2003 is principally accounted for by increases at Trinity's
main facility in Bray, Ireland (an increase of US$1,005,311). This was offset by
a reduction in R&D expenditure in subsidiaries in the U.S. of US$95,039 which
included the impact of R&D activities ceasing at the Biopool facility in Ventura
following its closure in September 2002. The increased expenditure at the main
facility in Ireland was attributable to a number of individual projects which
included the development of new products for the Company's existing market base
and enhancements to a number of products within its existing product range.
Projects included (i) redevelopment of the Capita Products, making these kits
more user friendly and compatible with automated assay systems, (ii) the
development of Recombinant HIV UniGold(TM) test, which has now been completed
and is awaiting FDA approval, using recombinant proteins manufactured by
Trinity, (iii) the adaptation of assays to Microtrak XL units which will allow
Trinity to increase sales of these tests, (iv) the development of a rapid test
for influenza A and B using the UniGold(TM) technology and (v) the development
of the Influenza A/B DFA kit and Influenza RSV DFA kit.
2
The level of amortization decreased from US$1,181,181 for the six month period
ended June 30, 2002 to US$905,235 for the corresponding period in 2003. This
decrease was primarily attributable to negative goodwill of US$393,485 amortised
during the period in relation to the acquisition of the hemostasis division of
Sigma Diagnostics in August 2002. This was partly offset by the amortization of
positive goodwill in relation to the acquisition of the Sigma Clinical Chemistry
product line of US$95,273, acquired in November 2002.
The increase in interest expense of US$104,694 was largely due to an increase in
the overall level of the Group's debt. The impact of this increase was partially
mitigated by the fall in prevailing interest rates on the non-fixed interest
rate portion of Trinity's debt.
Interest income remains at low levels given the net debt position of the Group.
The Group continues its policy of placing any temporary surplus funds on deposit
as they occur.
The net profit for the six month period ended June 30, 2003 was US$3,326,515
compared to a net profit of US$2,338,360 for the same period last year, an
increase of US$988,155.
Liquidity and Capital Resources
As of June 30, 2003 Trinity's consolidated cash and cash equivalents were
US$1,608,290. This compares to consolidated cash and cash equivalents of
US$5,807,514 at December 31, 2002.
This decrease of US$4,199,224 has been caused primarily by (i) the payment of
deferred consideration of US$3,601,500 in respect of the acquisitions of Biopool
in 2001 and the Sigma clinical chemistry business in 2002, (ii) the purchase of
tangible fixed assets of US$1,530,768, (iii) the investment in intangible fixed
assets of US$694,483, and (iv) as offset by an inflow of US$865,440 from
operating activities and US$652,939 from financing activities. For further
details please see the accompanying unaudited condensed consolidated statement
of cashflows.
In June 2003 Trinity signed a new US$10,000,000 club banking facility which was
provided by Bank of Scotland and Allied Irish Banks, US$8,000,000 of which was
drawn down by June 30, 2003. The new facility consists of a five year term loan
of US$6,000,000 and a one year revolver of US$4,000,000. This facility was
partly used to repay existing loans and deferred consideration payable in
relation to the Biopool acquisition.
Impact of Inflation
Although Trinity's operations are influenced by general economic trends, Trinity
does not believe that inflation had a material effect on its operations for the
periods presented. Management believes, however, that continuing national wage
inflation in Ireland and the impact of inflation on costs generally will result
in a sizeable increase in the Irish facility's operating costs in the future.
Impact of Currency Fluctuation
Trinity's revenue and expenses are affected by fluctuations in currency exchange
rates, especially the exchange rate between the US Dollar and the Euro.
Trinity's revenues are primarily denominated in US Dollars, its expenses are
incurred principally in Euro and US Dollars. The recent weakening of the US
Dollar could have an adverse impact on future profitability. Management are
actively seeking to increase the size of the Euro revenue base to mitigate this
risk. The revenues and costs incurred by US subsidiaries are denominated in US
Dollars.
Trinity holds most of its cash assets in US dollars. As Trinity reports in US
Dollars, fluctuations in exchange rates do not result in exchange differences on
these cash assets.
Exchange Rates
Fluctuations in the exchange rate between the Euro and the US dollar may impact
the Company's Euro monetary assets and liabilities and expenses and,
consequently, the Company's earnings.
