FORM 20-F
(MARK ONE)
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
|X| FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________
----------------
OR
|_| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
DATE OF EVENT REQUIRING THIS SHELL COMPANY REPORT
------------------------
COMMISSION FILE NUMBER: 0-22320
TRINITY BIOTECH PLC
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
IRELAND
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(JURISDICTION OF INCORPORATION OR ORGANISATION)
IDA BUSINESS PARK, BRAY, CO. WICKLOW, IRELAND
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
NONE
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(TITLE OF CLASS)
NAME OF EACH EXCHANGE ON WHICH REGISTERED:
NONE
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(TITLE OF CLASS)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
AMERICAN DEPOSITORY SHARES
(REPRESENTING 'A' ORDINARY SHARES, PAR VALUE US$0.0109)
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(TITLE OF EACH CLASS)
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15 (D)
OF THE ACT:
NONE
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(TITLE OF EACH CLASS)
INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT: 60,041,521 CLASS 'A' ORDINARY SHARES AND 700,000 CLASS
'B' ORDINARY SHARES.
INDICATE BY CHECK MARK IF THE REGISTRANT IS A WELL-KNOWN SEASONED
ISSUER, AS DEFINED IN RULE 405 OF THE SECURITIES ACT.
YES __ NO X_
IF THIS REPORT IS AN ANNUAL OR TRANSITION REPORT, INDICATE BY CHECK
MARK IF THE REGISTRANT IS NOT REQUIRED TO FILE REPORTS PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
YES __ NO X_
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD
THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS
BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
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INDICATE BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT
HAS ELECTED TO FOLLOW:
ITEM 17 ITEM 18 X
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IF THIS IS AN ANNUAL REPORT, INDICATE BY CHECK MARK WHETHER THE
REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE
ACT).
YES NO X
---- -----
THIS REPORT ON FORM 20-F IS INCORPORATED BY REFERENCE INTO OUR
REGISTRATION STATEMENT ON FORM F-3 FILE NO. 333-103033, 333-107363,
333-114099 AND 333-124385 AND OUR REGISTRATION STATEMENTS ON FORM S-8
FILE NO. 33-76384, 333-220, 333-5532, 333-7762 AND 333-124384.
This annual report on Form 20-F was not prepared for filing in Ireland in
compliance with Irish law or the listing rules of the Irish Stock Exchange.
Unless otherwise provided herein or required by the context, references to "we",
"us", "Trinity Biotech", the "Group" or the "Company" in this annual report
shall mean Trinity Biotech plc and its world-wide subsidiaries, collectively.
We have a secondary listing on the Irish Stock Exchange. For this reason, we are
not subject to the same ongoing regulatory requirements as those which would
apply to an Irish company with a primary listing on the Irish Stock Exchange,
including the requirement that certain transactions require the approval of
shareholders. For further information, shareholders should consult their own
financial advisor.
Our financial statements are presented in US Dollars and are prepared in
accordance with International Financial Reporting Standards ("IFRS"), as adopted
by the European Union ("EU"), which differ in certain respects from US generally
accepted accounting principles (See Item 18, note 35 to the consolidated
financial statements). IFRS as adopted by the EU differ in certain respects from
IFRS issued by the International Accounting Standards Board ("IASB"). However,
as none of these differences are relevant in the context of Trinity Biotech, the
consolidated financial statements for the periods presented would be no
different had IFRS as endorsed by the IASB been applied. These are the Group's
first consolidated financial statements prepared under IFRS and IFRS 1 has been
applied. All references in this annual report to "Dollars" and "$" are to US
Dollars, and all references to "euro" or "(euro)" are to European Union euro.
Except as otherwise stated herein, all monetary amounts in this annual report
have been presented in US Dollars. For presentation purposes all financial
information including comparative figures from prior periods have been stated in
round thousands
An explanation of how the transition to IFRS, as adopted by the EU, from the old
basis of accounting, Irish GAAP ("Previous GAAP") has affected the reported
financial position, financial performance and cash flows of the Group is
provided in Item 18, note 33 to the consolidated financial statements.
During the year the Company adjusted the ratio of American Depository Receipts
("ADSs") to Ordinary Shares and changed its Nasdaq Listing from the Nasdaq Small
Capital listing to a Nasdaq National Market Listing. The ratio of ADSs to
underlying Ordinary Shares has changed from 1 ADS : 1 Ordinary Share to 1 ADS :
4 Ordinary Shares and all historical data has been restated as a result.
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3 SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Trinity Biotech as at
December 31, 2005 and 2004, and for each of the years ended December 31, 2005
and December 31, 2004, have been derived from, and should be read in conjunction
with, the audited consolidated financial statements and notes thereto set forth
in Item 18 of this annual report.
Year ended Year ended
December 31 December 31
Consolidated Statement of 2005 2004
Income Data US$ '000 US$'000
----------- ------------ ------------
Revenues 98,560 80,008
Cost of sales - including share-based payments of
US$110,000 (2004: US$81,000) (51,378) (40,047)
------------ ------------
Gross profit 47,182 39,961
Other operating income 161 302
Research and development expenses - including
share-based payments of US$210,000 (2004: US$96,000)
(6,070) (4,744)
Selling, general and administrative expenses - including
share-based payments of US$1,048,000 (2004: US$581,000)
(34,651) (29,332)
------------ ------------
Operating profit 6,622 6,187
Financial income 389 302
Financial expense (1,058) (824)
------------ ------------
Profit before tax 5,953 5,665
Income tax (expense) / credit (673) 49
------------ ------------
Profit for the year 5,280 5,714
------------ ------------
Basic earnings
per 'A' ordinary share (US Dollars) 0.09 0.10
Basic earnings
per 'B' ordinary share (US Dollars) 0.18 0.20
Diluted earnings
per 'A' ordinary share (US Dollars) 0.09 0.09
Diluted earnings
per 'B' ordinary share (US Dollars) 0.18 0.18
Basic earnings per ADS (US Dollars) 0.36 0.41
Diluted earnings per ADS (US Dollars) 0.35 0.37
Weighted average number of shares
used in computing basic EPS 58,890,084 55,132,024
Weighted average number of shares
used in computing diluted EPS 67,032,382 65,527,802
1
Consolidated Balance Sheet Data December 31, 2005 December 31, 2004
-------------------------------
US$'000 US$'000
Net current assets (current assets less current 44,964 53,448
liabilities)
Non current liabilities (19,083) (16,636)
Total assets 184,602 156,040
Capital stock 830 776
Shareholders' equity 133,618 118,894
AMOUNTS ADJUSTED FOR US GAAP
YEAR ENDED DECEMBER 31,
Consolidated Statement 2005 2004 2003 2002 2001
of Income data US$'000 US$'000 US$'000 US$'000 US$'000
----------------------
Revenues 98,560 80,008 65,531 51,978 37,111
Net Profit 2,582 4,048 5,146 5,043 710
Basic earnings per 'A' 0.04 0.07 0.12 0.12 0.02
ordinary share (US
Dollar)
Basic earnings per 'B' 0.08 0.14 0.24 0.24 0.04
ordinary share (US
Dollar)
Diluted earnings per 'A' 0.04 0.07 0.11 0.12 0.02
ordinary share (US
Dollar)
Diluted earnings per 'B' 0.08 0.14 0.22 0.24 0.04
ordinary share (US
Dollar)
AS AT DECEMBER 31,
Consolidated Balance 2005 2004 2003 2002 2001
Sheet Data US$'000 US$'000 US$'000 US$'000 US$'000
--------------------
Total assets 181,699 158,869 128,650 99,067 83,240
Shareholders' equity 132,769 122,033 87,234 70,944 63,463
No dividends were declared in any of the periods from December 31, 2001 to
December 31, 2005.
2
RISK FACTORS
Before you invest in our shares, you should be aware that there are various
risks, which are described below. You should consider carefully these risks
together with all of the other information included in this annual report before
you decide to purchase our shares.
TRINITY BIOTECH'S OPERATING RESULTS MAY BE SUBJECT TO FLUCTUATIONS.
o Trinity Biotech's operating results may fluctuate as a result of many
factors related to our business, including the competitive conditions in
the industry, loss of significant customers, delays in the development of
new products and currency fluctuations, as described in more detail below,
and general factors such as the size and timing of orders, the prevalence
of various diseases and general economic conditions.
TRINITY BIOTECH'S REVENUES DEPEND TO A HIGH DEGREE ON ITS RELATIONSHIP WITH
WAMPOLE LABORATORIES, A FORMER AFFILIATE OF CARTER WALLACE, INC.
o During the financial years ended December 31, 2005, December 31, 2004,
December 31, 2003 and December 31, 2002, approximately 4%, 7%, 12% and
20%, respectively, of Trinity Biotech's revenues were derived from a
distribution agreement by and among our subsidiary, Trinity Biotech (USA)
Corp. (trading name of Clark Laboratories, Inc) and Carter-Wallace, Inc
("Carter-Wallace") and its affiliate Wampole Laboratories ("Wampole"). In
2001, Wampole was acquired by Medpointe, Inc and was subsequently acquired
by Inverness Medical Innovations, Inc ("Inverness Medical") in 2002. In
2002, the Company negotiated an amendment to the distribution agreement
whereby the exclusivity of Inverness Medical's right to sell our products
in the US would be removed in stages throughout 2004. During 2003, the
Company experienced declining sales revenues under the distribution
agreement which it believes is due to Inverness Medical attempting to
convert customers from the Trinity Biotech product to an alternative
product. Accordingly, in December 2003, the Company filed legal action
against Inverness Medical and Wampole for declaratory judgment and breach
of contract. In January 2004, Inverness Medical and Wampole countersued
alleging, among other things, various breaches of the distribution
agreement and subsequent amendments, and that Defendants were entitled to
rescind the distribution agreement and any amendments thereto, including
any agreement to grant certain intellectual property rights to Trinity.
The Defendants sought a preliminary injunction to prevent the Company from
selling direct in the US any of its products which are competitive with
products sold by Inverness Medical and sourced by other suppliers. The
Superior Court of Middlesex County, Massachusetts, denied the motion for
preliminary injunction on January 28, 2004. In April of 2004, Trinity
amended its complaint to add additional claims alleging breaches of the
distribution agreement by the Defendants. In May of 2004, the Defendants
amended their counterclaims to add claims alleging, among other things,
that Trinity was selling certain products without a licence. Following the
expiration of the Defendants' exclusive distribution rights under the
distribution agreement on October 1, 2004, Trinity moved to amend its
complaint to eliminate the declaratory judgement claims and add additional
claims for breach of the distribution agreement and tortious interference
with advantageous business relations that had arisen after December 2003.
The Defendants filed a cross-motion to amend their complaint. On April 22,
2005, the court granted both parties' motions to amend. The case is
currently in discovery phase. For further information relating to this
matter please refer to Item 8 "Legal Proceedings". The Company has decided
to sell its products directly in the US and has increased its direct sales
force. Any inability to recapture lost sales from Inverness Medical may
have a material adverse effect on the Company. In addition, an adverse
ruling by the court or adverse jury verdict with respect to Trinity's
direct sales and/or the validity of the letter agreement and Trinity's
licence to the Lateral Flow devices may have a material adverse effect on
the Company.
A NEED FOR CAPITAL MIGHT ARISE IN THE FUTURE IF TRINITY BIOTECH'S CAPITAL
REQUIREMENTS INCREASE OR REVENUES DECREASE.
o Up to now Trinity Biotech has funded its operations through the sale of its
shares and securities convertible into shares, cashflows from operations
and bank borrowings. Trinity Biotech expects that the proceeds of recent
equity financings, bank borrowings, current working capital and sales
revenues will fund its existing operations and payment obligations.
However, if our capital requirements are greater than expected, or if our
revenues are not sufficient to fund our operations, we may need to find
additional financing which may not be available on attractive terms or at
all. Any future financing could have an adverse effect on our current
shareholders or the price of our shares in general.
THE DIAGNOSTICS INDUSTRY IS HIGHLY COMPETITIVE, AND TRINITY BIOTECH'S RESEARCH
AND DEVELOPMENT COULD BE RENDERED OBSOLETE BY TECHNOLOGICAL ADVANCES OF
COMPETITORS.
o The diagnostics industry is extremely competitive. Trinity Biotech is
competing directly with companies which have greater capital resources and
larger marketing and business organisations than Trinity Biotech. Trinity
Biotech's ability to grow revenue and earnings may be adversely impacted
by competitive product and pricing pressures and by its inability to gain
or retain market share as a result of the action of competitors. We have
invested in research and development ("R&D") but there can be no
guarantees that our R&D programmes will not be rendered technologically
obsolete or financially non-viable by the technological advances of our
competitors, which would also adversely affect our existing product lines
and inventory. The main competitors of Trinity Biotech (and their
principal products with which Trinity Biotech competes) are Dade-Behring
(Sysmex(R) CA, D-Dimer plus, Enzygnost(R)), bioMerieux (MDA(R),
VIDAS(TM)), Zeus Scientific Inc. (Zeus EIA, IFA), Diasorin Inc. (ETI(TM)),
Abbott Diagnostics (AxSYM(TM), IMx(TM)), Diagnostic Products Corp. - DPC
(Immulite(TM)), Bio-Rad (ELISA & WB), Roche Diagnostics (COBAS
AMPLICOR(TM), Ampliscreen(TM), Accutrend(TM)) and OraSure Technologies,
Inc (OraQuick (R)).
3
TRINITY BIOTECH IS HIGHLY DEPENDENT ON SUITABLE DISTRIBUTORS WORLDWIDE.
o Revenue and earnings stability and growth are directly dependent on the
effectiveness of advertising, marketing and promotional programmes. Trinity
Biotech currently distributes its product portfolio through distributors in
over 80 countries worldwide. Our continuing economic success and financial
security is dependent on our ability to secure effective channels of
distribution on favourable trading terms with suitable distributors.
TRINITY BIOTECH'S BUSINESS COULD BE ADVERSELY AFFECTED BY CHANGING MARKET
CONDITIONS RESULTING IN THE REDUCTION OF THE NUMBER OF INSTITUTIONAL CUSTOMERS.
o The healthcare industry is in transition with a number of changes that
affect the market for diagnostic test products. Changes in the healthcare
industry delivery system have resulted in major consolidation among
reference laboratories and in the formation of multi-hospital alliances,
reducing the number of institutional customers for diagnostic test
products. There can be no assurance that we will be able to enter into
and/or sustain contractual or other marketing or distribution arrangements
on a satisfactory commercial basis with these institutional customers.
TRINITY BIOTECH'S ACQUISITION STRATEGY MAY BE LESS SUCCESSFUL THAN EXPECTED, AND
THEREFORE, GROWTH MAY BE LIMITED.
o Trinity Biotech has historically grown organically and through the
acquisition of, and investment in, other companies, product lines and
technologies. There can be no guarantees that recent or future
acquisitions can be successfully assimilated or that projected growth in
revenues or synergies in operating costs can be achieved. Our ability to
integrate future acquisitions may also be adversely affected by
inexperience in dealing with new technologies, and changes in regulatory
or competitive environments. Additionally, even during a successful
integration, the investment of management's time and resources in the new
enterprise may be detrimental to the consolidation and growth of our
existing business.
TRINITY BIOTECH'S LONG-TERM SUCCESS DEPENDS ON ITS ABILITY TO DEVELOP NEW
PRODUCTS SUBJECT TO STRINGENT REGULATORY CONTROL. EVEN IF NEW PRODUCTS ARE
SUCCESSFULLY DEVELOPED, TRINITY BIOTECH'S PROPRIETARY KNOW-HOW, MANUFACTURING
TECHNIQUES AND TRADE SECRETS MAY BE COPIED BY COMPETITORS. FURTHERMORE, TRINITY
BIOTECH'S PATENTS HAVE A LIMITED LIFE TIME AND ARE THEREAFTER SUBJECT TO
COMPETITION WITH GENERIC PRODUCTS. ALSO, COMPETITORS MIGHT CLAIM AN EXCLUSIVE
PATENT FOR PRODUCTS TRINITY BIOTECH PLANS TO DEVELOP.
o We are committed to significant expenditure on research and development
("R&D"). However, there is no certainty that this investment in research
and development will yield technically feasible or commercially viable
products. Our organic growth and long-term success is dependent on our
ability to develop and market new products but this work is subject to
very stringent regulatory control and very significant costs in research,
development and marketing. Failure to introduce new products could
significantly slow our growth and adversely affect our market share.
o Even when products are successfully developed and marketed, Trinity
Biotech's ownership of the technology behind these products has a finite
life. In general, generic competition, which can arise through replication
of the Company's proprietary know-how, manufacturing techniques and trade
secrets or after the expiration of a patent, can have a detrimental effect
on a product's revenue, profitability and market share. There can be no
guarantee that the net income and financial position of Trinity Biotech
will not be adversely affected by competition from generic products.
Conversely, on occasion, certain companies have claimed exclusive patent,
copyright and other intellectual property rights to technologies in the
diagnostics industry. If these technologies relate to Trinity Biotech's
planned products, Trinity Biotech would be obliged to seek licences to use
this technology and, in the event of being unable to obtain such licences
or it being obtainable on grounds that would be materially disadvantageous
to Trinity Biotech, we would be precluded from marketing such products,
which could adversely impact our revenues, sales and financial position.
4
TRINITY BIOTECH'S PATENT APPLICATIONS COULD BE REJECTED OR THE EXISTING PATENTS
COULD BE CHALLENGED; OUR TECHNOLOGIES COULD BE SUBJECT TO PATENT INFRINGEMENT
CLAIMS; AND TRADE SECRETS AND CONFIDENTIAL KNOW-HOW COULD BE OBTAINED BY
COMPETITORS.
o The following table sets forth the US patents Trinity Biotech currently
owns. The table provides the relevant patent number, a brief description
and the remaining life time for each patent:
------------------------------------- ----------------------------------- -----------------------------------
PATENT NUMBER DESCRIPTION PATENT LIFE REMAINING FROM
FEBRUARY 28, 2006
------------------------------------- ----------------------------------- -----------------------------------
5,006,474 Bi-Directional Lateral 2 years 2 months
Chromatography Test Device
------------------------------------- ----------------------------------- -----------------------------------
5,114,845 Improved Assays for Plasminogen 1 years 5 months
Activator Inhibitor and Soluble
Fibrin
------------------------------------- ----------------------------------- -----------------------------------
5,175,087 Method of Performing Tissue 1 years 5 months
Plasminogen Activator Assay
------------------------------------- ----------------------------------- -----------------------------------
5,985,582 Thrombin-Based Assay for 11 years 10 months
Antithrombin - III
------------------------------------- ----------------------------------- -----------------------------------
6,194,394 Coagulation controls for 12 years 5 months
Prothrombin Time (PT) and
Activated Partial Thromboplastin
Time (APTT) Assays
------------------------------------- ----------------------------------- -----------------------------------
6,528,273 Methods for quality control of 12 years 9 months
Prothrombin Time (PT) and
Activated Partial Thromboplastin
Time (APTT) Assays Using
Coagulation Controls
------------------------------------- ----------------------------------- -----------------------------------
6,391,609 Thromboplastin Reagents and 13 years 8 months
Methods for Preparing and Using
Such Reagents
------------------------------------- ----------------------------------- -----------------------------------
6,653,066 Device and method for detecting 17 years and 9 months
polyvalent substances
------------------------------------- ----------------------------------- -----------------------------------
6,020,203 Chromatic method for 10 years and 11 months
determination of glycated
proteinaceous species in blood
------------------------------------- ----------------------------------- -----------------------------------
5,843,788 Chromatic method for 9 years and 9 months
determination of glycated
proteinaceous species in blood
------------------------------------- ----------------------------------- -----------------------------------
5,719,053 Chromatographic method for 9 years
identification and
characterisation of haemoglobin
variants in blood
------------------------------------- ----------------------------------- -----------------------------------
5,801,053 Chromatographic method for 9 years and 6 months
identification and
characterisation of haemoglobin
variants in blood
------------------------------------- ----------------------------------- -----------------------------------
In addition to these US patents, Trinity Biotech owns a total of 10
non-US patents, as follows:
---------------------------- ------------------------------------------------- -------------------------------------
NON US PATENT NUMBER DESCRIPTION GRANT / EXPIRY
---------------------------- ------------------------------------------------- -------------------------------------
EP1092157 Coagulation controls for Prothrombin Time (PT) Expires 21/06/2019
and Activated Partial Thromboplastin Time
(APTT) Assays
---------------------------- ------------------------------------------------- -------------------------------------
EP1127259 Thromboplastin Reagents and Methods for Granted 14th Dec, 2005
Preparing and Using Such Reagents
---------------------------- ------------------------------------------------- -------------------------------------
IE 82591 A test method and device for rapid diagnosis of Expires 20/12/2016
disease
---------------------------- ------------------------------------------------- -------------------------------------
IE S81115 A device for detecting analytes in biological Expires 30/12/2008
samples
---------------------------- ------------------------------------------------- -------------------------------------
IE S83182 A method and apparatus for drying a coated Expires 18/4/2012
microtitre plate after rinsing
---------------------------- ------------------------------------------------- -------------------------------------
GB 2,387,642 A method and apparatus for drying a coated Expires 7/10/2022
microtitre plate after rinsing
---------------------------- ------------------------------------------------- -------------------------------------
IE S83158 A cyanide-free reagent for measuring Expires 3/12/2012
haemoglobin in blood, and a method for
measuring haemoglobin
---------------------------- ------------------------------------------------- -------------------------------------
IE S83149 A test for detection of antibodies to HIV Expires 3/12/2012
---------------------------- ------------------------------------------------- -------------------------------------
GB 2,396,008 A test for detection of antibodies to HIV Expires 2/12/2023
---------------------------- ------------------------------------------------- -------------------------------------
o We can provide no assurance that the patents Trinity Biotech may apply for
will be obtained or that existing patents will not be challenged. The
patents owned by Trinity Biotech and its subsidiaries may be challenged by
third parties through litigation and could adversely affect the value of
our patents. We can provide no assurance that our patents will continue to
be commercially valuable.
o Also, our technologies could be subject to claims of infringement of
patents or proprietary technology owned by others. The cost of enforcing
our patent and technology rights against infringers or defending our
patents and technologies against infringement charges by others may be
high and could adversely affect our business.
5
o Trade secrets and confidential know-how are important to our scientific
and commercial success. Although we seek to protect our proprietary
information through confidentiality agreements and other contracts, we can
provide no assurance that others will not independently develop the same
or similar information or gain access to our proprietary information.
TRINITY BIOTECH'S BUSINESS IS HEAVILY REGULATED, AND COMPLIANCE WITH APPLICABLE
REGULATIONS COULD REDUCE REVENUES AND PROFITABILITY.
o Our manufacturing and marketing of diagnostic test kits are subject to
government regulation in the United States of America by the Food and Drug
Administration ("FDA"), and by comparable regulatory authorities in other
jurisdictions. The approval process for our products, while variable
across countries, is generally lengthy, time consuming, detailed and
expensive. Our continued success is dependent on our ability to develop
and market new products, some of which are currently awaiting approval
from these regulatory authorities. There is no certainty that such
approval will be granted or, even once granted, will not be revoked during
the continuing review and monitoring process.
o We are required to comply with extensive post market regulatory
requirements. Non-compliance with applicable regulatory requirements of
the FDA or comparable foreign regulatory bodies can result in enforcement
action which may include recalling products, ceasing product marketing,
paying significant fines and penalties, and similar actions that could
limit product sales, delay product shipment, and adversely affect
profitability.
AS A FOREIGN PRIVATE ISSUER WHOSE SHARES ARE LISTED ON THE NASDAQ NATIONAL
MARKET, WE ARE ALLOWED TO FOLLOW CERTAIN HOME COUNTRY CORPORATE GOVERNANCE
PRACTICES INSTEAD OF CERTAIN NASDAQ REQUIREMENTS.
o As a foreign private issuer whose shares are listed on the NASDAQ National
Market, we are permitted to follow certain home country corporate
governance practices instead of certain requirements of the NASDAQ
Marketplace Rules. We have elected to follow home country corporate
legislation with respect to the number of persons on our audit committee,
the number of independent directors on our Board of Directors, director
nomination procedures, and the composition of our compensation committee,
as described in more detail under Item 6 of this annual report.
o In addition, we may follow Irish law instead of the NASDAQ Marketplace
Rules that require that we obtain shareholder approval for certain
dilutive events, such as for the establishment or amendment of certain
equity based compensation plans, an issuance that will result in a change
of control of our company, certain transactions other than a public
offering involving issuances of a 20% or more interest in our company and
certain acquisitions of the stock or assets of another company.
TRINITY BIOTECH'S SUCCESS IS DEPENDENT ON CERTAIN KEY MANAGEMENT PERSONNEL.
o Trinity Biotech's success is dependent on certain key management
personnel. Our key employees are Ronan O'Caoimh, our CEO and Chairman,
Brendan Farrell, our President, Dr Jim Walsh, our COO, and Rory Nealon,
our CFO and Secretary, with all of which we have entered into employment
contracts. We carry a life assurance policy for Mr O'Caoimh in the amount
of (euro)533,000 (US$631,000). Competition for qualified employees among
biotechnology companies is intense, and the loss of such personnel or the
inability to attract and retain the additional highly skilled employees
required for the expansion of our activities, could adversely affect our
business. In the US, the UK, Germany and Sweden we were able to attract
and retain qualified personnel. In Ireland, we have experienced some
difficulties in attracting and retaining staff due to competition from
other employers in our industry and due to the strength of the Irish
economy.
TRINITY BIOTECH IS DEPENDENT ON ITS SUPPLIERS FOR THE PRIMARY RAW MATERIALS
REQUIRED FOR ITS TEST KITS.
o The primary raw materials required for Trinity Biotech's test kits consist
of antibodies, antigens or other reagents, glass fibre and packaging
materials which are acquired from third parties. Although Trinity Biotech
does not expect to be dependent upon any one source for these raw
materials, alternative sources of antibodies with the specificity and
sensitivity desired by Trinity Biotech may not be available. Such
unavailability could affect the quality of our products and our ability to
meet orders for specific products.
TRINITY BIOTECH MAY BE SUBJECT TO LIABILITY RESULTING FROM ITS PRODUCTS OR
SERVICES.
o Trinity Biotech may be subject to claims for personal injuries or other
damages resulting from its products or services. Trinity Biotech has
product liability insurance in place for its US manufacturing subsidiaries
up to a maximum of US$4,000,000 for any one accident, limited to a maximum
of US$4,000,000 in any one year period of insurance. A separate policy is
in place for non-US subsidiaries, which are also covered up to a maximum
of (euro)6,500,000 (US$7,698,000) for any one accident, limited to a
maximum of (euro)6,500,000 (US$7,698,000) in any one year period of
insurance. A deductible of US$50,000 is applicable to each insurance event
arising in US and Canada. A deductible of (euro)3,500 (US$4,000) is
applicable to each insurance event arising outside the US and Canada.
There can be no assurance that our product liability insurance is
sufficient to protect us against liability that could have a material
adverse effect on our business.
6
CURRENCY FLUCTUATIONS MAY ADVERSELY AFFECT OUR EARNINGS AND ASSETS.
o Trinity Biotech records its transactions in US Dollars, euro and Swedish
Kroner and prepares its financial statements in US Dollars. A substantial
portion of our expenses is denominated in euro. However, Trinity Biotech's
revenues are primarily denominated in US Dollars. As a result, we are
affected by fluctuations in currency exchange rates, especially the
exchange rate between the US dollar and the euro. Fluctuations between
these and other exchange rates may adversely affect our earnings and
assets. The percentage of 2005 consolidated revenue denominated in US
Dollars was approximately 70%. Of the remaining 30% revenue, the breakdown
was as follows: euro (25%), Sterling (4%) and Yen and Swedish Kroner (1%).
Thus, a 10% decrease in the value of each of the euro, Yen, Sterling and
Swedish Kroner would have approximately a 3% adverse impact on
consolidated revenues.
o As part of the process of mitigating foreign exchange risk, the principal
exchange risk identified by Trinity Biotech was with respect to
fluctuations in the euro. This is attributable to the level of euro
denominated expenses exceeding the level of euro denominated revenues thus
creating a euro deficit. As part of a managed hedging policy, Trinity
Biotech has identified the extent of this euro mismatch and implemented a
forward currency hedging policy which aims to cover a portion of this
mismatch through the use of forward contracts. Trinity Biotech entered
into a series of forward contracts to sell US Dollars forward for euro.
These contracts, which are accounted for under IAS 32 and IAS 39, remain
in place until late 2006. Trinity Biotech continues to monitor its
exposure to foreign currency movements. In the medium term, our objective
is to increase the level of non-US Dollar denominated revenue, thus
creating a natural hedge of the non-US Dollar expenditure.
THE CONVERSION OF OUR OUTSTANDING CONVERTIBLE NOTES AND WARRANTS WOULD DILUTE
THE OWNERSHIP INTEREST OF EXISTING SHAREHOLDERS.
o The convertible notes described in Item 18, Note 21, and the warrants
described in Item 18, Note 19, issued in 2004, are convertible into ADSs
(1 ADS representing 4 Class "A" Ordinary Shares). Conversion of the
remainder of the notes and exercise of the warrants will likely occur only
when the conversion price is below the trading price of our ADSs and will
dilute the ownership interests of existing shareholders. For instance,
should the holders of the Series A Convertible Notes decide to convert the
balance of the US$20,000,000 total principal amount of US$6,609,000 and
the holders of the Series B Convertible Notes decide to convert the
balance of the US$5,000,000 total principal amount of US$2,500,000 into
ADSs at conversion prices of US$14.20 and US$16 respectively, and should
the 1,317,324 Ordinary Share warrants (329,331 ADS warrants) be exercised,
Trinity Biotech would have to issue 3,804,014 additional 'A' ordinary
shares (951,004 ADSs). On the basis of 60,066,357 'A' ordinary shares
outstanding at February 28, 2006, this would effectively dilute the
ownership interest of the existing shareholders by approximately 6%.
Management also has the option of repaying these notes in ordinary shares.
Any such repayment would also have the effect of diluting the ownership
interest of the existing shareholders albeit to a different extent,
depending on the conversion price, which is based on the volume weighted
average price per ADS for the twenty trading days immediately preceding
the repayment date. In addition, any sales in the public market of the
ADSs issuable upon conversion of the notes could adversely affect
prevailing market prices of our ADSs.
IT COULD BE DIFFICULT FOR US HOLDERS OF ADSS TO ENFORCE ANY SECURITIES LAWS
CLAIMS AGAINST TRINITY BIOTECH, ITS OFFICERS OR DIRECTORS IN IRISH COURTS.
o At present, no treaty exists between the United States and Ireland for the
reciprocal enforcement of foreign judgments. The laws of Ireland do
however, as a general rule, provide that the judgments of the courts of
the United States have in Ireland the same validity as if rendered by
Irish Courts. Certain important requirements must be satisfied before the
Irish Courts will recognise the United States judgment. The originating
court must have been a court of competent jurisdiction, the judgment may
not be recognised if it is based on public policy, was obtained by fraud
or its recognition would be contrary to Irish public policy. Any judgment
obtained in contravention of the rules of natural justice will not be
enforced in Ireland.
7
TRINITY BIOTECH IS EXPOSED TO POTENTIAL RISKS AND INCREASED COSTS FROM THE
REQUIREMENTS OF SECTION 404 OF THE SARBANES OXLEY ACT OF 2002 TO EVALUATE
INTERNAL CONTROLS OVER FINANCIAL REPORTING.
o Section 404 of the Sarbanes Oxley Act of 2002 requires that the Company
evaluates and reports on the internal controls over financial reporting
and have an auditor attest to such evaluation. The Company has prepared an
internal plan for compliance and is in the process of documenting and
testing the system of internal controls to provide the basis for this
report for the year ending December 31, 2006. Due to ongoing evaluation
and testing of the Company's internal controls and the uncertainties of
the interpretation of these new requirements, the Company cannot assure
that there may not be significant deficiencies or material weaknesses that
would be required to be reported. In the event that significant
deficiencies or material weaknesses are reported, investor perceptions may
be adversely affected and could cause a decline in the market price of our
stock.
The Company is spending increased costs and an increased amount of
management time and external resources in order to comply with the above
legislation by the end of 2006. The process of documenting and testing the
internal control systems and procedures and considering improvements has
required the Company to hire additional personnel and outside advisory
services, resulting in additional accounting and consultancy expenses.
ITEM 4
INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
Trinity Biotech plc ("Trinity Biotech" or the "Company") develops, acquires,
manufactures and markets diagnostic products for the clinical laboratory and
point-of-care ("POC") segments of the diagnostic market. These test kits are
used to detect infectious diseases, sexually transmitted diseases, blood
coagulation disorders and autoimmune diseases. The Company is also a significant
provider of raw materials to the life sciences industry. The Company sells
worldwide in over 80 countries through its own sales force and a network of
international distributors and strategic partners.
Trinity Biotech was incorporated as a public limited company ("plc") registered
in Ireland in 1992. The Company commenced operations in 1992 and, in October
1992, completed an initial public offering of its securities in the US. The
Company has expanded its product base through internal development and
acquisitions into product categories that primarily test for infectious,
sexually transmitted and autoimmune diseases. In addition, arising from the
acquisition of the Biopool haemostasis business in December 2001 and the
haemostasis division of Sigma Diagnostics, part of Sigma Aldrich, in August
2002, Trinity Biotech has expanded its product range to include test kits that
diagnose blood coagulation and related disorders, and a haemostasis
instrumentation portfolio. The acquisition of the speciality clinical chemistry
business of Sigma Diagnostics in November 2002 means that Trinity Biotech now
participates in this important market segment. In 2004, Trinity Biotech further
expanded its product range through the acquisition of the assets of Fitzgerald
Industries International Inc (Fitzgerald) a distributor of immunodiagnostic
products and the acquisition of the assets of Adaltis US, Inc through which
Trinity has obtained distribution rights to Adaltis's open-ended mircoplate
analytical instrumentation. In 2005, Trinity Biotech strengthened its position
in the life sciences market through the acquisition of the assets of Research
Diagnostics Inc ("RDI"). The range of products provided by RDI is similar to
that of Fitzgerald, a company acquired by Trinity Biotech in 2004. In July 2005,
Trinity Biotech announced the acquisition of Primus Corporation, a leader in the
field of in-vitro diagnostic testing for haemoglobin A1c and haemoglobin
variants. Details of all these acquisitions are set out below.
Trinity Biotech markets its products in the US and in approximately 80 countries
worldwide through a combination of direct selling and a network of national and
international distributors. In July 2001, Trinity Biotech established a direct
sales operation in Germany which commenced trading in October 2001, and in 2002
the Company established a small direct sales operation in the United Kingdom. In
2003 the Company increased the scale of its direct selling operations in the
United States. Trinity Biotech has manufacturing facilities in Bray, Ireland,
Umea, Sweden and Lemgo, Germany, in Europe and in Jamestown, New York, Carlsbad,
California and Kansas City, Missouri in the US.
ACQUISITION OF PRIMUS CORPORATION
In July 2005, Trinity Biotech completed the acquisition of Primus Corporation
for US$14.3 million before costs, consisting of a cash consideration of US$8.6
million and a one year promissory note of US$3 million. The shareholders of
Primus are also entitled to US$2.7 million additional consideration based on the
growth of the business during 2005 less an adjustment for the working capital at
the date of acquisition. Primus Corporation is a leader in the field of in-vitro
testing for haemoglobin A1c and haemoglobin variants.
ACQUISITION OF RESEARCH DIAGNOSTICS INC
In March 2005, Trinity Biotech purchased the assets of Research Diagnostics Inc
("RDI") for US$4.2 million in cash. RDI provides a comprehensive range of
immunodiagnostic products to pharmaceutical companies, diagnostic manufacturers
and research facilities worldwide. This business has been fully integrated into
the Fitzgerald facility in Concord, Massachusetts.
8
ACQUISITION OF THE ASSETS OF ADALTIS US, INC
In April 2004, Trinity acquired the assets of Adaltis US, Inc for US$2,852,000
in cash. Adaltis US, Inc. is the US distribution arm for Adaltis, Inc. As part
of the transaction, Trinity has obtained exclusive distribution rights to
Adaltis' open-end microplate analytical instrumentation in the US and
non-exclusive distribution rights in the rest of the world, except China.
ACQUISITION OF THE ASSETS OF FITZGERALD INDUSTRIES INTERNATIONAL INC
In April 2004, Trinity also completed the acquisition of the assets of
Fitzgerald Industries International Inc. for US$16 million. Fitzgerald provides
a comprehensive range of immunodiagnostic products to pharmaceutical companies,
reference laboratories, diagnostic manufacturers and research facilities
worldwide.
ACQUISITION OF THE SPECIALITY CLINICAL CHEMISTRY PRODUCT LINE OF SIGMA
DIAGNOSTICS
In November 2002, Trinity Biotech acquired the speciality clinical chemistry
product line from Sigma Diagnostics for a total consideration of US$4.4 million
satisfied in cash and deferred consideration. The deferred consideration of
US$1.8 million was paid in 2003. The speciality clinical chemistry business
consists of several specialised products that are clearly differentiated in the
marketplace, including ACE, Bile Acids, Lactate, Oxalate and G6PDH.
ACQUISITION OF THE HAEMOSTASIS DIVISION OF SIGMA DIAGNOSTICS
In August 2002, Trinity Biotech purchased the haemostasis division of Sigma
Diagnostics for a total consideration of US$1.4 million. The consideration was
satisfied in cash. The Sigma diagnostics business comprises a comprehensive
portfolio of reagents previously manufactured in St. Louis, Missouri and the
Amelung range of automated and semi-automated instruments manufactured in Lemgo,
Germany. The Sigma Diagnostics haemostasis reagents comprise more than 50 tests
covering both routine and speciality assays. The Amelung range of instruments
comprises the smaller KC1 and KC4 products, the mid-size AMAX 200 and the large
throughput AMAX 400. Since acquisition Trinity Biotech also received FDA
clearance for a new haemostasis analyser the AMAX Destiny(TM).
ACQUISITION OF THE ASSETS OF THE BIOPOOL HAEMOSTASIS BUSINESS
In December 2001, Trinity Biotech acquired the assets of the Biopool haemostasis
business for a consideration of US$6.4 million before costs comprising US$3.8
million in cash and US$2.6 million in deferred consideration. The deferred
consideration was payable in three instalments of US$0.9 million, US$1.2 million
and US$0.5 million on December 21, 2002, 2003 and 2004, respectively. The
outstanding deferred consideration has been fully settled as part of a
settlement agreement with Xtrana Inc. Biopool develops, manufactures and markets
a comprehensive range of test kits which assess and diagnose disorders of blood
coagulation, thrombotic risk factors, fibrinolysis, platelet function and the
vascular system. These products are sold to hospitals, clinical laboratories,
commercial reference laboratories and research institutions on a worldwide
basis. Sales in the US are made through a direct sales force and OEM partners,
while international sales are handled through a direct sales force in Germany
and the United Kingdom and a network of national distributors elsewhere.
ACQUISITION OF THE AMERLEX HORMONE BUSINESS OF ORTHO CLINICAL DIAGNOSTICS
On October 19, 2001, Trinity Biotech acquired the assets of the Amerlex hormone
business of Ortho Clinical Diagnostics for a consideration of US$0.9 million.
The consideration was satisfied in cash. The Amerlex hormone business
manufactures and sells a range of tests which diagnose hormone disorders.
ACQUISITION OF BARTELS INC
In December 2000, Trinity Biotech acquired the assets of Bartels Inc.
("Bartels"), for a consideration of US$9.5 million comprising US$3.2 million in
stock, US$0.4 million in the form of a promissory note and the balance of US$5.9
million in cash. Bartels is a leading manufacturer of cell dependent organism
diagnostics and its product range includes antigen detection kits for Herpes
Simplex Virus, and respiratory viruses such as Influenza A and B, Parainfluenza
Viruses 1, 2 and 3 and Respiratory Syncital Virus.
ACQUISITION OF MARDX DIAGNOSTICS INC
In March 2000, Trinity Biotech acquired all the outstanding share capital of
MarDx Diagnostics Inc (MarDx) of Carlsbad, California for a consideration of
US$4.2 million. MarDx is a world leader in the development and manufacture of
diagnostic products, known as Western Blots, which confirm the primary diagnosis
of certain infectious diseases. Their principal product is a Western Blot test
for Lyme disease, which is an infection carried by deer ticks. The disease
manifests itself as a multi-system inflammatory disease that affects the skin,
joints and nervous system. If diagnosed and treated early with antibiotics, Lyme
disease is readily cured.
The MarDx test was the first Lyme Western Blot assay to receive FDA clearance
and remains the leading selling test for Lyme disease in the US. The acquisition
of MarDx gave Trinity Biotech a strong position in the Western Blot segment of
the infectious disease market. Western Blot confirmatory testing is a natural
extension to Trinity Biotech's EIA products and the Company intends to extend
the MarDx Western Blot technology and manufacturing capability to other
confirmatory tests.
9
INVESTMENT IN HIBERGEN LIMITED
On October 2, 2000, the Company acquired 33% of the ordinary share capital of
HiberGen for a total consideration of US$1.4 million. On July 2, 2001 the
Company increased its shareholding in HiberGen to 40% at a cost of US$0.3
million.
On April 3, 2002, the Company increased its shareholding to 42.9% by the
acquisition of a further 165,000 Ordinary Shares in HiberGen Limited. The
consideration of US$202,000 was satisfied by the issue of 156,189 'A' Ordinary
Shares in Trinity Biotech plc. In November 2003, the Company announced that a
fundraising process undertaken by HiberGen had not been successful and that
HiberGen had ceased trading. The Company wrote-off its remaining investment in
quarter four of the 2003 financial year.
ESTABLISHMENT OF UK SUBSIDIARY, TRINITY BIOTECH (UK SALES) LTD
In 2002 Trinity Biotech opened a sales and marketing office in Oxfordshire, UK
employing five sales professionals who market the haemostasis and clinical
chemistry products from Trinity Biotech.
ESTABLISHMENT OF GERMAN SUBSIDIARY, TRINITY BIOTECH GMBH
In October 2001, Trinity Biotech established a direct sales operation in
Germany. After the US and Japan, Germany, with a population of 83 million, is
the third largest market in the world for in-vitro diagnostics, accounting for
10% (US$3 billion) of the total world market of US$30.6 billion. In the past
Trinity Biotech had serviced the market through five independent distributors
who handled a small proportion of the Company's product portfolio whereas the
new German direct sales force markets all of Trinity Biotech's current products.
In 2002 Trinity Biotech purchased the haemostasis business of Sigma Diagnostics.
The German part of this business was taken over by Trinity Biotech GmbH.
PRE MARKET APPLICATION ("PMA") AND CLINICAL LABORATORY IMPROVEMENTS AMENDMENTS
OF 1988 "CLIA" WAIVER APPROVALS FOR UNIGOLD HIV TEST
In March 2001, the US Food and Drug Administration's Centre for Biologics
Evaluation and Research ("CBER") approved an Investigational Device Exemption
("IDE") for treatment use for Trinity Biotech's UniGold HIV test. This IDE
allows Trinity Biotech's UniGold HIV test to be used in a limited number of
hospitals throughout the US, to provide patients with the results of tests,
conducted during ongoing clinical trials.
The product is used to provide diagnostic test results in ten minutes, in
situations involving needle stick injuries and pregnant women at high risk of
HIV presenting themselves for delivery. In these circumstances, the ability to
diagnose HIV status rapidly provides the opportunity to make potentially crucial
medical decisions and to administer appropriate medication.
The granting of the IDE application acknowledged that the clinical protocol for
the IDE was appropriate and that Trinity Biotech's proposed clinical trials
under the treatment IDE met FDA standards for human safety and confidentiality.
During 2001, representatives from Trinity Biotech were informed by the FDA that
the FDA required that additional clinical trials be conducted to ensure that the
results which have been obtained to date are statistically significant. This
means that the results which were presented to the FDA in the PMA filing must be
reproduced on a larger population of samples. The resulting product clinical
trials were conducted at sites in Houston, Texas and Baltimore, Maryland.
Approximately 9,000 samples were collected and tested on Trinity Biotech's
UniGold HIV test. This data along with extensive information on the
manufacturing process for Trinity Biotech's UniGold HIV test were presented to
the FDA. The FDA completed a plant inspection of the Irish manufacturing
facility in mid September 2003. On December 23, 2003, the FDA issued approval
for the sale of the UniGold HIV test for use with venipuncture blood (whole
blood, serum and plasma). In early 2004, an IDE submission was made to the FDA
to define data requirements to expand the use of the product to test fingerstick
(blood taken directly from finger) samples. Clinical trials were completed by
the end of May 2004 and the application in the form of a PMA supplement made to
the FDA on June 10, 2004. Three months later on September 21, 2004, the FDA
issued approval for the sale of the Unigold HIV test for use with fingerstick
samples. This allows for the use of the Unigold HIV test in further settings
where venipuncture samples may not be taken.
In the US, laboratories are classed under The Clinical Laboratory Improvements
Amendments of 1988 ("CLIA") regulations in to one of three categories: Waived,
Moderate and High. Accreditation by CLIA is required by laboratories to use
moderate and high complexity classified tests. No laboratory accreditation is
required for use of CLIA waived tests (see 'other FDA regulations' below).
Throughout 2004, trials were completed to support a CLIA waiver for the UniGold
HIV test. The application for CLIA waiver for use in venipuncture whole blood
was made in April 2004. A CLIA waiver approval was granted for venipuncture
whole blood in June 2004 and approval for finger stick whole blood was granted
in November 2004. This allows for the sale of the Unigold HIV test into clinical
laboratories throughout the United States testing the following blood samples;
serum, plasma, fingerstick and venipuncture whole blood.
10
PRINCIPAL MARKETS
The primary market for Trinity Biotech's tests remains the US. During fiscal
2005, the Company sold 51% (US$50.6 million) (2004: 52% or US$41.4 million) of
product in the US. Sales to non-US (principally European and Asian) countries
represented 49% (US$47.9 million) during fiscal 2005 (2004: 48% or US$38.6
million).
For a more comprehensive segmental analysis please refer to Item 5, "Results of
Operations" and Note 2 "Segment Information" of the Notes to the Consolidated
Financial Statements contained in Item 18 "Financial Statements".
PRINCIPAL PRODUCTS
The Company develops, acquires, manufactures and markets a wide range of
diagnostic products based on the technology of immunoassay. Immunoassays harness
the body's own natural defence mechanisms. Faced with invasion by a foreign
agent, known as an antigen, the body defends itself by producing antibodies.
Each type of antibody produced is a highly specific response to the invading
antigen. The antibodies bind and neutralise the antigen. It is this highly
specific binding of antigen to antibody, which forms the basis for all
immunoassay tests.
Trinity Biotech's products can test for foreign agents such as viruses, bacteria
and parasites, and for naturally occurring conditions such as cancer cells and
hormones. The Company's manufacturing processes utilise biotechnology techniques
involving the in-house production of recombinant proteins, synthetic peptides
and monoclonal antibodies.
Trinity Biotech's product areas can be broken down under the headings of the six
key technologies which are sold under the following brand names:
Enzyme Immunoassays (EIA)
Bartels(R)
CAPTIA(TM)
MarDx(R)
MicroTrak(TM)
Recombigen(R)
Fluorescence Assays (IFA/DFA)
Bartels(R)
MarDx(R)
MicroTrak(TM)
Western Blot (WB)
MarDx(R)
Rapid Assays
Capillus(TM)
SeroCard(TM)
UniGold(TM)
Haemostasis
Biopool(R)
Amax
Clinical Chemistry
Primus
EZ HDL
EZ LDL
ENZYME IMMUNOASSAYS
The Company's wide range of Enzyme Immunoassay ("EIA") products includes over 90
assays utilising different formats to accommodate the most demanding of
laboratories to the most basic. This type of test is the mainstay of standard
clinical laboratories around the world and forms the backbone of the Trinity
Biotech product list of over 500 products. Trinity Biotech currently sells over
100 EIA tests of various configurations in many countries around the world. Of
these, over 80 are cleared by the FDA for distribution within the US.
These tests are performed on plates that allow for up to 96 simultaneous samples
and can be performed manually or more typically on automated equipment. Trinity
Biotech also offers a range of equipment for these types of assays as well as
validating the Trinity Biotech range for use on the most popular types of
analysers, used by most medical laboratories.
11
In essence, each well is coated with antigen or antibody depending upon the
analyte being tested for. When the test is run, the first step would be to add
the sample and a reaction will bind any antibodies or antigens (if present) to
the well wall. After removal of interfering substances through washing steps, a
colour-forming reagent is added and the intensity of colour is read on an
instrument indicating the result. EIA's can aid in providing the clinician with
accurate information to assist in the diagnosis of a variety of disorders such
as autoimmune diseases, hormonal imbalances, sexually transmitted diseases,
enteric infections, respiratory infections, cardiovascular diseases, and a wide
range of other diseases.
HAEMOSTASIS
The second largest range of assays in Trinity Biotech's portfolio is the
haemostasis assays. Arising from the acquisition of the Biopool and Sigma
haemostasis businesses, Trinity Biotech now has an extensive range of
haemostasis diagnostic kits, offering laboratories the ability to maximise
testing. Biopool is a well-known leader and innovator in the worldwide market
for haemostasis and fibrinolysis reagents. Strengthening the Biopool reagent
portfolio is the addition of the former Sigma Amelung instrumentation and
reagents. This strategic combination enables Trinity Biotech to provide the
market with a complete line of haemostasis products that permit customised
testing. With the increasing demand to elucidate a wide range of coagulapathies
in the aging population, haemostasis testing is quickly advancing to the
requirements of today's complexities.
Trinity Biotech's full range of test kits assess and diagnose disorders of blood
coagulation, thrombotic risk factors, fibrinolysis, platelet function and the
vascular system. Included in the product range is the range of D-dimer assays.
Employing latex technology, Trinity Biotech can offer superior sensitivity and
NPV (Negative Predictive Value) for D-dimer testing. Alongside D-dimer are
Trinity Biotech's comprehensive routine and speciality assays.
This extensive haemostasis product line is sold to hospitals, clinical
laboratories, commercial reference laboratories and research institutions on a
worldwide basis.
FLUORESCENCE ASSAYS
Another large range of diagnostic assays in Trinity Biotech's portfolio are the
fluorescence assays that are also typically performed in medium to large sized
hospital laboratories around the world. Trinity Biotech offers 40 fluorescence
assays, of which 29 are cleared by the FDA for distribution within the US, with
many variations in kit presentation to suit the customer's needs.
There are two distinct technologies employed, namely Direct Fluorescence Assays
("DFA") and Immunofluorescence Assays ("IFA"). Trinity Biotech offers 26 IFA's
with the vast majority forming the comprehensive range of tests to diagnose
autoimmune disorders. The remainder of the assays are used to assist in the
diagnosis of infectious diseases such as Legionnaires disease, Lyme disease and
many others. Of the nine DFAs Trinity Biotech offers, the largest range are FDA
cleared for detecting causative agents of sexually transmitted diseases (STDs),
principally Chlamydia and Herpes, and forms one of Trinity Biotech's most
popular selling product groups.
The principle of the IFA test can be summarised as the introduction of patient's
serum to a specially prepared slide containing the specific antigen to which the
antibody is directed. The antibody, if present, binds to the antigen and after a
series of washing steps and addition of a conjugate, will emit fluorescence when
viewed through a microscope equipped with an ultra-violet light source.
The principle of DFA can best be described as the fixation of a patient sample
to a microscope slide, which is then introduced to an antibody conjugated to a
fluorescent dye, to stain and thereby identify the antigen to which the antibody
is directed.
RAPID ASSAYS
Trinity Biotech has developed a range of membrane and latex based rapid assays
to cater for point of care ("POC") and over-the-counter ("OTC") markets. This
range of five tests facilitates fast and often very important treatment for the
patient and can avoid further costly testing. The UniGold(TM) range of tests
does not require refrigeration which is very important for the OTC and POC
markets, and in less developed countries.
Tests for HIV are available in the UniGold(TM), SeroCard(TM) and Capillus(TM)
formats. SeroCard(TM) is a self-encased, flow-through rapid EIA device where
results are obtained by visual interpretation of a colour change, whereas
Capillus(TM) utilises latex agglutination enhanced by capillary slide
technology.
These types of rapid tests give a definitive qualitative answer, indicating the
presence or absence of antigens or antibodies (test dependent) as an aid in the
diagnosis of infection or other clinical conditions. Rapid diagnostic tests
provide information that is essential in allowing key decisions to be made
regarding cost effective treatment options.
12
WESTERN BLOT ASSAYS
Trinity Biotech's extensive range of 19 Western Blot test systems includes the
first Lyme Western Blot assay to receive FDA clearance for distribution within
the US. Other Western Blot kits in the range include assays to aid in the
diagnosis of autoimmune disorders and more typically infectious diseases such as
Syphilis, Epstein Barr Virus ("EBV"), H. pylori and others.
Western Blot assays are typically used in reference or speciality laboratories
for confirming the presence, or absence, of antibodies. This can be an essential
part of routine practice for some laboratory investigations for conditions such
as Lyme disease, whereby the confirmation of antibody status is the only means
to obtain an accurate diagnosis. The principle of these types of tests is that a
membrane containing electrophoretically separated proteins of a particular
organism are incubated with a patient's serum sample. If specific antibodies to
individual proteins are present, they will bind to the corresponding antigen
bands. After various washing steps and conjugation, the strip is finally reacted
with a precipitating colour developing solution which deposits a visible
precipitate on antibody reacted antigen bands. Bands can then be visualised,
scored for intensity, relative to a band of a weakly reactive control, and
recorded.
CLINICAL CHEMISTRY
Trinity Biotech acquired the Speciality Clinical Chemistry business of Sigma
Diagnostics. This business consists of several specialised products that are
clearly differentiated in the marketplace, including ACE, Bile Acids, Lactate,
Oxalate and G6PDH.
These products are suitable for both manual and automated testing and have
proven performance in the diagnosis of many disease states from liver and kidney
disease to G6PDH deficiency which is an indicator of haemolytic anaemia. EZ HDL
and EZ LDL cholesterol assays broke new ground when they were introduced by
Sigma as the first homogenous, non-precipitating liquid reagents for determining
HDL and LDL.
In July 2005 Trinity acquired Primus Corporation, a leader in the field of
in-vitro diagnostic testing for haemoglobin A1c and haemoglobin variants.
Utilizing HPLC (high pressure liquid chromatography), which is one of the most
accurate and precise methods available, Primus provides a range of
glycohemoglobin platforms to serve customers from physicians' offices to the
largest reference laboratories. Primus has patented their HPLC boronate affinity
technology which provides a precise, consistent and interference-free result in
glycohemoglobin testing.
DISTRIBUTION AGREEMENT BETWEEN TRINITY BIOTECH USA AND CARTER WALLACE
Clark Laboratories, Inc. ("Clark") entered into a distribution agreement with
Carter-Wallace Inc. ("Carter-Wallace") on December 18, 1995 for an initial
period of five years and, thereafter, for an indefinite period subject to
termination provisions outlined in the distribution agreement. Under the
original terms of the agreement, Carter-Wallace had the exclusive right to sell
and distribute Clark's ELISA products in the US and Puerto Rico (the
"Territory") through its affiliate Wampole Laboratories ("Wampole"). As part of
the agreement, Clark obtained from Carter-Wallace the exclusive right to
manufacture for Carter-Wallace certain products that Carter-Wallace was
obtaining from Bio-Whittaker (the "BW Products"). In 1997, Trinity Biotech, plc
acquired Clark, and succeeded to Clark's rights and obligations under the
distribution agreement. In 2002, the Company negotiated an amendment to the
distribution agreement with Inverness Medical Innovations, Inc ("Inverness
Medical"), the successor to Carter-Wallace's rights under the distribution
agreement, whereby the Inverness Medical's exclusive distribution rights would
be subject to certain limitations, and would expire in their entirety on October
1, 2004. In 2002, the Company also entered into a letter agreement with
Inverness Medical whereby, among other things, Inverness Medical agreed to grant
to Trinity a licence to all the granted patents relating to Lateral Flow devices
that it owned and to which it had the right to grant licences in exchange for
certain royalty payments.
In December 2003, the Company initiated legal proceedings in the Superior Court
of Middlesex County, Massachusetts against Inverness Medical and its affiliate
Wampole (collectively, Defendants) for declaratory judgment, breach of contract
and unfair and deceptive business practices in connection with the Defendants'
performance under the distribution agreement. Among other things, the suit
requested a judgement declaring that Trinity was entitled to sell certain
products directly in the Territory before October 1, 2004 under the terms of the
2002 amendment to the distribution agreement. The suit also alleged that the
Defendants were attempting to convert customers from Trinity's products to
products manufactured by a competitor (which were modified to look like the
Trinity products) by misrepresenting to the customers that the Trinity product
was unavailable and was being discontinued.
In January 2004, the Defendants countersued alleging, among other things,
various breaches of the distribution agreement and subsequent amendments, and
that Defendants were entitled to rescind the distribution agreement and any
amendments thereto, including any agreement to grant certain intellectual
property rights to Trinity. The Defendants sought a preliminary injunction to
prevent Trinity from selling directly in the Territory any of its products which
are competitive with products sold by the Defendants and sourced from other
suppliers. The Superior Court of Middlesex County, Massachusetts, denied this
motion for a preliminary injunction on January 28, 2004. In April of 2004,
Trinity amended its complaint to add additional claims alleging breaches of the
distribution agreement by Defendants. In May of 2004, the Defendants amended
their counterclaims to add claims alleging, among other things, that Trinity was
selling the BW Products directly without a licence. Following the expiration of
the Defendants' exclusive distribution rights under the distribution agreement
on October 1, 2004, Trinity moved to amend its complaint to eliminate the
declaratory judgment claims and add additional claims for breach of the
distribution agreement and tortious interference with advantageous business
relations that had arisen after December 2003. The Defendants filed a
cross-motion to amend their complaint. There has been no ruling by the court on
either party's motion. On April 22, 2005, the court granted both parties'
motions to amend. The case is currently in the discovery phase. Please see also
Item 8 "Legal Proceedings".
13
The Company is currently selling its products directly in the US and has
increased its direct sales force to approximately one hundred and twenty seven
staff. The inability to recapture lost sales from the Defendants may have a
material adverse effect on the Company. In addition, an adverse ruling by the
court or adverse jury verdict with respect to Trinity's direct sales and/or the
validity of the letter agreement and Trinity's licence to the Lateral Flow
devices may have a material adverse effect on the Company.
SALES AND MARKETING
Trinity Biotech sells its product through its own direct sales-force in three
countries: the United States, Germany and the United Kingdom. In the United
States there are approximately 127 sales and marketing professionals responsible
for the sale of haemostasis reagents and instrumentation, clinical chemistry and
infectious disease products. The sales force of 22 people in Germany is
responsible for selling the full range of Trinity Biotech products including
haemostasis, infectious disease, clinical chemistry and radioimmunoassay. In
2002, Trinity Biotech opened a sales and marketing office in Oxfordshire, UK,
which now employs 5 sales professionals who market the haemostasis and clinical
chemistry products from Trinity Biotech. In addition to our direct sales
operations, Trinity Biotech also operates in approximately 80 countries, through
over 300 independent distributors and strategic partners.
MANUFACTURING AND RAW MATERIALS
The primary raw materials required for Trinity Biotech's test kits consist of
antibodies, antigens, human plasma, latex beads, rabbit brain phospholipids,
bovine source material, other reagents, glass fibre and packaging materials. The
reagents used as raw materials have been acquired for the most part from third
parties. Although Trinity Biotech is not dependent upon any one source for such
raw materials, alternative sources of antibodies and antigens with the
specificity and sensitivity desired by Trinity Biotech may not be available from
time-to-time. Such unavailability could affect the supply of its products and
its ability to meet orders for specific products, if such orders are obtained.
Trinity Biotech's growth may be limited by its ability to obtain or develop the
necessary quantity of antibodies or antigens required for specific products.
Thus, Trinity Biotech's strategy is, whenever possible, to establish alternative
sources of supply of antibodies.
COMPETITION
The diagnostic industry is very competitive. There are many companies, both
public and private, engaged in diagnostics-related research and development,
including a number of well-known pharmaceutical and chemical companies.
Competition is based primarily on product reliability, customer service and
price. Many of these companies have substantially greater capital resources and
have marketing and business organisations of substantially greater size than
Trinity Biotech. Many companies have been working on immunodiagnostic reagents
and products, including some products believed to be similar to those currently
marketed or under development by the Company, for a longer period of time than
has the Company. The Company's competition includes several large companies such
as, but not limited to, Roche, Abbott, Johnson & Johnson, Bayer and
Dade-Behring.
PATENTS AND LICENCES
Patents
Many of the Company's tests are not protected by specific patents, due to the
significant cost of putting patents in place for the Company's wide range of
products. However, the Company believes that substantially all of its tests are
protected by proprietary know-how, manufacturing techniques and trade secrets.
From time-to-time, certain companies have asserted exclusive patent, copyright
and other intellectual property rights to technologies that are important to the
industry in which Trinity Biotech operates. In the event that any of such claims
relate to its planned products, Trinity Biotech intends to evaluate such claims
and, if appropriate, seek a licence to use the protected technology. There can
be no assurance that Trinity Biotech would, firstly, be able to obtain licences
to use such technology or, secondly, obtain such licences on satisfactory
commercial terms. If Trinity Biotech or its suppliers are unable to licence any
such protected technology that might be used in Trinity Biotech's products,
Trinity Biotech could be prohibited from marketing such products. It could also
incur substantial costs to redesign its products or to defend any legal action
taken against it. If Trinity Biotech's products should be found to infringe
protected technology, Trinity Biotech could also be required to pay damages to
the infringed party.
Licences
In 2002, the Company obtained the Unipath and Carter Wallace lateral flow
licences under agreement with Inverness Medical Innovations.
14
On December 20, 1999 the Company obtained a non-exclusive commercial licence
from the National Institute of Health ("NIH") in the US for NIH patents relating
to the general method of producing HIV-1 in cell culture and methods of
serological detection of antibodies to HIV-1.
The Company has also entered into a number of licence/supply agreements for key
raw materials used in the manufacture of its products.
GOVERNMENT REGULATION
The preclinical and clinical testing, manufacture, labelling, distribution, and
promotion of the Company's products are subject to extensive and rigorous
government regulation in the United States and in other countries in which the
Company's products are sought to be marketed. The process of obtaining
regulatory clearance varies, depending on the product categorisation and the
country, from merely notifying the authorities of intent to sell, to lengthy
formal approval procedures which often require detailed laboratory and clinical
testing and other costly and time-consuming processes. The main regulatory
bodies which require extensive clinical testing are the Food and Drug
Administration ("FDA") in the US, the Irish Medicines Board (as the authority
over Trinity Biotech in Europe) and Health Canada. Recently, a European
Directive has been implemented allowing one approval system to be applicable
throughout Europe, CE marking. Canada has also amended its regulations where it
is now mandatory to hold an externally accredited quality system to a very
exacting standard.
The process in each country varies considerably depending on the nature of the
test, the perceived risk to the user and patient, the facility at which the test
is to be used and other factors. As 51% of Trinity Biotech's 2005 revenues were
generated in the US and the US represents approximately 42% of the worldwide
diagnostics market, an overview of FDA regulation has been included below.
FDA Regulation
Our products are medical devices subject to extensive regulation by the FDA
under the Federal Food, Drug, and Cosmetic Act. The FDA's regulations govern,
among other things, the following activities: product development; testing;
labelling; storage; premarket clearance or approval; advertising and promotion;
and sales and distribution.
Access to US Market. Each medical device that the Company may wish to
commercially distribute in the US will likely require either 510(k) clearance or
premarket application ("PMA") approval prior to commercial distribution. Devices
intended for use in blood bank environments fall under even more stringent
review and require a Blood Licence Application ("BLA"). Devices deemed to pose
relatively less risk are placed in either class I or II, which requires the
manufacturer to submit a premarket notification requesting permission for
commercial distribution; this is known as 510(k) clearance. Some low risk
devices are exempted from this requirement. Devices deemed by the FDA to pose
the greatest risk, such as life-sustaining, life-supporting or implantable
devices, or devices deemed not substantially equivalent to a previously 510(k)
cleared device or a "preamendment" class III device (i.e., in commercial
distribution since prior to May 28, 1976) for which PMA applications have not
been called, are placed in class III requiring PMA approval. Recently, the FDA
has introduced fees for the review of 510(k) and PMA applications. The fee for a
PMA application is in excess of US$250,000.
510(k) Clearance Pathway. To obtain 510(k) clearance, the Company must submit a
premarket notification demonstrating that the proposed device is substantially
equivalent in intended use and in safety and effectiveness to a "predicate
device" - either a previously cleared class I or II device or a class III
preamendment device, for which the FDA has not called for PMA applications. The
FDA's 510(k) clearance pathway usually takes from 4 to 12 months, but it can
last longer. After a device receives 510(k) clearance, any modification that
could significantly affect its safety or effectiveness, or that would constitute
a major change in its intended use, requires a new 510(k) clearance or could
even require a PMA approval.
PMA Approval Pathway. A device that does not qualify for 510(k) clearance
generally will be placed in class III and required to obtain PMA approval, which
requires proof of the safety and effectiveness of the device to the FDA's
satisfaction. A PMA application must provide extensive preclinical and clinical
trial data and also information about the device and its components regarding,
among other things, device design, manufacturing and labeling. In addition, an
advisory committee made up of clinicians and/or other appropriate experts is
typically convened to evaluate the application and make recommendations to the
FDA as to whether the device should be approved. Although the FDA is not bound
by the advisory panel decision, the panel's recommendation is important to the
FDA's overall decision making process. The PMA approval pathway is more costly,
lengthy and uncertain than the 510(k) clearance process. It generally takes from
one to three years or even longer. After approval of a PMA, a new PMA or PMA
supplement is required in the event of a modification to the device, it's
labeling or its manufacturing process. The FDA has recently implemented
substantial fees for the submission and review of PMA applications.
15
BLA approval pathway. BLA approval is required for CBER regulated products
intended for use in a blood bank environment, where the blood screening using
these products may be administered to an individual following processing. This
approval pathway involves even more stringent review of the product, its
supporting clinical data and site inspection, than that of a PMA application.
The BLA application pathway is more costly, lengthy and uncertain than the PMA
clearance process.
Clinical Studies. A clinical study is generally required to support a PMA
application and is sometimes required for a 510(k) premarket notification. Such
studies generally require submission of an application for an Investigational
Device Exemption ("IDE") showing that it is safe to test the device in humans
and that the testing protocol is scientifically sound. In vitro diagnostic
devices ("IVD's"), however, are generally exempt from IDE requirements, provided
that the testing (i) does not require an invasive sampling procedure that
presents a significant risk; (ii) does not by design or intention introduce
energy into a subject; and (iii) is not used for a diagnostic determination
without confirmation of the diagnosis by another, medically established
diagnostic device or procedure.
IVD manufacturers also must establish distribution controls to assure that IVD's
distributed for the purpose of conducting research or clinical investigations
are used only for that purpose and are not commercialised. Pursuant to current
FDA policy, manufacturers of IVD's labeled for research use only ("RUO") or
investigational use only ("IUO") are strongly encouraged by the FDA to establish
a certification program under which investigational IVD's are distributed to or
utilised only by individuals, laboratories, or health care facilities that have
provided the manufacturer with a written certification of compliance indicating
that the RUO or IUO product will be restricted in use and will, among other
things, meet Institutional Review Board approval and informed consent
requirements.
FDA Approval for Unigold HIV Test. The Company's complete PMA application for
the UniGold HIV Test was filed on March 27, 2003. The PMA application was
supported by clinical data involving 9,000 samples. The FDA issued PMA approval
for the device on December 23, 2003. This approval allows for the use of serum,
plasma and venipuncture whole blood in clinical settings. Early in 2004, an IDE
submission was made to the FDA to define the data requirements to expand the use
of the product to test fingerstick (blood taken directly from the finger)
samples. Clinical tests were completed by the end of May 2004 and the
application in the form of a PMA supplement made to the FDA on June 10, 2004.
Three months later, on September 21, 2004, the FDA issued approval for the sale
of the Unigold HIV test for use with fingerstick samples. This allows for the
use of the Unigold HIV test in further settings where venipuncture samples may
not be taken.
Postmarket Regulation
After the FDA permits a device to enter commercial distribution, numerous
regulatory requirements apply, including: the Quality System Regulation ("QSR"),
which requires manufacturers to follow elaborate testing, control, documentation
and other quality assurance procedures during the manufacturing process;
labeling regulations; the FDA's general prohibition against promoting products
for unapproved or "off-label" uses; and the Medical Device Reporting ("MDR")
regulation, which requires that manufacturers report to the FDA if their device
may have caused or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or serious injury if it
were to recur.
The Company is subject to inspection by the FDA to determine compliance with
regulatory requirements. If the FDA finds any failure to comply, the agency can
institute a wide variety of enforcement actions, ranging from a public warning
letter to more severe sanctions such as: fines, injunctions, and civil
penalties; recall or seizure of products; the issuance of public notices or
warnings; operating restrictions, partial suspension or total shutdown of
production; refusing requests for 510(k) clearance or PMA approval of new
products; withdrawing 510(k) clearance or PMA approvals already granted; and
criminal prosecution.
Unanticipated changes in existing regulatory requirements or adoption of new
requirements could have a material adverse effect on the Company. Any failure to
comply with applicable QSR or other regulatory requirements could have a
material adverse effect on the Company's revenues, earnings and financial
standing. There can be no assurances that the Company will not be required to
incur significant costs to comply with laws and regulations in the future or
that laws or regulations will not have a material adverse effect upon the
Company's revenues, earnings and financial standing.
Other FDA Regulation
Purchasers of the Company's clinical diagnostic products in the United States
may be regulated under The Clinical Laboratory Improvements Amendments of 1988
("CLIA") and related federal and state regulations. CLIA is intended to ensure
the quality and reliability of clinical laboratories in the United States by
mandating specific standards in the areas of personnel qualifications,
administration and participation in proficiency testing, patient test
management, quality control, quality assurance and inspections. The regulations
promulgated under CLIA established three levels of diagnostic tests ("waived",
"moderately complex" and "highly complex") and the standards applicable to a
clinical laboratory depend on the level of the tests it performs. CLIA
requirements may prevent some clinical laboratories from using any or all of the
Company's diagnostic products. There can be no assurance that the CLIA
regulations and future administrative interpretations of CLIA will not have a
material adverse impact on the Company by limiting the potential market for the
Company's products. Regarding the Company's Unigold HIV test, CLIA waiver was
granted for venipuncture whole blood in June 2004 and approval for fingerstick
whole blood was granted in November 2004. This allows for the sale of the
Unigold HIV test into clinical laboratories throughout the United States testing
the following blood samples; serum, plasma, fingerstick and venipuncture whole
blood.
16
Export of products subject to 510(k) notification requirements, but not yet
cleared to market, are permitted without FDA export approval, if statutory
requirements are met. Unapproved products subject to PMA requirements can be
exported to any country without prior FDA approval provided, among other things,
they are not contrary to the laws of the destination country, they are
manufactured in substantial compliance with the QSR, and have been granted valid
marketing authorisation in Australia, Canada, Israel, Japan, New Zealand,
Switzerland, South Africa or member countries of the European Union or of the
European Economic Area ("EEA"). FDA approval must be obtained for exports of
unapproved products subject to PMA requirements if these export conditions are
not met.
There can be no assurance that the Company will meet statutory requirements
and/or receive required export approval on a timely basis, if at all, for the
marketing of its products outside the United States.
Regulation outside the United States
Distribution of the Company's products outside of the United States is also
subject to foreign regulation. Each country's regulatory requirements for
product approval and distribution are unique and may require the expenditure of
substantial time, money, and effort. There can be no assurance that new laws or
regulations will not have a material adverse effect on the Company's business,
financial condition, and results of operation. The time required to obtain
needed product approval by particular foreign governments may be longer or
shorter than that required for FDA clearance or approval. There can be no
assurance that the Company will receive on a timely basis, if at all, any
foreign government approval necessary for marketing its products.
ORGANISATIONAL STRUCTURE
Trinity Biotech plc and its subsidiaries ("the Group") is a manufacturer of
diagnostic test kits for sale and distribution worldwide. Trinity Biotech's
executive offices are located at Bray, Co. Wicklow, Ireland while its research
and development, manufacturing and marketing activities are principally
conducted at Trinity Biotech Manufacturing Limited, based in Bray, Co. Wicklow,
Ireland, Trinity Biotech (UK Sales) Limited, based in Oxfordshire England,
Trinity Biotech GmbH, based in Lemgo, Germany, and at Trinity Biotech (USA),
MarDx Diagnostics Inc, Primus Corporation and Biopool US Inc based in Jamestown,
New York State, Carlsbad, California, Kansas City, Missouri and Berkeley
Heights, New Jersey respectively. The Group's newly acquired distributor of
immunodiagnostic products, Fitzgerald is based in Boston, Massachusetts and
Bray, Co. Wicklow, Ireland.
For a more comprehensive schedule of the subsidiary and associated undertakings
of the Company please refer to Note 34 of the Notes to the Consolidated
Financial Statements "Group Undertakings" contained in Item 18 "Financial
Statements" of this Form 20-F.
PROPERTY, PLANT AND EQUIPMENT
Trinity Biotech has six manufacturing sites worldwide, three in the US
(Jamestown, NY, Kansas City, MO and Carlsbad, CA), one in Bray, Co. Wicklow,
Ireland, one in Umea, Sweden and one in Lemgo, Germany. The US and Irish
facilities are each FDA and ISO registered facilities. As part of its ongoing
commitment to quality, Trinity Biotech was granted the latest ISO 9001: 2000 and
ISO 13485: 2003 certification. This certificate was granted by the Underwriters
Laboratory, an internationally recognised notified body. It serves as external
verification that Trinity Biotech has an established and effective quality
system in accordance with an internationally recognised standard. By having an
established quality system there is a presumption that Trinity Biotech will
consistently manufacture products in a controlled manner. To achieve this
certification Trinity Biotech performed an extensive review of the existing
quality system and implemented any additional regulatory requirements.
Trinity Biotech's manufacturing and research and development facilities
consisting of approximately 45,000 square feet are located at IDA Business Park,
Bray, Co. Wicklow, Ireland. This facility is ISO 9001 approved and was purchased
in December 1997. The facilities include offices, research and development
laboratories, production laboratories, cold storage and drying rooms and
warehouse space. Trinity Biotech spent US$4.2 million buying and fitting out the
facility. In December 1999, the Company sold the facility for net proceeds of
US$5.2 million and leased it back from the purchaser for 20 years. The current
annual rent which is reviewed every five years is set at (euro)479,000
(US$567,000). In July 2000, the Company entered into a 20 year lease for a
25,000 square foot warehouse adjacent to the existing facility at an annual rent
of (euro)191,000 (US$226,000). On November 20, 2002 the Company entered into an
agreement for lease with the lessor for 16,700 square feet of offices at an
annual rent of (euro)381,000 (US$452,000), payable from 2004. (See Item 7 -
Major Shareholders and Related Party Transactions).
17
Trinity Biotech USA operates from a 24,000 square foot FDA and ISO 9001 approved
facility in Jamestown, New York. The facility was purchased by Trinity Biotech
USA in 1994. Additional warehousing space is also leased in upstate New York at
an annual rental charge of US$61,000.
MarDx operates from two facilities in Carlsbad, California. The first facility
comprises 21,500 square feet and is the subject of a five year lease, renewed in
July 2001, at an annual rental cost of US$240,000. The second adjacent facility
comprises 14,500 square feet and is the subject of a five year lease, renewed in
July 2001, at an annual rental cost of US$144,000.
Arising from the acquisition of the Biopool haemostasis business, Trinity
Biotech currently operates from an additional facility located in Umea, Sweden.
The Umea facility is 8,712 square feet and the annual rental is US$129,000. The
lease, renewed in December 2003, expires in December 2006.
Arising from the acquisition of the Sigma haemostasis division in 2002, Trinity
Biotech acquired a manufacturing/office facility of 78,000 square feet in Lemgo,
Germany. This facility is owned by Trinity Biotech GmbH.
Additional office space is leased by the Company in Ireland, Boston,
Massachusetts, Kansas City, Missouri and New Jersey at an annual cost of
US$108,000, US$109,000, US$100,000, and US$168,000, respectively.
CAPITAL EXPENDITURES AND DIVESTITURES
The Company has no divestitures or significant capital expenditures in progress.
ITEM 5
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OPERATING RESULTS
Trinity Biotech's consolidated financial statements include the attributable
results of Trinity Biotech plc, the holding company, and nine trading entities:
- Trinity Biotech Manufacturing Limited (Ireland), Clark Laboratories Inc
(trading as Trinity Biotech (USA)), Biopool US Inc, (trading as Trinity Biotech
Distribution) MarDx Diagnostics Inc, Biopool AB, Trinity Biotech (UK Sales)
Limited, Trinity Biotech GmbH (Germany), Benen Trading Limited (trading as
Fitzgerald Industries International) and Primus Corporation. These entities are
engaged in the manufacture and sale of diagnostic test kits and related
instrumentation. This discussion covers the years ended December 31, 2005 and
December 31, 2004, and should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 20-F.
The financial statements have been prepared in accordance with IFRS as adopted
by the EU which differs from US GAAP as indicated in Note 35 to the consolidated
financial statements.
OVERVIEW
Trinity Biotech develops, manufactures and markets diagnostic test kits used for
the clinical laboratory and point-of-care ("POC") segments of the diagnostic
market. These test kits are used to detect infectious diseases, sexually
transmitted diseases, blood coagulation disorders and autoimmune disorders. The
Company is also a significant provider of raw materials to the life sciences
industry. The Company markets over 500 different diagnostic products in
approximately 80 countries. In addition, the Company manufactures its own and
distributes third party haemostasis and infectious diseases diagnostic
instrumentation.
Trinity Biotech was incorporated in Ireland in January 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. In October 1992,
Trinity Biotech completed an initial public offering in the United States in
which it raised net proceeds in excess of US$5 million. In October 1993, Trinity
Biotech took a controlling interest in DDI and in October 1994, merged Trinity
Biotech's wholly-owned US subsidiary into DDI so that DDI became a wholly-owned
subsidiary of Trinity Biotech. DDI was the surviving legal entity in the merger
and was subsequently renamed Trinity Biotech Inc ("TBI"). In December 1994,
Trinity Biotech acquired the remaining 50% of FHC which its subsidiary TBI did
not own. During 1995, Trinity Biotech raised net proceeds in excess of US$6
million as a result of a private placement of the Company's shares. In February
1997, the Company purchased the entire share capital of Clark Laboratories Inc
("Clark"), which now trades as Trinity Biotech USA, and in June 1997, the
Company purchased the entire share capital of Centocor UK Holdings Ltd
("Centocor"). 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. In March 2000, the Company purchased 100% of the share capital of
MarDx Diagnostics Inc ("MarDx") and in December 2000, the assets 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 of the
Biopool haemostasis business. In October 2001, Trinity Biotech established a
direct sales operation in Germany, Trinity Biotech GmbH. In August 2002, Trinity
Biotech acquired the haemostasis division of Sigma Diagnostics, part of
Sigma-Aldrich. The Sigma diagnostics haemostasis 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.