3
Legal Settlements/Litigation
Dispute Regarding the Acquisition from Xtrana Inc.
In December 2002, the Company filed an action against Xtrana Inc relating to the
purchase of the Biopool business from Xtrana in 2001. The Company was seeking
US$1,200,000 in damages and US$3,000,000 in punitive damages alleging breach of
contract and other damages regarding the sale of an individual product line. On
January 17, 2003 Xtrana countersued seeking US$57,000,000 in damages.
On June 16, 2003 Trinity and Xtrana settled this litigation. Pursuant to the
terms of the Settlement Agreement entered into between the parties, Trinity
agreed to pay Xtrana the amounts due on two promissory notes of US$1,166,200 and
US$570,100, together with interest thereon as provided in the notes, less
US$225,000, and less US$24,148, which represented the amount due and owing by
Xtrana to Trinity as of May 31, 2003 pursuant to a Letter Agreement, dated
December 20, 2001, between Trinity and Xtrana, relating to a third party. The
total amount of the settlement payment made by Trinity to Xtrana was
US$1,505,942.
The parties also agreed that, following Xtrana's receipt of the settlement
payment, they would cause the litigation to be dismissed with prejudice and
without costs to any party. The parties also released each other from any claims
arising from or in connection with the notes due from Trinity to Xtrana, the
litigation, the security agreements entered into between the parties, the Asset
Purchase Agreement made as of November 9, 2001 and any other matter whatsoever,
except for the parties' executory obligations as set forth in the settlement
agreement.
Events Subsequent to Balance Sheet Date
In July 2003, the Company completed a private placement of US$20 million of
convertible notes to a group of private investors. The notes have a final
maturity date of January 1, 2007, bear interest at a rate of 3% per annum, and
are convertible at the investor's option at any time into the Company's common
stock at a fixed conversion price of US$3.55.
In November 2003, the Company announced that the recent fundraising process
undertaken by HiberGen had not been successful and that HiberGen had ceased
trading. The Company has a 42.9% interest in HiberGen and treats the investment
in its financial statements as an investment in an associated company. The
Company intends to write off the carrying value of the investment in quarter
four of the 2003 financial year.
In December 2003 the Company filed an action against Inverness Medical for
breach of contract. Inverness acts as exclusive distributor for certain of
Trinity's infectious disease products in the US. This exclusivity is due to end
on September 30, 2004, at which time it had been agreed that both Trinity and
Inverness would sell the products under their respective labels. The suit
alleges that Inverness are attempting to convert customers from the Trinity
product to a product manufactured by Zeus Scientific by claiming that the
Trinity product is unavailable and being discontinued. The lawsuit alleges that
under the terms of the contract Trinity is entitled to sell direct in the US any
product which Inverness sells in competition with Trinity. With immediate effect
Trinity is exercising this right.
4
Trinity Biotech plc
Unaudited Condensed Consolidated Balance Sheet as at:
June 30, 2003 December 31, 2002
US$ US$
(Unaudited) (as restated)
ASSETS
Cash and cash equivalents 1,608,290 5,807,514
Accounts receivable and prepayments 15,285,988 12,676,756
Inventories 24,042,286 20,851,459
--------------- ---------------
Total Current Assets 40,936,564 39,335,729
Property, plant & equipment, net 10,857,524 9,883,681
Intangible assets, net 39,139,303 39,511,786
Financial assets 921,979 1,067,262
--------------- ---------------
TOTAL ASSETS 91,855,370 89,798,458
=============== ===============
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable & accrued expenses 16,805,862 19,205,786
Long term liabilities 4,861,930 7,745,442
SHAREHOLDERS' EQUITY
Called up share capital
Class 'A' ordinary shares 627,109 597,840
Class 'B' ordinary shares 12,255 12,255
Share premium account 79,986,710 75,987,779
Other reserves 230,009 172,000
Currency adjustment (4,028,603) (4,266,173)
Profit and loss reserve (6,639,902) (9,966,417)
--------------- ---------------
Total Shareholders' Equity 70,187,578 62,537,284
Minority interest -- 309,946
--------------- ---------------
Total Liabilities and Shareholders' Equity 91,855,370 89,798,458
=============== ===============
Note: The balance sheet at December 31, 2002 has been derived from the audited
financial statements, as restated, at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to unaudited interim condensed consolidated financial statements.