18
During 2003, Trinity Biotech completed the transfer of the Sigma haemostasis
test manufacturing from St. Louis to the Irish facility. On September 30, 2002,
Trinity Biotech closed the haemostasis manufacturing facility in Ventura,
California which it had acquired from Xtrana, (Biopool), and has integrated
these operations into the Wicklow manufacturing facility in Ireland. Trinity
Biotech also acquired the speciality clinical chemistry business from Sigma
Diagnostics in December 2002. This business consists of several specialised
products that are clearly differentiated in the marketplace, including ACE, Bile
Acids, Lactate, Oxalate and G6PDH. During 2002, Trinity Biotech established a
small direct sales operation in the United Kingdom to handle the Sigma
haemostasis and clinical chemistry product lines. In 2003 the Company increased
the scale of its direct selling operations in the United States. In April 2004,
Trinity Biotech acquired the assets of Fitzgerald Industries International Inc,
a provider of immunodiagnostic products to pharmaceutical companies, reference
laboratories, diagnostic manufacturers and research facilities worldwide. Also
in April 2004, Trinity acquired the assets of Adaltis US, Inc, the US
distribution arm for Adaltis, Inc thus obtaining exclusive distribution rights
to Adaltis's open-end microplate analytical instrumentation in the US and
non-exclusive distribution rights in the rest of the world, except China. In
March 2005, Trinity Biotech completed the acquisition of the assets of Research
Diagnostics Inc ("RDI"), a provider of immunodiagnostic products to research
facilities, pharmaceutical companies, reference laboratories and diagnostic
manufacturers worldwide. In July 2005, Trinity Biotech acquired Primus
Corporation, a leader in in-vitro diagnostic testing for haemoglobin A1c and
haemoglobin variants. For further information about the Company's principal
products and principal markets please refer to Item 4, "Information on the
Company".
In October 2000, Trinity Biotech subscribed for a 33% shareholding in HiberGen
Limited ("HiberGen"). In July 2001 the Company subscribed for a further 300,000
Ordinary Shares in HiberGen, increasing its shareholding to 40%. On April 3,
2002, the Company increased its shareholding to 42.9% by the acquisition of a
further 165,000 Ordinary Shares in HiberGen Limited. The consideration of
US$202,000 was satisfied by the issue of 156,189 'A' Ordinary Shares in Trinity
Biotech plc. During 2003, HiberGen Limited was unsuccessful in raising
additional funds and on November 14, 2003, the Board of HiberGen Limited decided
that HiberGen should cease trading.
FACTORS AFFECTING OUR RESULTS
The global diagnostics market is growing due to, among other reasons, the ageing
population and the increasing demand for rapid tests in a clinical environment.
Our revenues are directly related to our ability to identify high potential
products while they are still in development and to bring them to market quickly
and effectively. Efficient and productive research and development is crucial in
this environment as we, like our competitors, search for effective and
cost-efficient solutions to diagnostic problems. The growth in new technology
will almost certainly have a fundamental effect on the diagnostics industry as a
whole and upon our future development. For further information about the
Company's principal products, principal markets and competition please refer to
Item 4, "Information on the Company".
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with International Financial Reporting Standards (IFRS), as
adopted by the EU. The preparation of these financial statements requires us to
make estimates and judgements that affect the reported amount of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities.
On an on-going basis, we evaluate our estimates, including those related to
intangible assets, contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the critical accounting policies described below reflect our more
significant judgements and estimates used in the preparation of our consolidated
financial statements.
19
Research and development expenditure
Under IFRS as adopted by the EU, we write-off research and development
expenditure as incurred, with the exception of expenditure on projects whose
outcome has been assessed with reasonable certainty as to technical feasibility,
commercial viability and recovery of costs through future revenues. Such
expenditure is capitalised at cost within intangible assets and amortised over
its expected useful life of 15 years, which commences when commercial production
starts.
Factors which impact our judgement to capitalise certain research and
development expenditure include the degree of regulatory approval for products
and the results of any market research to determine the likely future commercial
success of products being developed. We review these factors each year to
determine whether our previous estimates as to feasibility, viability and
recovery should be changed.
Impairment of intangible assets and goodwill
Definite lived intangible assets are reviewed for indicators of impairment
annually while goodwill and indefinite lived assets are tested for impairment
annually, individually or at the cash generating unit level.
Factors considered important, as part of an impairment review, include the
following:
o significant underperformance relative to expected historical or
projected future operating results;
o significant changes in the manner of our use of the acquired assets
or the strategy for our overall business;
o obsolescence of products;
o significant decline in our stock price for a sustained period; and
our market capitalisation relative to net book value.
When we determine that the carrying value of intangibles, non-current assets and
related goodwill may not be recoverable based upon the existence of one or more
of the above indicators of impairment, any impairment is measured based on our
estimates of projected net discounted cash flows expected to result from that
asset, including eventual disposition. Our estimated impairment could prove
insufficient if our analysis overestimated the cash flows or conditions change
in the future.
Allowance for slow-moving and obsolete inventory
We evaluate the realisability of our inventory on a case-by-case basis and make
adjustments to our inventory provision based on our estimates of expected
losses. We write-off any inventory that is approaching its "use-by" date and for
which no further re-processing can be performed. We also consider recent trends
in revenues for various inventory items and instances where the realisable value
of inventory is likely to be less than its carrying value.
Allowance for impairment of receivables.
We make judgements as to our ability to collect outstanding receivables and
where necessary make allowances for impairment. Such impairments are made based
upon a specific review of all significant outstanding receivables. In
determining the allowance, we analyse our historical collection experience and
current economic trends. If the historical data we use to calculate the
allowance for impairment of receivables does not reflect the future ability to
collect outstanding receivables, additional allowances for impairment of
receivables may be needed and the future results of operations could be
materially affected.
Accounting for income taxes
Significant judgement is required in determining our worldwide income tax
expense provision. In the ordinary course of a global business, there are many
transactions and calculations where the ultimate tax outcome is uncertain. Some
of these uncertainties arise as a consequence of revenue sharing and cost
reimbursement arrangements among related entities, the process of identifying
items of revenue and expense that qualify for preferential tax treatment and
segregation of foreign and domestic income and expense to avoid double taxation.
Although we believe that our estimates are reasonable, no assurance can be given
that the final tax outcome of these matters will not be different than that
which is reflected in our historical income tax provisions and accruals. Such
differences could have a material effect on our income tax provision and profit
in the period in which such determination is made. Deferred tax assets and
liabilities are determined using enacted or substantially enacted tax rates for
the effects of net operating losses and temporary differences between the book
and tax bases of assets and liabilities.
While we have considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing whether deferred tax assets can be
recognised, there is no assurance that these deferred tax assets may not be
realisable. The extent to which deferred tax assets which are recognised are not
realisable could have a material adverse impact on our income tax provision and
net income in the period in which such determination is made. In addition, we
operate within multiple taxing jurisdictions and are subject to audits in these
jurisdictions. These audits can involve complex issues that may require an
extended period of time for resolution. In management's opinion, adequate
provisions for income taxes have been made.
20
Warranty Provision
We make judgements as to extent to which we have to replace products which are
returned by customers due to quality issues. In determining the level of
provision required for such returns we consider our historical experience of
customers returning products. If our historical experience does / does not
reflect future levels of returned products then the level of provision is
increased / released as appropriate.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the EU. IFRS
as adopted by the EU differ in certain respects from IFRS as issued by the
International Accounting Standards Board ("IASB"). However, the consolidated
financial statements for the periods presented would be no different had we
applied IFRS as issued by the IASB as all standards issued by the IASB with
effective dates up to December 31, 2005 have been adopted by the EU. During
2005, the IASB and the International Financial Reporting Interpretations
Committee ("IFRIC") issued additional standards, interpretations and amendments
to existing standards which are effective for periods starting after the date of
these financial statements and which have not yet been adopted by the EU. The
following discussion considers the main provisions of relevant standards,
interpretations and revisions to existing standards and their possible impact on
the financial statements of the Group on initial adoption.
FINANCIAL INSTRUMENTS: DISCLOSURES
In 2005 the International Accounting Standards Board ("the IASB") issued
International Financial Reporting Standard 7 ("IFRS 7") Financial Instruments:
Disclosures, which was adopted by the EU. The IFRS requires disclosure of:
(a) the significance of financial instruments for an entity's financial position
and performance. These disclosures incorporate many of the requirements
previously in IAS 32 Financial Instruments: Presentation and disclosure.
(b) qualitative and quantitative information about exposure to risks arising
from financial instruments, including specified minimum disclosures about credit
risk, liquidity risk and market risk. The qualitative disclosures describe
management's objectives, policies and processes for managing those risks. The
quantitative disclosures provide information about the extent to which the
entity is exposed to risk, based on information provided internally to the
entity's key management personnel. Together, these disclosures provide an
overview of the entity's use of financial instruments and the exposures to risks
they create.
The IFRS supersedes IAS 30 and the disclosure requirements of IAS 32. The
presentation requirements of IAS 32 remain unchanged. The IFRS is effective for
annual periods beginning on or after January 1, 2007. Earlier application is
encouraged. The Company will adopt IFRS 7 for its annual period beginning on
January 1, 2007.
AMENDMENTS TO EXISTING STANDARDS
In 2005 the IASB also issued amendments to IFRS 4 Insurance Contracts and IAS 39
Financial Instruments: Recognition and Measurement. The IASB extended the scope
of IAS 39 to include financial guarantee contracts issued. However, if an issuer
of financial guarantee contracts has previously asserted explicitly that it
regards such contracts as insurance contracts and has used accounting applicable
to insurance contracts, the issuer may elect to apply either IAS 39 or IFRS 4 to
such financial guarantee contracts. The issuer may make that irrevocable
election contract by contract. In 2005 the IASB issued further amendments to IAS
39. On April 14, 2005 the IASB issued an amendment to IAS 39 to permit the
foreign currency risk of a highly probable intragroup forecast transaction to
qualify as the hedged item in a cash flow hedge in consolidated financial
statements - provided that the transaction is denominated in a currency other
than the functional currency of the entity entering into that transaction and
the foreign currency risk will affect consolidated financial statements. The
amendment also specifies that if the hedge of a forecast intragroup transaction
qualifies for hedge accounting, any gain or loss that is recognised directly in
equity in accordance with the hedge accounting rules in IAS 39 must be
reclassified into profit or loss in the same period or periods during which the
foreign currency risk of the hedged transaction affects consolidated profit or
loss. The amendment is effective January 1, 2006. On June 15, 2005 the IASB
issued its final amendment to IAS 39 to restrict the use of the option to
designate any financial asset or any financial liability to be measured at fair
value through profit and loss (the 'fair value option'). The new revisions limit
the use of the option to those financial instruments that meet the following
conditions:
(a) the fair value option designation eliminates or significantly
reduces an accounting mismatch,
(b) a group of financial assets, financial liabilities, or both are
managed and their performance is evaluated on a fair value basis in
accordance with a documented risk management or investment strategy,
and
(c) an instrument contains an embedded derivative that meets particular
conditions.
The fair value option amendment also provides that if a contract contains an
embedded derivative, an entity may generally elect to apply the fair value
option to the entire hybrid (combined) contract, thereby eliminating the need to
separate out the embedded derivative. Conditions (a), (b), and (c) above are not
relevant to this election. The amendment is effective January 1, 2006. In August
2005, as part of its project to develop IFRS 7, the IASB amended IAS 1
Presentation of Financial Statements to require additional capital disclosures.
Effective January 1, 2007 the Company will have to make the following additional
disclosures:
21
(a) the Company's objectives, policies and processes for managing
capital;
(b) quantitative data about what the Company regards as capital;
(c) whether the Company has complied with any capital requirements; and
(d) if it has not complied, the consequences of such non-compliance.
The Company does not anticipate that, excepting the incremental disclosures
discussed in the foregoing paragraph, the adoption of these amendments will have
a material impact on the Company's financial statements.
DETERMINING WHETHER AN ARRANGEMENT CONTAINS A LEASE
In 2005, the IFRIC issued IFRIC Interpretation 4 Determining Whether An
Arrangement Contains a Lease. This interpretation specifies the accounting
treatment for arrangements that do not take the legal form of a lease but which
convey rights to use assets in return for a payment or series of payments. IFRIC
7 specifies that an arrangement that meets the following criteria is, or
contains, a lease that should be accounted for in accordance with IAS 17 Leases:
(a) Fulfilment of the arrangement depends upon a specific asset. The
asset need not be explicitly identified by the contractual
provisions of the arrangement. Rather it may be implicitly specified
because it is not economically feasible or practical for the
supplier to fulfil the arrangement by providing use of alternative
assets.
(b) The arrangement conveys a right to control the use of the underlying
asset. This is the case if any of the following conditions is met:
(i) the purchaser in the arrangement has the ability or right
to operate the asset or direct others to operate the asset
(while obtaining more than an insignificant amount of the
output of the asset).
(ii) the purchaser has the ability or right to control
physical access to the asset (while obtaining more than an
insignificant amount of the output of the asset).
(iii) there is only a remote possibility that parties other
than the purchaser will take more than an insignificant amount
of the output of the asset and the price that the purchaser
will pay is neither fixed per unit of output nor equal to the
current market price at the time of delivery.
IFRIC 4 is effective for annual periods beginning on or after January 1, 2006.
The Company does not anticipate that the adoption of this interpretation will
have a material impact on its financial statements.
SCOPE OF IFRS 2 SHARE-BASED PAYMENT
In January 2006 the IFRIC published IFRIC Interpretation 8 Scope of IFRS 2. IFRS
2 applies to transactions in which an entity or an entity's shareholders have
granted equity instruments or incurred a liability to transfer cash or other
assets for amounts that are based on the price (or value) of the entity's shares
or other equity instruments of the entity. The issue addressed in this
Interpretation is whether IFRS 2 Share-based Payment applies to transactions in
which the entity cannot identify specifically some or all of the goods or
services received This Interpretation applies to such transactions when the
identifiable consideration received (or to be received) by the entity, including
cash and the fair value of identifiable non-cash consideration (if any), appears
to be less than the fair value of the equity instruments granted or liability
incurred. The entity shall measure the identifiable goods or services received
in accordance with IFRS 2. The entity shall measure the unidentifiable goods or
services received (or to be received) as the difference between the fair value
of the share-based payment and the fair value of any identifiable goods or
services received (or to be received). The entity shall measure the
unidentifiable goods or services received at the grant date. However, for
cash-settled transactions, the liability shall be remeasured at each reporting
date until it is settled. This Interpretation does not apply to transactions
excluded from the scope of IFRS 2 in accordance with the scope restrictions of
that IFRS.
The Company will apply this Interpretation for annual periods beginning after
May 1, 2006. The Company will apply this Interpretation retrospectively in
accordance with the requirements of IAS 8, subject to the transitional
provisions of IFRS 2. The Company does not anticipate that the adoption of the
standard will materially impact its financial statements.
REASSESSMENT OF EMBEDDED DERIVATIVES
In March 2006 the IFRIC published IFRIC Interpretation 9 Reassessment of
Embedded Derivatives. IFRIC 9 asserts that an entity must assess whether an
embedded derivative is required to be separated from the host contract and
accounted for as a derivative when the entity first becomes a party to the
contract. Subsequent reassessment is prohibited unless there is a change in the
terms of the contract that significantly modifies the cash flows that otherwise
would be required under the contract, in which case reassessment is required. A
first-time adopter must assess whether an embedded derivative is required to be
separated on the basis of the conditions that existed at the date it first
became a party to the contract, unless there was a subsequent change in terms of
the contract that significantly modified the cash flows.
The Company will apply this Interpretation for its annual periods beginning
after June 1, 2006. The Company does not anticipate that the adoption of the
standard will materially impact its financial statements.
RECENTLY ISSUED US GAAP ACCOUNTING PRONOUNCEMENTS
The Company has considered the impact of recently issued accounting
pronouncements under US GAAP. The Company's consideration is outlined in Item 18
Financial Statements, Note 35.
22
RESULTS OF OPERATIONS
As stated in Note 1(a), these are the Group's first consolidated financial
statements prepared in accordance with IFRS as adopted by the EU. The Group's
date of transition to IFRS as adopted by the EU was January 1, 2004. The
following compares our results in the year ended December 31, 2005 to those of
the year ended December 31, 2004 under IFRS as adopted by the EU. No further
comparative information is required under the rules of transition to IFRS as
adopted by the EU. See Item 18, Financial Statements, Note 35 for the
reconciliation between IFRS as adopted by the EU and accounting principles
generally accepted in the United States.
Our analysis is divided as follows:
1. Overview
2. Revenues
3. Operating Expenses
4. Retained Profit
1. OVERVIEW
In US Dollars, consolidated revenues increased by 23% through a combination of
increased sales of existing products (11%) and sales from acquisitions (12%).
Geographically, 51% of sales were generated in the USA, 26% in Europe and 23% in
the rest of the world.
The gross margin for the year ended December 31, 2005 was 48% compared to 50%
for the year ended December 31, 2004. The decrease in gross margin is primarily
explained by a high level of sales of infectious diseases and haemostasis
instrumentation. Sales of instrumentation traditionally have lower margins than
the accompanying reagents and consumables.
Operating profit increased by 7%, primarily due to the impact of increased
sales. However, the impact of sales, which grew by 23%, was partially offset by
lower gross margins, increased Selling, General & Administrative (SG&A) costs,
the impact of share based payments and increased amortisation charges. The
combination of the above factors caused the operating margin to fall from 8% in
2004 to 7% in 2005.
Following the introduction of IFRS as adopted by the EU, the Company recorded a
charge to the income statement of US$1,368,000 in 2005 for share-based payments.
This compared to US$758,000 in 2004.
Retained profit for the period decreased by 8% (compared to an increase of 7%
for operating profit). The decrease in retained profit compared to the increase
in operating profit is due to the impact of increased financing costs primarily
attributable to a higher effective rate of interest being applied to convertible
debt and a higher effective rate of taxation compared to 2004.
2. REVENUES
The Company's revenues consist of the sale of diagnostic kits and related
instrumentation and the sale of raw materials to the life sciences industry.
Revenues on the sale of the above products is generally recognised on the basis
of shipment to customers. The Company ships its products on a variety of freight
terms, including ex-works, CIF (carriage including freight) and FOB (free on
board), depending on the specific terms agreed with customers. In cases where
the Company ships on terms other than ex-works, the Company does not recognise
the revenue until its obligations have been fulfilled in accordance with the
shipping terms.
No right of return exists in relation to product sales except in instances where
demonstrable product defects occur. The Company has defined procedures for
dealing with customer complaints associated with such product defects as they
arise.
Very occasionally, sales transactions are made on extended credit terms. In
these instances, in accordance with IFRS as adopted by the EU and US GAAP, this
revenue is recognised when the amounts fall due rather than at the date of
shipment.
The Company also derives a portion of its revenues from leasing infectious
diseases and haemostasis diagnostic instruments to customers. In cases where the
risks and rewards of ownership of the instrument passes to the customer, the
fair value of the instrument is recognised at the time of sale matched by the
related cost of sale. In the case of operating leases of instruments which
typically involve commitments by the customer to pay a fee per test run on the
instruments, revenue is recognised on the basis of customer usage of the
instruments. In certain markets, the Company also earns revenue from servicing
infectious diseases and haemostasis instrumentation located at customer
premises.
23
Revenues by Product Line
The following table sets forth selected sales data for each of the periods
indicated.
YEAR ENDED DECEMBER 31,
2005 2004
US$ '000 US$ '000 % CHANGE
REVENUES
Infectious diseases 44,078 36,402 21
Haemostasis 29,766 26,836 11
Clinical Chemistry 11,880 6,963 71
Point of Care 12,836 9,807 31
TOTAL 98,560 80,008 23
Trinity Biotech's consolidated revenues for the year ended December 31, 2005
were US$98,560,000 compared to consolidated revenues of US$80,008,000 for the
year ended December 31, 2004.
Infectious Diseases
Sales of infectious diseases products have increased by US$7,676,000. Of this
US$8,983,000 is due to increased sales arising from the full year impact of the
acquisition of Fitzgerald made in April 2004 together with the acquisition of
RDI during 2005. This increase was partially offset by a reduction in sales of
US$1,559,000 to Wampole. For further information relating to this matter please
refer to Item 8 "Legal Proceedings". The remaining increase of US$252,000 is
attributable to the net increase in non-Wampole sales over a wide range of
products.
Haemostasis Revenues
The increase in haemostasis revenues of US$2,930,000 is attributable to
increased sales of the Company's Biopool/Amax range of products. In particular
the increase was attributable to an increase in the sales of the Company's Amax
range of haemostasis instruments (US$2,017,000). The remaining increase of
US$913,000 is due to an increase in non-instrumentation products, namely
regents, consumables and service revenues.
Clinical Chemistry Revenues
The increase in clinical chemistry revenues of US$4,917,000 is primarily
attributable to the acquisition of Primus in July 2005. Primus specialises in
the field of in vitro diagnostic testing for haemoglobin A1c and haemoglobin
variants.
Point of Care
Sales of Point of Care have increased by US$3,029,000 which is primarily
attributable to increased sales of rapid HIV products to Africa and sales of
Trinity's Unigold rapid HIV test in the USA.
Revenues by Geographical Region
The following table sets forth selected sales data, analysed by geographic
region, based on location of customer:
YEAR ENDED DECEMBER 31,
2005 2004
US$ '000 US$ '000 % CHANGE
REVENUES
USA 50,627 41,380 22
Europe 25,301 22,718 11
Asia/Africa 22,632 15,910 42
TOTAL 98,560 80,008 23
The US$9,247,000 increase in the US is primarily attributable to the following
factors:
- The full year impact of Fitzgerald which was acquired in 2004, plus
a further increase due to the acquisition of RDI (now part of
Fitzgerald) in 2005 resulting in an overall increase in Fitzgerald
sales in the USA of US$4,664,000;
- The inclusion of sales of US$2,900,000 of Primus products in the US
from the date of acquisition on July 19, 2005;
- An increase of US$1,080,000.in sales of Adaltis products partially
attributable to 2005 being the first full year since its acquisition
in April 2004;
24
- Sales of existing product ranges in the USA (excluding sales to
Wampole) have increased by US$2,162,000. This is partially offset by
the US$1,559,000 reduction in sales to Wampole as discussed above.
The US$2,583,000 increase in Europe is due the full year impact of the
acquisition of Fitzgerald and the impact of the RDI acquisition in 2005
(US$824,000), sales of Primus products of US$1,386,000 with the remaining
increase of US$373,000 arising principally in relation to direct sales in the
United Kingdom.
The US$6,722,000 increase in Asia/Africa is primarily due to increased revenues
in Fitzgerald of US$3,495,000 due to the full year impact of the business
acquired during 2004, the impact of RDI and particularly strong sales of flu
product in the Japanese market, sales of Primus products of US$1,594,000 with
the remaining increase of US$1,633,000 being primarily attributable to
increased sales of HIV products to Africa.
For further information about the Company's principal products, principal
markets and competition please refer to Item 4, "Information on the Company".
3. OPERATING EXPENSES
The following table sets forth the company's operating expenses.
YEAR ENDED DECEMBER 31,
2005 2004
US$ '000 US$ '000 % CHANGE
Revenues 98,560 80,008 23
Cost of sales (including (51,378) (40,047) 28
share-based payments)
Other operating income 161 302 -47
Research & development (6,070) (4,744) 28
SG&A expenses (34,651) (29,332) 18
Operating profit 6,622 6,187 7
Cost of sales
Trinity Biotech's consolidated cost of sales increased 28% or by US$11,331,000
from US$40,047,000 for the year ended December 31, 2004 to US$51,378,000 for the
year ended December 31, 2005. The increase in cost of sales is attributable to
the incremental cost of sales associated with the 2005 acquisitions of RDI and
Primus US$4,873,000 with the balance of US$6,458,000 attributable to the
increased cost of sales associated with higher sales levels of the Company's
existing product ranges. See Revenues section above for details on movements in
revenues during 2005.
Research and development
Research and development ("R&D") expenditure increased to US$6,070,000 in 2005.
This represents 6.2% of consolidated revenues compared to expenditure of
US$4,744,000 or 5.9% of consolidated revenues in 2004. For a consideration of
the Company's various R&D projects see "Research and Products under Development"
in Item 5.
Selling, General & Administrative expenses
The following table outlines the breakdown of SG&A expenses in 2005 compared to
a similar breakdown for 2004.
YEAR ENDED DECEMBER 31,
2005 2004 INCREASE % CHANGE
US$'000 US$'000 US$'000
SG&A (excl. share-based 31,800 27,640 4,160 15
payments and amortisation)
Share-based payments 1,048 581 467 80
Amortisation 1,803 1,111 692 62
TOTAL 34,651 29,332 5,319 18
Selling General & Administrative Expenditure (SG&A) (excluding share-based
payments and amortisation) SG&A (excluding share-based payments and
amortisation) increased 15% or by US$4,160,000 from US$27,640,000 to
US$31,800,000, which compares to revenue growth of 23% during the same period.
The lower growth in SG&A expenditure compared with revenue growth is
attributable to economies of scale, particularly in relation to the Company's
selling activities and central administration costs. The increase in SG&A costs
in 2005 are primarily due to the impact of the acquisitions of Primus and RDI in
2005 and the full year impact of Fitzgerald and Adaltis both of which were
acquired in 2004.
25
A detailed analysis of this increase in SG&A expenses of US$4,160,000 in 2005 is
as follows:
o Increased SG&A expenditure in relation to Fitzgerald (US$1,391,000).
2005 represented the first full year for Fitzgerald compared to 2004
when the results were included from April 2004 (the date of
acquisition). The increase in costs was also attributable to the
acquisition of RDI, whose activities were absorbed into the
Fitzgerald organisation from March 2005.
o Increased SG&A costs of US$1,164,000 in the USA. This was mainly
attributable to costs in relation to Primus whose results have been
incorporated from the date of acquisition on July 19, 2005. The
impact of Primus has partially been offset by cost savings in the
existing US distribution and manufacturing entities.
o Increased SG&A costs in the Head Office/European operations
(excluding Fitzgerald and the UK) of US$896,000. This is mainly due
to a combination of
(i) increased marketing costs in conjunction with the growth
in the business;
(ii) increased costs associated with the first time
implementation of International Financial Reporting Standards,
as adopted by the EU;
(iii) increased stock exchange costs associated with Trinity's
listing on the Nasdaq National Market;
(iv) increased costs associated with the Company's preparation
for compliance with Section 404 of the Sarbanes-Oxley Act
2002; as partially offset by
(v) lower costs associated with implementing the CE marking
process as required under the In Vitro Diagnostic Directive
when compared with 2004.
o An increase of US$263,000 in the UK. The UK direct sales operation
which was established in 2002 was expanded during 2004. 2005
represents the first full year impact of increasing the sales force
in late 2004.
o A reduction in foreign exchange gains in 2005 compared to 2004
(US$446,000).
Amortisation
The increase in amortisation of US$692,000 from US$1,111,000 to US$1,803,000 is
largely attributable to the amortisation of intangible assets acquired as part
of the Company's acquisitions in 2004 and 2005. The impact of the full year of
the acquisition of Fitzgerald and Adaltis, both of whom were acquired in 2004
was US$154,000 whilst a further US$255,000 was amortised in relation to
intangibles assets valued on the acquisition of Primus and RDI in 2005.
The remaining increase of US$283,000 is mainly attributable to amortisation of
development costs which were capitalised and are now being amortised over the
expected life of the products to which they related.
Share-based payments
Following the introduction of IFRS as adopted by the EU, the Company recorded a
total charge to the income statement in 2005 of US$1,368,000 (2004: US$758,000)
for share-based payments. Of the 2005 charge US$110,000 (2004: US$ 81,000) was
charged against cost of sales. Of the remaining US$1,258,000, US$210,000 (2004:
US$96,000) was charged against research and development and US$1,048,000 (2004:
US$581,000) was charged against selling and general administration expenses.
The expense represents the value of share options granted to directors and
employees which is charged to the income statement over the vesting period of
the underlying options. The Company has used a trinomial valuation model for the
purposes of valuing these share options with the key inputs to the model being
the expected volatility over the life of the options, the expected life of the
option and the risk free rate. The increase in the expense for 2005 compared to
2004 is due to the full year impact of the 3,162,824 options issued during 2004
plus the impact of a further 1,670,000 options issued during the course of 2005.
For further details refer to Note 19 of the Notes to the Consolidated Financial
Statements.
4. RETAINED PROFIT
The following table sets forth selected income statement data for each of the
periods indicated.
YEAR ENDED DECEMBER 31,
2005 2004
US$'000 US$'000 % CHANGE
Operating Profit 6,622 6,187 7
NET FINANCING COSTS (669) (522) 28
Profit before tax 5,953 5,665
INCOME TAX (EXPENSE)/CREDIT (673) 49
Retained profit 5,280 5,714
26
Net Financing Costs
Net financing costs increased to US$669,000 compared to US$522,000 in 2004. This
increase is primarily due to the impact of IAS 32 Financial Instruments:
Disclosure and Presentation on the interest charge attributable to convertible
debentures, which was implemented for the first time in 2005. Under IAS 32,
interest on convertible debentures is charged based on an effective interest
rate. This effective interest rate includes the nominal interest rate of 3%, a
cost ascribed to the equity element of the instrument and the transaction costs
incurred at the time the debt was raised. This compares to the charge for 2004
which was based entirely on the nominal interest rate of 3%, as the provisions
of IAS 32 did not apply in 2004. The impact of the above increase was partially
offset by the lower average level of convertible debt outstanding during 2005
compared with 2004 due to scheduled repayments of the debt. Please refer to
"Liquidity and Capital Resources" later in this section for information on
Trinity Biotech's use of debt.
Taxation
A tax charge of US$673,000 was incurred in the year ended December 31, 2005.
This compares to a tax credit of US$49,000 for 2004. This represented a decrease
in current tax in absolute terms of US$439,000 which is more than offset by an
increase in deferred tax of US$1,161,000. The decrease in current tax is
attributable to an upfront deduction for certain development expenditure and
licence fees, primarily in Ireland, for items that have not as yet been expensed
in the Company's income statement, and to current year losses in the US, Germany
and Sweden. The upfront deductions had the impact of decreasing the current tax
charge, primarily in Ireland, and of increasing the Company's deferred tax
liability. This increase in the net deferred tax position was partially offset
by the increase in the deferred tax asset caused by the current year losses in
the US and Germany. The Company was able to offset the current year loss in
Sweden against its deferred corporation tax liabilities from previous years. For
further details on the Group's tax charge please refer to Note 8 "Income Tax
Expense/(Credit)" and Note 12 "Deferred Tax Assets and Liabilities" of the Notes
to the Consolidated Financial Statements contained in Item 18 "Financial
Statements".
Profit for the year
Profit for the period decreased by US$434,000, from US$5,714,000 to
US$5,280,000. As a percentage of consolidated revenues this represents a
decrease to 5.3% from 7.1%. This decrease is principally due to the combination
of higher SG&A costs (including the impact of share-based payments under IFRS as
adopted by the EU), financing costs (mainly due to a change in the basis in
calculating interest on convertible debt under IFRS as adopted by the EU) and an
increased tax charge more than offsetting the increased gross margins earned
from higher sales levels.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING
In December 1999, the Company completed a private placement of (i) US$3,500,000
principal amount of 7.5% Convertible Debentures and (ii) 483,701 warrants to
purchase 'A' Ordinary shares of the Company (the "First Warrants"), which
resulted in aggregate gross proceeds to the Company of US$3,500,000. In relation
to the First Warrants, 333,701 were each exercisable to purchase one 'A'
Ordinary Share of the Company at US$1.74 per share and the remaining 150,000
were each exercisable to purchase one 'A' Ordinary Share of the Company at
US$1.80 per share. 100,000 of these warrants were exercised to purchase 'A'
Ordinary Shares in the Company in 2000. The balance of these 150,000 warrants
expired unexercised on June 25, 2002. During 2003, 133,701 of the remaining
First Warrants were exercised and the final 200,000 were exercised in 2004. The
Second Warrants are each exercisable to purchase one 'A' Ordinary Share of the
Company at US$1.50 and will expire in November 2007. None of the Second Warrants
have been exercised.
In June 2003, Trinity Biotech completed a new US$10,000,000 club banking
facility with Allied Irish Bank plc and Bank of Scotland (Ireland) Limited. The
facility consisted of a five year term loan of US$6,000,000 and a one year
revolver of US$4,000,000. The original term loan was repayable in ten equal
biannual instalments which commenced on January 2, 2004. At September 1, 2005,
the balance on the term loan was US$3,600,000 and US$2,000,000 was drawn down on
the revolver facility. In September 2005, Trinity amended this loan facility by
increasing the balance on the term loan from US$3,600,000 to US$12,600,000 and
renewing the revolver loan of US$2,000,000 for a further year. Under the terms
of the amended facility, repayments on the term loan will be paid evenly over 10
instalments, commencing January 2, 2006 and six monthly thereafter. The revolver
loan facility was decreased from US$4,000,000 to US$2,000,000, which is fully
drawn down at present. This facility is secured on the assets of the Group (see
note 27 (c)).Various covenants apply to the Group's bank borrowings, the banks
may deem the Company to be in default if such covenants are breached. At
December 31, 2005, the total amount outstanding amounted to US$14,413,000. The
debt is stated net of unamortised funding costs of US$187,000.
In July 2003, the Company completed a private placement of US$20,000,000
principal amount of 3% convertible debentures. The debentures bear interest at a
rate of 3% per annum, convertible into Class 'A' Ordinary Shares of the Company
at a price of US$3.55 at the option of the holder.
27
In December 2003, US$6,355,000 of the US$20,000,000 principal amount of the
debentures and US$44,000 of the related accrued interest was converted into
1,802,676 Class 'A' Ordinary Shares of the Company. In January 2004, a further
US$427,000 of the principal amount of the debenture was converted into 120,423
Class 'A' Ordinary Shares of the Company. As part of the July 2003 placement,
convertible notes in the aggregate principal amount of up to US$5,000,000 could
be issued at the option of the investors by the later of January 9, 2004 and the
three month anniversary of the effective date of the related registration
statement. In March 2004, the investors exercised this option in full and the
Company completed a further placement of US$5,000,000 principal amount of 3%
convertible debentures. The debentures bear interest at a rate of 3% per annum
and are convertible into Class 'A' Ordinary Shares of the Company at a price of
US$4 at the option of the holder. All of the above debentures are unsecured and
are repayable in ten equal instalments on a quarterly basis. Under the terms of
the agreement, the Company has the option to satisfy each repayment either in
cash or in shares. If the repayment is to be satisfied in shares, the number of
shares will be based on, at the holders' option, either the conversion price or
97% of the volume weighted average price per ADS for the twenty trading days for
the period immediately preceding the repayment date. In October 2004, the first
principal repayment of US$1,822,000 was made to the debenture holders in cash.
Four principal repayments of US$1,822,000 each were made in 2005. Three of these
repayments were paid by shares and one repayment by cash. At December 31, 2005,
the balance outstanding on the principal amount was $9,039,000. This amount is
shown inclusive of accrued interest at year end of $70,000.
In January 2004, the Company has completed a private placement of 5,294,118 of
Class 'A' Ordinary Shares of the Company at a price of US$4.25 per share. The
investors were granted five year warrants to purchase an aggregate of 1,058,824
Class 'A' Ordinary Shares of the Company at an exercise price of US$5.25 per
share. Under the terms of the placement, investors were also granted the right
to purchase an additional 2,647,059 Class 'A' Ordinary Shares of the Company at
a price of US$4.25 per share for a period of up to 30 days after the closing of
the transaction. An additional 431,617 Class 'A' Ordinary Shares of the Company
were issued within the 30 day period following the closing of the transaction to
investors who exercised this option.
In December 2001, the Company acquired the assets of the Biopool haemostasis
business for a total consideration of US$6,409,000, after costs, satisfied in
cash and deferred consideration. The deferred consideration of US$2,591,000 was
payable in three instalments of US$855,000, US$1,166,000 and US$570,000 on
December 21, 2002, 2003 and 2004 respectively. The deferred consideration was
not conditional on any future event and has been fully settled.
On April 3, 2002, the Company increased its shareholding in Hibergen Limited, an
associate company, from 40% to 42.9% by the acquisition of 165,000 Ordinary
Shares in HiberGen Limited. The consideration of US$202,000 was satisfied by the
issue of 156,189 'A' Ordinary Shares in Trinity Biotech plc.
On August 27, 2002, Trinity Biotech purchased the haemostasis division of Sigma
Diagnostics for a total consideration of US$1,428,000. The consideration was
satisfied in cash. On November 27, 2002, the Company also acquired the
speciality clinical chemistry product line from Sigma Diagnostics for a total
consideration of US$4,412,000 satisfied in cash and deferred consideration. The
cash consideration was partly financed by the issue of US$2.5 million of
convertible debentures. The deferred consideration of US$1,810,000 was paid
during 2003.
In November 2002, the Company completed a private placement of (i) US$2,500,000
principal amount of 5.25% convertible debentures and (ii) 50,000 warrants (the
"Second Warrants") to purchase 'A' Ordinary Shares of the Company. The
debentures bore interest at a rate of 5.25% per annum and were convertible into
Class 'A' Ordinary Shares of the Company at a price of US$1.50. During 2003, the
debenture was fully converted into 1,666,667 Class 'A' Ordinary Shares of the
Company.
During 2003, US$1,000,000 principal amount of 6% convertible debentures was
converted into 666,667 Class 'A' Ordinary Shares of the Company.
WORKING CAPITAL
In the Company's opinion the working capital of the Company is sufficient to
meet its present requirements
CASH MANAGEMENT
As at December 31, 2005, Trinity Biotech's consolidated cash and cash
equivalents, excluding restricted cash were US$9,881,000. This compares to cash
and cash equivalents, excluding restricted cash of US$15,139,000 at December 31,
2004. The decrease in cash and cash equivalents at December 31, 2005 is
primarily due to cash payments made during the year for the purchase of
businesses and plant, property and equipment, the repayment of bank borrowings
and the repayment of convertible notes. There was also significant cash inflows
in 2004 resulting from the issue of convertibles debenture and the issue of
share capital arising on the private placing in January,2004. This resulted in a
decrease in cash and cash equivalents of US$5,510,000 during 2005.
The Group also has US$9,000,000(2004: US$7,148,000) which it agrees to keep on
deposit with its lending banks and must seek prior approval from these financial
institutions before such funds are spent on acquisitions. Resulting from the
restrictions on this cash, the US$9,000,000 is shown as a financial asset at
December 31, 2005.
28
The majority of the Group's activities are conducted in US Dollars. The primary
foreign exchange risk arises from the fluctuating value of the Group's euro
denominated expenses as a result of the movement in the exchange rate between
the US Dollar and the euro. Arising from this, the Group pursues a treasury
policy which aims to sell US Dollars forward to match a portion of its uncovered
euro expenses at exchange rates lower than budgeted exchange rates. These
forward contracts are cashflow hedging instruments whose objective is to cover a
portion of these euro forecasted transactions. The Company expects that its
forward contracts as at December 31, 2005 will have a positive impact on the
cashflows of the business. At December 31, 2005 forward contracts with a
carrying value of (US$44,000) (2004: US$NIL) had a fair value of (US$44,000)
(2004: US$418,000).
As at December 31, 2005, year end borrowings were US$27,128,000 and cash and
cash equivalents was US$9,881,000 (US$18,881,000 inclusive of restricted cash).
For a more comprehensive discussion of the Company's level of borrowings at the
end of 2005, the maturity profile of the borrowings, the Company's use of
financial instruments, its currency and interest rate structure and its funding
and treasury policies please refer to Item 11 "Qualitative and Quantitative
Disclosures about Market Risk".
CONTRACTUAL OBLIGATIONS
The following table summarises our minimum contractual obligations and
commercial commitments, as of December 31, 2005:
CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD
----------------------------------- -----------------------------------------------------------------------------
less than 1 more than
Total year 1-3 Years 3-5 Years 5 years
US$'000 US$'000 US$'000 US$'000 US$'000
------------------- ---------------- --------------- ------------ ------------
Bank loans 17,300 6,734 5,298 5,268 -
Promissory note 3,071 3,071 - - -
Capital (finance) lease obligations 668 267 401 - -
Operating lease obligations 25,467 2,277 3,934 3,258 15,998
Convertible notes 9,175 7,325 1,850 - -
------------------- ---------------- --------------- ------------ ------------
Total 55,681 19,674 11,483 8,526 15,998
------------------- ---------------- --------------- ------------ ------------
Trinity Biotech incurs debt to pursue its policy of growth through acquisition.
Trinity Biotech believes that, with further funds generated from operations, it
will have sufficient funds to meet its capital commitments and continue existing
operations for the foreseeable future. If operating margins on sales were to
decline substantially, if the Company's increased investment in its US direct
sales force was not to generate comparable margins in sales or if the Company
was to make a large and unanticipated cash outlay, the Company would have
further funding requirements. If this were the case, there can be no assurance
that financing will be available at attractive terms, or at all. The Company
believes that success in raising additional capital or obtaining profitability
will be dependent on the viability of its products and their success in the
market place.
IMPACT OF INFLATION
Although Trinity Biotech's operations are influenced by general economic trends,
Trinity Biotech 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 2006.
IMPACT OF CURRENCY FLUCTUATION
Trinity Biotech's revenue and expenses are affected by fluctuations in currency
exchange rates especially the exchange rate between the US Dollar and the euro.
Trinity Biotech's revenues are primarily denominated in US Dollars, its expenses
are incurred principally in US Dollars and euro. The weakening of the US Dollar
in recent years 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 Biotech holds most of its cash assets in US Dollars. As Trinity Biotech
reports in US Dollars, fluctuations in exchange rates do not result in exchange
differences on these cash assets. Fluctuations in the exchange rate between the
euro and the US Dollar may impact on the Company's euro monetary assets and
liabilities and on euro expenses and consequently the Company's earnings.
OFF-BALANCE SHEET ARRANGEMENTS
After consideration of the following items the Company's management have
determined that there are no off balance sheet arrangements which need to be
reflected in the financial statements.
Leases with related parties
The Company has entered into lease arrangements for premises in Ireland with JRJ
Investments ("JRJ"), a partnership owned by Mr O'Caoimh and Dr Walsh, directors
of the Company. Independent valuers have advised the Company that the rent fixed
with respect to these leases represents a fair market rent.
29
Research & Development ("R&D") carried out by third parties
Certain of the Group's R&D activities have been outsourced to third parties.
These activities are carried out in the normal course of business of these
companies and the contractual arrangements have been entered into on an arms
length basis.
Joint venture entity
The Company hold a 50% shareholding in a joint venture entity, Primus
International LLC, the assets, liabilities, income and expenses of which have
been proportionately consolidated in to the financial statements of the Group.
Associate Company
The Company holds a 32% shareholding in an associate company, Chronomed Inc. As
at December 31 2005 Chronomed Inc is in a net liability position. Under the
shareholder arrangements the Company is not required to meet or guarantee the
debts of Chronomed Inc.
RESEARCH AND PRODUCTS UNDER DEVELOPMENT
HISTORY
Trinity Biotech has invested considerable funds in research and development over
the past number of years. It has developed a platform technology for its rapid
UniGold tests and, arising from this, the Company has focused on developing
rapid tests for certain infectious diseases utilising this platform. The Company
continues to expand and improve its product offerings in other areas including
EIAs, immunofluorescent assays and Western Blots.
DEVELOPMENT GROUPS
The Company has research and development groups focusing separately on
microtitre based tests, rapid tests, western blot products, clinical chemistry
products, coagulation and immunofluorescent assays. These groups are located in
Dublin and the US. The Company sub-contracts some research and development to
independent researchers based in the US and Europe and from time to time
sponsors various projects in universities. The following is a list of the
development projects which have been commenced during the last three years and
which are still ongoing:
Microtitre Plate Development Group
Development of microtitre plate assay for the detection of EU Lyme IgG and IgM
Prompted by the Company's successful Lyme Western Blots and the Company's
successful domestic (US) Lyme IgG and IgM EIAs, development was recently
completed of two new elisas to specifically detect EU Lyme IgG and IgM. It is
anticipated that the kits will be CE marked and the products launched on the
market in quarter 2 2006.
One Plate IgMs
The Company has a repertoire of IgM EIA products against various infectious
agents. These were originally in a two plate format but a program was initiated
to convert these to a one plate format. Work on converting Rubella IgM, Toxo
IgM, VZV IgM, Measles IgM and Mumps IgM was completed in 2003. The conversion of
HSV 1 IgM, HSV 2 IgM and CMV IgM assays to a one plate format commenced in 2004
and is expected to be completed in 2005. These kits were recently launched
outside the United States and the US launch is expected in 2006.
Rapid Development Group
Development of UniGold LUA Rapid test
The Trinity Biotech Uni-GoldTM Legionella Urinary Antigen (LUA) Test is a rapid
test intended as an adjunct to culture and other methods for the presumptive
diagnosis of Legionnaire's Disease by qualitative detection of Legionella
pneumophila serogroup 1 antigen in human urine. The development of this test
commenced in January 2005 and development work was completed by December 2005,
including successful transfer of product from product development to production
scale. The product has also undergone successful external performance evaluation
and it is anticipated to complete CE marking in March 2006 for launch in quarter
2, 2006.
Western Blot Development Group
HIV Western Blot
Trinity Biotech has developed a western blot test for detecting antibodies to
HIV for use as a diagnostic and confirmatory product in blood banks. The
products have been designed and developed at the Trinity Biotech plc facility in
Carlsbad California where the Company has established a long history in Western
Blot products. The development work on the Recombigen(R) HIV-1 Western Blot was
completed during the first half of 2004. An Investigational New Drug (IND)
application was completed and submitted to the CBER division of the FDA on July
20, 2004. Approval for this application was granted by the FDA on September 24,
2004. This application outlined the manufacturing processes for the product and
defined the clinical trials to be performed on the product to support a BLA
application. Further refinement of the design, raw material evaluations and
process continued in 2005. Clinical trials and product validation are planned
for completion in 2006. Once all trials are complete a BLA application will be
made. This product is available for evaluation use outside of the US.
30
EU Lyme + VlsE IgG and IgM Western Blots.
Prompted by the Company's successful EU Lyme Western Blot, development was
completed on an update and enhancement to the blot by addition of the VlsE
antigen. This development was successful and resulted in the CE marking and
launch of the new EU Lyme +VlsE western blots in 2005.
Clinical Chemistry
Primus Corporation initiated a feasibility study on a haemoglobin A1c rapid gel
point of care product in 2004 which included successful preliminary separation
gel synthesis which was combined with a prototype reproducible optical
detector/reader. Full development of this product continued in 2005 with the
generation of a detector which allowed accurate optical detection, barcode
reading capability and operator ease of use characteristics. The development
also included the generation of suitable software and finalization of the gel
synthesis procedure followed by verification and stability assessment. This was
followed in 2005 by external performance evaluation and data generation to
support FDA submission. The performance evaluation is due for completion in
early 2006 followed by submission to the FDA. FDA approval along with CLIA
waiver is expected during 2006.
Haemostasis Development Group
Destiny Max Development Project
The Destiny Max Instrument is intended to meet the requirements of large
laboratories, commercial laboratories, reference laboratories and
anti-coagulation clinics (High Volume Laboratories). The Destiny Max
instrumentation development project is intended to provide the necessary test
types and throughputs required for this market segment. In so doing, Trinity
Biotech will be able to compete effectively in an overall system approach
whereby placement of the Destiny Max Instruments will drive a requirement for
increased sales of the associated Trinity Biotech reagents, controls and
accessories. In 2005, the technical feasibility of the project has been assessed
and a technical plan has been developed and initiated. A comprehensive set of
requirements specifications have been developed in conjunction with target
market representatives. Development is now underway in all aspects of the
product design including User Software, Automation Software, Mechanical
Hardware, Electronic Design and Product Modelling and this will continue into
2006. Development is targeted for completion by end of 2006 with validation
commencing in Q1 2007. Launch of the instrument onto the market is expected mid
2007.
D-Dimer Latex Agglutination Assay
The measurement of D-Dimer levels in patient's blood is a useful tool in the
diagnosis of DVT (deep vein thrombosis) and PE (pulmonary embolism). One of the
main functions of the D-Dimer assay is to aid the clinician in deriving a
diagnosis of exclusion of DVT (a DVT rule out test) thus reducing the
requirement for further expensive imaging testing of patients that are truly DVT
negative. Trinity currently has several leading D-Dimer assays, one of which is
for use on its Amax/Destiny instrument range. The aim of the current R&D project
is to redesign and improve the current D-Dimer kit by increasing the dynamic
range of the associated calibration curve of the assay such that the end user
obtains even better discrimination between positive and negative D-Dimer samples
and hence obtains fewer false positives and negatives. The aim is to also
optimise the assay for use across Trinity's entire instrument range including
the DestinyMax instrument. Initial feasibility of the improved assay commenced
in 2005. Full development of this product will continue on 2006 with an expected
external evaluation in early 2007 to support a subsequent 510K submission.
Immunofluorescent Assay Development Group
Research is also ongoing on redesigning various immunofluorescent assays from
indirect assays to direct assays. This redevelopment will make the products more
user friendly and reduce assay time.
VRK DFA kit
This is a test for the detection of Influenza A and B, RSV (Respiratory
syncytial virus), Para Influenza 1, 2, and 3 and Adenovirus in both patient
specimens and culture samples. It employs a one step method versus the two step
method of the indirect format, allowing the differentiation of various viruses
responsible for respiratory system infections. Such a product will complement
the existing RSV DFA kit. This product was prepared for external clinical
performance evaluation which commenced in January 2006 during the 2005/2006
northern hemisphere flu season. The data will subsequently be submitted for
510(k) approval later in 2006.
For the 12 months ended December 31, 2005, the Company recognised expenditure of
US$6,070,000 on research and development in the income statement. This expense
consists of salary costs, reagents, consultancy fees and other related costs.
This is broadly comparable with the expense recognised in 2004 of US$4,744,000.
For detail on capitalised development expenditure, see item 18, Financial
Statements, Note 11.
31
TREND INFORMATION
For information on trends in future operating expenses and capital resources,
see "Results of Operations", "Liquidity and Capital Resources" and "Impact of
Inflation" under Item 5.
ITEM 6
DIRECTORS AND SENIOR MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Title
Ronan O'Caoimh 50 Chairman of the Board of Directors
Chief Executive Officer
Brendan K. Farrell 58 Director, President
Jim Walsh PhD 47 Director, Chief Operating Officer
Rory Nealon 38 Director, Chief Financial Officer,
Company Secretary
Denis R. Burger, PhD 62 Non Executive Director
Peter Coyne 46 Non Executive Director
BOARD OF DIRECTORS
RONAN O'CAOIMH, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, co-founded Trinity Biotech
in June 1992 and acted as Chief Financial Officer until March 1994 when he
became Chief Executive Officer. He has been Chairman since May 1995. Prior to
joining Trinity Biotech, Mr O'Caoimh was Managing Director of Noctech Limited,
an Irish diagnostics company. Mr O'Caoimh was Finance Director of Noctech
Limited from 1988 until January 1991 when he became Managing Director. Mr
O'Caoimh holds a Bachelor of Commerce degree from University College Dublin and
is a Fellow of the Institute of Chartered Accountants in Ireland.
BRENDAN FARRELL, PRESIDENT, joined Trinity Biotech in July 1994. He was
previously Marketing Director of B.M. Browne Limited, a company involved in the
marketing and distribution of medical and diagnostic products. Prior to that he
was Chief Executive of Noctech Limited, an Irish based diagnostics company,
following six years with Baxter Healthcare where he was Director of European
Business Development. Mr Farrell has a Masters degree in Biochemistry from
University College Cork.
RORY NEALON, CHIEF FINANCIAL OFFICER, joined Trinity Biotech as Chief Financial
Officer and Company Secretary in January 2003. Prior to joining Trinity Biotech,
he was Chief Financial Officer of Conduit plc, an Irish directory services
provider with operations in Ireland, the UK, Austria and Switzerland. Prior to
joining Conduit he was an Associate Director in AIB Capital Markets, a
subsidiary of AIB Group plc, the Irish banking group. Mr Nealon holds a Bachelor
of Commerce degree from University College Dublin, is a Fellow of the Institute
of Chartered Accountants in Ireland, a member of the Institute of Taxation in
Ireland and a member of the Institute of Corporate Treasurers in the UK.
JIM WALSH, PHD, CHIEF OPERATING OFFICER, joined Trinity Biotech in October 1995.
Prior to joining the Company, Dr Walsh was Managing Director of Cambridge
Diagnostics Ireland Limited (CDIL). He was employed with CDIL since 1987. Before
joining CDIL he worked with Fleming GmbH as Research & Development Manager. Dr
Walsh has a degree in Chemistry and a PhD in Microbiology from University
College Galway.
DENIS R. BURGER, PHD, NON-EXECUTIVE DIRECTOR, co-founded Trinity Biotech in June
1992 and acted as Chairman from June 1992 to May 1995. He is currently a
non-executive director of the Company. Dr Burger is Chairman, Chief Executive
Officer and a director of AVI Biopharma Inc, an Oregon based biotechnology
company. Dr Burger is also a 50% partner in Sovereign Ventures, a healthcare
consulting and funding firm based in Portland, Oregon. He was a co-founder and,
from 1981 to 1990, Chairman of Epitope Inc. In addition, Dr Burger has held a
professorship in the Department of Microbiology and Immunology and Surgery
(Surgical Oncology) at the Oregon Health Sciences University in Portland. Dr
Burger received his degree in Bacteriology and Immunology from the University of
California in Berkeley in 1965 and his Master of Science and PhD in 1969 in
Microbiology and Immunology from the University of Arizona.
PETER COYNE, NON-EXECUTIVE DIRECTOR, joined the board of Trinity Biotech in
November 2001 as a non-executive director. Mr Coyne is a director of AIB
Corporate Finance, a subsidiary of AIB Group plc, the Irish banking group. He
has extensive experience in advising public and private groups on all aspects of
corporate strategy. Prior to joining AIB, Mr Coyne trained as a chartered
accountant and was a senior manager in Arthur Andersen's Corporate Financial
Services practice. Mr Coyne holds a Bachelor of Engineering degree from
University College Dublin and is a Fellow of the Institute of Chartered
Accountants in Ireland.
32
COMPENSATION OF DIRECTORS AND OFFICERS
The remuneration committee is responsible for determining the remuneration of
the executive directors. The basis for the executive directors' remuneration and
level of annual bonuses is determined by the remuneration committee of the
board. In all cases, bonuses and the granting of share options are subject to
stringent performance criteria. The remuneration committee consists of Dr Denis
Burger (committee chairman and senior independent director), Mr Peter Coyne and
Mr Ronan O'Caoimh. Directors' remuneration shown below comprises salaries,
pension contributions and other benefits and emoluments in respect of executive
directors. Non-executive directors are remunerated by fees and the granting of
share options. Non-executive directors who perform additional services on the
audit committee or remuneration committee receive additional fees. The fees
payable to non-executive directors are determined by the Board. Each director is
reimbursed for expenses incurred in attending meetings of the board of
directors.
Director Defined
Performance contribution Total Total
Salary/ Benefits related bonus pension 2005 2004
US$'000 US$'000 US$'000 US$'000 US$'000
Ronan O'Caoimh 482 123 59 664 508
Brendan Farrell 356 76 27 459 341
Rory Nealon 205 44 18 267 237
Jim Walsh 357 49 27 433 351
------------------ ---------------- ------------------ ------------------ ------------------
1,400 292 131 1,823 1,437
------------------ ---------------- ------------------ ------------------ ------------------
Non-executive director Total Total
Fees 2005 2004
US$'000 US$'000 US$'000
Denis R. Burger 30 30 28
Peter Coyne 30 30 28
------------------ ---------------- ------------------ ------------------ ------------------
60 60 56
------------------ ---------------- ------------------ ------------------ ------------------
As at December 31, 2005 there are no amounts which are set aside or accrued by
the Company or its subsidiaries to provide pension, retirement or similar
benefits.
BOARD PRACTICES
The Articles of Association of Trinity Biotech provide that one third of the
directors in office (other than the Managing Director or a director holding an
executive office with Trinity Biotech) or, if their number is not three or a
multiple of three, then the number nearest to but not exceeding one third, shall
retire from office at every annual general meeting. If at any annual general
meeting the number of directors who are subject to retirement by rotation is
two, one of such directors shall retire and if the number of such directors is
one that director shall retire. Retiring directors may offer themselves for
re-election. The directors to retire at each annual general meeting shall be the
directors who have been longest in office since their last appointment. As
between directors of equal seniority the directors to retire shall, in the
absence of agreement, be selected from among them by lot.
In accordance with the Articles of Association of the Company, Mr. Denis Burger
will retire by rotation and, being eligible, offer himself for re-election at
the Annual General Meeting of the Company.
The board has established audit and remuneration committees. The functions and
membership of the remuneration committee is described above. The audit committee
is responsible to the board for the review of the quarterly and annual reports
and ensuring that an effective system of internal controls is maintained. It
also appoints the external auditors, reviews the scope and results of the
external audit and monitors the relationship with the auditors. The audit
committee comprises the two independent non-executive directors of the Company,
Mr Peter Coyne (committee chairman) and Dr Denis Burger.
Because the Company is a foreign private issuer, it is not required to comply
with all of the corporate governance requirements set forth in Nasdaq Rule 4350
as they apply to U.S. domestic companies. The Company's corporate governance
measures differ in the following significant ways. First, the audit committee of
the Company currently consists of two members - while U.S. domestic companies
listed on Nasdaq are required to have three members on their audit committee.
Second, the board of directors of the Company has only two independent,
non-executive directors, while U.S. domestic companies are required to have a
majority of independent directors on their board. In addition, the Company has
not appointed an independent nominations committee or adopted a board resolution
addressing the nominations process. Finally, the Company's Chief Executive
Officer serves on the Company's remuneration committee with two non-executive
independent directors, while U.S domestic companies are required to have
executive officer compensation determined by a remuneration committee comprised
solely of independent directors or a majority of the independent directors.
33
In respect of the practices noted above, the Company's practices conform with
its home legislation in lieu of Nasdaq Rule 4350.
EMPLOYEES
As of December 31, 2005, Trinity Biotech had 734 employees (2004: 675)
consisting of 1 research director and 41 research scientists and technicians,
466 manufacturing and quality assurance employees, and 226 finance,
administration and marketing staff (2004: a research director and 40 research
scientists and technicians, 411 manufacturing and quality assurance employees,
and 223 finance, administration and marketing staff). Trinity Biotech's future
hiring levels will depend on the growth of revenues.
The geographic spread of the Company's employees was as follows: 342 in Bray,
Co. Wicklow, Ireland, 90 in Germany, 9 in Sweden, 5 in the United Kingdom and
288 in its US operations.
STOCK OPTION PLAN
The board of directors has adopted the Employee Share Option Plan 2003 (the
"Plan"), the purpose of which is to provide Trinity Biotech's employees,
consultants, officers and directors with additional incentives to improve
Trinity Biotech's ability to attract, retain and motivate individuals upon whom
Trinity Biotech's sustained growth and financial success depends. The Plan is
administered by a compensation committee designated by the board of directors.
Options under the Plan may be awarded only to employees, officers, directors and
consultants of Trinity Biotech.
The exercise price of options is determined by the compensation committee. The
term of an option will be determined by the compensation committee, provided
that the term may not exceed seven years from the date of grant. All options
will terminate 90 days after termination of the option holder's employment,
service or consultancy with Trinity Biotech (or one year after such termination
because of death or disability) except where a longer period is approved by the
Board of Directors. Under certain circumstances involving a change in control of
Trinity Biotech, the committee may accelerate the exercisability and termination
of the options. As of February 28, 2006, 4,211,665 of the options outstanding
were held by directors and officers of Trinity Biotech.
As of February 28, 2006 the following options were outstanding:
Number of 'A' Range of Range of
Ordinary Shares Exercise Price Exercise Price
Subject to Option per Ordinary Share per ADS
Total options outstanding 7,506,300 US$0.81-US$5.00 US$3.24-US$20.00
In addition, the Company granted warrants to purchase 940,405 Class 'A' Ordinary
Shares at prices ranging from $1.50 to $2.75 per ordinary share to agents who
were involved in the Company's private placements in 1994, 1995 and 1999 and the
debenture issues in 1997, 1999 and 2002. A further warrant to purchase 100,000
Class 'A' Ordinary Shares was granted to a consultant of the Company. In January
2004, the Company has completed a private placement, as part of this the
investors were granted five year warrants to purchase an aggregate of 1,058,824
Class 'A' Ordinary Shares of the Company at an exercise price of US$5.25 per
ordinary share and the agent received 200,000 warrants to purchase 200,000 Class
'A' Ordinary Shares of the Company at an exercise price of US$5.25 per ordinary
share. As of February 28, 2005 there were warrants to purchase 1,317,324 Class
'A' Ordinary Shares in the Company outstanding.
ITEM 7
MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS
As of February 28, 2006 Trinity Biotech has outstanding 60,066,357 'A' Ordinary
shares and 700,000 'B' Ordinary shares. Such totals exclude 8,823,624 shares
issuable upon the exercise of outstanding options and warrants.
34
The following table sets forth, as of February 28, 2006, the Trinity Biotech 'A'
Ordinary Shares and 'B' Ordinary Shares beneficially held by (i) each person
believed by Trinity Biotech to beneficially hold 5% or more of such shares, (ii)
each director and officer of Trinity Biotech, and (iii) all officers and
directors as a group. Except as otherwise noted, all of the persons and groups
shown below have sole voting and investment power with respect to the shares
indicated. The Company is not controlled by another corporation or government.
Number of 'A' Percentage Number of 'B' Percentage
Ordinary Shares Outstanding Ordinary Shares Outstanding 'B' Percentage
Beneficially Owned 'A' Ordinary Beneficially Ordinary Shares Total
Shares Owned Voting Power
Ronan O'Caoimh 4,253,621 (1) 7.1% 0 0 6.9%
Brendan Farrell 1,549,135 (2) 2.6% 0 0 2.5%
Rory Nealon 343,750 (3) 0.6% 0 0 0.6%
Jim Walsh 1,739,865 (4) 2.9% 0 0 2.8%
Denis R. Burger 115,333 (5) 0.2% 0 0 0.2%
Peter Coyne 88,333 (6) 0.1% 0 0 0.1%
Potenza Investments Inc, 0 0 500,000 (7) 71.4% 1.6%
("Potenza")
Statenhof Building,
Reaal 2A
23 50AA Leiderdorp
Netherlands
Officers and Directors
as a group (6 persons) 8,090,037 13.5% 0 0 13.2%
(1)(2)(3)(4)(5)(6)
(1) Includes 562,166 shares issuable upon exercise of options.
(2) Includes 960,000 shares issuable upon exercise of options.
(3) Includes 143,750 shares issuable upon exercise of options.
(4) Includes 386,250 shares issuable upon exercise of options.
(5) Includes 68,333 shares issuable upon exercise of options.
(6) Includes 88,333 shares issuable upon exercise of options.
(7) Includes shares beneficially owned by SRL (350,000 'B') and Brindisi
Investments Inc (150,000 'B'). SRL has previously advised Trinity Biotech
that Potenza owns a majority of SRL's common stock. These 'B' shares have
two votes per share.
RELATED PARTY TRANSACTIONS
The Company has entered into various arrangements with JRJ Investments ("JRJ"),
a partnership owned by Mr O'Caoimh and Dr Walsh, directors of the Company, to
provide for current and potential future needs to extend its premises at IDA
Business Park, Bray, Co. Wicklow, Ireland. It has entered into an agreement with
JRJ pursuant to which the Company has taken a lease of premises adjacent to the
existing facility for a term of 20 years at a rent of (euro)7.62 per square foot
("the Current Extension"). The lease commenced on the newly completed 25,000
square foot building in July 2000. On November 20, 2002, the Company entered
into an agreement for a 25 year lease with JRJ for offices that have been
constructed on part of these lands. The annual rent of (euro)381,000
(US$520,000) is payable from 2004. Independent valuers have advised the Company
that the rent fixed in respect of the Current Extension, the agreement for the
lease and the lease of adjacent lands represents a fair market rent. The rent
for any future property constructed will be set at the then open market value.
The Company and its directors (excepting Mr O'Caoimh and Dr Walsh who express no
opinion on this point) believe that the arrangements entered into represent a
fair and reasonable basis on which the Company can meet its ongoing requirements
for premises.
35
ITEM 8
FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
DISPUTE REGARDING THE DISTRIBUTION AGREEMENT WITH INVERNESS MEDICAL INNOVATIONS
INC
In December 2003, the Company initiated legal proceedings in the Superior Court
of Middlesex County, Massachusetts against Inverness Medical and its affiliate
Wampole (collectively, Defendants) for declaratory judgment, breach of contract
and unfair and deceptive business practices in connection with the Defendants'
performance under a distribution agreement initially entered into in 1995 by
Clark Laboratories Inc (now part of the Trinity Biotech Group) and subsequently
amended in 2002. Inverness Medical, through its affiliate, Wampole Laboratories,
has acted as exclusive distributor for certain of Trinity Biotech's infectious
disease products in the US. This exclusivity ended on September 30, 2004, at
which time it had been agreed that both Trinity Biotech and Inverness Medical
would sell the products under their respective labels. Among other things, the
suit requested a judgement declaring that Trinity was entitled to sell certain
products directly in the US and Puerto Rico before October 1, 2004 under the
terms of the 2002 amendment to the distribution agreement. The suit also alleged
that the Defendants were attempting to convert customers from Trinity's products
to products manufactured by a competitor (which were modified to look like the
Trinity products) by misrepresenting to the customers that the Trinity product
was unavailable and was being discontinued. In January 2004, the Defendants
countersued alleging, among other things, various breaches of the distribution
agreement and subsequent amendments, and that Defendants were entitled to
rescind the distribution agreement and any amendments thereto, including any
agreement to grant certain intellectual property rights to Trinity. The
Defendants sought a preliminary injunction to prevent Trinity from selling
directly in the Territory any of its products which are competitive with
products sold by the Defendants and sourced from other suppliers. The Superior
Court of Middlesex County, Massachusetts, denied this motion for a preliminary
injunction on January 28, 2004. In April of 2004, Trinity amended its complaint
to add additional claims alleging breaches of the distribution agreement by the
Defendants. In May of 2004, the Defendants amended their counterclaims to add
claims alleging, among other things, that Trinity was selling certain products
without a license. Following the expiration of the Defendants' exclusive
distribution rights under the distribution agreement on October 1, 2004, Trinity
moved to amend its complaint to eliminate the declaratory judgment claims and
add additional claims for breach of the distribution agreement and tortious
interference with advantageous business relations that had arisen after December
2003. The Defendants filed a cross-motion to amend their complaint. On April 22,
2005, the court granted both parties' motions to amend. The case is currently in
the discovery phase. It is possible that the Company will incur a loss arising
out of this legal case. However, it is currently not possible to quantify the
amount of this potential loss. Please see also Item 4, "Distribution Agreement
between Trinity Biotech USA and Carter Wallace".
ITEM 9
THE OFFER AND LISTING
Trinity Biotech's American Depository Shares ("ADSs") are listed on the NASDAQ
National Cap Market under the symbol "TRIB". The Company's Class B Warrant
(symbol "TRIZF"), expired on February 28, 1999. Each ADS represents four 'A'
Ordinary Shares of the Company. The Company's 'A' Ordinary Shares are also
listed and trade on the Irish Stock Exchange. The Company's depository bank for
the ADSs is The Bank of New York. On February 28, 2006, the reported closing
sale price of the ADSs was US$8.85 per ADS. The following tables set forth the
range of quoted high and low sale prices of Trinity Biotech's ADS, and Class B
Warrants for (a) the years ended December 31, 2001, 2002, 2003, 2004 and 2005;
(b) the quarters ended March 31, June 30, September 30 and December 31, 2004;
March 31, June 30, September 30 and December 31, 2005; and (c) the months of
March, April, May, June, July, August, September, October, November and December
2005 and January and February 2005 as reported on NASDAQ. These quotes reflect
inter-dealer prices without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
36
ADSs
High Low
YEAR ENDED DECEMBER 31
2001 $12.88 $3.88
2002 $7.44 $3.56
2003 $26.88 $5.00
2004 $23.96 $9.40
2005 $11.72 $6.28
2004
Quarter ended March 31 $23.96 $14.08
Quarter ended June 30 $15.24 $10.80
Quarter ended September 30 $13.68 $9.44
Quarter ended December 31 $12.72 $10.40
2005
Quarter ended March 31 $11.72 $10.00
Quarter ended June 30 $9.88 $6.28
Quarter ended September 30 $8.76 $6.34
Quarter ended December 31 $8.27 $6.67
MONTH ENDED
March 31, 2005 $11.72 $10.80
April 30, 2005 $9.88 $7.92
May 31, 2005 $7.96 $6.28
June 30, 2005 $8.16 $6.29
July 31, 2005 $7.82 $6.37
August 31, 2005 $6.95 $6.34
September 30, 2005 $8.77 $7.00
October 31, 2005 $6.70 $7.42
November 30, 2005 $8.27 $6.67
December 31, 2005 $8.25 $8.00
January 31, 2006 $9.26 $8.20
February 28, 2006 $8.96 $8.30
The number of record holders of Trinity Biotech's ADSs as at February 28, 2006
amounts to 359, inclusive of those brokerage firms and/or clearing houses
holding Trinity Biotech's securities for their clientele (with each such
brokerage house and/or clearing house being considered as one holder).
ITEM 10
MEMORANDUM AND
ARTICLES OF ASSOCIATION
OBJECTS
The Company's objects, detailed in Clause 3 of its Memorandum of Association,
are varied and wide ranging and include principally researching, manufacturing,
buying, selling and distributing all kinds of patents, pharmaceutical, medicinal
and diagnostic preparations, equipment, drugs and accessories. They also include
the power to acquire shares or other interests or securities in other companies
or businesses and to exercise all rights in relation thereto. The Company's
registered number in Ireland is 183476.
POWERS AND DUTIES OF DIRECTORS
A director may enter into a contract and be interested in any contract or
proposed contract with the Company either as vendor, purchaser or otherwise and
shall not be liable to account for any profit made by him resulting therefrom
provided that he has first disclosed the nature of his interest in such a
contract at a meeting of the board as required by Section 194 of the Irish
Companies Act 1963. Generally, a director must not vote in respect of any
contract or arrangement or any proposal in which he has a material interest
(otherwise than by virtue of his holding of shares or debentures or other
securities in or through the Company). In addition, a director shall not be
counted in the quorum at a meeting in relation to any resolution from which he
is barred from voting.
A director is entitled to vote and be counted in the quorum in respect of
certain arrangements in which he is interested (in the absence of some other
material interest). These include the giving of a security or indemnity to him
in respect of money lent or obligations incurred by him for the Company, the
giving of any security or indemnity to a third party in respect of a debt or
obligation of the Company for which he has assumed responsibility, any proposal
concerning an offer of shares or other securities in which he may be interested
as a participant in the underwriting or sub-underwriting and any proposal
concerning any other company in which he is interested provided he is not the
holder of or beneficially interested in 1% or more of the issued shares of any
class of share capital of such company or of voting rights.
The Board may exercise all the powers of the Company to borrow money but it is
obliged to restrict these borrowings to ensure that the aggregate amount
outstanding of all monies borrowed by the Company does not, without the previous
sanction of an ordinary resolution of the Company, exceed an amount equal to
twice the adjusted capital and reserves (both terms as defined in the Articles
of Association). However, no lender or other person dealing with the Company
shall be obliged to see or to inquire whether the limit imposed is observed and
no debt incurred in excess of such limit will be invalid or ineffectual unless
the lender has express notice at the time when the debt is incurred that the
limit was or was to be exceeded.
37
Directors are not required to retire upon reaching any specific age and are not
required to hold any shares in the capital of the Company. The Articles provide
for retirement of the directors by rotation.
All of the above mentioned powers of directors may be varied by way of a special
resolution of the shareholders.
RIGHTS, PREFERENCES AND RESTRICTIONS ATTACHING TO SHARES
The 'A' Ordinary Shares and the 'B' Ordinary Shares rank pari passu in all
respects save that the 'B' Ordinary Shares have two votes per share and the
right to receive dividends and participate in the distribution of the assets of
the Company upon liquidation or winding up at a rate of twice that of the 'A'
Ordinary Shares.
Where a shareholder or person who appears to be interested in shares fails to
comply with a request for information from the Company in relation to the
capacity in which such shares or interest are held, who is interested in them or
whether there are any voting arrangements, that shareholder or person may be
disenfranchised and thereby restricted from transferring the shares and voting
rights or receiving any sums in respect thereof (except in the case of a
liquidation). In addition, if cheques in respect of the last three dividends
paid to a shareholder remain uncashed, the Company is, subject to compliance
with the procedure set out in the Articles of Association, entitled to sell the
shares of that shareholder.
At a general meeting, on a show of hands, every member who is present in person
or by proxy and entitled to vote shall have one vote (so, however, that no
individual shall have more than one vote) and upon a poll, every member present
in person or by proxy shall have one vote for every share carrying voting rights
of which he is the holder. In the case of joint holders, the vote of the senior
(being the first person named in the register of members in respect of the joint
holding) who tendered a vote, whether in person or by proxy, shall be accepted
to the exclusion of votes of the other joint holders.
One third of the directors other than an executive director or, if their number
is not three or a multiple of three, then the number nearest to but not
exceeding one third, shall retire from office at each annual general meeting.
If, however, the number of directors subject to retirement by rotation is two,
one of such directors shall retire. If the number is one, that director shall
retire. The directors to retire at each annual general meeting shall be the ones
who have been longest in office since their last appointment. Where directors
are of equal seniority, the directors to retire shall, in the absence of
agreement, be selected by lot. A retiring director shall be eligible for
re-appointment and shall act as director throughout the meeting at which he
retires. A separate motion must be put to a meeting in respect of each director
to be appointed unless the meeting itself has first agreed that a single
resolution is acceptable without any vote being given against it.
The Company may, subject to the provisions of the Companies Acts, 1963 to 2005
of Ireland, issue any share on the terms that it is, or at the option of the
Company is to be liable, to be redeemed on such terms and in such manner as the
Company may determine by special resolution. Before recommending a dividend, the
directors may reserve out of the profits of the Company such sums as they think
proper which shall be applicable for any purpose to which the profits of the
Company may properly be applied and, pending such application, may be either
employed in the business of the Company or be invested in such investments
(other than shares of the Company or of its holding company (if any)) as the
directors may from time to time think fit.
Subject to any conditions of allotment, the directors may from time to time make
calls on members in respect of monies unpaid on their shares. At least 14 days
notice must be given of each call. A call shall be deemed to have been made at
the time when the directors resolve to authorise such call.
The Articles do not contain any provisions discriminating against any existing
or prospective holder of securities as a result of such shareholder owning a
substantial number of shares.
ACTION NECESSARY TO CHANGE THE RIGHTS OF SHAREHOLDERS
In order to change the rights attaching to any class of shares, a special
resolution passed at a class meeting of the holders of such shares is required.
The provisions in relation to general meetings apply to such class meetings
except the quorum shall be two persons holding or representing by proxy at least
one third in nominal amount of the issued shares of that class. In addition, in
order to amend any provisions of the Articles of Association in relation to
rights attaching to shares, a special resolution of the shareholders as a whole
is required.
38
CALLING OF AGM'S AND EGM'S OF SHAREHOLDERS
The Company must hold a general meeting as its annual general meeting each year.
Not more than 15 months can elapse between annual general meetings. The annual
general meetings are held at such time and place as the directors determine and
all other general meetings are called extraordinary general meetings. Every
general meeting shall be held in Ireland unless all of the members entitled to
attend and vote at it consent in writing to it being held elsewhere or a
resolution providing that it be held elsewhere was passed at the preceding
annual general meeting. The directors may at any time call an extraordinary
general meeting and such meetings may also be convened on such requisition, or
in default may be convened by such requisitions, as is provided by the Companies
Acts, 1963 to 2005 of Ireland. In the case of an annual general meeting or a
meeting at which a special resolution is proposed, 21 clear days notice of the
meeting is required and in any other case it is seven clear days notice. Notice
must be given in writing to all members and to the auditors and must state the
details specified in the Articles of Association. A general meeting (other than
one at which a special resolution is to be proposed) may be called on shorter
notice subject to the agreement of the auditors and all members entitled to
attend and vote at it. In certain circumstances provided in the Companies Acts,
1963 to 2005 of Ireland, extended notice is required. These include removal of a
director. No business may be transacted at a general meeting unless a quorum is
present. Five members present in person or by proxy (not being less than five
individuals) representing not less than 40% of the ordinary shares shall be a
quorum. The Company is not obliged to serve notices upon members who have
addresses outside Ireland and the US but otherwise there are no limitations in
the Articles of Association or under Irish law restricting the rights of
non-resident or foreign shareholders to hold or exercise voting rights on the
shares in the Company.
However, the Financial Transfers Act, 1992 and regulations made thereunder
prevent transfers of capital or payments between Ireland and certain countries.
These restrictions on financial transfers are more comprehensively described in
"Exchange Controls" below. In addition, Irish competition law may restrict the
acquisition by a party of shares in the Company but this does not apply on the
basis of nationality or residence.
OTHER PROVISIONS OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION
The Memorandum
and Articles of Association do not contain any provisions:
- which would have an effect of delaying, deferring or preventing a
change in control of the Company and which would operate only with
respect to a merger, acquisition or corporate restructuring
involving the Company (or any of its subsidiaries); or
- governing the ownership threshold above which a shareholder
ownership must be disclosed; or
- imposing conditions governing changes in the capital which are more
stringent than is required by Irish law.
The Company incorporates by reference all other information concerning its
Memorandum and Articles of Association from the Registration Statement on Form
F-1 on June 12, 1992.
IRISH LAW
Pursuant to Irish law, Trinity Biotech must maintain a register of its
shareholders. This register is open to inspection by shareholders free of charge
and to any member of the public on payment of a small fee. The books containing
the minutes of proceedings of any general meeting of Trinity Biotech are
required to be kept at the registered office of the Company and are open to the
inspection of any member without charge. Minutes of meetings of the Board of
Directors are not open to scrutiny by shareholders. Trinity Biotech is obliged
to keep proper books of account. The shareholders have no statutory right to
inspect the books of account. The only financial records, which are open to the
shareholders, are the financial statements, which are sent to shareholders with
the annual report. Irish law also obliges Trinity Biotech to file information
relating to certain events within the Company (new share capital issues, changes
to share rights, changes to the Board of Directors). This information is filed
with the Companies Registration Office (the "CRO") in Dublin and is open to
public inspection. The Articles of Association of Trinity Biotech permit
ordinary shareholders to approve corporate matters in writing provided that it
is signed by all the members for the time being entitled to vote and attend at
general meeting. Ordinary shareholders are entitled to call a meeting by way of
a requisition. The requisition must be signed by ordinary shareholders holding
not less than one-tenth of the paid up capital of the Company carrying the right
of voting at general meetings of the Company. Trinity Biotech is generally
permitted, subject to company law, to issue shares with preferential rights,
including preferential rights as to voting, dividends or rights to a return of
capital on a winding up of the Company. Any shareholder who complains that the
affairs of the Company are being conducted or that the powers of the directors
of the Company are being exercised in a manner oppressive to him or any of the
shareholders (including himself), or in disregard of his or their interests as
shareholders, may apply to the Irish courts for relief. Shareholders have no
right to maintain proceedings in respect of wrongs done to the Company.