5
Trinity Biotech plc
Unaudited Condensed Consolidated Profit and Loss Account
Six months ended June 30
2003 2002
US$ US$
(Unaudited) (Unaudited)
(as restated)
Revenues 33,293,870 23,189,560
--------------- ---------------
Costs and Expenses
Cost of goods sold (17,006,215) (11,655,891)
Selling, general and administrative - normal (8,213,453) (5,212,907)
Research and development (2,829,133) (1,918,861)
Amortisation (905,235) (1,181,181)
--------------- ---------------
Operating profit 4,339,834 3,220,720
Share of operating loss in associate (107,000) (158,557)
Interest and other income 52,783 47,715
Interest expense (348,937) (244,243)
--------------- ---------------
Profit on ordinary activities before taxation 3,936,680 2,865,635
Tax on profit on ordinary activities (610,165) (527,275)
--------------- ---------------
Net profit 3,326,515 2,338,360
=============== ===============
Net profit per ordinary share (US$) 0.08 0.06
Weighted average number of
ordinary shares outstanding 42,051,362 40,496,198
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
Six months ended June 30
2003 2002
US$ US$
(Unaudited) (Unaudited)
(as restated)
Profit for the financial period attributable to group shareholders
excluding share of loss in associate 3,433,515 2,496,917
Share of operating loss in associate (107,000) (158,557)
Currency adjustment 237,570 282,648
--------------- ---------------
Total recognised gains and losses for the period 3,564,085 2,621,008
--------------- ---------------
6
Trinity Biotech plc
Unaudited Condensed Consolidated Statement of Cash Flows
Six months ended June 30
2003 2002
US$ US$
(Unaudited) (Unaudited)
(as restated)
Net cash flow from operating activities 865,440 1,699,950
Investing activities
Interest received 52,783 24,715
Purchase of fixed assets (1,530,768) (632,041)
Investment in intangible assets (694,483) (35,650)
Deferred acquisition consideration paid (3,601,500) --
--------------- ---------------
(5,773,968) (642,976)
--------------- ---------------
Financing activities
Interest paid (274,395) (309,781)
Issue of ordinary shares 528,200 43,243
Capital element of loan repayments (7,231,674) (1,865,742)
Repayment of minority interest (369,192) --
Loans received 8,000,000 --
--------------- ---------------
652,939 (2,132,280)
--------------- ---------------
Decrease in cash and cash equivalents (4,255,589) (1,075,306)
Non cash exchange movement 56,365 75,378
Balance at beginning of period 5,807,514 5,373,976
--------------- ---------------
Balance at end of period 1,608,290 4,374,048
--------------- ---------------
7
TRINITY BIOTECH PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The unaudited results for the six months to June 30, 2003 and June 30,
2002 have been prepared in accordance with Irish generally accepted
accounting principles with the exception of the classification of
cashflows in the unaudited consolidated statement of cashflows, which are
presented in accordance with the classifications required under US GAAP
per SFAS 95. The accounting policies and the basis of preparation of
these unaudited results are consistent with those used in the Company's
annual financial statements.
The information included in the interim consolidated financial statements
is unaudited but reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented.
The results for the six months to June 30, 2003 are not necessarily
indicative of the results for the full fiscal year.
Restatement
In December 2003, Trinity filed a restated Form 20-F/A restating its
financial statements for 2002, 2001 and 2000. Consequently Trinity has
restated the prior period comparatives contained in this document where
applicable. This resulted in a reduction of US$21,923 in Net Profit for
the six months ended June 30, 2002. Details of the nature of the
adjustments to the original reported numbers can be found in the restated
Form 20-F/A.
Companies Acts, 1963 to 2001
The financial information relating to the Company and its subsidiary
undertakings included in this document does not comprise statutory
financial statements as referred to in Section 19 of the Companies
(Amendment) Act, 1986, copies of which are required by that Act to be
annexed to the Company's annual return lodged with the Registrar of
Companies. Copies of statutory financial statements of Trinity Biotech
plc are annexed to the Company's annual returns.
2. ANALYSIS OF REVENUE AND OPERATING INCOME
Trinity operates in one business segment, the market for rapid diagnostic
tests for a range of diseases and other medical conditions, and in two
reportable segments, which are based on a geographical split. The
information presented below relates to these operating segments and is
presented in a manner consistent with information presented to the
Group's chief operating decision maker. The basis of accounting for each
segment is the same basis as used in the preparation of the consolidated
financial statements.
a) The distribution of revenue by customers' geographical area was as
follows:
Six months ended
June 30 June 30
2003 2002
US$ US$
(as restated)
U.S.A 17,818,272 15,702,368
Europe 10,268,551 3,738,863
Middle East/Africa 3,185,873 2,146,047
Other 2,021,174 1,602,282
--------------- ---------------
33,293,870 23,189,560
=============== ===============
8
TRINITY BIOTECH PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. ANALYSIS OF REVENUE AND OPERATING INCOME (Continued)
b) The distribution of revenue by geographical area was as follows:
Six months ended
June 30 June 30
2003 2002
US$ US$
(as restated)
Rest of the World 14,206,178 9,159,473
United States 19,087,692 14,030,087
--------------- ---------------
33,293,870 23,189,560
--------------- ---------------
c) The distribution of operating income by geographical area was as follows:
Six months ended
June 30 June 30
2003 2002
US$ US$
(as restated)
Rest of the World 2,317,445 1,859,781
United States 2,022,389 1,360,939
--------------- ---------------
Total operating income 4,339,834 3,220,720
=============== ===============
d) The distribution of intersegmental sales is as follows:
Six months ended
June 30 June 30
2003 2002
US$ US$
(as restated)
Rest of the World 12,568,299 9,120,401
Rest of the World - Intersegmental Sales 9,372,061 5,379,528
United States 19,087,692 14,030,087
Less Intercompany Sales (7,734,182) (5,340,456)
--------------- ---------------
33,293,870 23,189,560
=============== ===============
3. INVENTORIES
As at
June 30 December 31
2003 2002
US$ US$
(as restated)
Raw materials 7,473,098 5,995,894
Work in progress 6,825,925 6,499,224
Finished goods 9,743,263 8,356,341
--------------- ---------------
24,042,286 20,851,459
=============== ===============
The replacement cost of inventory is not materially different from the
cost stated above.
9
TRINITY BIOTECH PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4 SIGNIFICANT NON-CASH TRANSACTIONS
During the six month period to June 30, 2003, US$1,000,000 of 6%
convertible debentures were fully converted into 666,667 Class "A"
Ordinary shares of the Company at a conversion price of $1.50 and
US$2,500,000 of 5.25% convertible debentures were fully converted into
1,666,667 Class "A" Ordinary shares of the Company also at a conversion
price of $1.50
5. DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The Consolidated Financial Statements are prepared in accordance with
accounting principles generally accepted in the Republic of Ireland
("Irish GAAP"), which differ in certain significant respects from
accounting principles generally accepted in the United States ("US
GAAP"). These differences relate principally to the following items and
the necessary adjustments are shown in the table set out below:
(1) Goodwill:
In prior years under Irish GAAP, goodwill was either written off
immediately on completion of the acquisition against shareholders'
equity, or capitalised in the balance sheet and amortised through the
income statement on a systematic basis over its useful economic life.
From 1998, goodwill must be capitalised and amortised over the period
of its expected useful life, however, historic goodwill continues to
remain an offset against shareholders' equity. Under US GAAP,
accounting for goodwill as an offset against shareholders' equity is
not permitted. Prior to January 1, 2002 goodwill was amortised, except
for goodwill arising on acquisitions after June 30, 2001, over the
period of its expected useful life, subject to a maximum write off
period of 40 years, through the income statement. A useful life of 10
years was adopted for the purposes of the reconciliation.
In June 2001, the US Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") 141
"Business Combinations" and SFAS 142 "Goodwill and Other Intangible
Assets", both of which are effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill is no longer amortised
under US GAAP, but is subject to annual impairment tests in accordance
with the statements. On January 1, 2002 the Group performed the
required impairment review of goodwill and indefinite-lived intangible
assets and determined that there was no impairment. On December 31,
2002 the Group performed a further impairment test of goodwill and
indefinite-lived intangible assets and concluded that there was no
impairment in the carrying value of these assets at this date. There
are no impairment losses recognised in the periods presented.