39
Ordinarily, our directors owe their duties only to Trinity Biotech and not its
shareholders. The duties of directors are twofold, fiduciary duties and duties
of care and skill. Fiduciary duties are owed by the directors individually and
owed to Trinity Biotech. Those duties include duties to act in good faith
towards Trinity Biotech in any transaction, not to make use of any money or
other property of Trinity Biotech, not to gain directly or indirectly any
improper advantage for himself at the expense of Trinity Biotech, to act bona
fide in the interests of Trinity Biotech and exercise powers for the proper
purpose. A director need not exhibit in the performance of his duties a greater
degree of skill than may reasonably be expected from a person of his knowledge
and experience. When directors, as agents in transactions, make contracts on
behalf of the Company, they generally incur no personal liability under these
contracts. It is Trinity Biotech, as principal, which will be liable under them,
as long as the directors have acted within Trinity Biotech's objects and within
their own authority. A director who commits a breach of his fiduciary duties
shall be liable to Trinity Biotech for any profit made by him or for any damage
suffered by Trinity Biotech as a result of the breach. In addition to the above,
a breach by a director of his duties may lead to a sanction from a Court
including damages of compensation, summary dismissal of the director, a
requirement to account to Trinity Biotech for profit made and restriction of the
director from acting as a director in the future.
MATERIAL CONTRACTS
See Item 4 "History and Development of the Company" regarding acquisitions made
by the Company.
EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
Irish exchange control regulations ceased to apply from and after December 31,
1992. Except as indicated below, there are no restrictions on non-residents of
the Republic of Ireland dealing in domestic securities which includes shares or
depository receipts of Irish companies such as Trinity Biotech, and dividends
and redemption proceeds, subject to the withholding where appropriate of
withholding tax as described under Item 10, are freely transferable to
non-resident holders of such securities.
The Financial Transfers Act, 1992 was enacted in December 1992. This Act gives
power to the Minister of Finance of the Republic of Ireland to make provision
for the restriction of financial transfers between the Republic of Ireland and
other countries. Financial transfers are broadly defined and include all
transfers, which would be movements of funds within the meaning of the treaties
governing the European Communities. The acquisition or disposal of ADS's
representing shares issued by an Irish incorporated company and associated
payments may fall within this definition. In addition, dividends or payments on
redemption or purchase of shares, interest payments, debentures or other
securities in an Irish incorporated company and payments on a liquidation of an
Irish incorporated company would fall within this definition. Currently, orders
under this Act prohibit any financial transfer to or by the order of or on
behalf of residents of the Federal Republic of Yugoslavia, Federal Republic of
Serbia, Angola and Iraq, any financial transfer in respect of funds and
financial resources belonging to the Taliban of Afghanistan (or related
terrorist organisations), financial transfers to the senior members of the
Zimbabwean government and financial transfers to any persons, groups or entities
listed in EU Council Decision 2002/400/EC of June 17, 2002 unless permission for
the transfer has been given by the Central Bank of Ireland.
Trinity Biotech does not anticipate that Irish exchange controls or orders under
the Financial Transfers Act, 1992 will have a material effect on its business.
For the purposes of the orders relating to Iraq and the Federal Republic of
Yugoslavia, reconstituted in 1991 as Serbia and Montenegro, a resident of those
countries is a person living in these countries, a body corporate or entity
operating in these countries and any person acting on behalf of any of these
persons.
Any transfer of, or payment for, an ordinary share or ADS involving the
government of any country which is currently the subject of United Nations
sanctions, any person or body controlled by any government or country under
United Nations sanctions or any persons or body controlled acting on behalf of
these governments of countries, may be subject to restrictions required under
these sanctions as implemented into Irish law.
TAXATION
The following discussion is based on US and Republic of Ireland tax law,
statutes, treaties, regulations, rulings and decisions all as of the date of
this annual report. Taxation laws are subject to change, from time to time, and
no representation is or can be made as to whether such laws will change, or what
impact, if any, such changes will have on the statements contained in this
summary. No assurance can be given that proposed amendments will be enacted as
proposed, or that legislative or judicial changes, or changes in administrative
practice, will not modify or change the statements expressed herein.
This summary is of a general nature only. It does not constitute legal or tax
advice nor does it discuss all aspects of Irish taxation that may be relevant to
any particular Irish Holder or US Holder of ordinary shares or ADSs.
This summary does not discuss all aspects of Irish and US federal income
taxation that may be relevant to a particular holder of Trinity Biotech ADSs in
light of the holder's own circumstances or to certain types of investors subject
to special treatment under applicable tax laws (for example, financial
institutions, life insurance companies, tax-exempt organisations, and non-US
taxpayers) and it does not discuss any tax consequences arising under the laws
of taxing jurisdictions other than the Republic of Ireland and the US federal
government. The tax treatment of holders of Trinity Biotech ADSs may vary
depending upon each holder's own particular situation.
40
Prospective purchasers of Trinity Biotech ADSs are advised to consult their own
tax advisors as to the US, Irish or other tax consequences of the purchase,
ownership and disposition of such ADSs.
US FEDERAL INCOME TAX CONSEQUENCES TO US HOLDERS
The following is a summary of the material US federal income tax consequences
that generally would apply with respect to the ownership and disposition of
Trinity Biotech ADSs, in the case of a purchaser of such ADSs who is a US Holder
(as defined below) and who holds the ADSs as capital assets. This summary is
based on the US Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change either prospectively or retroactively. For the purposes of
this summary, a US Holder is: an individual who is a citizen or a resident of
the United States; a corporation created or organised in or under the laws of
the United States or any political subdivision thereof; an estate whose income
is subject to US federal income tax regardless of its source; or a trust that
(a) is subject to the primary supervision of a court within the United States
and the control of one or more US persons or (b) has a valid election in effect
under applicable US Treasury regulations to be treated as a US person.
This summary does not address all tax considerations that may be relevant with
respect to an investment in ADSs. This summary does not discuss all the tax
consequences that may be relevant to a US holder in light of such holder's
particular circumstances or to US holders subject to special rules, including
persons that are non US holders, broker dealers, financial institutions, certain
insurance companies, investors liable for alternative minimum tax, tax exempt
organisations, regulated investment companies, non-resident aliens of the US or
taxpayers whose functional currency is not the dollar, persons who hold ADSs
through partnerships or other pass-through entities, persons who acquired their
ADSs through the exercise or cancellation of employee stock options or otherwise
as compensation for services, investors that actually or constructively own 10%
or more of Trinity Biotech's voting shares, and investors holding ADSs as part
of a straddle or appreciated financial position or as part of a hedging or
conversion transaction.
If a partnership or an entity treated as a partnership for US federal income tax
purposes owns ADSs, the US federal income tax treatment of a partner in such a
partnership will generally depend upon the status of the partner and the
activities of the partnership. A partnership that owns ADSs, the partners in
such partnership should consult their tax advisors about the US federal income
tax consequences of holding and disposing of ADSs.
This summary does not address the effect of any US federal taxation other than
US federal income taxation. In addition, this summary does not include any
discussion of state, local or foreign taxation. You are urged to consult your
tax advisors regarding the foreign and US federal, state and local tax
considerations of an investment in ADSs.
For US federal income tax purposes, US Holders of Trinity Biotech ADSs will be
treated as owning the underlying Class 'A' Ordinary Shares, or ADSs, represented
by the ADSs held by them. The gross amount of any distribution made by Trinity
Biotech to US Holders with respect to the underlying shares represented by the
ADSs held by them, including the amount of any Irish taxes withheld from such
distribution, will be treated for US federal income tax purposes as a dividend
to the extent of Trinity Biotech's current and accumulated earnings and profits,
as determined for US federal income tax purposes. The amount of any such
distribution that exceeds Trinity Biotech's current and accumulated earnings and
profits will be applied against and reduce a US Holder's tax basis in the
holder's ADSs, and any amount of the distribution remaining after the holder's
tax basis has been reduced to zero will constitute capital gain. The capital
gain will be treated as a long-term, or short-term, capital gain depending on
whether or not the holder's ADSs have been held for more than one year as of the
date of the distribution.
Dividends paid by Trinity Biotech generally will not qualify for the dividends
received deduction otherwise available to US corporate shareholders.
Subject to complex limitations, any Irish withholding tax imposed on such
dividends will be a foreign income tax eligible for credit against a US Holder's
US federal income tax liability (or, alternatively, for deduction against income
in determining such tax liability). The limitations set out in the Code include
computational rules under which foreign tax credits allowable with respect to
specific classes of income cannot exceed the US federal income taxes otherwise
payable with respect to each such class of income. Dividends generally will be
treated as foreign-source passive income or, in the case of certain US Holders,
financial services income for US foreign tax credit purposes. US Holders should
note that recently enacted legislation eliminates the "financial services
income" category with respect to taxable years beginning after December 31,
2006. Under this legislation, the foreign tax credit limitation categories will
be limited to "passive category income" and "general category income." Further,
there are special rules for computing the foreign tax credit limitation of a
taxpayer who receives dividends subject to a reduced tax, see discussion below.
A US Holder will be denied a foreign tax credit with respect to Irish income tax
withheld from dividends received on the ordinary shares to the extent such US
Holder has not held the ordinary shares for at least 16 days of the 31-day
period beginning on the date which is 15 days before the ex-dividend date or to
the extent such US Holder is under an obligation to make related payments with
respect to substantially similar or related property. Any days during which a US
Holder has substantially diminished its risk of loss on the ordinary shares are
not counted toward meeting the 16-day holding period required by the statute.
The rules relating to the determination of the foreign tax credit are complex,
and you should consult with your personal tax advisors to determine whether and
to what extent you would be entitled to this credit.
41
Subject to certain limitations, "qualified dividend income" received by a
noncorporate US Holder in tax years beginning on or before December 31, 2008
will be subject to tax at a reduced maximum tax rate of 15%. Distributions
taxable as dividends paid on the ordinary shares should qualify for the 15% rate
provided that either: (i) we are entitled to benefits under the income tax
treaty between the United States and Ireland (the "Treaty") or (ii) the ADSs are
readily tradable on an established securities market in the US and certain other
requirements are met. We believe that we are entitled to benefits under the
Treaty and that the ADSs currently are readily tradable on an established
securities market in the US. However, no assurance can be given that the
ordinary shares will remain readily tradable. The rate reduction does not apply
unless certain holding period requirements are satisfied. With respect to the
ADSs, the US Holder must have held such ADSs for at least 61 days during the
121-day period beginning 60 days before the ex-dividend date. The rate reduction
also does not apply to dividends received from passive foreign investment
companies, see discussion below, or in respect of certain hedged positions or in
certain other situations. The legislation enacting the reduced tax rate contains
special rules for computing the foreign tax credit limitation of a taxpayer who
receives dividends subject to the reduced tax rate. US Holders of Trinity
Biotech ADSs should consult their own tax advisors regarding the effect of these
rules in their particular circumstances.
Upon a sale or exchange of ADSs, a US Holder will recognise a gain or loss for
US federal income tax purposes in an amount equal to the difference between the
amount realised on the sale or exchange and the holder's adjusted tax basis in
the ADSs sold or exchanged. Such gain or loss generally will be capital gain or
loss and will be long-term or short-term capital gain or loss depending on
whether the US Holder has held the ADSs sold or exchanged for more than one year
at the time of the sale or exchange.
For US federal income tax purposes, a foreign corporation is treated as a
"passive foreign investment company" (or PFIC) in any taxable year in which,
after taking into account the income and assets of the corporation and certain
of its subsidiaries pursuant to the applicable "look through" rules, either (1)
at least 75% of the corporation's gross income is passive income or (2) at least
50% of the average value of the corporation's assets is attributable to assets
that produce passive income or are held for the production of passive income.
Based on the nature of its present business operations, assets and income,
Trinity Biotech believes that it is not currently subject to treatment as a
PFIC. However, no assurance can be given that changes will not occur in Trinity
Biotech's business operations, assets and income that might cause it to be
treated as a PFIC at some future time.
If Trinity Biotech were to become a PFIC, a US Holder of Trinity Biotech ADSs
would be required to allocate to each day in the holding period for such
holder's ADSs a pro rata portion of any distribution received (or deemed to be
received) by the holder from Trinity Biotech, to the extent the distribution so
received constitutes an "excess distribution," as defined under US federal
income tax law. Generally, a distribution received during a taxable year by a US
Holder with respect to the underlying shares represented by any of the holder's
ADSs would be treated as an "excess distribution" to the extent that the
distribution so received, plus all other distributions received (or deemed to be
received) by the holder during the taxable year with respect to such underlying
shares, is greater than 125% of the average annual distributions received by the
holder with respect to such underlying shares during the three preceding years
(or during such shorter period as the US Holder may have held the ADSs). Any
portion of an excess distribution that is treated as allocable to one or more
taxable years prior to the year of distribution during which Trinity Biotech was
classified as a PFIC would be subject to US federal income tax in the year in
which the excess distribution is made, but it would be subject to tax at the
highest tax rate applicable to the holder in the prior tax year or years. The
holder also would be subject to an interest charge, in the year in which the
excess distribution is made, on the amount of taxes deemed to have been deferred
with respect to the excess distribution. In addition, any gain recognised on a
sale or other disposition of a US Holder's ADSs, including any gain recognised
on a liquidation of Trinity Biotech, would be treated in the same manner as an
excess distribution. Any such gain would be treated as ordinary income rather
than as capital gain. Finally, the 15% reduced US federal income tax rate
otherwise applicable to dividend income as discussed above, will not apply to
any distribution made by Trinity Biotech in any taxable year in which it is a
PFIC (or made in the taxable year following any such year), whether or not the
distribution is an "excess distribution".
If Trinity Biotech became a PFIC, a US Holder may make a "qualifying electing
fund" election in the year Trinity Biotech first becomes a PFIC or in the year
the holder acquires the shares, whichever is later, This election provides for a
current inclusion of Trinity Biotech's ordinary income and capital gain income
in the US Holder's US taxable income. In return, any gain on sale or other
disposition of a US Holder's ADRs in Trinity Biotech, if it were classified as a
PFIC, will be treated as capital, and the interest penalty will not be imposed.
This election is not made by Trinity Biotech, but by each US Holder.
If Trinity Biotech were to become a CFC, each US Holder treated as a US
Ten-percent Shareholder would be required to include in income each year such US
Ten-percent Shareholder's pro rata share of Trinity Biotech's undistributed
"Subpart F income." For this purpose, Subpart F income generally would include
interest, original issue discount, dividends, net gains from the disposition of
stocks or securities, net gains on forward and option contracts, receipts with
respect to securities loans and net payments received with respect to equity
swaps and similar derivatives.
42
Any undistributed Subpart F income included in a US Holder's income for any year
would be added to the tax basis of the US Holder's ADSs. Amounts distributed by
Trinity Biotech to the US Holder in any subsequent year would not be subject to
further US federal income tax in the year of distribution, to the extent
attributable to amounts so included in the US Holder's income in prior years
under the CFC rules but would be treated, instead, as a reduction in the tax
basis of the US Holder's ADSs, the PFIC rules discussed above would not apply to
any undistributed Subpart F income required to be included in a US Holder's
income under the CFC rules, or to the amount of any distributions received from
Trinity Biotech that were attributable to amounts so included.
Distributions made with respect to underlying shares represented by ADSs may be
subject to information reporting to the US Internal Revenue Service and to US
backup withholding tax at a rate equal to the fourth lowest income tax rate
applicable to individuals (which, under current law, is 28%). Backup withholding
will not apply, however, if the holder (i) is a corporation or comes within
certain exempt categories, and demonstrates its eligibility for exemption when
so required, or (ii) furnishes a correct taxpayer identification number and
makes any other required certification.
Backup withholding is not an additional tax. Amounts withheld under the backup
withholding rules may be credited against a US Holder's US tax liability, and a
US Holder may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the Internal
Revenue Service.
Any US Holder who holds 10% or more in vote or value of Trinity Biotech will be
subject to certain additional United States information reporting requirements.
US Holders may be subject to state or local income and other taxes with respect
to their ownership and disposition of ADSs. US Holders of ADSs should consult
their own tax advisers as to the applicability and effect of any such taxes.
REPUBLIC OF IRELAND TAXATION
For the purposes of this summary, an "Irish Holder" means a holder of ordinary
shares or ADSs evidenced by ADSs that (i) beneficially owns the ordinary shares
or ADSs registered in their name; (ii) in the case of individual holders, are
resident, ordinarily resident and domiciled in Ireland under Irish taxation
laws; (iii) in the case of holders that are companies, are resident in Ireland
under Irish taxation laws; and (iv) are not also resident in any other country
under any double taxation agreement entered into by Ireland.
For Irish taxation purposes, Irish Holders of ADSs will be treated as the owners
of the underlying ordinary shares represented by such ADSs.
Solely for the purposes of this summary of Irish Tax Considerations, a "US
Holder" means a holder of ordinary shares or ADSs evidenced by ADSs that (i)
beneficially owns the ordinary shares or ADSs registered in their name; (ii) is
resident in the United States for the purposes of the Republic of Ireland/United
States Double Taxation Convention (the Treaty); (iii) in the case of an
individual holder, is not also resident or ordinarily resident in Ireland for
Irish tax purposes; (iv) in the case of a corporate holder, is not a resident in
Ireland for Irish tax purposes and is not ultimately controlled by persons
resident in Ireland; and (v) is not engaged in any trade or business and does
not perform independent personal services through a permanent establishment or
fixed base in Ireland.
The Board of Directors does not expect to pay dividends for the foreseeable
future. Should Trinity Biotech begin paying dividends, such dividends will
generally be subject to a 20% withholding tax (DWT). Under current legislation,
where DWT applies Trinity Biotech will be responsible for withholding it at
source. DWT will not apply where an exemption applies and where Trinity Biotech
has received all necessary documentation from the recipient prior to payment of
the dividend.
Corporate Irish Holders will generally be entitled to claim an exemption from
DWT by delivering a declaration to us in the form prescribed by the Irish
Revenue Commissioners. Such corporate Irish Holders will generally not otherwise
be subject to Irish tax in respect of dividends received.
Individual Irish Holders will be subject to income tax on the gross amount of
any dividend (that is the amount of the dividend received plus any DWT
withheld), at their marginal rate of tax (currently either 20% or 42% depending
on the individual's circumstances). Individual Irish Holders will be able to
claim a credit against their resulting income tax liability in respect of DWT
withheld.
43
Individual Irish Holders may, depending on their circumstances, also be subject
to the Irish health levy of 2% and pay related social insurance contribution of
up to 3% in respect of their dividend income.
Shareholders who are individuals resident in the US (and certain other
countries) and who are not resident or ordinarily resident in Ireland may
receive dividends free of DWT where the shareholder has provided the Company
with the relevant declaration and residency certificate required by legislation.
Corporate shareholders that are not resident in Ireland and who are ultimately
controlled by persons resident in the US (or certain other countries) or
corporate holders of ordinary shares resident in a relevant territory (being a
country with which Ireland has a double tax treaty, which includes the United
States) or resident in a member state of the European Union other than Ireland
which are not controlled by Irish residents or whose principal class of shares
or its 75% parent's principal class of shares are substantially or regularly
traded on a recognised stock exchange in a country with which Ireland has a tax
treaty, may receive dividends free of DWT where they provide Trinity Biotech
with the relevant declaration, auditors' certificate and Irish Revenue
Commissioners' certificate or a certificate from the tax authority in the
relevant territory as required by Irish law.
US resident holders of ordinary shares (as opposed to ADSs) should note that
these documentation requirements may be burdensome. As described below, these
documentation requirements do not apply in the case of holders of ADSs. US
resident holders who do not comply with the documentation requirements or
otherwise do not qualify for an exemption may be able to claim treaty benefits
under the treaty. US resident holders who are entitled to benefits under the
treaty will be able to claim a partial refund of DWT from the Irish Revenue
Commissioners.
Special DWT arrangements are available in the case of shares held by US resident
holders in Irish companies through American depository banks using ADSs who
enter into intermediary agreements with the Irish Revenue Commissioners. Under
such agreements, American depository banks who receive dividends from Irish
companies and pay the dividends on to the US resident ADS holders are allowed to
receive and pass on a dividend from the Irish company on a gross basis (without
any withholding) if:
o the depository bank's ADS register shows that the direct beneficial
owner has a US address on the register, or
o there is an intermediary between the depository bank and the
beneficial shareholder and the depository bank receives confirmation
from the intermediary that the beneficial shareholder's address in
the intermediary's records is in the US.
Where the above procedures have not been complied with and DWT is withheld from
dividend payments to US Holders of ordinary shares or ADSs evidenced by ADSs,
such US Holders can apply to the Irish Revenue Commissioners claiming a full
refund of DWT paid by filing a declaration, a certificate of residency and, in
the case of US Holders that are corporations, an auditor's certificate, each in
the form prescribed by the Irish Revenue Commissioners.
The DWT rate applicable to US Holders is reduced to 5% under the terms of the
Treaty for corporate US Holders holding 10% or more of our voting shares, and to
15% for other US Holders. While this will, subject to the application of Article
23 of the Treaty, generally entitle US Holders to claim a partial refund of DWT
from the Irish Revenue Commissioners, US Holders will, in most circumstances,
likely prefer to seek a full refund of DWT under Irish domestic legislation.
Under the Irish Taxes Consolidation Act 1997, non-Irish shareholders may, unless
exempted, be liable to Irish income tax on dividends received from Trinity
Biotech. Such a shareholder will not have an Irish income tax liability on
dividends if the shareholder is:
o an individual resident in the US (or certain other countries with
which Ireland has a double taxation treaty) and who is neither
resident nor ordinarily resident in Ireland; or
o a corporation that is not resident in Ireland and which is
ultimately controlled by persons resident in the US (or certain
other countries); or
o a corporation that is not resident in Ireland and whose principal
class of shares (or its 75% parent's principal class of shares) are
substantially or regularly traded on a recognised stock exchange; or
o is otherwise entitled to an exemption from DWT.
Disposals of Ordinary Shares or ADSs
Irish Holders that acquire ordinary shares or ADSs will generally be considered,
for Irish tax purposes, to have acquired their ordinary shares or ADSs at a base
cost equal to the amount paid for the ordinary shares or ADSs. On subsequent
dispositions, ordinary shares or ADSs acquired at an earlier time will generally
be deemed, for Irish tax purposes, to be disposed of on a "first in first out"
basis before ordinary shares or ADSs acquired at a later time.
44
Irish Holders that dispose of their ordinary shares or ADSs will be subject to
Irish capital gains tax (CGT) to the extent that the proceeds realised from such
disposition exceed the indexed base cost of the ordinary shares or ADSs disposed
of and any incidental expenses. The current rate of CGT is 20%. Indexation of
the base cost of the ordinary shares or ADSs will only be available up to
December 31, 2002, and only in respect of ordinary shares or ADSs held for more
than 12 months prior to their disposal.
Irish Holders that have unutilised capital losses from other sources in the
current, or any previous tax year, can generally apply such losses to reduce
gains realised on the disposal of the ordinary shares or ADSs.
An annual exemption allows individuals to realise chargeable gains of up to
(euro)1,270 in each tax year without giving rise to CGT. This exemption is
specific to the individual and cannot be transferred between spouses. Irish
Holders are required, under Ireland's self-assessment system, to file a tax
return reporting any chargeable gains arising to them in a particular tax year.
Where disposal proceeds are received in a currency other than euro they must be
translated into amounts to calculate the amount of any chargeable gain or loss.
Similarly, acquisition costs denominated in a currency other than euro must be
translated at the date of acquisition in euro amounts.
Irish Holders that realise a loss on the disposition of ordinary shares or ADSs
will generally be entitled to offset such allowable losses against capital gains
realised from other sources in determining their CGT liability in a year.
Allowable losses which remain unrelieved in a year may generally be carried
forward indefinitely for CGT purposes and applied against capital gains in
future years.
Transfers between spouses will not give rise to any chargeable gain or loss for
CGT purposes with the acquiring spouse acquiring the same pro rata base cost and
acquisition date as that of the transferring spouse.
US Holders will not be subject to Irish capital gains tax (CGT) on the disposal
of ordinary shares or ADSs provided that such ordinary shares or ADSs are quoted
on a stock exchange at the time of disposition. A stock exchange for this
purpose includes, among others, the Irish Stock Exchange (the ISE) or the Nasdaq
National Market (NASDAQ). While it is our intention to continue the quotation of
our ordinary shares on the ISE and the quotation of ADSs on NASDAQ, no
assurances can be given in this regard.
If, for any reason, our ADSs cease to be quoted on NASDAQ and our ordinary
shares cease to be quoted on the ISE, US Holders will not be subject to CGT on
the disposal of their ordinary shares or ADSs provided that the ordinary shares
or ADSs do not, at the time of the disposal, derive the greater part of their
value from land, buildings, minerals, or mineral rights or exploration rights in
Ireland.
A gift or inheritance of ordinary shares or ADSs will be within the charge to
capital acquisitions tax, regardless of where the disponer or the
donee/successor in relation to the gift/inheritance is domiciled, resident or
ordinarily resident. The capital acquisitions tax is charged at a rate of 20% on
the taxable value of the gift or inheritance above a tax-free threshold. This
tax-free threshold is determined by the amount of the current benefit and of
previous benefits, received within the group threshold since December 5, 1991,
which are within the charge to the capital acquisitions tax and the relationship
between the former holder and the successor. Gifts and inheritances between
spouses are not subject to the capital acquisitions tax. Gifts of up to
(euro)3,000 can be received each year from any given individual without
triggering a charge to capital acquisitions tax. Where a charge to Irish CGT and
capital acquisitions tax arises on the same event, capital acquisitions tax
payable on the event can be reduced by the amount of the CGT payable. There
should be no clawback of the same event credit of CGT offset against capital
acquisitions tax provided the donee/successor does not dispose of the ordinary
shares or ADRs within two years from the date of gift/inheritance.
The Estate Tax Convention between Ireland and the United States generally
provides for Irish capital acquisitions tax paid on inheritances in Ireland to
be credited, in whole or in part, against tax payable in the United States, in
the case where an inheritance of ordinary shares or ADSs is subject to both
Irish capital acquisitions tax and US federal estate tax. The Estate Tax
Convention does not apply to Irish capital acquisitions tax paid on gifts.
Irish stamp duty, which is a tax imposed on certain documents, is payable on all
transfers of ordinary shares (other than transfers made between spouses,
transfers made between 90% associated companies, or certain other exempt
transfers) regardless of where the document of transfer is executed. Irish stamp
duty is also payable on electronic transfers of ordinary shares.
A transfer of ordinary shares made as part of a sale or gift will generally be
stampable at the ad valorem rate of 1% of the value of the consideration
received for the transfer, or, if higher, the market value of the shares
transferred. A minimum stamp duty of (euro)1.00 will apply to a transfer of
ordinary shares. Where the consideration for a sale is expressed in a currency
other than euro, the duty will be charged on the euro equivalent calculated at
the rate of exchange prevailing at the date of the transfer.
45
Transfers of ordinary shares where no beneficial interest passes (e.g. a
transfer of shares from a beneficial owner to a nominee), will generally be
exempt from stamp duty if the transfer form contains an appropriate
certification, otherwise a nominal stamp duty rate of (euro)12.50 will apply.
Transfers of ADSs are exempt from Irish stamp duty as long as the ADSs are
quoted on any recognised stock exchange in the US or Canada.
Transfers of ordinary shares from the Depositary or the Depositary's custodian
upon surrender of ADSs for the purposes of withdrawing the underlying ordinary
shares from the ADS system, and transfers of ordinary shares to the Depositary
or the Depositary's custodian for the purposes of transferring ordinary shares
onto the ADS system, will be stampable at the ad valorem rate of 1% of the value
of the shares transferred if the transfer relates to a sale or contemplated sale
or any other change in the beneficial ownership of ordinary shares. Such
transfers will be exempt from Irish stamp duty if the transfer does not relate
to or involve any change in the beneficial ownership in the underlying ordinary
shares and the transfer form contains the appropriate certification. In the
absence of an appropriate certification, stamp duty will be applied at the
nominal rate of (euro)12.50.
The person accountable for the payment of stamp duty is the transferee or, in
the case of a transfer by way of gift or for consideration less than the market
value, both parties to the transfer. Stamp duty is normally payable within 30
days after the date of execution of the transfer. Late or inadequate payment of
stamp duty will result in liability for interest, penalties and fines.
DIVIDEND POLICY
Since its inception Trinity Biotech has not declared or paid dividends on its
'A' Ordinary Shares. Trinity Biotech anticipates, for the foreseeable future,
that it will retain any future earnings in order to fund the business operations
of the Company. The Company does not, therefore, anticipate paying any cash or
share dividends on its 'A' Ordinary Shares in the foreseeable future.
Any cash dividends or other distributions, if made, are expected to be made in
US Dollars, as provided for by the Articles of Association.
DOCUMENTS ON DISPLAY
This annual report and the exhibits thereto and any other document that we have
to file pursuant to the Exchange Act may be inspected without charge and copied
at prescribed rates at the Securities and Exchange Commission public reference
room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549; and on the
Securities and Exchange Commission Internet site (http://www.sec.gov). You may
obtain information on the operation of the Securities and Exchange Commission's
public reference room in Washington, D.C. by calling the Securities and Exchange
Commission at 1-800-SEC-0330 or by visiting the Securities and Exchange
Commission's website at http://www.sec.gov, and may obtain copies of our filings
from the public reference room by calling (202) 551-8090. The Exchange Act file
number for our Securities and Exchange Commission filings is 000-22320.
ITEM 11
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
QUALITATIVE INFORMATION ABOUT MARKET RISK
The Company's treasury policy is to manage financial risks arising in relation
to or as a result of underlying business needs. The activities of the treasury
function, which does not operate as a profit centre, are carried out in
accordance with board approved policies and are subject to regular internal
review. These activities include the Company making use of spot and forward
foreign exchange markets.
Trinity Biotech uses a range of financial instruments (including cash, bank
borrowings, convertible notes, promissory notes and finance leases) to fund its
operations. These instruments are used to manage the liquidity of the Company in
a cost effective, low-risk manner. Working capital management is a key
additional element in the effective management of overall liquidity. The Company
does not trade in financial instruments or derivatives.
The main risks arising from the utilisation of these financial instruments are
interest rate risk, liquidity risk and foreign exchange risk.
The Company's reported net income, net assets and gearing (net debt expressed as
a percentage of shareholders' equity) are all affected by movements in foreign
exchange rates.
46
The Company borrows in appropriate currencies at fixed and floating rates of
interest. Year-end borrowings, net of cash and cash equivalents and restricted
cash totalled US$8,247,000 (2004: US$2,393,000) at interest rates ranging from
3% to 5.65% and including US$9,715,000 of fixed rate debt at interest rates
ranging from 3% to 5% (2004: US$16,680,000 at interest rates ranging from 5% to
6.60%). In broad terms, a one-percentage point increase in interest rates would
increase interest income by US$189,000 (2004: US$223,000) and increase the
interest expense by US$174,000 (2004: US$73,000).
Long-term borrowing requirements are met by funding in the US and Ireland.
Short-term borrowing requirements are primarily drawn under committed bank
facilities. At the year-end, 55% of gross debt fell due for repayment within one
year.
The majority of the Group's activities are conducted in US Dollars. The primary
foreign exchange risk arises from the fluctuating value of the Group's euro
denominated expenses as a result of the movement in the exchange rate between
the US Dollar and the euro. Arising from this, the Group pursues a treasury
policy which aims to sell US Dollars forward to match a portion of its uncovered
euro expenses at exchange rates lower than budgeted exchange rates. These
forward contracts are cashflow hedging instruments whose objective is to cover a
portion of these euro forecasted transactions. With an increasing level of euro
denominated sales, the Group anticipates that, over the next three years, a
higher proportion of its non-US Dollar expenses will be matched by non-US Dollar
revenues. The Group had foreign currency denominated cash balances equivalent to
US$1,486,000 at December 31, 2005 (2004: US$874,000).
QUANTITATIVE INFORMATION ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
The Company monitors its exposure to changes in interest and exchange rates by
estimating the impact of possible changes on reported profit before tax and net
worth. The Company accepts interest rate and currency risk as part of the
overall risks of operating in different economies and seeks to manage these
risks by following the policies set above.
The Company estimates that the maximum effect of a rise of one percentage point
in one of the principal interest rates to which the Company is exposed, without
making any allowance for the potential impact of such a rise on exchange rates,
would be an increase in profit before tax for 2005 of less than 1%.
The table below provides information about the Company's long term debt
obligations that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates. Weighted average variable rates are based on rates set at the
balance sheet date. The information is presented in US Dollars, which is the
Company's reporting currency. The actual currencies of the instruments are as
indicated.
MATURITY AFTER FAIR
BEFORE DECEMBER 31 2006 2007 2008 2009 2010 2011 TOTAL VALUE
LONG-TERM DEBT
Variable rate - US$000 7,462 2,488 2,488 2,488 2,487 - 17,413 17,413
Average interest rate 5.11% 5.11% 5.11% 5.11% 5.11% - 5.11%
Fixed rate - US$000 7,460 2,057 193 4 - - 9,714 9,684
Average interest rate 3.08% 3.23% 5.07% 5.0% - - 3.15%
EXCHANGE RATE SENSITIVITY
At year-end 2005, approximately 8% of the Company's US$133,618,000 net worth
(shareholders' equity) was denominated in currencies other than the US Dollar,
principally the euro.
A strengthening or weakening of the US Dollar by 10% against all the other
currencies in which the Company operates would not materially reduce the
Company's 2005 year-end net worth.
ITEM 12
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
47
PART II
ITEM 13
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15
CONTROL AND PROCEDURES
During the annual report period, we carried out an evaluation, under the
supervision and with the participation of our senior management, including Chief
Executive Officer, Ronan O'Caoimh, and Chief Financial Officer, Rory Nealon, of
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13(a)-14(c) of the Securities Exchange Act of 1934.
Disclosure controls and procedures are designed to ensure that the material
financial and non-financial information required to be disclosed in this Form
20-F filed with the SEC is recorded, processed, summarised and reported timely.
In designing and evaluating the disclosure controls and procedures, management
recognised that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, rather than absolute, assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgement in evaluating the cost-benefit relationship of
possible controls and procedures. Based upon that evaluation, our management,
including the Chief Executive Officer and Chief Financial Officer, concluded
that our disclosure controls and procedures, are effective in timely alerting
them to material information relating to us which is required to be included in
the our periodic SEC filings.
There have been no significant changes in our internal controls over financial
reporting or other factors, which could significantly affect internal controls
over financial reporting subsequent to the date of the evaluation. Therefore no
corrective actions were taken.
During the audit of the 2004 financial statements, the Company's auditors
identified a material weakness relating to the Company's interpretation and
appropriate application of generally accepted accounting principles (GAAP). As a
result of this the Company has reviewed the method by which GAAP is both
interpreted and applied in the preparation of its financial statements.
Regarding the items specifically mentioned in the Form 20-F for 2004 the Company
1. amended its procedures to ensure that, in the event of bill and hold
arrangements, revised fixed delivery schedules are provided by
customers; and
2. where, in response to market forces existing in some jurisdictions
it sells instruments to customers at a price which is less than
manufacturing cost with a view to recouping those initial discounts
from the future sale of reagents. Instead the Company now recognises
these discounts in the period in which the sale occurs.
ITEM 16
16A AUDIT COMMITTEE FINANCIAL EXPERT
Mr Peter Coyne is an independent director and a member of the audit committee.
Our board of directors has determined that Mr Peter Coyne meets the definition
of an audit committee financial expert, as defined in Item 401 of Regulation
S-K.
This determination is made on the basis that Mr Coyne is a Fellow of the
Institute of Chartered Accountants in Ireland and Mr Coyne was formerly a senior
manager in Arthur Andersen's Corporate Financial Services practice. Mr Coyne is
currently a director of AIB Corporate Finance, a subsidiary of AIB Group plc,
the Irish banking group and has extensive experience in advising public and
private groups on all aspects of corporate strategy.
16B CODE OF ETHICS
We have adopted a code of ethics that applies to our chief executive officer,
chief financial officer, corporate controller and other finance organisation
employees. Written copies of the code of ethics are available free of charge
upon request. If we make any substantive amendments to the code of ethics or
grant any waivers, including any implicit waiver, from a provision of these
codes to our chief executive officer, chief financial officer or corporate
controller, we will disclose the nature of such amendment or waiver on our
website.
48
16C PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees Billed by Independent Public Accountants
The following table sets forth, for each of the years indicated, the fees billed
by our independent public accountants and the percentage of each of the fees out
of the total amount billed by the accountants.
Year ended
December 31, 2004 Year ended December 31,
2005
Ernst & Young Ernst &
Services Fees Young Fees KPMG fees Total Fees
rendered US$'000 % US$'000 US$'000 US$'000 %
Audit 419 91% 511** - 511 70%
Audit-related 25* 5% - 108 108* 15%
Tax 17 4% - 106 106 15%
--------------- -------------- --------------- ----------------
Total 461 511 214 725
--------------- -------------- --------------- ----------------
* includes capitalised costs of acquisition.
**Audit fees billed by Ernst & Young in 2005 relate to the audit of the 2004
financial statements.
PRE-APPROVAL POLICIES AND PROCEDURES
Our Audit Committee has adopted a policy and procedures for the pre-approval of
audit and non-audit services rendered by our independent public accountants,
Ernst & Young and KPMG. The policy generally pre-approves certain specific
services in the categories of audit services, audit-related services, and tax
services up to specified amounts, and sets requirements for specific
case-by-case pre-approval of discrete projects, those which may have a material
effect on our operations or services over certain amounts. Pre-approval may be
given as part of the Audit Committee's approval of the scope of the engagement
of our independent auditor or on an individual basis. The pre-approval of
services may be delegated to one or more of the Audit Committee's members, but
the decision must be presented to the full Audit Committee at its next scheduled
meeting. The policy prohibits retention of the independent public accountants to
perform the prohibited non-audit functions defined in Section 201 of the
Sarbanes-Oxley Act or the rules of the SEC, and also considers whether proposed
services are compatible with the independence of the public accountants.
EXEMPTIONS FROM THE LISTING REQUIREMENTS AND STANDARDS FOR AUDIT COMMITTEE
Not applicable.
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATES AND PURCHASERS
The following table sets forth, for each of the months indicated, the total
number of shares purchased by us or on our behalf or any affiliated purchaser,
the average price paid per share, the number of shares purchased as part of a
publicly announced repurchase plan or program, the maximum number of shares or
approximate US Dollar value that may yet be purchased under the plans or
programs.
TOTAL NUMBER OF
SHARES PURCHASED AS MAXIMUM NUMBER OF
PART OF PUBLICLY SHARES THAT MAY YET
TOTAL NUMBER OF AVERAGE PRICE PAID ANNOUNCED PLANS OR BE PURCHASED UNDER
PERIOD IN 2005 SHARES PURCHASED PER SHARE PROGRAMS THE PLANS OR PROGRAMS
-------------- ---------------- ------------------- -------------------- ---------------------
January - - - 5,186,266
February - - - 5,186,266
March - - - 5,186,266
April - - - 5,186,266
May - - - 5,186,266
June - - - 5,633,037
July - - - 5,633,037
August - - - 5,633,037
September - - - 5,633,037
October - - - 5,633,037
November - - - 5,633,037
December - - - 5,633,037
49
PART III
ITEM 17
FINANCIAL STATEMENTS
The registrant has responded to Item 18 in lieu of responding to this item.
ITEM 18
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Trinity Biotech plc
We have audited the accompanying consolidated balance sheet of Trinity Biotech
plc and subsidiaries ("the Company") as of December 31, 2005, and the related
consolidated statements of income, recognised income and expense and cash flows
for the year ended December 31, 2005. In connection with an audit of the
consolidated financial statements, we have also audited the accompanying
financial statements schedule II. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Trinity Biotech
plc and subsidiaries at December 31, 2005, and the consolidated statements of
income, recognised income and expense and cash flows for the year ended December
31, 2005 in conformity with International Financial Reporting Standards as
adopted by the European Union, which differ in certain respects from U.S.
generally accepted accounting principles (see Note 35 to the consolidated
financial statements). Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG
Dublin, Ireland
March 31, 2006
1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Trinity Biotech plc
We have audited the accompanying consolidated balance sheet of Trinity Biotech
plc (the "Company") as of December 31, 2004, and the related consolidated income
statements, recognised income and expense, and cash flows for the year ended
December 31, 2004. Our audit also included the financial statement schedule
included at Item 18. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing 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 over financial reporting. Accordingly we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Trinity Biotech
plc at December 31, 2004, and the consolidated results of its operations and its
cash flows for the year ended December 31, 2004 in conformity with International
Financial Reporting Standards as adopted by the European Union, which differ in
certain respects from U.S. generally accepted accounting principles (see Note 35
to the consolidated financial statements). Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 35 to the consolidated financial statements, certain
financial statement footnote disclosures relating to earnings per share,
restricted cash and stock-based compensation accounted for in accordance with
U.S. generally accepted accounting principles have been restated for the matters
set forth therein.
Ernst & Young
Dublin, Ireland
March 31, 2006
2
CONSOLIDATED INCOME STATEMENTS
Year ended December 31,
2005 2004
US$'000 US$'000
Notes
Revenues 2 98,560 80,008
Cost of sales -- including share-based payments (note 19) of US$110,000
(2004: US$81,000) (51,378) (40,047)
------------------ -------------------
GROSS PROFIT 47,182 39,961
Other operating income 4 161 302
Research and development expenses -- including share-based payments (note
19) of US$210,000 (2004: US$96,000) (6,070) (4,744)
Selling, general and administrative expenses -- including share-based
payments (note 19) of US$1,048,000 (2004: US$581,000) (34,651) (29,332)
------------------ -------------------
OPERATING PROFIT 6,622 6,187
------------------ -------------------
Financial income 3 389 302
Financial expenses 2, 3 (1,058) (824)
------------------ -------------------
NET FINANCING COSTS (669) (522)
------------------ -------------------
PROFIT BEFORE TAX 5 5,953 5,665
Income tax (expense) / credit 2, 8 (673) 49
------------------ -------------------
PROFIT FOR THE YEAR (ALL ATTRIBUTABLE TO EQUITY HOLDERS) 2 5,280 5,714
================== ===================
Basic earnings per ordinary share (US Dollars) 9 0.09 0.10
Diluted earnings per ordinary share (US Dollars) 9 0.09 0.09
Basic earnings per ADS (US Dollars) 9 0.36 0.41
Diluted earnings per ADS (US Dollars) 9 0.35 0.37
3
CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE
Year ended December 31,
2005 2004
Notes US$'000 US$'000
Foreign exchange translation differences 18 (1,740) 118
Cash flow hedges:
Effective portion of changes in fair value 18 (295) -
Deferred tax on income and expenses recognised directly in 18
equity 41 -
------------------ --------------------
NET (EXPENSE) / INCOME RECOGNISED DIRECTLY IN EQUITY (1,994) 118
Recycled to the income statement 18 (183) -
Profit for the year 2 5,280 5,714
------------------ --------------------
TOTAL RECOGNISED INCOME AND EXPENSE (ALL ATTRIBUTABLE TO
EQUITY HOLDERS) 3,103 5,832
================== ====================
EFFECT OF CHANGE IN ACCOUNTING POLICY
Effect of adoption of IAS 32 and 39 on January 1, 2005 on:
Share premium (3,779)
Hedging reserve 373
Convertible notes equity component 164
Warrant reserve 3,803
Retained earnings (297)
------------------- --------------------
18 264
=================== ====================
As more fully explained in note 1 (a), financial instrument accounting including
the effect of deferred tax is determined on different bases in the current year
and the comparative year due to the transitional provisions of IAS 32 and 39.
4
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2005 2004
Notes US$'000 US$'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 10 19,202 16,017
Goodwill and intangible assets 11 85,197 63,554
Deferred tax assets 12 3,277 2,476
Investment in associate 30 - -
Other assets 13 61 35
------------------ -----------------
TOTAL NON-CURRENT ASSETS 107,737 82,082
------------------ -----------------
CURRENT ASSETS
Inventories 14 36,450 37,519
Trade and other receivables 15 20,885 13,337
Income tax receivable 649 815
Financial assets - restricted cash 16 9,000 7,148
Cash and cash equivalents 17 9,881 15,139
------------------ -----------------
TOTAL CURRENT ASSETS 76,865 73,958
------------------ -----------------
------------------ -----------------
TOTAL ASSETS 2 184,602 156,040
================== =================
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT
Share capital 18 830 776
Share premium 18 124,227 120,444
Retained earnings 18 6,280 (71)
Translation reserve 18 (1,622) 118
Other reserves 18 3,903 (2,373)
------------------ -----------------
TOTAL EQUITY 133,618 118,894
------------------ -----------------
CURRENT LIABILITIES
Interest-bearing loans and borrowings 20 7,720 4,056
Convertible notes-interest bearing 21 7,203 7,031
Income tax payable 260 792
Trade and other payables 22 12,768 8,569
Other financial liabilities 23 3,707 -
Derivative financial instruments 31 44 -
Provisions 24 199 62
------------------ -----------------
TOTAL CURRENT LIABILITIES 31,901 20,510
------------------ -----------------
NON-CURRENT LIABILITIES
Interest-bearing loans and borrowings 20 10,369 4,135
Convertible notes-interest bearing 21 1,836 8,788
Other income tax payable 48 161
Other payables 25 102 35
Deferred tax liabilities 12 6,728 3,517
------------------ -----------------
TOTAL NON-CURRENT LIABILITIES 19,083 16,636
------------------ -----------------
TOTAL LIABILITIES 2 50,984 37,146
------------------ -----------------
------------------ -----------------
TOTAL EQUITY AND LIABILITIES 184,602 156,040
================== =================
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
2005 2004
Notes US$'000 US$'000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the year 5,280 5,714
Adjustments to reconcile net profit to cash provided by
operating activities:
Depreciation 2,434 1,629
Amortisation 1,803 1,111
Income tax expense / (credit) 673 (49)
Financial income (389) (302)
Financial expense 1,058 824
Share-based payments 1,368 758
Foreign exchange losses on operating cash flows (292) (131)
Loss on disposal / retirement of property, plant and
equipment 469 14
Other non-cash items 232 76
---------------- -------------
OPERATING CASH FLOWS BEFORE CHANGES IN WORKING CAPITAL
12,636 9,644
(Increase) / decrease in trade and other receivables (8,034) 1,447
Decrease / (increase) in inventories 1,311 (5,883)
Increase / (decrease) in trade and other payables 4,689 (2,419)
---------------- -------------
CASH GENERATED FROM OPERATIONS 10,602 2,789
Interest paid (972) (931)
Interest received 371 291
Income taxes paid (792) (1,666)
---------------- -------------
NET CASH FROM OPERATING ACTIVITIES 9,209 483
================ =============
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire subsidiaries and businesses 26 (13,129) (19,090)
Cash received with subsidiary 127 -
Payments to acquire intangible assets (5,509) (3,601)
(Acquisition) / disposal of financial assets (1,852) 10,852
Proceeds from disposal of property, plant and equipment 4 31
Acquisition of property, plant and equipment (4,039) (3,824)
---------------- -------------
NET CASH FROM INVESTING ACTIVITIES (24,398) (15,632)
================ =============
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of ordinary share capital 4,755 31,708
Proceeds from borrowings, short-term debt 1,800 -
Proceeds from borrowings, long-term debt 7,200 -
Expenses paid in connection with share issue and debt
financing (195) (2,238)
Repayment of long-term debt (1,217) (2,214)
Proceeds from new finance leases 154 -
Payment of finance lease liabilities (348) (267)
Issue of convertible debentures - 5,000
Repayment of convertible debt (1,822) (1,822)
Repayment of other financial liabilities (648) (2,675)
---------------- -------------
NET CASH INFLOW FROM FINANCING ACTIVITIES 9,679 27,492
================ =============
(Decrease) / increase in cash and cash equivalents (5,510) 12,343
Effects of exchange rate movements on cash held 252 233
Cash and cash equivalents at beginning of year 15,139 2,563
---------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 17 9,881 15,139
================ =============
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
1. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted by Trinity Biotech plc, its
subsidiaries, and its interest in jointly controlled entities and its associate
("the Group"), are as follows:
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU. IFRS as
adopted by the EU differ in certain respects from IFRS as issued by the
International Accounting Standards Board ("IASB"). However, as none of these
differences are relevant in the context of Trinity Biotech, the consolidated
financial statements for the periods presented would be no different had IFRS as
endorsed by the IASB been applied. These are the Group's first consolidated
financial statements prepared under IFRS as adopted by the EU and IFRS 1 has
been applied. The Group has availed of the exemption in IFRS 1 and is not
presenting comparative information for convertible notes and derivative
financial instruments. The transition date for compliance with IAS 32 and IAS 39
is January 1, 2005 and the comparative information for convertible notes and
derivative financial instruments is presented under IFRS in line with Irish GAAP
(Irish Generally Accepted Accounting Principles).
An explanation of how the transition to IFRS as adopted by the EU, with the
exception of exemptions taken in accordance under IFRS 1, from the old basis of
accounting, Irish GAAP ("Previous GAAP"), has affected the reported financial
position, financial performance and cash flows of the Group is provided in note
33. This note also outlines the principal exemptions availed of by the Group on
transition to IFRS as adopted by the EU.
The effect on the balance sheet as at January 1, 2005 resulting from the
adoption of IAS 32 and IAS 39 As permitted under the transition arrangements of
IFRS the Company has implemented the provisions of IAS 32 and IAS 39 as at
January 1, 2005. The following adjustments necessary to implement the revised
policy have been made as at January 1, 2005 with the net adjustment, to net
assets, shown in the 2005 statement of recognised income and expense.
Corresponding amounts for 2004 are presented and disclosed under IFRS in line
with Previous GAAP. For further information see note 33.
The following are the impacts on the individual balance sheet
assets/(liabilities) as at January 1, 2005:
January 1, 2005
US$'000
Convertible debentures (85)
Derivative financial instruments 418
Deferred tax liability (69)
------------------
Impact on net assets 264
==================
Share premium (3,779)
Other reserves - convertible notes equity component 164
Other reserves - hedging reserve 373
Other reserves - warrant reserve 3,803
Retained earnings (297)
------------------
264
==================
The effect on the income statement and the statement of recognised income and
expense in the year resulting from the adoption of IAS 32 and IAS 39
The effect on the current year income statement of the adoption of IAS 32 and
IAS 39 is to:
o Increase charges by US$64,000 in respect of the separate recognition
of the equity component of convertible notes.
o Recognition of a gain of US$20,000 as the ineffective element of the
hedge in the income statement.
o A decrease in the deferred tax charge of US$17,000.
o The net effect on the Group is to reduce profit by US$27,000.
The effect on the current year statement of recognised income and expense of the
new policies adopted is:
o Losses arising on the effective portion of cash flow hedges, losses
recycled to the income statement for the period in respect of hedged
transactions and the associated movement in deferred tax, result in a
net loss of US$437,000 in the Group, being taken directly to the
hedging reserve.
7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
0 The effect of implementing the new policies on January 1, 2005 has
resulted in a net credit directly to equity of US$264,000. See note
18.
b) Basis of preparation
The consolidated financial statements have been prepared in United States
Dollars (US$), rounded to the nearest thousand, under the historical cost
basis of accounting, except derivative financial instruments and
share-based payments which are stated at fair value.
The preparation of financial statements in conformity with IFRS as adopted by
the EU requires management to make judgements, estimates and assumptions that
affect the application of policies and amounts reported in the financial
statements and accompanying notes. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period of
the revision and future periods if the revision affects both current and future
periods.
Judgements made by management that have a significant effect on the financial
statements and estimates with a significant risk of material adjustment in the
next year are discussed in note 32.
The accounting policies set out below, with the exception of the accounting
policies relating to financial instruments and convertible notes have been
applied consistently to all periods presented in these consolidated financial
statements and in preparing an opening IFRS as adopted by the EU balance sheet
at January 1, 2004 for the purposes of the transition to IFRS as adopted by the
EU, except that the Group has availed of the exemption in IFRS 1 and is not
presenting comparative information for convertible notes and financial
instruments under IFRS as adopted by the EU. The transition date for compliance
with IAS 32 and IAS 39 is January 1, 2005 and the comparative information
(convertible notes (note 1(m)) and derivative financial instruments (note 1(s))
is presented under IFRS in line with Previous GAAP. See note 33 for an
explanation of the transition to IAS 32 and IAS 39 from January 1, 2005.
The accounting policies have been applied consistently by all Group entities.
c) Basis of consolidation
SUBSIDIARIES
Subsidiaries are entities controlled by the Company. Control exists when the
Company has the power, directly or indirectly, to govern the financial and
reporting policies of an entity so as to obtain benefits from its activities. In
assessing control, potential voting rights that presently are exercisable or
convertible are taken into account. The financial statements of subsidiaries are
included in the consolidated financial statements from the date that control
commences until the date that control ceases.
ASSOCIATES
Associates are those entities in which the Group has significant influence, but
not control, over the financial and operating policies. The consolidated
financial statements include the Group's share of the total recognised income
and expenses of associates on an equity accounted basis, from the date that
significant influence commences until the date that significant influence
ceases. When the Group's share of losses exceeds its interest in an associate,
the Group's carrying amount is reduced to nil and recognition of further losses
is discontinued except to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of an associate.
JOINT VENTURE ENTITIES
Joint ventures are those entities over whose activities the Group has joint
control, established by contractual agreement. The consolidated financial
statements include the Group's proportionate share of the entities' assets,
liabilities, revenues and expenses with items of a similar nature on a line by
line basis, from the date that joint control commences until the date that joint
control ceases.
TRANSACTIONS ELIMINATED ON CONSOLIDATION
Intragroup balances and any unrealised gains or losses or income and expenses
arising from intragroup transactions are eliminated in preparing the
consolidated financial statements. Unrealised gains arising from transactions
with associates and jointly controlled entities are eliminated to the extent of
the Group's interest in the entity. Unrealised losses are eliminated in the same
way as unrealised gains, but only to the extent that there is no evidence of
impairment.
8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
d) Property, plant and equipment
OWNED ASSETS
Items of property, plant and equipment are stated at cost less any accumulated
depreciation and any impairment losses (see note 1(e)). The cost of
self-constructed assets includes the cost of materials, direct labour and
attributable overheads. It is not Group policy to revalue any items of property,
plant and equipment. Depreciation is charged to the income statement on a
straight-line basis to write-off the cost of the assets over their expected
useful lives as follows:
o Leasehold improvements 5-10 years
o Office equipment and fittings 10 years
o Buildings 50 years
o Computer equipment 3-5 years
o Plant and equipment 5-10 years
Land is not depreciated. The residual values, if not insignificant, useful lives
and depreciation methods of property, plant and equipment are reviewed and
adjusted if appropriate, at each balance sheet date.
LEASED ASSETS - AS LESSEE
Leases under terms of which the Group assumes substantially all the risks and
rewards of ownership are classified as finance leases. Property, plant and
equipment acquired by way of finance lease is stated at an amount equal to the
lower of its fair value and present value of the minimum lease payments at
inception of the lease, less accumulated depreciation and any impairment losses.
Depreciation is calculated in order to write-off the amounts capitalised over
the estimated useful lives of the assets, or the lease term if shorter, by equal
annual instalments. The excess of the total rentals under a lease over the
amount capitalised is treated as interest, which is charged to the income
statement in proportion to the amount outstanding under the lease. Leased assets
are reviewed for impairment (see note 1(e)).
Leases other than finance leases are classified as "operating leases", and the
rentals thereunder are charged to the income statement on a straight line basis
over the period of the leases. Lease incentives are recognised in the income
statement on a straight-line basis over the lease term.
LEASED ASSETS - AS LESSOR
Leases where the Group substantially transfers the risks and benefits of
ownership of the asset to the customer are classified as finance leases within
finance lease receivables. The Group recognises the amount receivable from
assets leased under finance leases at an amount equal to the net investment in
the lease. Finance lease income is recognised in the income statement reflecting
a constant periodic rate of return on the Group's net investment in the lease.
Assets provided to customers under leases other than finance leases are
classified as operating leases and carried in property, plant and equipment at
cost and are depreciated on a straight line basis over the term of the lease.
SUBSEQUENT COSTS
The Group recognises in the carrying amount of an item of property, plant and
equipment the cost of replacing part of such an item when that cost is incurred
if it is probable that the future economic benefits embodied within the item
will flow to the Group and the cost of the item can be measured reliably. All
other costs are recognised in the income statement as an expense as incurred.
e) Business combinations
All business combinations are accounted for by applying the purchase method.
The Group has elected to avail of the exemption under IFRS 1, First-time
adoption of International Financial Reporting Standards, whereby business
combinations prior to the transition date, January 1, 2004, are not restated.
IFRS 3, Business Combinations, has been applied with effect from the transition
date and goodwill amortisation ceased from that date.
The cost of a business combination is measured as the aggregate of the fair
values at the date of exchange of assets given, liabilities incurred or assumed
and equity instruments issued in exchange for control together with any directly
attributable expenses. To the extent that settlement of all or any part of a
business combination is deferred beyond a period of 12 months, the fair value of
the deferred component is determined through discounting the amounts payable to
their present value at the date of exchange. The discount component is unwound
as an interest charge in the income statement over the life of the obligation.
Where a business combination agreement provides for an adjustment to the cost of
the combination contingent on future events, the estimated amount of the
adjustment is included in the cost at the acquisition date if the adjustment can
be reliably measured.
9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
When the initial accounting for a business combination is determined
provisionally, any subsequent adjustments to the provisional values allocated to
the identifiable assets, liabilities and contingent liabilities are made within
twelve months of the acquisition date and treated retrospectively as an
adjustment to goodwill.
f) Goodwill
In respect of business combinations that have occurred since January 1, 2004
(being the transition date to IFRS), goodwill represents the difference between
the cost of the acquisition and the fair value of the net identifiable assets
acquired.
In respect of acquisitions prior to this date, goodwill is included on the basis
of its deemed cost, which represents the amount recorded under Previous GAAP.
Save for retrospective restatement of deferred tax as an adjustment to retained
earnings in accordance with IAS 12, Income Taxes, the classification and
accounting treatment of business combinations undertaken prior to the transition
date has not been reconsidered in preparing the Group's opening IFRS balance
sheet as at January 1, 2004.
To the extent that the Group's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities acquired exceeds the
cost of a business combination, the identification and measurement of the
related assets, liabilities and contingent liabilities are revisited accompanied
by a reassessment of the cost of the transaction, and any remaining balance is
immediately recognised in the income statement.
As at the acquisition date, any goodwill is allocated to each of the cash
generating units expected to benefit from the combination's synergies. Following
initial recognition, goodwill is stated at cost less any accumulated impairment
losses (see note 1(e)). In respect of the associates and the joint venture
entity, goodwill is included in the carrying amount of the investment.
g) Intangibles, including research and development (other than goodwill)
An intangible asset, which is an identifiable non-monetary asset without
physical substance, is recognised to the extent that it is probable that the
expected future economic benefits attributable to the asset will flow to the
Group and that its cost can be measured reliably. The asset is deemed to be
identifiable when it is separable (that is, capable of being divided from the
entity and sold, transferred, licensed, rented or exchanged, either individually
or together with a related contract, asset or liability) or when it arises from
contractual or other legal rights, regardless of whether those rights are
transferable or separable from the Group or from other rights and obligations.
Intangible assets acquired as part of a business combination are capitalised
separately from goodwill if the intangible asset meets the definition of an
asset and the fair value can be reliably measured on initial recognition.
Subsequent to initial recognition, these intangible assets are carried at cost
less any accumulated amortisation and any accumulated impairment losses (note
1(e)). Definite lived intangible assets are reviewed for indicators of
impairment annually while indefinite lived assets are tested for impairment
annually, either individually or at the cash generating unit level.
Research and development
Expenditure on research activities, undertaken with the prospect of gaining new
scientific or technical knowledge and understanding, is recognised in the income
statement as an expense as incurred. Expenditure on development activities,
whereby research findings are applied to a plan or design for the production of
new or substantially improved products and processes, is capitalised if the
product or process is technically and commercially feasible and the Group has
sufficient resources to complete the development. The expenditure capitalised
includes the cost of materials, direct labour and attributable overheads and
third party costs. Subsequent expenditure on capitalised intangible assets is
capitalised only when it increases the future economic benefits embodied in the
specific asset to which it relates. All other development expenditure is
expensed as incurred. Subsequent to initial recognition, the capitalised
development expenditure is carried at cost less any accumulated amortisation and
any accumulated impairment losses (note 1(e)).
Expenditure on internally generated goodwill and brands is recognised in the
income statement as an expense as incurred.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over
the estimated useful lives of intangible assets, unless such lives are
indefinite. Goodwill, intangible assets with an indefinite useful life and
intangible assets that are not yet available for use are systematically tested
for impairment at each balance sheet date. Other intangible assets are amortised
from the date they are available for use. The estimated useful lives are as
follows:
o Patents and licences 6-15 years
o Capitalised development costs 15 years
o Other (including acquired customer and supplier lists) 6-15 years
10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Certain trade names acquired are deemed to have an indefinite useful life.
Where amortisation is charged on assets with finite lives, this expense is taken
to the income statement through the 'selling, general and administrative
expenses' line.
Useful lives are examined on an annual basis and adjustments, where applicable,
are made on a prospective basis.
h) Impairment
The carrying amount of the Group's assets, other than inventories and deferred
tax assets, are reviewed at each balance sheet date to determine whether there
is any indication of impairment. If any such indication exists, the asset's
recoverable amount (being the greater of fair value less costs to sell and value
in use) is assessed at each balance sheet date.
Fair value less costs to sell is defined as the amount obtainable from the sale
of an asset or cash-generating unit in an arm's length transaction between
knowledgeable and willing parties, less the costs that would be incurred in
disposal. Value in use is defined as the present value of the future cash flows
expected to be derived through the continued use of an asset or cash-generating
unit. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the future cash flow estimates have not yet been adjusted. The
estimates of future cash flows exclude cash inflows or outflows attributable to
financing activities and income tax. For an asset that does not generate largely
independent cash flows, the recoverable amount is determined by reference to the
cash generating unit to which the asset belongs.
For goodwill, assets that have an indefinite useful life and intangible assets
that are not yet available for use, the recoverable amount is estimated at each
balance sheet date at the cash generating unit level.
Goodwill and indefinite-lived assets were tested for impairment at January 1,
2004, the date of transition to IFRS as adopted by the EU, and no impairment
resulted from this exercise. The goodwill and indefinite-lived assets were also
reviewed for impairment at December 31, 2004 and December 31, 2005. No
impairment resulted from these exercises.
An impairment loss is recognised whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. Impairment losses are
recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to cash-generating
units and then to reduce the carrying amount of other assets in the unit on a
pro-rata basis.
An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net
of depreciation or amortisation, if no impairment loss had been recognised.
An impairment loss in respect of goodwill is not reversed.
Following recognition of any impairment loss (and on recognition of an
impairment loss reversal), the depreciation charge applicable to the asset or
cash generating unit is adjusted prospectively with the objective of
systematically allocating the revised carrying amount, net of any residual
value, over the remaining useful life.
i) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
based on the first-in, first-out principle and includes all expenditure which
has been incurred in bringing the products to their present location and
condition, and includes an appropriate allocation of manufacturing overhead
based on the normal level of operating capacity. Net realisable value is the
estimated selling price of inventory on hand in the ordinary course of business
less all further costs to completion and costs expected to be incurred in
selling these products.
j) Trade and other receivables
Trade and other receivables are stated at their amortised cost less impairment
losses incurred. Cost approximates fair value given the short dated nature of
these assets. The Group had an allowance for impairment losses incurred of
approximately US$587,000 as at December 31, 2005 (2004: US$462,000).
k) Trade and other payables
Trade and other payables are stated at cost.
l) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits with a
maturity of three months or less. The Group has no short-term bank overdraft
facilities.
11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Where restrictions are imposed by third parties, such as lending institutions,
on cash balances held by the Group these are treated as financial assets in the
financial statements.
m) Interest-bearing loans and borrowings
LOANS AND BORROWINGS, INCLUDING PROMISSORY NOTES
From January 1, 2005 under IFRS as adopted by the EU, interest-bearing loans,
borrowings and promissory notes are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost, with any difference
between cost and redemption value being recognised in the income statement over
the period of the borrowings on an effective interest basis.
As at December 31, 2004, in line with Previous GAAP interest-bearing loans,
borrowings and promissory notes are recognised and carried at cost less
attributable transaction costs.
CONVERTIBLE NOTES
From January 1, 2005 under IFRS as adopted by the EU, convertible notes that can
be converted into share capital at the option of the holder, where the number of
shares issued does not vary with changes in their fair value, are accounted for
as compound financial instruments. Transaction costs that relate to the issue of
a compound financial instrument are allocated to the liability and equity
components in proportion to the allocation of proceeds. The equity component of
the convertible notes is calculated as the excess of the issue proceeds over the
present value of the future interest and principal payments, discounted at the
market rate of interest applicable to similar liabilities that do not have a
conversion option. The interest expense recognised in the income statement is
calculated using the effective interest rate method.
The Group has availed of the exemption in IFRS 1 from presenting its financial
instruments and convertible notes in the comparative information in accordance
with IAS 32 and IAS 39. The transition date for compliance with IAS 32 and IAS
39 is January 1, 2005 and the comparative information is presented under IFRS in
line with Previous GAAP.
To the extent that the liability element of a compound financial instrument was
no longer outstanding at January 1, 2005, the date of transition to IFRS as
adopted by the EU for IAS 32 and IAS 39, the Group has availed of the exemption
in IFRS 1 and the amounts within equity that are attributable to the equity and
liability elements have not been identified separately.
As at December 31, 2004, in line with Previous GAAP convertible notes are
recognised and carried at cost less attributable transaction costs.
n) Share-based payments
For equity-settled share-based payments (for share options), the Group measures
the services received and the corresponding increase in equity at fair value at
the measurement date (which is the grant date) using a trinomial model. Given
that the share options granted do not vest until the completion of a specified
period of service, the fair value, which is assessed at the grant date, is
recognised on the basis that the services to be rendered by employees as
consideration for the granting of share options will be received over the
vesting period.
The share options issued by the Company are not subject to market-based vesting
conditions as defined in IFRS 2, Share-based Payments. Non-market vesting
conditions are not taken into account when estimating the fair value of share
options as at the grant date; such conditions are taken into account through
adjusting the number of equity instruments included in the measurement of the
transaction amount so that, ultimately, the amount recognised equates to the
number of equity instruments that actually vest. The expense in the income
statement in relation to share options represents the product of the total
number of options anticipated to vest and the fair value of those options; this
amount is allocated to accounting periods on a straight-line basis over the
vesting period. Given that the performance conditions underlying the Group's
share options are non-market in nature, the cumulative charge to the income
statement is only reversed where the performance condition is not met or where
an employee in receipt of share options relinquishes service prior to completion
of the expected vesting period.
The proceeds received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when the options are
exercised.
In line with the transitional provisions applicable to a first-time adopter of
IFRS as adopted by the EU as contained in IFRS 2, the Group has elected to
implement the measurement requirements of the IFRS as adopted by the EU in
respect of share options that were granted after November 7, 2002 that had not
vested as at the effective date of the standard (January 1, 2005). In accordance
with the standard, the disclosure requirements of IFRS 2 have been applied in
relation to all outstanding share options and warrants regardless of their grant
date.
12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The Group does not operate any cash-settled share-based payment schemes or
share-based payment transactions with cash alternatives as defined in IFRS 2.
o) Government grants
Grants that compensate the Group for expenses incurred such as research and
development, employment and training grants are recognised as revenue in the
income statement on a systematic basis in the same periods in which the expenses
are incurred. Grants that compensate the Group for the cost of an asset are
recognised in the income statement as other operating income on a systematic
basis over the useful life of the asset.
p) Revenue recognition
GOODS SOLD AND SERVICES RENDERED
Revenue from the sale of goods is recognised in the income statement when the
significant risks and rewards of ownership have been transferred to the buyer.
Sales of products are generally recorded as of the date of shipment. Revenue is
recognised when the Group has satisfied all of its obligations to the customer.
Sales represent the value of goods supplied to external customers and exclude
sales taxes and discounts.
Revenue from services rendered is recognised in the income statement in
proportion to the stage of completion of the transaction at the balance sheet
date.
Revenue is recognised to the extent that it is probable that economic benefit
will flow to the Group, that the risks and rewards of ownership have passed to
the buyer and the revenue can be measured. No revenue is recognised if there is
uncertainty regarding recovery of the consideration due at the outset of the
transaction or the possible return of goods.
The Group leases instruments under operating and finance leases as part of its
business. In cases where the risks and rewards of ownership of the instrument
passes to the customer, the fair value of the instrument is recognised as
revenue at the time of sale matched by the related cost of sale. In the case of
operating leases of instruments which typically involve commitments by the
customer to pay a fee per test run on the instruments, revenue is recognised on
the basis of customer usage of the instruments. See also note 1(d).
OTHER OPERATING INCOME
Rental income from the Group's sub-lease of a premise under operating lease,
where the risks and rewards of the premises remain with the lessor, is
recognised in the income statement as other operating income on a straight-line
basis over the term of the lease.
q) Employee benefits
DEFINED CONTRIBUTION PLANS
The Group operates defined contribution pension schemes in various locations
where the subsidiaries are based. Contributions to the defined contribution
schemes are recognised in the income statement in the period in which they
become payable.
OTHER LONG-TERM BENEFITS
Where employees participate in the Group's other long-term benefit schemes (such
as permanent health insurance schemes) the Group pays an annual fee to a service
provider, and accordingly the Group expenses such payments as incurred.
r) Foreign currency
A majority of the revenue of the Group is generated in US Dollars. The Group's
management has determined that the US dollar is the primary currency of the
economic environment in which the Company and its subsidiaries (with the
exception of the Group's subsidiaries in Germany and Sweden) principally
operate. Thus the functional currency of the Company, its subsidiaries (other
than those subsidiaries in Germany and Sweden), joint venture entity and
associate is the US Dollar. The functional currency of the German and Swedish
subsidiaries is the euro and the Swedish Kroner, respectively. The presentation
currency of the Company and Group is the US Dollar.
Results and cash flows of subsidiary undertakings, which have a functional
currency other than the US Dollar, are translated into US Dollars at average
exchange rates for the year, and the related balance sheets have been translated
at the rates of exchange ruling on the balance sheet date. Adjustments arising
on translation of the results of these subsidiary undertakings from January 1,
2004 and on restatement of the opening net assets at closing rates are dealt
with in a separate component of equity. The Group has availed of the exemption
in IFRS 1 and has deemed the cumulative currency translation differences
applicable to foreign operations to be zero at the transition date (see note
33).
13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Foreign currency transactions are translated at the rates of exchange ruling at
the dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies are translated at the rates of exchange ruling at the balance
sheet date. The resulting gains and losses are included in the income statement.
Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at the date of
the transaction.
s) Derivative financial instruments
From January 1, 2005 under IFRS as adopted by the EU, the Group uses derivative
financial instruments to hedge its exposure to foreign exchange risks. The Group
has entered into a series of forward contracts to sell US Dollars forward for
euro. The principal exchange risk identified by the Group is with respect to
fluctuations in the euro as a substantial portion of its expenses are
denominated in euro but its revenues are primarily denominated in US Dollars.
These forward contracts are cash flow hedging instruments whose objective is to
cover a portion of this euro expense.
At the inception of a hedging transaction entailing the use of derivatives, the
Group documents the relationship between the hedged item and the hedging
instrument together with its risk management objective and the strategy
underlying the proposed transaction. The Group also documents its assessment of
the effectiveness of the hedge in offsetting movements in the cash flows of the
hedged items.
Derivative financial instruments are recognised at fair value. Where derivatives
do not fulfil the criteria for hedge accounting, they are classified as
held-for-trading and changes in fair values are reported in the income
statement. The fair value of forward exchange contracts is calculated by
reference to current forward exchange rates for contracts with similar maturity
profiles and equates to the current market price at the balance sheet date.
The portion of the gain or loss on a hedging instrument that is deemed to be an
effective hedge is recognised directly in the hedging reserve in equity and the
ineffective portion is recognised in the income statement. As the forward
contracts are exercised the net cumulative gain or loss recognised in the
hedging reserve is transferred to the income statement.
The Group has availed of the exemption in IFRS 1 from presenting comparative
information for derivative financial instruments in accordance with IAS 32 and
IAS 39. The transition date for compliance with IAS 32 and IAS 39 is January 1,
2005 and the comparative information is presented under IFRS in line with
Previous GAAP.
In 2004, in line with Previous GAAP where derivatives are used to hedge
cross-currency cash flows arising from trading activities, the profit or loss on
the derivative was recognised in the income statement when the contract was
settled.
t) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in
providing products or services (business segment), or in providing products or
services within a particular economic environment (geographical segment), which
is subject to risks and returns different to those of other segments. Stemming
from the Group's internal organisational and management structure and its system
of internal financial reporting, segmentation by geographic location of assets
is regarded as being the predominant source and nature of the risks and returns
facing the Group and is thus the primary segment format under IAS 14, Segment
Reporting. Business segmentation is therefore the secondary segment format.
u) Tax (current and deferred)
Income tax on the profit or loss for the year comprises current and deferred
tax. Income tax is recognised in the income statement except to the extent that
it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax represents the expected tax payable (or recoverable) on the taxable
profit for the year using tax rates enacted or substantively enacted at the
balance sheet date and taking into account any adjustments stemming from prior
years.
Deferred tax is provided on the basis of the balance sheet liability method on
all temporary differences at the balance sheet date which is defined as the
difference between the tax bases of assets and liabilities and their carrying
amounts in the financial statements. Deferred tax assets and liabilities are not
subject to discounting and are measured at the tax rates that are anticipated to
apply in the period in which the asset is realised or the liability is settled
based on tax rates and tax laws that have been enacted or substantively enacted
at the balance sheet date. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities.
14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Deferred tax assets and liabilities are recognised for all temporary differences
(that is, differences in the carrying amount of the asset or liability) with the
exception of the following:
i. Where the deferred tax liability arises from goodwill not deductible for
tax purposes or the initial recognition of an asset or a liability in a
transaction that is not a business combination and affects neither the
accounting profit nor the taxable profit or loss at the time of the
transaction; and
ii. Where, in respect of temporary differences associated with investments in
subsidiary undertakings, the timing of the reversal of the temporary
difference is subject to control and it is probable that the temporary
difference will not reverse in the foreseeable future.
Where goodwill is tax deductible, a deferred tax liability is not recognised on
initial recognition of goodwill. It is recognised subsequently for the taxable
temporary difference which arises when the goodwill is amortised for tax with no
corresponding adjustment to the carrying value of the goodwill.
The carrying amounts of deferred tax assets are subject to review at each
balance sheet date and are reduced to the extent that future taxable profits are
considered to be inadequate to allow all or part of any deferred tax asset to be
utilised.
v) Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
w) Cost of sales
Cost of sales comprises the product cost including manufacturing costs, quality
control, shipping, handling, and packaging costs.
x) Finance income and costs
From January 1, 2005 under IFRS as adopted by the EU, financing expenses
comprise costs payable on leases, loans and borrowings including promissory
notes. Interest payable on loans and borrowings and convertible notes is
calculated using the effective interest rate method. Interest payable on finance
leases is allocated to each period during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the liability.
Finance income comprises interest income on deposits and is recognised in the
income statement as it accrues, using the effective interest method.
In 2004 in line with Previous GAAP interest payable on loans and borrowings and
convertible notes was recognised in the income statement as they accrued using
the nominal rate of interest. Interest payable on finance leases was allocated
to each period during the lease term so as to produce a constant period rate of
interest on the remaining balance of the liability.
In 2004 in line with Previous GAAP finance income was recognised in the income
statement as it accrued, using the nominal rate of interest.
y) Warrant reserve
The Group calculates the fair value of warrants at the date of issue taking the
amount directly to equity. The fair value is calculated using a recognised
valuation methodology for the valuation of financial instruments (that is, the
trinomial model). The fair value which is assessed at the grant date is
calculated on the basis of the contractual term of the warrants.
z) New IFRS Standards and Interpretations not applied
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the EU. IFRS
as adopted by the EU differ in certain respects from IFRS as issued by the IASB.
However, the consolidated financial statements for the periods presented would
be no different had we applied IFRS as adopted by the EU. During 2005, the IASB
and IFRIC issued additional standards and interpretations which are effective
for periods starting after the date of these financial statements and which have
not yet been adopted by the EU. The following standards and interpretations have
yet to be adopted by the Group:
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS/IAS) Effective date
IFRS 1 Amendment relating to IFRS 6 January 1, 2006
IFRS 4 Amendment to IAS 39 and IFRS 4 -- Financial Guarantee Contracts January 1, 2006
IFRS 6 Amendment relating to IFRS 6 January 1, 2006
IFRS 7 Financial Instruments: Disclosures January 1, 2007
IAS 1 Amendment to IAS 1 -- Presentation of Financial Statements: Capital Disclosures January 1, 2007
IAS 39 Fair Value Option January 1, 2006
IAS 39 Amendments to IAS 39 -- Cash Flow Hedges of Forecast Intragroup Transactions January 1, 2006
IAS 39 Amendment to IAS 39 and IFRS 4 -- Financial Guarantee Contracts January 1, 2006
INTERNATIONAL FINANCIAL REPORTING INTERPRETATIONS COMMITTEE (IFRIC)
IFRIC 4 Determining Whether an Arrangement Contains a Lease January 1, 2006
IFRIC 8 Scope of IFRS 2 May 1, 2006
15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The Group does not anticipate that the adoption of these standards and
interpretations will have a material effect on its financial statements on
initial adoption. Upon adoption of IFRS 7, the Group will be required to
disclose additional information about its financial instruments, their
significance and the nature and extent of the risks to which they give rise,
together with greater detail as to the fair value of its financial instruments
and its risk exposure. There will be no effect on reported income or net assets.
aa) Companies Acts, 1963 to 2005
The financial information relating to the Company and its subsidiaries included
in this document does not comprise full group accounts as referred to in
Regulation 40 of the European Communities (Companies: Group Accounts)
Regulations 1992, copies of which are required by that Act to be annexed to the
Company's annual return. The auditors have made a report without qualification
under Section 193 of the Companies Act, 1990 in respect of the group financial
statements for the year ended December 31, 2004. A copy of the full group
accounts for the year ended December 31, 2004 has been annexed together to the
2004 annual return, and a copy of the full group accounts for the year ended
December 31, 2005 together with the report of the auditors thereon will in due
course be annexed to the 2005 annual return, which will be filed after the
annual general meeting of the Company in 2006.