There has not been a disposal of all or a portion of a reporting unit
in the eighteen months to June 30, 2003. The aggregate amount of
goodwill relating to acquisitions during the period for the Group and
for each reportable segment for each of the periods presented including
goodwill arising on acquisition of interest in associate, net of fair
value adjustments, is as follows:
June 30 December 31
2003 2002
US$ US$
Rest of World (44,267) 1,181,211
United States -- --
--------------- ---------------
Total (44,267) 1,181,211
---------------
Negative goodwill arises when the net amounts assigned to assets
acquired and liabilities assumed exceed the cost of an acquired entity.
Under Irish GAAP, negative goodwill arising on acquisitions is
recognised as a negative asset, within intangible fixed assets, and
recognised in the profit and loss account in the periods in
10
TRINITY BIOTECH PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (Continued)
which the non-monetary assets acquired are amortized or sold. Any
negative goodwill in excess of the fair values of the non-monetary
assets acquired is recognized in the profit and loss account in the
periods expected to benefit. Under US GAAP, negative goodwill would be
allocated to reduce proportionately the values assigned to the acquired
non-current assets. Any excess remaining goodwill is recognized in US
GAAP income, as an extraordinary gain, for the periods beginning after
December 15, 2001. At June 30, 2003, gross negative goodwill of
US$1,378,617 (December 31, 2002: US$1,278,461) within intangible fixed
assets under Irish GAAP would be disclosed as a reduction from
property, plant and equipment under US GAAP. Amortisation of negative
goodwill would be disclosed as a reduction from depreciation under US
GAAP.
Net income and earnings per share for the periods ended June 30, 2003
and 2002, adjusted to exclude amortization of goodwill are as follows:
June 30 June 30
2003 2002
(as restated)
US$ US$
Reported net income under US GAAP 3,489,403 2,843,088
Excluded goodwill amortization (850,011) (1,111,738)
--------------- ---------------
Adjusted net income 2,639,392 1,731,350
Reported basic earnings per share (US$) 0.08 0.07
Excluded goodwill amortization (0.02) (0.03)
--------------- ---------------
Adjusted basic earnings per share (US$) 0.06 0.04
Reported diluted earnings per share (US$) 0.08 0.07
Excluded goodwill amortization (US$) (0.02) (0.03)
--------------- ---------------
Adjusted diluted earnings per share (US$) 0.06 0.04
Identifiable intangible assets comprise goodwill, which is not
amortizable and certain intangible other non-current assets, which are
amortizable. Other non-current asset amortization under US GAAP for the
six month period ended June 30 2003 was US$69,010 and US$69,443 for the
six month period ended June 30, 2002.
(2) Share Capital Not Paid:
Under Irish GAAP, unpaid share capital is classified as a receivable
under current assets. Under US GAAP, share capital receivable should be
reported as a reduction to Shareholders' Equity. Unpaid share capital
at June 30, 2003 is US$375,820 (December 31, 2002: US$260,203).
(3) Statement of Comprehensive Income:
The Company prepares a "Statement of Total Recognised Gains and Losses"
which is essentially the same as the "Statement of Comprehensive
Income" required under US GAAP, except for the recognition of
unrealised gains and losses on derivative hedging transactions which
are recognised in US GAAP Comprehensive Income. SFAS 130 "Reporting
Comprehensive Income" requires disclosure of the cumulative amounts of
other comprehensive income.
11
TRINITY BIOTECH PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
(4) Sale and Leaseback:
Under Irish GAAP, the Company's sale and leaseback transaction which
took place in December 1999 was treated as a disposal of assets with
the gain on the disposal of US$1,014,080 being credited to the profit
and loss account in the period of the transaction. Under US GAAP, this
amount is deferred and released to the profit and loss account over the
period of the lease (20 years).
(5) Deferred Income Taxes:
Deferred tax differences arise between Irish GAAP and US GAAP due to
the impact of the nature and timing of the reconciling items arising.
(6) Restructuring Costs:
Under Irish GAAP, certain provisions made for restructuring costs
incurred upon and related to acquisitions of acquired companies
(principally payments to employees and certain facilities costs) and
expensed immediately would not be recognisable under US GAAP, because
EITF 95-3, "Recognition of Liabilities in Connection with a Purchase
Business Combination", requires such costs that meet certain criteria
to be treated as part of the purchase price allocation. Certain
termination costs not determined on the basis of length of service or
other exit costs which are not incremental to the acquired company,
even if they provide a reduced economic benefit, are considered period
costs which are expensed when incurred.