2. SEGMENT INFORMATION
Segment information is presented in respect of the Group's geographical and
business segments. The primary format, geographical segments, is based on the
Group's management and internal reporting structure. Sales of product between
companies in the Group are made on commercial terms which reflect the nature of
the relationship between the relevant companies. Segment results, assets and
liabilities include items directly attributable to a segment as well as those
that can be allocated on a reasonable basis. Unallocated items comprise
interest-bearing loans, borrowings and expenses and corporate expenses. Segment
capital expenditure is the total cost during the period to acquire segment
plant, property and equipment and intangible assets that are expected to be used
for more than one period.
Geographical segments
The Group comprises two main geographical segments (i) the Americas and (ii)
Rest of World. The Group's geographical segments are determined by the location
of the Group's assets and operations.
The Group has also presented a geographical analysis of the segmental data for
Ireland on the basis of the aggregation thresholds contained in IAS 14.
Business segments
The Group operates in one business segment, the market for diagnostic tests for
a range of diseases and other medical conditions. In determining the nature of
its segmentation the Group has considered the nature of the products, their
risks and rewards, the nature of the production base, the customer base and the
nature of the regulatory environment. The Group acquires, manufactures and
markets a range of diagnostic products that are all based on In Vitro
technology. The Group's products are sold to a similar customer base and the
main regulatory body to which the Group's products must comply is the Food and
Drug Administration ("FDA") in the US.
The following presents revenue and profit information and certain asset and
liability information regarding the Group's geographical segments.
a) The distribution of revenue by geographical area based on location of
assets was as follows:
REVENUE
Americas Rest of World
Year ended December 31, 2005 Ireland Other Eliminations Total
US$'000 US$'000 US$'000 US$'000 US$'000
Revenue from external customers 31,136 54,859 12,565 - 98,560
Inter-segment revenue 22,197 14,402 6,594 (43,193) -
-------------- ---------------- -------------- ---------------- --------------
Total revenue 53,333 69,261 19,159 (43,193) 98,560
============== =============== ============== ================ ==============
16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The Group sets inter-segment sales prices on the basis of arm's length prices.
..
REVENUE
Americas Rest of World
Year ended December 31, 2004 Ireland Other Eliminations Total
US$'000 US$'000 US$'000 US$'000 US$'000
Revenue from external customers 28,937 40,985 10,086 - 80,008
Inter-segment revenue 20,860 13,077 6,549 (40,486) -
-------------- ---------------- -------------- ---------------- --------------
Total revenue 49,797 54,062 16,635 (40,486) 80,008
============== ================ ============== ================ ==============
b) The distribution of revenue by customers' geographical area was as follows:
REVENUE December 31, 2005 December 31, 2004
US$'000 US$'000
Americas 50,627 41,380
Europe (including Ireland) * 25,301 22,718
Asia / Africa 22,632 15,910
------------------- --------------------
98,560 80,008
=================== ====================
*Revenue for customers in Ireland is not disclosed separately due to the
immateriality of these revenues.
c) The distribution of revenue by major product group was as follows:
REVENUE December 31, 2005 December 31, 2004*
US$'000 US$'000
Infectious diseases 36,402
44,078
Haemostasis 26,836
29,766
Point of care 9,807
12,836
Clinical chemistry 6,963
11,880
-------------------- --------------------
98,560 80,008
==================== ====================
* The 2004 comparatives have been reclassified to be consistent with the 2005
classification of revenue by product category. Following the acquisition of
Primus, clinical chemistry is considered a separate product category and an
amount of US$6,962,000 was reclassified from the product category 'other' to the
clinical chemistry product category. The product category 'infectious diseases'
was broadened in 2005 to include the Fitzgerald business, accordingly
US$4,765,000 was reclassified from the product category 'other' to the
infectious diseases product category.
d) The distribution of segment result by geographical area was as follows:
Year ended December 31, 2005
Americas Rest of World
Ireland Other Total
US$'000 US$'000 US$'000 US$'000
RESULT (369) 10,339 (1,581) 8,389
Unallocated expenses * (1,767)
--------------
Operating profit 6,622
Net financing costs (note 3) (669)
--------------
Profit before tax 5,953
Income tax expense (note 8) (673)
--------------
Profit for the year 5,280
==============
* Unallocated expenses represent head office general and administration costs of
the Group which cannot be allocated to the results of any specific geographical
area.
The result for the Americas includes a loss from the Group's joint venture
entity of US$20,000 and of US$nil from its associate.
17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Year ended December 31, 2004
Americas Rest of World
Ireland Other Total
US$'000 US$'000 US$'000 US$'000
RESULT (4,941) 12,205 667 7,931
Unallocated expenses * (1,744)
--------------
Operating profit 6,187
Net financing costs (note 3) (522)
--------------
Profit before tax 5,665
Income tax credit (note 8) 49
--------------
Profit for the year 5,714
==============
* Unallocated expenses represent head office general and administration costs of
the Group which cannot be allocated to the results of any specific geographical
area.
e) The distribution of segment assets and segment liabilities by geographical
area was as follows:
As at December 31, 2005
Americas Rest of World
Ireland Other Total
US$'000 US$'000 US$'000 US$'000
ASSETS AND LIABILITIES 50,501 99,336 11,958 161,795
Segment assets
Unallocated assets:
Income tax assets (current and deferred) 3,926
Restricted cash 9,000
Cash and cash equivalents 9,881
--------------
Total assets as reported in the Group balance sheet 184,602
==============
Segment liabilities 7,415 8,078 1,327 16,820
Unallocated liabilities:
Income tax liabilities (current and deferred) 7,036
Interest-bearing loans and borrowings and
convertible notes (current and non-current) 27,128
--------------
Total liabilities as reported in the Group balance sheet 50,984
==============
The assets of the Americas include US$475,000 representing the Group's share of
assets in its joint venture entity. The liabilities of the Americas include
US$247,000 representing the Group's share of liabilities in its joint venture
entity.
As at December 31, 2004
Americas Rest of World
Ireland Other Total
US$'000 US$'000 US$'000 US$'000
ASSETS AND LIABILITIES
Segment assets 30,005 87,370 13,087 130,462
Unallocated assets:
Income tax assets (current and deferred) 3,291
Restricted cash 7,148
Cash and cash equivalents 15,139
--------------
Total assets as reported in the Group balance sheet 156,040
==============
Segment liabilities 2,090 5,167 1,409 8,666
Unallocated liabilities:
Income tax liabilities (current and deferred) 4,470
Interest-bearing loans and borrowings and
convertible notes (current and non-current) 24,010
==============
Total liabilities as reported in the Group balance sheet 37,146
==============
18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
f) The distribution of long-lived assets, which are property, plant and
equipment, goodwill and intangible assets and other non-current assets
(excluding deferred tax assets), by geographical area was as follows:
December 31, 2005 December 31, 2004
US$'000 US$'000
Rest of World -- Ireland 75,878 65,526
Rest of World -- Other 4,973 5,307
Americas 23,609 8,773
---------------------- ------------------------
104,460 79,606
====================== ========================
g) The distribution of depreciation and amortisation by geographical area was
as follows:
December 31, 2005 December 31, 2004
US$'000 US$'000
DEPRECIATION:
Rest of World -- Ireland 1,118 1,023
Rest of World -- Other 427 211
Americas 889 395
---------------------- ------------------------
2,434 1,629
====================== ========================
AMORTISATION:
Rest of World -- Ireland 1,569 997
Rest of World -- Other 87 59
Americas 147 55
---------------------- ------------------------
1,803 1,111
====================== ========================
h) The distribution of share-based payment expense by geographical area was as
follows:
December 31, 2005 December 31, 2004
US$'000 US$'000
Rest of World -- Ireland 1,174 588
Rest of World -- Other 22 19
Americas 172 151
---------------------- ------------------------
1,368 758
====================== ========================
There are no other significant non-cash expenses that require disclosure. See
note 19 for further information on share-based payments.
i) The distribution of interest expense by geographical area was as follows:
December 31, 2005 December 31, 2004
US$'000 US$'000
Rest of World -- Ireland 894 806
Rest of World -- Other 8 7
Americas 156 11
---------------------- ------------------------
1,058 824
====================== ========================
j) The distribution of taxation expense/(credit) by geographical area was as
follows:
December 31, 2005 December 31, 2004
US$'000 US$'000
Rest of World -- Ireland 1,105 1,167
Rest of World -- Other (236) (125)
Americas (196) (1,091)
---------------------- ------------------------
673 (49)
====================== ========================
k) During 2005 and 2004 there were no customers with 10% or more of total
revenues.
19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
l) The distribution of capital expenditure by geographical area was as
follows:
December 31, 2005 December 31, 2004
US$'000 US$'000
Rest of World -- Ireland 12,837 22,716
Rest of World -- Other 1,023 853
Americas 16,374 3,268
-------------------- ---------------------
30,234 26,837
==================== =====================
3. FINANCING INCOME AND EXPENSES
Note December 31, 2005 December 31, 2004
US$'000 US$'000
Financial income:
Interest income 389 302
-------------------- ---------------------
Finance expense:
Finance lease interest (33) (40)
Interest payable on interest bearing loans and
borrowings 20 (312) (193)
Convertible note interest* 21 (713) (485)
Other interest expense - (106)
-------------------- ---------------------
(1,058) (824)
-------------------- ---------------------
(669) (522)
==================== =====================
* The Company has availed of the exemption in IFRS 1 and has not applied IAS 32
until January 1, 2005. Interest on the convertible notes from January 1, 2005 is
recognised in the income statement using the effective interest rate method. In
2004, in line with Previous GAAP, interest was recognised in the income
statement using the coupon rate, adjusted for transaction costs.
4. OTHER OPERATING INCOME
December 31, 2005 December 31, 2004
US$'000 US$'000
Rental income from premises 161 167
Employment grants - 135
-------------------- ---------------------
161 302
==================== =====================
5. PROFIT BEFORE TAX
The following amounts were charged/(credited) to the income statement:
December 31, 2005 December 31, 2004
US$'000 US$'000
Directors' emoluments:
Remuneration 1,752 1,321
Pension 131 172
Auditors' remuneration
Audit fees 688 419
Non audit fees 164 17
Depreciation -- leased assets 92 184
Depreciation -- owned assets 2,342 1,445
Amortisation 1,803 1,111
Loss on disposal of fixed assets 469 14
Net foreign exchange differences (295) (741)
Operating lease rentals:
Plant and machinery 17 19
Land and buildings 1,800 1,695
Other equipment 125 280
Employment grants - (135)
6. PERSONNEL EXPENSES
December 31, 2005 December 31, 2004
US$'000 US$'000
Wages and salaries 35,595 31,731
Social welfare costs 3,613 3,280
Pension costs 761 450
Share-based payments (note 19) 1,368 758
-------------------- ---------------------
41,337 36,219
==================== =====================
20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The average number of persons employed by the Group in the financial year was
703 (2004: 671) and is analysed into the following categories:
December 31, 2005 December 31, 2004
Research and development 42 41
Administration and sales 207 171
Manufacturing and quality 454 459
-------------------- ---------------------
703 671
==================== =====================
7. PENSION SCHEME
The Group operates defined contribution pension schemes for certain of its
full-time employees. The benefits under these schemes are financed by both Group
and employee contributions. Total contributions made by the Group in the
financial year and charged against income amounted to US$761,000 (2004:
US$450,000) (note 6). This represents the total cost paid and due by the Group
to the pension schemes for the financial year and as such it was not necessary
to accrue or prepay pension contributions at the year end.
8. INCOME TAX EXPENSE/(CREDIT)
(a) The charge for tax based on the profit comprises:
December 31, 2005 December 31, 2004
US$'000 US$'000
Current tax expense
Corporation tax at 12.5% 361 1,125
Manufacturing relief - (144)
-------------------- ---------------------
361 981
Overseas tax* (172) (139)
Adjustment in respect of prior years - (214)
-------------------- ---------------------
Total current tax expense 189 628
-------------------- ---------------------
Deferred tax expense/(credit)**
Origination and reversal of temporary differences (see note 12) 926 264
Benefit of tax losses recognised (see note 12) (442) (941)
-------------------- ---------------------
Total deferred tax expense/(credit) 484 (677)
-------------------- ---------------------
Total income tax charge/(credit) in income statement 673 (49)
==================== =====================
* The credit in 2005 of US$172,000 relates primarily to a current year trading
loss in Sweden which the Company is able to offset against its deferred
corporation tax liabilities in Sweden from previous years. The credit in 2004 of
US$139,000 primarily arose as a result of refunds due relating to a loss
carry-back claim in respect of the 2004 US trading loss.
** In 2005 there was a deferred tax expense of US$747,000 (2004: US$277,000)
recognised in respect of Ireland. In 2005, there was a deferred tax credit of
US$263,000 (2004: US$954,000) recognised in respect of overseas tax
jurisdictions.
Effective tax rate
Profit on ordinary activities before taxation 5,953 5,665
As a percentage of profit before tax:
Current tax 3.17% 11.09%
Total (current and deferred) 11.31% (0.86%)
21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The following table reconciles the applicable Republic of Ireland statutory tax
rate to the effective total tax rate for the Group:
December 31, 2005 December 31, 2004
Irish corporation tax 12.50% 12.50%
Manufacturing relief - (2.54%)
Adjustment in respect of prior years - (3.78%)
Effect of tax rates on overseas earnings (5.10%) (5.13%)
Effect of non deductible expenses 3.91% 2.72%
Effects of benefit of loss carryforwards - (4.63%)
-------------------- ---------------------
Effective interest rate 11.31% (0.86%)
==================== =====================
DEFERRED TAX RECOGNISED DIRECTLY IN EQUITY
December 31, 2005 December 31, 2004
US$'000 US$'000
Relating to forward contracts as hedged instruments 41 -
-------------------- ---------------------
41 -
==================== =====================
(b) The distribution of profit before taxes by geographical area was as
follows:
December 31, 2005 December 31, 2004
US$'000 US$'000
Rest of World - Ireland 7,873 9,957
Rest of World - Other (1,567) 660
Americas (353) (4,952)
-------------------- ---------------------
5,953 5,665
==================== =====================
(c) At December 31, 2005, the Group had net operating losses of approximately
US$3,331,000 (2004: US$2,260,000) in the US, US$244,000 (2004: US$256,000)
in the UK and US$668,000 (2004: US$410,000) in Germany. The utilisation of
these net operating loss carryforwards is limited to future profitable
operations in the US, UK and Germany. The US net operating loss has a
maximum carryforward of 20 years. US$3,046,000 of the net operating losses
in the US will expire by December 31, 2024 while the balance of US$285,000
will expire by December 31 2025. The UK and German losses can be carried
forward indefinitely. A deferred tax asset has been recognised for these
loss carryforwards. The tax value of these loss carryforwards is
US$1,525,000 (2004: US$1,083,000) (see Note 12). The Company has state
credit carryforwards of US$331,000 at December 31, 2005 (2004: US$307,000).
A deferred tax asset of US$316,000 (2004: US$302,000) in respect of US
state credit carryforwards was not recognised in 2005 due to uncertainties
regarding future full utilisation of these state credit carryforwards in
the related tax jurisdiction in future periods. Excepting state credit
carryforwards of US$60,000 which expire by December 31, 2009, the balance
of the state credits carry forward indefinitely.
(d) There are no income tax consequences for the Company attaching to the
payment of dividends by Trinity Biotech plc to shareholders of the Company.
9. EARNINGS PER SHARE
Basic earnings per ordinary share
Basic earnings per ordinary share is computed by dividing the profit after
taxation of US$5,280,000 (2004: US$5,714,000) for the financial year by weighted
average number of 'A' ordinary and 'B' ordinary shares in issue of 58,890,084
(2004: 55,132,024). 1,400,000 of the total weighted average shares used as the
EPS denominator relate to the 700,000 'B' ordinary shares in issue. In all
respects these shares are treated the same as 'A' ordinary shares except for the
fact that they have two voting rights per share, rights to participate in any
liquidation or sale of the Company and to receive dividends as if each Class 'B'
ordinary share were two Class 'A' ordinary shares. Hence the EPS for a 'B'
ordinary share is exactly twice the EPS of an 'A' ordinary share.
22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
December 31, 2005 December 31, 2004
'A' ordinary shares 57,490,084 53,732,024
'B' ordinary shares 1,400,000 1,400,000
-------------------- ---------------------
Basic earnings per share denominator 58,890,084 55,132,024
-------------------- ---------------------
Reconciliation to weighted average earnings per share
denominator:
Number of A ordinary shares at January 1 (note 18) 54,904,318 45,160,640
Number of B ordinary shares at January 1 (multiplied by 2) 1,400,000 1,400,000
Weighted average number of shares issued during the year
2,585,766 8,571,384
-------------------- ---------------------
Basic earnings per share denominator 58,890,084 55,132,024
==================== =====================
The weighted average number of shares issued during the year is calculated by
taking the number of shares issued by the number of days in the year each share
is in issue divided by 365 days.
Diluted earnings per ordinary share
Diluted earnings per ordinary share is computed by dividing the profit after tax
of US$5,280,000 (2004: US$5,714,000) for the financial year, adjusted for the
after tax effect of the interest saving on convertible notes of US$535,000
(2004: US$386,000) by the diluted weighted average number of ordinary shares in
issue of 67,032,382 (2004: 65,527,802).
The after tax effect of the interest saving on convertible notes is included in
the diluted earnings per share calculation. The after tax effect of the interest
saving on convertible notes for 2004 and 2005 was not anti-dilutive.
The basic weighted average number of shares may be reconciled to the number used
in the diluted earnings per ordinary share calculation as follows:
December 31, 2005 December 31, 2004
Basic earnings per share denominator (see above) 58,890,084 55,132,024
Issuable on exercise of options and warrants 2,168,545 4,156,551
Issuable on conversion of convertible notes 5,973,753 6,239,227
-------------------- ---------------------
Diluted earnings per share denominator 67,032,382 65,527,802
==================== =====================
Earnings per ADS
In June 2005, the Company adjusted its ADS ratio from 1 ADS: 1 Ordinary Share to
1 ADS: 4 Ordinary Shares. Earnings per ADS for all periods presented have been
restated to reflect this exchange ratio.
Basic earnings per ADS is computed by dividing the profit on ordinary activities
after taxation of US$5,280,000 (2004: US$5,714,000) for the financial year by
the weighted average number of ADS in issue of 14,722,521 (2004:13,783,006).
December 31, 2005 December 31, 2004
'A' ordinary shares - ADS 14,372,521 13,433,006
'B' ordinary shares - ADS 350,000 350,000
-------------------- ---------------------
Basic earnings per share denominator 14,722,521 13,783,006
==================== =====================
Diluted earnings per ADS is computed by dividing the profit on ordinary
activities after taxation of US$5,280,000 (2004: US$5,714,000) for the financial
year, adjusted for the after tax effect of interest saving on convertible notes
of US$535,000 (2004: US$386,000) by the diluted weighted average number of ADS
in issue of 16,758,095 (2004: 16,381,950).
The basic weighted average number of ADS shares may be reconciled to the number
used in the diluted earnings per ADS share calculation as follows:
23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
December 31, 2005 December 31, 2004
Basic earnings per share denominator (see above) 14,722,521 13,783,006
Issuable on exercise of options and warrants 542,136 1,039,137
Issuable on conversion of convertible notes 1,493,438 1,559,807
-------------------- ---------------------
Diluted earnings per share denominator 16,758,095 16,381,950
==================== =====================
10. PROPERTY, PLANT AND EQUIPMENT
Computer,
Freehold land Leasehold fixtures and Plant and
and buildings improvements fittings equipment Total
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
-----
At January 1, 2004 5,133 2,445 2,937 9,440 19,955
Acquisitions through
business combinations (note 26) - 7 64 201 272
Other additions 94 239 406 2,976 3,715
Disposals / retirements - - - (80) (80)
Exchange adjustments 277 8 25 258 568
------------------- ------------------- ------------------ ----------------- --------------
At December 31, 2004 5,504 2,699 3,432 12,795 24,430
------------------- ------------------- ------------------ ----------------- --------------
At January 1, 2005 5,504 2,699 3,432 12,795 24,430
Acquisitions through
business combinations (note 26) - 187 92 2,116 2,395
Other additions 17 191 716 3,398 4,322
Disposals / retirements - (36) (231) (571) (838)
Exchange adjustments (457) (16) (34) (540) (1,047)
------------------- ------------------- ------------------ ----------------- --------------
At December 31, 2005 5,064 3,025 3,975 17,198 29,262
------------------- ------------------- ------------------ ----------------- --------------
Accumulated depreciation
At January 1, 2004 (454) (519) (1,274) (4,355) (6,602)
Charge for the year (118) (233) (435) (843) (1,629)
Disposals / retirements - - - 35 35
Exchange adjustments (12) (8) (29) (168) (217)
------------------- ------------------- ------------------ ----------------- --------------
At December 31, 2004 (584) (760) (1,738) (5,331) (8,413)
------------------- ------------------- ------------------ ----------------- --------------
At January 1, 2005 (584) (760) (1,738) (5,331) (8,413)
Charge for the year (119) (268) (444) (1,603) (2,434)
Disposals / retirements - 25 178 162 365
Exchange adjustments 21 16 17 368 422
------------------- ------------------- ------------------ ----------------- --------------
At December 31, 2005 (682) (987) (1,987) (6,404) (10,060)
------------------- ------------------- ------------------ ----------------- --------------
Carrying amounts
At December 31, 2005 4,382 2,038 1,988 10,794 19,202
=================== =================== ================== ================= ==============
At December 31, 2004 4,920 1,939 1,694 7,464 16,017
=================== =================== ================== ================= ==============
There were no indications in the current year that the above carrying value may
not be recoverable.
ASSETS HELD UNDER OPERATING LEASES (WHERE THE COMPANY IS THE LESSOR)
Included in the carrying amount of property, plant and equipment are a number of
assets which generate operating lease revenue for the Group. The net book value
of these assets as at December 31, 2005 is US$2,328,000 (2004: US$932,000).
Depreciation charged on these assets in 2005 amounted to US$522,000 (2004:
US$74,000).
24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
At December 31, 2005 Freehold land Computer,
and buildings Leasehold fixtures and Plant and
US$'000 improvements fittings equipment Total
US$'000 US$'000 US$'000 US$'000
Depreciation charge - - - 522 522
Carrying amounts
At December 31, 2005 - - - 2,328 2,328
---------------- ------------------ ------------------ --------------- -------------
At December 31, 2004 Freehold land Computer,
and buildings Leasehold fixtures and Plant and
US$'000 improvements fittings equipment Total
US$'000 US$'000 US$'000 US$'000
Depreciation charge - - - 74 74
Carrying amounts
At December 31, 2004 - - - 932 932
---------------- ------------------ ------------------ --------------- -------------
ASSETS HELD UNDER FINANCE LEASES
Included in the carrying amount of property, plant and equipment is an amount
for capitalised leased assets of US$696,000 (2004: US$1,354,000). The
depreciation charge in respect of capitalised leased assets for the year ended
December 31, 2005 was US$92,000 (2004: US$184,000). The leased equipment secures
the lease obligations (note 27). This is split as follows;
At December 31, 2005 Freehold land Computer,
and buildings Leasehold fixtures and Plant and
US$'000 improvements fittings equipment Total
US$'000 US$'000 US$'000 US$'000
Depreciation charge - 39 46 7 92
Carrying value
At December 31, 2005 - 310 231 155 696
---------------- ------------------ ------------------ --------------- -------------
At December 31, 2004 Freehold land Computer,
and buildings Leasehold fixtures and Plant and
US$'000 improvements fittings equipment Total
US$'000 US$'000 US$'000 US$'000
Depreciation charge - 43 34 107 184
Carrying value
At December 31, 2004 - 373 202 779 1,354
---------------- ------------------ ------------------ --------------- -------------
PROPERTY, PLANT AND EQUIPMENT UNDER CONSTRUCTION
Included in plant and equipment at December 31, 2005 is an amount of
US$1,157,000 (2004: US$1,219,000) relating to assets in the course of
construction. During the year, plant and equipment of US$1,309,000 which was
under construction in 2004 was completed and depreciation was charged on these
assets in 2005. A further US$1,247,000 was included as assets under construction
in 2005, relating to plant and equipment which were not fully completed by
December 31, 2005. These assets were not depreciated in 2005.
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
11. GOODWILL AND INTANGIBLE ASSETS
Development Patents and
Goodwill costs licences Other Total
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
----
At January 1, 2004 34,744 4,046 2,835 1,092 42,717
Acquisitions, through business
combinations (note 26) 8,728 - - 11,123 19,851
Other additions - 2,990 - 495 3,485
Exchange adjustments - 51 - 2 53
-------------- ---------------- ---------------- ------------- ------------
At December 31, 2004 43,472 7,087 2,835 12,712 66,106
-------------- ---------------- ---------------- ------------- ------------
At January 1, 2005 43,472 7,087 2,835 12,712 66,106
Acquisitions, through business
combinations (note 26) 11,466 400 2,140 3,865 17,871
Other additions - 4,916 168 562 5,646
Disposals - - - (154) (154)
Exchange adjustments - (86) - 7 (79)
-------------- ---------------- ---------------- ------------- ------------
At December 31, 2005 54,938 12,317 5,143 16,992 89,390
-------------- ---------------- ---------------- ------------- ------------
Accumulated amortisation
At January 1, 2004 - (4) (1,074) (357) (1,435)
Charge for the year - (111) (179) (821) (1,111)
Exchange adjustments - (5) - (1) (6)
-------------- ---------------- ---------------- ------------- ------------
At December 31, 2004 - (120) (1,253) (1,179) (2,552)
-------------- ---------------- ---------------- ------------- ------------
At January 1, 2005 - (120) (1,253) (1,179) (2,552)
Charge for the year - (350) (259) (1,194) (1,803)
Disposals - - - 154 154
Exchange adjustments - 6 - 2 8
-------------- ---------------- ---------------- ------------- ------------
At December 31, 2005 - (464) (1,512) (2,217) (4,193)
-------------- ---------------- ---------------- ------------- ------------
Carrying amounts
At December 31, 2005 54,938 11,853 3,631 14,775 85,197
============== ================ ================ ============= ============
At December 31, 2004 43,472 6,967 1,582 11,533 63,554
============== ================ ================ ============= ============
Included within development costs are costs of US$6,280,000 which were not
amortised in 2005 (2004: US$1,731,000). These development costs are not
amortised as the projects to which the costs related were not fully complete at
December 31, 2005 or at December 31, 2004.
Other intangible assets consist primarily of acquired customer and supplier
lists, trade names, website and software costs. Included as part of the total
cost is US$8,690,000 with respect to the customer list for Fitzgerald. At the
time of acquisition, April 2004, the useful life for this customer list was
estimated to be 13 years. The principal determinant of the original estimate of
useful life was the estimated rate of customer attrition expected to occur in
the periods subsequent to the acquisition date. Since acquisition the rate of
customer attrition has been less than was originally envisaged and hence the
Company decided to revise the remaining useful life of the customer list to 15
years from January 1, 2005 and has been accounted for prospectively. The impact
of this change in estimated useful life on the current period is a reduction in
amortisation charged to the income statement in 2005 of US$119,000. There will
be a similar impact on the amortisation charge in future accounting periods.
Amortisation is charged to the income statement through the selling, general and
administrative expenses line.
Included in other intangibles are the following indefinite lived assets:
December 31, 2005 December 31, 2004
US$'000 US$'000
Fitzgerald trade name 970 970
RDI trade name 560 -
Primus trade name 1,870 -
-------------------- ---------------------
3,400 970
==================== =====================
These trade names were acquired through business combinations (see note 26).
These assets were valued by an external valuer using the relief from royalty
method and based on factors such as (1) the market and competitive trends and
(2) the expected usage of the name. It was considered that these trade names
will generate net cash inflows for the Group for an indefinite period.
IMPAIRMENT TESTING FOR INTANGIBLES INCLUDING GOODWILL AND INDEFINITE LIVED
ASSETS
Goodwill and the above other intangibles are tested annually for impairment at
each balance sheet date at a cash-generating unit (CGU) level, i.e. the
individual legal entities. For the purpose of these annual impairment reviews
goodwill is allocated to the relevant CGU. The joint venture entity and the
associate held by the Group are also subject to impairment reviews. No
impairment losses have been recognised to date.
26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Significant carrying amounts of goodwill acquired through business combinations
and intangible assets with indefinite useful lives have been allocated to the
following cash-generating units:
December 31, 2005 December 31, 2004
US$'000 US$'000
Trinity Biotech Manufacturing Limited 30,131 30,138
Benen Trading Limited 12,086 7,739
Primus Corporation 9,558 -
MarDx Diagnostics Inc 3,571 3,571
Clark Laboratories Inc 2,994 2,994
-------------------- ---------------------
58,340 44,442
==================== =====================
The recoverable amounts of the Group's CGUs are determined on the basis of value
in use calculations. The Group operates in one business segment and accordingly
the key assumptions are similar for all CGUs. Value in use calculations use cash
flow projections based on actual operating results extrapolated for five years
using a revenue growth rate of 6% and a cost growth rate of 3%. A pre-tax
discount rate of 8.69% is used. Cash flows beyond the five year period are
extrapolated using a price earnings ratio of 15.
12. DEFERRED TAX ASSETS AND LIABILITIES
RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
2005 2004 2005 2004 2005 2004
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Property, plant and equipment 37 36 (1,687) (1,176) (1,650) (1,140)
Intangible assets - - (4,492) (2,276) (4,492) (2,276)
Inventories 981 1,176 - - 981 1,176
Provisions 640 173 - - 640 173
Other items* 94 8 (549) (65) (455) (57)
Tax value of loss carryforwards
recognised 1,525 1,083 - - 1,525 1,083
------------ -------------- ------------- ------------ ------------ ------------
Deferred tax assets/(liabilities) 3,277 2,476 (6,728) (3,517) (3,451) (1,041)
============ ============== ============= ============ ============ ============
* The Group implemented the provisions of IAS 32 and IAS 39 on January 1, 2005.
The Group's opening deferred tax position at January 1, 2005 has been revised to
account for the opening deferred tax consequences of the implementation of these
standards. A deferred tax liability of US$45,000 was created on January 1, 2005,
to account for the taxable temporary difference arising on the recognition of
the Group's forward contracts at fair value on that date. Similarly, a deferred
tax liability of US$24,000 was created on January 1, 2005 to account for the
taxable temporary differences arising from the Company's split of its
convertible debt on that date into its equity and liability components. The
total impact of the adoption of IAS 32 and IAS 39 on the Company's tax position
at January 1, 2005 has been to increase its closing deferred tax liabilities at
December 31, 2004 of US$3,517,000 by US$69,000 to US$3,586,000 at January 1,
2005.
The deferred tax asset in 2005 is due mainly to deductible temporary differences
created by net operating losses and US state credit carryforwards, and the
elimination of unrealised intercompany inventory profit. The deferred tax asset
increased in 2005 due principally to the increase in net operating losses
available for offset against future profits.
The deferred tax asset in 2004 is principally due to temporary differences
created by net operating losses and US state credit carryforwards, the tax
written down value of non current assets being greater than the related net book
value and the elimination of unrealised intercompany profit. The deferred tax
asset increased in 2004 due to the tax effect of the excess of the tax written
down value of non current assets over the net book value, the elimination of
unrealised intercompany profit and the availability of net operating losses for
offset against future profits.
At December 31, 2005, the Company recognised a deferred tax asset of
US$1,525,000 in respect of net operating loss carryforwards in the USA, Germany
and the UK. The utilisation of these net operating loss carryforwards is limited
to future profitable operations in the USA, Germany and the UK.
27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
At December 31, 2004, the Company recognised a deferred tax asset of US$983,000
in respect of net operating loss carryforwards in the USA, Germany and the UK.
The utilisation of these net operating loss carryforwards is limited to future
profitable operations in the USA, Germany and the UK. A deferred tax asset of
US$100,000 was also recognised in respect of US state carryforwards.
The deferred tax liability is caused by the net book value of non current assets
being greater than the tax written down value of non current assets, temporary
differences due to the acceleration of the recognition of certain charges in
calculating taxable income permitted in Ireland and Germany, and deferred tax
recognised on fair value asset uplifts in connection with business combinations.
The deferred tax liability increased in 2005 as the excess of the net book value
of non current assets over the tax written down value increased and the Company
was able to recognise an upfront charge relating to licence fees in the
calculation of its taxable income in Ireland. The increase was also as a result
of the recognition of deferred tax liabilities on the net assets acquired in
business combinations and on the fair value asset uplifts in those combinations
of US$2,041,000 (2004: US$1,532,000). See Note 26, Business Combinations.
UNRECOGNISED DEFERRED TAX ASSETS
Deferred tax assets have not been recognised in respect of the following items:
December 31, 2005 December 31, 2004
US$'000 US$'000
Deductible temporary differences 427 427
Capital losses 6,138 6,344
US state credit carryforwards 316 302
-------------------- ---------------------
6,881 7,073
==================== =====================
No deferred tax asset is recognised in respect of management expenses forward of
US$427,000 and a capital loss of US$6,138,000 in Trinity Biotech plc in 2005 or
2004. These losses are available indefinitely for offset against future taxable
profits of Trinity Biotech plc. No deferred tax asset was recognised in 2004 in
respect of a capital loss carryover of US$206,000 in Clark Laboratories which
expired in 2005. No deferred tax assets are recognised in this regard as
deferred tax assets are only recognised on the carryforward of unused tax losses
to the extent that it is probable that future taxable profits will be available
against which the unused tax losses can be utilised. It is not probable that
there will be future taxable income in Trinity Biotech plc against which to
offset the unutilised management expenses forward or that there will be future
capital gains against which to offset the capital losses. A deferred tax asset
of US$316,000 (2004: US$302,000) in respect of US state credit carryforwards was
not recognised due to uncertainties regarding future full utilisation of these
state carryforwards in the related tax jurisdiction in future periods.
In 2004 Trinity Biotech plc released a deferred tax asset of US$42,000 in
respect of losses forward as it was not anticipated that the Company would have
future taxable income against which to offset the unutilised management expenses
forward.
UNRECOGNISED DEFERRED TAX LIABILITIES
At December 31, 2005 and 2004, there was no recognised or unrecognised deferred
tax liability for taxes that would be payable on the unremitted earnings of
certain of the Group's subsidiaries, associates or joint ventures. The Company
is able to control the timing of the reversal of the temporary differences of
its subsidiaries and it is probable that these temporary differences will not
reverse in the foreseeable future. The Company does not control the dividend
policy of its associate or joint venture entity. However, the associate
undertaking does not have undistributed reserves at December 31, 2005, and
accordingly the Company has not provided for a deferred tax liability for
taxable temporary differences associated with its investment in the associate.
Equally there are no undistributed reserves in the Company's joint venture at
December 31, 2005 and a deferred tax liability has not been recognised for the
Company's investment in its joint venture at that date.
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
MOVEMENT IN TEMPORARY DIFFERENCES DURING THE YEAR
Balance Recognised in Recognised in Recognised Balance
January, 1 2005 income goodwill in equity December 31, 2005
US$'000 US$'000 US$'000 US$'000 US$'000
Property, plant and equipment (1,140) 53 (563) - (1,650)
Intangible assets (2,276) (459) (1,757) - (4,492)
Inventories 1,176 (272) 77 - 981
Provisions 173 135 332 - 640
Other items * (126) (383) 13 41 (455)
Tax value of loss carryforwards
recognised 1,083 442 - - 1,525
---------------- ------------------- ----------------- -------------- -------------------
(1,110) (484) (1,898) 41 (3,451)
================ =================== ================= ============== ===================
* The Company implemented the provisions of IAS 32 and IAS 39 on January 1,
2005. The Company's opening deferred tax position at January 1, 2005 has been
revised to account for the opening deferred tax consequences of the
implementation of these standards. A deferred tax liability of US$45,000 was
created on January 1, 2005, to account for the taxable temporary difference
arising on the recognition of the Company's forward contracts at fair value on
that date. Similarly, a deferred tax liability of US$24,000 was created on
January 1, 2005 to account for the taxable temporary differences arising from
the Company's split of its convertible debt on that date into its equity and
liability components. The total impact of the adoption of IAS 32 and IAS 39 on
the Company's tax position at January 1, 2005 has been to increase its closing
deferred tax liabilities at December 31, 2004 of US$3,517,000 by US$69,000 to
US$3,586,000 at January 1, 2005.
Balance Recognised in Recognised in Recognised Balance
January 1, 2004 income goodwill in equity December 31, 2004
US$'000 US$'000 US$'000 US$'000 US$'000
Property, plant and equipment (1,005) (135) - - (1,140)
Intangible assets (233) (511) (1,532) - (2,276)
Inventories 1,088 88 - - 1,176
Provisions - 173 - - 173
Other items (178) 121 - - (57)
Tax value of loss carryforwards
recognised 142 941 - - 1,083
---------------- ------------------- ----------------- -------------- -------------------
(186) 677 (1,532) - (1,041)
================ =================== ================= ============== ===================
13. OTHER ASSETS
December 31, 2005 December 31, 2004
US$'000 US$'000
Other assets 61 35
-------------------- ---------------------
61 35
==================== =====================
14. INVENTORIES
December 31, 2005 December 31, 2004
US$'000 US$'000
Raw materials and consumables 8,983 9,239
Work-in-progress 10,192 10,520
Finished goods 17,275 17,760
-------------------- ---------------------
36,450 37,519
==================== =====================
All inventories are stated at the lower of cost or net realisable value.
15. TRADE AND OTHER RECEIVABLES
December 31, 2005 December 31, 2004
US$'000 US$'000
Trade receivables, net of impairment losses 17,591 10,798
Prepayments 1,956 1,662
Value added tax 29 70
Called up share capital not received 61 158
Finance lease receivables 1,159 491
Other receivables 89 158
-------------------- ---------------------
20,885 13,337
==================== =====================
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Trade receivables are shown net of the impairment losses provision of US$587,000
(2004: US$462,000). See note 1(j).
LEASES AS LESSOR
(i) Finance lease commitments -- Group as lessor
The Group leases instruments as part of its business. Future minimum finance
lease receivables with non-cancellable terms in excess of one year are as
follows:
December 31, 2005
US$'000
Gross Unearned Minimum
investment income payments
receivable
Less than one year 438 60 378
Between one and five years 933 152 781
----------------- ------------- --------------
1,371 212 1,159
================= ============= ==============
December 31, 2004
US$'000
Gross Unearned Minimum
investment income payments
receivable
Less than one year 170 12 158
Between one and five years 358 25 333
----------------- ------------- --------------
528 37 491
================= ============= ==============
Under the terms of the lease arrangements, no contingent rents are receivable.
(ii) Operating lease commitments -- Group as lessor
The Group has leased a facility consisting of 9,000 square feet in Dublin,
Ireland. This property has been sub-let by the Group. The lease contains a
clause to enable upward revision of the rent charge on a periodic basis. The
Group also leases instruments under operating leases as part of its business.
Future minimum rentals receivable under non-cancellable operating leases are as
follows:
December 31, 2005
US$ '000
Land and Others Total
buildings
Less than one year 153 1,190 1,343
Between one and five years 611 1,589 2.200
More than five years 879 - 879
----------------- --------------- --------------
1,643 2,779 4,422
================= =============== ==============
December 31, 2004
US$ '000
Land and Others Total
buildings
Less than one year 176 731 907
Between one and five years 704 696 1,400
More than five years 1,189 - 1,189
----------------- --------------- --------------
2,069 1,427 3,496
================= =============== ==============
30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
16. FINANCIAL ASSETS
December 31, 2005 December 31, 2004
US$ '000 US$ '000
Restricted cash 9,000 7,148
==================== =====================
As part of the Club banking facility, the Group has US$9,000,000 (2004:
US$7,148,000) which it must hold on deposit and seek prior approval from the
lenders before such funds are spent on acquisitions. As a result, this cash, of
US$9,000,000 (2004: US$7,148,000) is shown as a financial asset at
December 31, 2005.