(7) Research and Development:
US GAAP, as set forth in SFAS 2, "Accounting for Research and
Development Costs", requires development costs to be written-off in the
year of expenditure. Under Irish GAAP, development expenditure on
projects whose outcome can be assessed with reasonable certainty as to
technical feasibility, commercial viability and recovery of costs
through future revenues, are capitalised at cost within intangible
assets.
(8) Sales on Extended Credit Terms:
During the period the Company made certain sales on extended credit
terms. Under US GAAP, SAB 101 "Revenue Recognition in Financial
Statements", a portion of such sales on extended credit terms would not
be recognisable as revenue until after June 30, 2003. No similar
provisions exist under Irish GAAP to preclude revenue recognition.
(9) Stock- based Compensation Expense
US GAAP, as set forth in SFAS 123 "Accounting for Stock-Based
Compensation", and EITF 96-18 "Accounting for Equity Instruments that
are Issued for Sales of Goods and Services to Other than Employees"
requires stock options issued to non-employees to be valued at fair
value and compensation cost to be recognised based on that fair value.
Irish GAAP only requires stock options issued to employees at exercise
prices which are less than the market values at the date of grant to be
treated as compensation cost based on their intrinsic value.
(10) Derivatives and Financial Instruments:
In June 1998, the FASB issued SFAS No 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 requires that all
derivatives be recognised on the balance sheet at fair value.
Derivatives which are not hedges or where hedge correlation cannot be
demonstrated must be adjusted to fair value through income.
12
TRINITY BIOTECH PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
Under Irish GAAP, derivatives are not recognised until settled.
Realised gains and losses on transactions where derivatives are used to
hedge cross-currency cashflows are ultimately recorded in the income
statement on settlement.
As part of a managed hedging policy Trinity has entered into a series
of forward contracts to sell US$ and Japanese Yen forward for Euro.
These contracts were entered into by the Company to mitigate its
foreign exchange risk. The principal exchange risk identified by
Trinity was with respect to fluctuations in the Euro as a substantial
portion of its expenses is denominated in Euro but its revenues are
primarily denominated in US dollars. These forward contracts are
cashflow hedging instruments whose objective is to cover this Euro
mismatch. In the medium term, the Company's objective is to increase
the level of non-US$ denominated revenue, thus creating a natural hedge
of its non-US$ expenditure.
During 2001 Trinity began documenting its hedging transactions in
accordance with the requirements of SFAS 133. In the six month period
to June 30, 2003 an unrealised loss of US$112,567 (June 30, 2002: gain
of US$947,273) was taken to comprehensive income in respect of such
contracts in accordance with the standard.
During the period ended June 30, 2003 realised foreign exchange losses
of US$176,560 were charged to normal administrative expenses in the
Income Statement on the exercise of forward contracts under US GAAP.
During the six month period ended June 30, 2002 realised foreign
exchange gains of US$320,429 were credited to normal administrative
expenses in the Income Statement on the exercise of forward contracts.
At June 30, 2003 contracts with a fair value of US$779,611 exist which
the Company anticipates will be reclassified into earnings from
comprehensive income on the exercise of forward contracts. The last of
the Company's forward contracts in existence at June 30,2003 will
expire in March 2004.
CUMULATIVE EFFECT ON June 30 December 31
SHAREHOLDERS' EQUITY 2003 2002
US$ US$
(as restated)
Total shareholders' equity before
minority interests under Irish GAAP 70,187,578 62,537,284
US GAAP adjustments:
Goodwill
- Gross 21,776,683 21,776,683
- Aggregate amortization (10,562,255) (11,412,266)
Share capital not paid (375,820) (260,203)
Adjustment for sale and leaseback (836,616) (861,968)
Adjustment for research and development costs (2,805,260) (2,327,444)
Adjustment for fair value of derivative instruments 779,611 1,068,738
Adjustment for sales on extended credit (164,842) --
Deferred tax 530,187 423,444
--------------- ---------------
Shareholders' equity under US GAAP 78,529,266 70,944,268
--------------- ---------------
13
TRINITY BIOTECH PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
Restatement
In December 2003, Trinity filed a restated Form 20-F/A restating its
financial statements for 2002, 2001 and 2000. Consequently Trinity has
restated the prior year comparatives contained in this document where
applicable. Details of the nature of the adjustments to the original
reported numbers can be found in the restated Form 20-F/A.
EFFECT ON NET PROFIT June 30 June 30
2003 2002
(as restated)
US$ US$
Profit on ordinary activities after taxation
under Irish GAAP 3,326,515 2,338,360
US GAAP adjustments:
Goodwill amortisation 850,011 1,111,738
Adjustment for sale and leaseback 25,352 25,352
Adjustment for restructuring costs -- (1,205,637)
Adjustment for research and development costs (477,816) (224,767)
Adjustment for sales on extended credit (164,842) --
Adjustment for fair value on derivative instruments (176,560) 320,429
Deferred tax 106,743 392,670
--------------- ---------------
Profit under US GAAP 3,489,403 2,758,145
--------------- ---------------
Profit under US GAAP, as previously stated 3,132,962
Impact of restatements from Irish GAAP (Note 1) (21,923)
Deferred tax (ii) (68,785)
Fair value of financial instruments (iii) (199,166)
Licence and patent amortisation (iv) (69,443)
Goodwill (v) (15,500)
---------------
Profit under US GAAP, as restated 2,758,145
Profit per ordinary share (US$) 0.08 0.07
Diluted profit per ordinary share (US$) 0.08 0.07
Weighted average number of ordinary shares used
in computing basic earnings per ordinary share 42,051,362 40,496,198
Diluted weighted average number of ordinary shares
used in computing diluted profit per ordinary share 46,903,502 41,051,754
(ii) - (v) See footnotes on pages 15 and 16
14
TRINITY BIOTECH PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
June 30 June 30
2003 2002
(as restated)
US$ US$
Profit under US GAAP 3,489,403 2,758,145
Translation adjustment 237,570 282,648
Fair value of derivative instruments (112,567) 947,273
--------------- ---------------
Total Comprehensive Income 3,614,406 3,988,066
--------------- ---------------
Total Comprehensive Income, as previously stated 3,482,610
Impact of restatements from Irish GAAP (Note 1) (21,923)
Translation adjustment (i) (67,000)
Deferred tax (ii) (68,785)
Fair value of financial instruments (iii) 748,107
Licence and patent amortisation (iv) (69,443)
Goodwill (v) (15,500)
---------------
Total Comprehensive Income, as restated 3,988,066
CHANGES IN US GAAP EQUITY FOR THE PERIOD FROM JANUARY 1, 2003 TO JUNE
30, 2003
US$
US GAAP Shareholders' Equity at January 1, 2003 70,944,268
Net profit for the period 3,489,403
'A' shares issued for conversion of debenture 3,500,000
Options exercised 530,674
Share issue expenses (2,474)
Share capital not paid (115,617)
Stock compensation - additional paid in capital 58,009
Other comprehensive income
Translation adjustment 237,570
Fair value of derivative instruments (112,567)
---------------
US GAAP Shareholders' Equity at June 30, 2003 78,529,266
---------------
(i) The cumulative and annual effects of the restatement for
translation adjustment arising on consolidation of non-US$
functional subsidiaries are excluded from the effect on Total
Comprehensive Income, as the effect on net income is matched
by a corresponding effect on the translation adjustment
reserve.
(ii) The restatement corrects the deferred taxation effect on net
income and Shareholders' Equity and Total Other Comprehensive
Income to incorporate the appropriate tax rates for the
deferred tax impact on reconciling items and the allocation of
the restatement items to the appropriate period under US GAAP.
15
TRINITY BIOTECH PLC
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. DIFFERENCES BETWEEN IRISH AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
(iii) The Company has corrected its calculation of the fair values
of forward contracts at June 30, 2002 to take account of an
exchange rate error in the exchange rates used by the Company
at June 30, 2002 to the official rate; and to reclassify the
fair value of certain forward contracts that were entered into
after the formalisation of the Company's hedge documentation,
to Shareholders' Equity from Income.
(iv) The Company has amended the US GAAP adjustment for goodwill
amortisation to correctly include amortisation on licence and
patent assets in determining net income under US GAAP.
(v) The Company has corrected an error in the calculation of the
goodwill to be excluded in determining net income under US
GAAP.
16
Signatures
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, thereunto duly authorised.
TRINITY BIOTECH PLC
/s/ Rory Nealon
--------------------
Rory Nealon
Chief Financial Officer
December, 2003
17