17. CASH AND CASH EQUIVALENTS
December 31, 2005 December 31, 2004
US$ '000 US$ '000
Cash at bank and in hand 4,916 6,435
Short-term deposits 4,965 8,704
-------------------- ---------------------
Cash and cash equivalents in the statements of cash flows 9,881 15,139
==================== =====================
Cash relates to all cash balances which are readily available at year end. Cash
equivalents relate to all cash balances on deposit, with a maturity of less than
three months, which are not restricted. See note 27 (c).
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
18. CAPITAL AND RESERVES
Reconciliation of movement in capital and reserves
Share Share Share Translation Warrant
capital capital premium reserve reserve
'A' 'B'
ordinary ordinary
shares shares
US$'000 US$'000 US$'000 US$'000 US$'000
Balance at January 1, 2004 658 12 87,596 - -
Total recognised income and expense - - - 118 -
Options and warrants exercised 12 - 1,968 - -
Class A shares issued on conversion of 1 - 426 - -
convertible notes
Class A shares issued in private placement 63 - 24,272 - -
Class A shares issued to fund an 30 - 7,691 - -
acquisition
Share issue expenses - - (1,509) - -
Share-based payments - - - - -
Own shares acquired - - - - -
-------------- ------------ ------------- -------------- --------------
Balance at December 31, 2004 764 12 120,444 118 -
-------------- ------------ ------------- -------------- --------------
Balance at December 31, 2004 764 12 120,444 118 -
Adjustment in respect of adoption of IAS - - (3,779) - 3,803
32 and 39 on January 1, 2005 (note 1(a))
Balance at January 1, 2005 as restated 764 12 116,665 118 3,803
Total recognised income and expense - - - (1,740) -
Share-based payments - - - - -
Options and warrants exercised 27 - 2,464 - -
Class A shares issued on conversion of 27 - 5,439 - -
convertible notes
Share issue expenses - - (341) - -
Own shares sold - - - - -
-------------- ------------ ------------- -------------- --------------
Balance at December 31, 2005 818 12 124,227 (1,622) 3,803
-------------- ------------ ------------- -------------- --------------
Owned Hedging Convertible Retained Total
shares reserves notes -- equity earnings
component
US$'000 US$'000 US$'000 US$'000 US$'000
Balance at January 1, 2004 - - - (6,543) 81,723
Total recognised income and expense - - - 5,714 5,832
Options and warrants exercised - - - - 1,980
Class A shares issued on conversion of - - - - 427
convertible notes
Class A shares issued in private placement - - - - 24,335
Class A shares issued to fund an - - - - 7,721
acquisition
Share issue expenses - - - - (1,509)
Share-based payments - - - 758 758
Own shares acquired (2,373) - - - (2,373)
------------- ------------- ------------------ ------------- -----------
Balance at December 31, 2004 (2,373) - - (71) 118,894
------------- ------------- ------------------ ------------- -----------
Balance at December 31, 2004 (2,373) - - (71) 118,894
Adjustment in respect of adoption of IAS - 373 164 (297) 264
32 and 39 on January 1, 2005 (note 1(a))
Balance at January 1, 2005 as restated (2,373) 373 164 (368) 119,158
Total recognised income and expense - (437) - 5,280 3,103
Share-based payments - - - 1,368 1,368
Options and warrants exercised - - - - 2,491
Class A shares issued on conversion of - - - - 5,466
convertible notes
Share issue expenses - - - - (341)
Own shares sold 2,373 - - - 2,373
------------- ------------- ------------------ ------------- -----------
Balance at December 31, 2005 - (64) 164 6,280 133,618
------------- ------------- ------------------ ------------- -----------
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The Company has availed of the exemption in IFRS 1 and has not applied IAS 32
and IAS 39 until January 1, 2005, see note 33. Accordingly the hedging reserve
and equity component of convertible debt balances as at December 31, 2004 are
presented under IFRS in line with under Previous GAAP.
SHARE CAPITAL
Class 'A' Ordinary shares Class 'A' Ordinary shares
In thousands of shares 2005 2004
In issue at January 1 54,904 45,161
Issued for cash 2,615 9,623
Issued for non cash (note 21) 2,522 120
------------------------- -------------------------
In issue at December 31 60,041 54,904
------------------------- -------------------------
Class 'B' Ordinary shares Class 'B' Ordinary shares
In thousands of shares 2005 2004
In issue at January 1 700 700
Issued for cash - -
------------------------- -------------------------
In issue at December 31 700 700
------------------------- -------------------------
The Company had authorised share capital of 75,000,000 'A' ordinary shares of
US$0.0109 each and 700,000 'B' ordinary shares of US$0.0109 each as at December
31, 2005 and 2004.
(a) In January 2004, the Company completed a US$22.5m private placement of
5,294,118 of Class 'A' Ordinary Shares of the Company at a price of US$4.25
per ordinary share. The investors were granted five year warrants to
purchase an aggregate of 1,058,824 Class 'A' Ordinary Shares of the Company
at an exercise price of US$5.25 per ordinary share. Under the terms of the
placement, investors were also granted the right to purchase an additional
2,647,059 Class 'A' Ordinary Shares of the Company at a price of US$4.25
per share for a period of up to 30 days after the closing of the
transaction. An additional 431,617 Class 'A' Ordinary Shares of the
Company, amounting to US$1,834,000, were issued within the 30 day period
following the closing of the transaction to investors who exercised this
option. The Company granted further warrants (vesting immediately) to
purchase 200,000 Class 'A' Ordinary Shares in the Company to agents of the
Company who were involved in this private placement at an exercise price of
US$5.25 per Ordinary Share. These warrants also have a term of five years.
(b) A further 1,113,538 shares were issued in 2004, resulting from the exercise
of warrants and employee share options.
(c) During 2005, the Company issued 2,615,375 'A' Ordinary Shares from the
exercise of employee options for a consideration of US$2,491,000, settled
in cash. A further 2,522,000 shares (equivalent to US$5,465,249) were
issued on a non cash basis as the Company chose to repay part of its
convertible debt repayments in 2005 by way of shares. In 2004, 120,423
shares were issued on the conversion of part of the principal amount of the
debenture on a non cash basis also (equivalent to US$427,000) (see note
21).
(d) Since its incorporation the Company has not declared or paid dividends on
its 'A' Ordinary Shares. The Company anticipates, for the foreseeable
future, that it will retain any future earnings in order to fund its
business operations. The Company does not, therefore, anticipate paying any
cash or share dividends on its 'A' Ordinary or 'B' Ordinary shares in the
foreseeable future. As provided in the Articles of Association of the
Company, dividends or other distributions will be declared and paid in US
Dollars.
(e) The Class 'B' Ordinary Shares have two votes per share and the rights to
participate in any liquidation or sale of the Company and to receive
dividends as if each Class 'B' Ordinary Share were two Class 'A' Ordinary
Shares. In all other respects they rank pari passu with the 'A' ordinary
shares.
CURRENCY TRANSLATION RESERVE
The currency translation reserve comprises all foreign exchange differences
arising from the translation of the financial statements of foreign currency
denominated operations of the Group since January 1, 2004.
WARRANT RESERVE
The warrant reserve comprises the equity component of share warrants issued by
the Company. At 31 December, 2004 the fair value of these warrants was included
within share premium. As part its the adoption of IAS 32 and IAS 39 the Company
has elected to disclose the fair value of these warrants as a separate reserve
within equity. The Group calculates the fair value of warrants at the date of
issue taking the amount directly to reserves. The fair value is calculated using
the trinomial model. The fair value which is assessed at the grant date is
calculated on the basis of the contractual term of the warrants. In accordance
with the transitional provisions under IFRS 2, 1,258,824 warrants with a value
of (US$3,803,000) have been fair valued and classified as a separate reserve.
The following input assumptions were made to fair value the warrants:
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
2005
Fair value at date of measurement US$3.02
===========
Share price US$4.78
Exercise price US$5.25
Expected volatility 78.31%
Contractual life 5 years
Risk free rate 3.26%
Expected dividend yield -
A further 58,500 warrants which were outstanding at December 31, 2005 do not
fall within the scope of IFRS 2 and hence were not fair valued.
OWNED SHARES
In April 2004, the Company completed the acquisition of the assets of Fitzgerald
Industries International Inc (Fitzgerald) for US$16,000,000 in cash (before
contingent consideration and costs). The acquisition was partly funded by the
issue of 2,783,984 'A' Ordinary Shares of the Company. As at December 31, 2004,
the Company funded the in substance repurchase of 817,470 shares with a value of
US$2,373,000. All of these shares were resold in the market in 2005.
HEDGING RESERVE
The hedging reserve comprises the effective portion of the cumulative net change
in the fair value of cash flow hedging instruments related to hedged
transactions entered into but that had not yet crystallised at December 31,
2005.
19. SHARE OPTIONS AND SHARE WARRANTS
WARRANTS
The Company granted warrants to purchase 940,405 Class 'A' Ordinary Shares in
the Company to agents of the Company who were involved in the Company's private
placements in 1994 and 1995 and the debenture issues in 1997, 1999 and 2002. A
further warrant to purchase 100,000 Class 'A' Ordinary Shares was also granted
to a consultant of the Company. In January 2004, the Company completed a private
placement of 5,294,118 Class 'A' Ordinary Shares of the Company at a price of
US$4.25 per share. The investors were granted five year warrants (vesting
immediately) to purchase an aggregate of 1,058,824 Class 'A' Ordinary Shares in
the Company at an exercise price of US$5.25 per share. The Company granted
further warrants (vesting immediately) to purchase 200,000 Class 'A' Ordinary
Shares in the Company to agents of the Company who were involved in this private
placement in January 2004 at an exercise price of US$5.25. These warrants also
have a term of five years. At December 31, 2005 there were warrants to purchase
1,317,324 Class 'A' Ordinary shares in the Company outstanding.
December 31, 2005 December 31, 2004
Outstanding at beginning of period 1,317,324 258,500
Granted - 1,258,824
Exercised - (200,000)
------------------ -----------------
Outstanding at end of period 1,317,324 1,317,324
================== =================
OPTIONS
Under the terms of the Company's Employee Share Option Plan, options to purchase
7,531,133 Class 'A' Ordinary Shares were outstanding at December 31, 2005. Under
the plan, options are granted to officers, employees and consultants of the
Group at the discretion of the compensation committee (designated by the board
of directors), or a sub-committee of the board, under the terms outlined below.
The terms and conditions of the grants are as follows, whereby all options are
settled by physical delivery of shares:
34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Vesting conditions
The options vest following a period of service by the officer or employee. The
required period of service is determined by the compensation committee at the
date of grant of the options (usually the date of approval by the compensation
committee) and it is generally over a four year period. There are no market
conditions associated with the share option grants.
Contractual life
The term of an option will be determined by the compensation committee, provided
that the term may not exceed seven years from the date of grant (some of the
Group's earlier plans had a ten year life). All options will terminate 90 days
after termination of the option holder's employment, service or consultancy with
the Group (or one year after such termination because of death or disability)
except where a longer period is approved by the Board of Directors. Under
certain circumstances involving a change in control of the Group, the committee
may accelerate the exercisability and termination of the options.
The number and weighted average exercise price of share options and warrants per
ordinary share is as follows (as required by the transitional provisions of IFRS
1 and IFRS 2, this information relates to all grants of share options and
warrants by the Company):
Options and Weighted-average Range
warrants exercise price US$
US$
Outstanding January 1, 2004 8,327,394 1.44 0.81 -5.00
Granted 3,162,824 3.68 2.33- 5.25
Exercised (1,113,538) 1.82 0.98 - 2.75
Forfeited (430,339) 1.66 0.98 -4.00
------------- -------------- -------------
Outstanding at end of period 9,946,341 2.10 0.81 -5.25
============= =============== ============
Exercisable at end of year 5,693,844 2.20 0.81 -5.25
============= =============== ============
Outstanding January 1, 2005 9,946,341 2.10 0.81 -5.25
Granted 1,670,000 1.69 1.59 -3.00
Exercised (2,615,376) 1.00 0.81-1.75
Forfeited (152,508) 1.99 0.98-4.00
------------- -------------- -------------
Outstanding at end of period 8,848,457 2.35 0.81-5.25
============= =============== ============
Exercisable at end of year 4,589,342 US$2.69 0.81-5.25
============= =============== ============
The weighted average share price at the date of exercise for options exercised
in 2005 is US$2.09 (2004: US$4.21).
The opening share price at the start of the financial year was US$2.93 and
closing share price at December 31, 2005 was US$2.04. The average share price
for the year was US$2.05.
A summary of the range of prices for the Company's stock options and warrants
for the year ended December 31, 2005 follows:
OUTSTANDING EXERCISABLE
Exercise price range No. of options Weighted- avg Weighted-avg No. of Weighted- avg Weighted-avg
exercise price contractual options exercise price contractual
life remaining life remaining
(years) (years)
US$0.81-US$0.99 1,339,322 US$0.97 3.32 839,322 US$0.97 3.05
US$1.00-US$2.05 3,576,340 US$1.57 4.64 1,580,561 US$1.49 2.74
US$2.06-US$2.99 2,262,974 US$2.56 4.79 746,305 US$2.52 3.53
US$3.00-US$5.25 1,669,821 US$4.84 3.35 1,423,154 US$5.12 3.00
---------------- ----------
8,848,457 4,589,342
================ ==========
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The weighted-average remaining contractual life of options outstanding at
December 31, 2005 is 4.24 years (2004: 4.39 years). The information above also
includes outstanding warrants.
A summary of the range of prices for the Company's stock options and warrants
for the year ended December 31 2004 follows:
OUTSTANDING EXERCISABLE
Exercise price range No. of options Weight- avg Weight-avg No. of Weight- avg Weight-avg
exercise price contractual options exercise price contractual
life remaining life remaining
(years) (years)
US$0.81-US$0.99 2,947,530 US$0.94 3.92 1,756,863 US$0.92 3.45
US$1.00-US$1.99 2,999,677 US$1.35 3.89 2,195,344 US$1.33 3.65
US$2.00-US$2.99 2,315,310 US$2.55 5.69 386,513 US$2.39 2.05
US$3.00-US$5.25 1,683,824 US$4.84 4.36 1,355,124 US$5.21 3.90
---------------- ----------
9,946,341 5,693,844
================ ==========
The weighted-average remaining contractual life of options outstanding at
December 31, 2004 is 4.39 years. The information above also includes outstanding
warrants.
The recognition and measurement principles of IFRS 2 have been applied to share
options granted under the Company's share options plans since November 7, 2002
which have not vested by January 1, 2005, in accordance with the transitional
provisions in IFRS 1 and IFRS as adopted by the EU. Of the total options
outstanding, 2,726,700 share options which fall into this category have been
fair valued in accordance with the requirements of IFRS 2 as per the group
policy set out in the accounting policy in note 1.
CHARGE FOR THE YEAR UNDER IFRS 2
The charge to the income statement is calculated based on the fair value of the
options granted which have not yet vested. The fair value of the options is
expensed over the vesting period of the option. US$1,368,000 was charged to the
income statement in 2005, split as follows:
December 31, 2005 December 31, 2004
US$'000 US$'000
Share-based payments - cost of sales 110 81
Share-based payments - research and development 210 96
Share-based payments - selling, general and administrative 1,048 581
------------------ ----------------
Total 1,368 758
================= ================
The fair value of services received in return for share options granted are
measured by reference to the fair value of share options granted. The estimate
of the fair value of services received is measured based on a trinomial model.
The following are the input assumptions used in determining the fair value of
share options granted after November 7, 2002 that had not vested as at the
effective date of January 1, 2005:
KEY MANAGEMENT OTHER KEY MANAGEMENT OTHER
PERSONNEL EMPLOYEES PERSONNEL MPLOYEES
2005 2005 2004 2004
Weighted average fair value at US$0.95 US$0.75 US$1.15 US$1.37
measurement date
Total share options granted 650,000 1,019,000 1,270,000 519,833
================ ========== =============== ==========
Weighted average share price US$1.67 US$1.69 US$2.62 US$3.02
Weighted average exercise price US$1.67 US$1.71 US$2.56 US$3.02
Weighted average expected volatility 60.3% 59.72% 66.48% 65.24%
Weighted average expected life 5.33 years 3.28 years 5.28 years 3.17 years
Weighted average risk free interest rate 5.33% 4.01% 3.54% 2.66%
Expected dividend yield 0% 0% 0% 0%
36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The expected life of the options is based on historical data and is not
necessarily indicative of exercise patterns that may occur. The expected
volatility is based on the historic volatility (calculated based on the expected
life of the options) and no adjustments have been made to reflect any expected
changes to future volatility.
20. INTEREST-BEARING LOANS AND BORROWINGS
This note provides information about the contractual terms of the Group's
interest-bearing loans and borrowings. For more information about the Group's
exposure to interest rate and foreign currency risk, see note 31.
December 31, 2005 December 31, 2004
US$ '000 US$ '000
Note
CURRENT LIABILITIES
Finance lease liabilities 241 237
Financial liabilities from unconnected third party - 669
Promissory note 26 3,000 -
Bank loans, secured 27(c)
- Repayable by instalment 2,504 1,191
- Repayable not by instalment 1,975 1,959
------------------ -----------------
7,720 4,056
================== =================
NON-CURRENT LIABILITIES
Finance lease liabilities 381 554
Bank loans, secured 27(c)
- Repayable by instalment 9,988 3,581
------------------ -----------------
10,369 4,135
================== =================
BANK LOANS
In June 2003, Trinity Biotech completed a new US$10,000,000 Club
banking facility with Allied Irish Bank plc and Bank of Scotland (Ireland)
Limited. The facility consisted of a five year term loan of US$6,000,000 and a
one year revolver of US$4,000,000. The original term loan was repayable in ten
equal biannual instalments which commenced on January 2, 2004. At September 1,
2005, the balance on the term loan was US$3,600,000 and US$2,000,000 was drawn
down on the revolver facility. In September 2005, Trinity amended this loan
facility by increasing the balance on the term loan from US$3,600,000 to
US$12,600,000 and renewing the revolver loan of US$2,000,000 for a further year.
Under the terms of the amended facility, repayments on the term loan will be
paid evenly over 10 instalments, commencing January 2, 2006 and six monthly
thereafter. The revolver loan facility was decreased from US$4,000,000 to
US$2,000,000, which was fully drawn down at December 31, 2005. This facility is
secured on the assets of the Group (see note 27 (c)).Various covenants apply to
the Group's bank borrowings. The banks may deem the Group to be in default if
such covenants are breached. At December 31, 2005, the total amount outstanding
amounted to US$14,414,000 under the Club facility agreement. The debt is stated
net of unamortised funding costs of US$187,000.
FINANCE LEASE LIABILITIES
Finance lease liabilities are payable as follows:
December 31, 2005
US$ '000
Minimum lease Interest Principal
payments
Less than one year 267 26 241
In more than one year, but not more than two 220 15 205
In more than two years but not more than three 181 5 176
-------------- ---------------- -------------
668 46 622
=============== ================ =============
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
December 31, 2004
US$ '000
Minimum lease Interest Principal
payments
Less than one year 267 30 237
In more than one year, but not more than two 241 21 220
In more than two years but not more than three 188 13 175
In more than three years but not more than four 163 4 159
-------------- ---------------- ------------
859 68 791
============== ================ ============
Under the terms of the lease arrangements, no contingent rents are
payable.
PROMISSORY NOTES
In July 2005, Trinity Biotech completed the acquisition of Primus Corporation
for a total consideration of US$14,503,000. Part of the consideration included a
one year promissory note of US$3 million. Interest is charged on this note at a
quarterly rate of 0.5% above the base interest rate of the US Federal Reserve
Bank and is payable to the shareholders of Primus on a quarterly basis. As the
interest rate applying to the promissory note represents a commercial interest
rate, the Company has not discounted the promissory note. The principal amount
will be paid on the first anniversary of the acquisition in July 2006. The
previous shareholders of Primus retain a lien over the shares of Primus whilst
payment of the promissory note remains outstanding.
21. CONVERTIBLE NOTES - INTEREST BEARING
December 31, 2005 December 31, 2004
US$ '000 US$ '000
CONVERTIBLE NOTES
Due within one year 7,203 7,031
Due greater than one year 1,836 8,788
------------------ -----------------
Total 9,039 15,819
=================== =================
The Company has availed of the exemption in IFRS 1 and has not applied IAS 32
until January 1, 2005. The convertible debentures are presented under IFRS in
line with Previous GAAP at December 31, 2004. If they were accounted for as
compound financial instruments in accordance with IAS 32, the equity and
liability elements would have been separately recorded, with the equity
component of the convertible notes being calculated as the excess of the issue
proceeds over the present value of the future interest and principal payments,
discounted at the market rate of interest applicable to similar liabilities that
do not have a conversion option. Transaction costs would have been allocated to
the liability and equity components in proportion to the allocation of proceeds.
The corresponding interest expense recognised in the income statement would have
been calculated using the effective interest rate method.
2005 2004
US$ '000 US$ '000
Stated under IFRS as Stated under IFRS in
adopted by the EU line with Previous
GAAP
Proceeds from issue of convertible notes 25,000 25,000
Transaction costs (1,307) (576)*
-------------------- --------------------
Net 23,693 24,424
Converted to shares (11,889)** (6,783)
Cash repayments (3,644) (1,822)
Amount classified as equity (297) -
Accreted interest capitalised 1,176 -
-------------------- --------------------
Carrying amount of liability at December 31 9,039 15,819
==================== ====================
* The 2004 transactions costs are unamortised transactions costs.
** Of the US$6,783,000 converted to shares in December 2003 and January 2004,
under IFRS US$6,423,000 was reclassified from the carrying amount of the
convertible debentures to share capital and share premium, with the remaining
US$360,000 being reclassified within equity to share capital and share premium.
The amount of the convertible notes classified as equity on January 1, 2005 of
US$297,000 is net of attributable transaction costs of US$16,000. Of the
US$297,000, US$71,000 has been reclassified from equity to share capital
and share premium following the share conversions in December 2003 and
January 2004. At December 31, 2005 the amount classified as equity of
US$226,000 is stated net of the related deferred tax asset of US$62,000 and
carried at US$164,000.
38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
In July 2003, the Company completed a private placement of US$20,000,000
principal amount of 3% convertible debentures. The debentures bear interest at a
rate of 3% per annum, convertible into Class 'A' Ordinary Shares of the Company
at a price of US$3.55 at the option of the holder. In December 2003,
US$6,355,000 of the US$20,000,000 principal amount of the debentures and
US$44,000 of the related accrued interest was converted into 1,802,676 Class 'A'
Ordinary Shares of the Company. In January 2004, a further US$427,000 of the
principal amount of the debenture was converted into 120,423 Class 'A' Ordinary
Shares of the Company.
As part of the July 2003 placement, convertible notes in the aggregate principal
amount of up to US$5,000,000 could be issued at the option of the investors by
the later of January 9, 2004 and the three month anniversary of the effective
date of the related registration statement. In March 2004, the investors
exercised this option in full and the Company completed a further placement of
US$5,000,000 principal amount of 3% convertible debentures. The debentures bear
interest at a rate of 3% per annum and are convertible into Class 'A' Ordinary
Shares of the Company at a price of US$4 at the option of the holder. All of the
above debentures are unsecured and are repayable in ten equal instalments on a
quarterly basis. Under the terms of the agreement, the Company has the option to
satisfy each repayment either in cash or in shares. If the repayment is to be
satisfied in shares, the number of shares will be based on, at the holders'
option, either the conversion price or 97% of the volume weighted average price
per ADS for the twenty trading days for the period immediately preceding the
repayment date. In October 2004, the first principal repayment of US$1,822,000
was made to the debenture holders in cash. Four principal repayments of
US$1,822,000 each were made in 2005. Three of these repayments were paid by
shares (2,522,000 shares) and one repayment by cash. At December 31, 2005, the
balance outstanding was US$9,109,000 including accrued interest at year end of
US$70,000.
22. TRADE AND OTHER PAYABLES
December 31, 2005 December 31, 2004
US$ '000 US$ '000
Trade payables 6,065 3,266
Payroll taxes 296 244
Employee related social insurance 347 366
Accrued liabilities and deferred income 6,060 4,693
----------------- ------------------
12,768 8,569
================= ==================
23. OTHER FINANCIAL LIABILITIES
December 31, 2005 December 31, 2004
US$ '000 US$ '000
Consideration 3,707 -
----------------- ------------------
3,707 -
================= ==================
CONSIDERATION
In April, 2004, the Company acquired the trade and assets of Fitzgerald
Industries International, Inc. ("Fitzgerald") for US$16 million in cash. Under
the terms of the purchase agreement, contingent consideration would be payable
depending on the financial performance of that business during the first two
years of operation post acquisition relative to its pre-acquisition performance.
At December 31, 2004 the payment of these amounts was not considered to be
probable, therefore no provisions for these amounts were made. At December 31,
2005 it was determined, based on the performance of Fitzgerald in 2005, that an
amount of US$1,002,000 would be payable to the shareholders of Fitzgerald. This
will be paid in 2006.
In July 2005, Trinity Biotech completed acquisition of Primus Corporation for
US$14.5 million. The shareholders of Primus are entitled to an additional
consideration depending on the growth of the Company during 2005 net of an
adjustment relating to the level of working capital at the date of acquisition.
At December 31, 2005 given the financial performance of Primus post acquisition,
it was determined that US$2,705,000 would be payable to the former shareholders
of Primus in 2006.
24. PROVISIONS
December 31, 2005 December 31, 2004
US$ '000 US$ '000
Provisions 199 62
================= ==================
39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Movement on provisions during the year is as follows:
December 31, 2005
US$ '000
Balance at January 1, 2005 62
Provisions made during the year 137
-----------------
Balance at December 31, 2005 199
=================
The above provisions represent estimated royalties which are payable, the exact
amount of which cannot be determined. US$199,000 represents management's best
estimate of the liability at December 31, 2005.
25. OTHER PAYABLES
December 31, 2005 December 31, 2004
US$ '000 US$ '000
Other payables 102 35
================= =================
26. BUSINESS COMBINATIONS
2005 Acquisitions
In March 2005, Trinity Biotech completed the acquisition of the assets of
Research Diagnostics Inc ("RDI"), a provider of immunodiagnostic products for
US$4,200,000 in cash. Acquisition expenses amounted to US$105,000. In July 2005,
Trinity Biotech completed the acquisition of 100% of the equity in Primus
Corporation ("Primus"), a leader in the field of in-vitro diagnostic testing for
haemoglobin A1c and haemoglobin variants for US$14,503,000 consisting of a cash
consideration of $US8,587,000 and a one year promissory note of US$3,000,000.
Acquisition expenses amounted to US$211,000. Under the terms of the purchase
agreement, the shareholders of Primus were also entitled to an additional
consideration based on the growth of the Group during the remainder of 2005. At
year end, the Company has accrued US$2,705,000 for this additional consideration
which will be paid in early 2006. The results of these acquisitions for 2005 are
incorporated from the date of acquisition in the consolidated statement of
income for the year ended December 31, 2005. The fair value of the identifiable
assets and liabilities are as follows:
Primus RDI Total
US$'000 US$'000 US$ '000
Property, plant and equipment 2,395 - 2,395
Trade and other receivables 1,848 - 1,848
Inventories 1,304 113 1,417
Intangible assets 4,615 1,790 6,405
--------- ---------- --------
10,162 1,903 12,065
--------- ---------- --------
Deferred tax liability (see note 12) 1,825 216 2,041
Trade and other payables 1,649 - 1,649
--------- ---------- --------
3,474 216 3,690
--------- ---------- --------
Fair value of net assets 6,688 1,687 8,375
Goodwill arising on acquisition 7,688 2,618 10,306
--------- ---------- --------
14,376 4,305 18,681
========= ========== ========
Consideration:
Cash payments 8,587 4,200 12,787
Less cash transferred with subsidiary (127) - (127)
Deferred consideration 3,000 - 3,000
Other consideration (see note 23) 2,705 - 2,705
Costs associated with the acquisition 211 105 316
--------- ---------- --------
14,376 4,305 18,681
========= ========== ========
40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Goodwill capitalised during 2005 in respect of acquired businesses amounted to
US$10,306,000 and comprises:
Fair value
Book values adjustments Fair value Consideration Goodwill
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
PRIMUS
Property, plant and equipment 2,371 24 2,395
Trade and other receivables 1,848 - 1,848
Inventories 1,858 (554) 1,304
Intangible assets 330 4,285 4,615
-------------- ------------- ------------
6,407 3,755 10,162
-------------- ------------- ------------
Deferred tax liability - 1,825 1,825
Trade and other payables 1,566 (33) 1,533
Creditors greater than one year 116 - 116
-------------- ------------- ------------
4,725 1,963 6,688 14,376 7,688
============== ============= ============== ============== =========
RDI
Property, plant and equipment 10 (10) -
Inventories 146 (33) 113
Intangible assets - 1,790 1,790
-------------- ------------- ------------
156 1,747 1,903
-------------- ------------- ------------
Deferred tax liability - 216 216
-------------- ------------- ------------
156 1,531 1,687 4,305 2,618
============== ============= ============== ============== =========
During the period, following these acquisitions, fair value adjustments were
made to recognise intangible assets acquired in these business combinations in
2005. All of the fair value adjustments were made following an assessment of the
carrying value of the assets acquired.
If the acquisitions had occurred on January 1, 2005 the Group revenue would have
been US$104,885,000 and the retained profit for the financial period would have
been US$5,564,000.
Impact of the acquisitions on the income statement
RDI and Primus acquired on March 21 and July 19 contributed US$9,793,000 and
US$1,578,000 to the revenue and operating profit of the Group, respectively.
Impact of acquisitions on cash flow headings
There were two acquisitions in 2005. The cash outflow of US$13,129,000 in 2005
was partly funded by US$9,000,000 received as part of the amendment to the
current bank loan facility (see note 20). The acquisition of Primus did not have
a material impact on any of the headings of the consolidated statement of
cashflows. As the working capital of RDI was fully integrated into the Group's
existing operations by December 31, 2005 post acquisition operating cashflows
were not obtainable.
2004 Acquisitions
In April, 2004, the Company acquired the trade and assets of Fitzgerald
Industries International, Inc ("Fitzgerald") for US$16 million in cash.
Acquisition expenses amounted to US$152,000. Additional consideration was
payable for the acquisition of the business of Fitzgerald, depending on the
financial performance of that business during the first 18 months of operation
post acquisition relative to its pre-acquisition performance. At December 31,
2004 the payment of these amounts was not considered to be probable, therefore
no provisions for these amounts were made. At December 31, 2005 it was
determined, based on the performance of Fitzgerald in 2005, that deferred
consideration of US$1,002,000 is payable. See note 23.
Fitzgerald provides a comprehensive range of immunodiagnostic products to
pharmaceutical companies, reference laboratories, diagnostic manufacturers and
research facilities worldwide. The acquisition of Fitzgerald places the Company
in the life sciences market with significant potential for future growth.
41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
In April 2004, the Company also acquired the trade, assets and certain
liabilities of Adaltis US, Inc for US$2,852,000 in cash. Adaltis US, Inc was the
distribution arm for Adaltis Inc. Acquisition costs amounted to US$112,000. As
part of the transaction, Trinity obtained exclusive distribution rights to
Adaltis' open-end microplate analytical instrumentation in the US and
non-exclusive distribution rights in the rest of the world, excluding China.
This acquisition gives Trinity access to the existing installed base of
instruments in the US and provides an opportunity for Trinity to place its own
reagents on this installed base of instruments. The results of these
acquisitions for 2004 are incorporated from the date of acquisition in the
consolidated statement of income for the year ended December 31, 2004. The fair
value of the identifiable assets and liabilities are as follows:
Fitzgerald Adaltis Total
US$ '000 US$ '000 US$ '000
Property, plant and equipment 35 237 272
Trade and other receivables 67 851 918
Inventories 126 480 606
Intangible assets 10,463 660 11,123
---------- -------- ---------
10,691 2,228 12,919
---------- -------- ---------
Deferred tax liability (see note 12) (1,308) (224) (1,532)
Trade and other payables - (999) (999)
---------- -------- ---------
(1,308) (1,223) (2,531)
---------- -------- ---------
Fair value of net assets 9,383 1,005 10,388
Goodwill arising on acquisition 6,769 1,959 8,728
---------- -------- ---------
16,152 2,964 19,116
========== ======== =========
Consideration:
Cash payments 16,000 2,852 18,852
Costs associated with the acquisition 152 112 264
---------- -------- ---------
16,152 2,964 19,116
========== ======== =========
Goodwill capitalised during 2004 in respect of these acquisitions amounted to
US$8,728,000 and comprises:
Fair value
Book values adjustments Fair value Consideration Goodwill
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
FITZGERALD
Property, plant and equipment 35 - 35
Trade and other receivables 84 (17) 67
Inventories 126 - 126
Intangible assets 33 10,430 10,463
-------------- ------------- ------------
278 10,413 10,691
-------------- ------------- ------------
Deferred tax liability - (1,308) (1,308)
-------------- ------------- ------------
278 9,105 9,383 (16,152) 6,769
============== ============= ============== ============== =========
ADALTIS
Property, plant and equipment 237 - 237
Trade and other receivables 851 - 851
Inventories 480 - 480
Intangible assets - 660 660
-------------- ------------- ------------
1,568 660 2,228
-------------- ------------- ------------
Deferred tax liability - (224) (224)
Trade and other payables (1,004) 5 (999)
-------------- ------------- ------------
(1,004) (219) (1,223)
-------------- ------------- ------------
564 441 1,005 (2,964) 1,959
============== ============= ============== ============== =========
During the period, following the acquisitions, fair value adjustments were made
to recognise intangible assets acquired in these business combinations.
US$8,690,000 of the cost of the acquisition of Fitzgerald was assigned to
customer relationships acquired, US$700,000 was assigned to supplier
relationships, US$970,000 was assigned to an indefinite-lived intangible asset
representing the trade name acquired and US$70,000 was allocated to other
intangibles. A deferred tax liability of US$1,308,000 was recognised on the
acquired intangibles of Fitzgerald. A fair value adjustment was made to
recognise intangibles of US$660,000 representing customer relationships acquired
as part of the Adaltis business combination. A deferred tax liability of
US$224,000 was recognised on this acquired intangible. Initial fair value
adjustments were also made to the acquired working capital of Fitzgerald
(US$17,000 decrease) and Adaltis (US$5,000 increase). All of these fair value
adjustments were made following an assessment of the carrying value of the net
assets acquired.
42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The book values of the assets shown above have been taken from management
accounts and other information of the acquired businesses at the dates of
acquisition.
Following the completion of the fair value exercises in 2005 in respect of the
acquisitions made during 2004, amendments have been made to the fair values
reported in the 2004 financial statements related to the fair valuation of
inventory acquired in Fitzgerald and of inventory and receivables acquired in
Adaltis. The difference has been taken as an adjustment to goodwill on
acquisition. Provisional and final values of net assets acquired and
consideration paid are as follows:
Provisional Adjustments Adjustments Final
fair value to net assets to costs fair value
2004 2005 2005 2005
US$'000 US$'000 US$'000 US$'000
FITZGERALD
Property, plant and
equipment 35 - - 35
Intangible assets 10,463 - - 10,463
Working capital 193 (64) - 129
------------ ------------- ------------ ----------
10,691 (64) - 10,627
------------ ------------- ------------ ----------
Deferred tax liability (1,308) - - (1,308)
------------ ------------- ------------ ----------
9,383 (64) - 9,319
------------ ------------- ------------ ----------
Consideration and costs 16,152 - 1,104 17,256
------------ ------------- ------------ ----------
ADALTIS
Property, plant and
equipment 237 - - 237
Intangible assets 660 - - 660
Working capital 332 (134) - 198
------------ ------------- ------------ ----------
1,229 (134) - 1,095
------------ ------------- ------------ ----------
Deferred tax liability (224) 142 - (82)
------------ ------------- ------------ ----------
1,005 8 - 1,013
------------ ------------- ------------ ----------
Consideration and costs 2,964 - - 2,964
------------ ------------- ------------ ----------
The following represents the increases (decreases) to goodwill which took place
in 2005.
US$'000
Goodwill recognised with respect to 2005 acquisitions
- Primus 7,688
- RDI 2,618
Goodwill recognised with respect to 2004 acquisitions
- Fitzgerald 1,168
-Adaltis (8)
---------
Total goodwill movement in 2005 11,466
---------
43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
27. COMMITMENTS AND CONTINGENCIES
(a) CAPITAL COMMITMENTS
There were no capital commitments contracted for or authorised at December 31,
2005.
(b) LEASES AS LESSEE
The Group leases a number of premises under operating leases. The leases
typically run for periods up to 25 years. Lease payments are reviewed
periodically (typically on a 5 year basis) to reflect market rentals. None of
the leases include contingent rentals. Operating lease commitments payable
during the next 12 months amount to US$2,277,000 (2004: US$2,648,000) payable on
leases of buildings at Dublin and Bray, Ireland, Umea, Sweden, upstate New York,
Kansas City, New Jersey, Massachusetts and Carlsbad, California and motor
vehicles and equipment in the UK and Lemgo, Germany. US$249,000 (2004:
US$206,000) of these operating lease commitments total relates to leases whose
remaining term will expire within one year, US$82,000 (2004: US$630,000) relates
to leases whose remaining term expires between one and two years, US$342,000
(2004: US$253,000) between two and five years and the balance of US$1,604,000
(2004: US$1,559,000) relates to leases which expire after more than five years.
Future minimum operating lease commitments with non-cancellable terms in excess
of one year are as follows:
Year ended
2005
Operating leases
US$'000
2006 2,277
2007 1,998
2008 1,936
2009 1,719
2010 1,539
Later years 15,998
-----------------
Total lease obligations 25,467
-----------------
Year ended
2004
Operating leases
US$'000
2005 2,648
2006 2,200
2007 1,777
2008 1,632
2009 1,584
Later years 18,912
-----------------
Total lease obligations 28,753
-----------------
See note 20 for future minimum finance lease commitments.
(c) In June 2003, the Group completed a new US$10,000,000 Club banking facility
with Allied Irish Banks plc and Bank of Scotland (Ireland) Limited, this
facility is guaranteed by the subsidiaries of the company. An additional
US$9,000,000 was borrowed as part of this facility in September 2005. At
December 2005, US$14,600,000 was drawn down by the Group consisting of a
US$12,600,000 of a term loan and US$2,000,000 revolver facility (see note
20). The Group's bank borrowings are secured by a fixed and floating charge
over the assets of Group entities, including specific charges over the
shares in the subsidiaries and the Group's patents. Various covenants apply
to the Group's bank borrowings with respect to profitability, interest
cover, capital expenditure, working capital and location of assets. The
banks may deem the Company to be in default if such covenants are breached
The Group has agreed to keep US$9,000,000 (2004: US$7,148,000) on deposit
with its lending banks and must seek prior approval from these financial
institutions before such funds are spent on acquisitions. Resulting from
the restrictions on this cash, the US$9,000,000 (2004: US$7,148,000) is
shown as a financial asset at December 31, 2005. See note 16.
(d) Pursuant to the provisions of Section 17, Irish Companies (Amendment) Act,
1986, the Company has guaranteed the liabilities of Trinity Biotech
Manufacturing Limited, Trinity Biotech Manufacturing Services Limited,
Trinity Research Limited, Benen Trading Limited and Trinity Biotech Sales
Limited, subsidiary undertakings in the Republic of Ireland, for the
financial year to December 31, 2005 and, as a result, these subsidiary
undertakings have been exempted from the filing provisions of Section 17,
Irish Companies (Amendment) Act, 1986. Where the Company enters into these
guarantees of the indebtedness of other companies within its Group, the
Company considers these to be insurance arrangements and accounts for them
as such. The Company treats the guarantee contract as a contingent
liability until such time as it becomes probable that the company will be
required to make a payment under the guarantee. The Company does not enter
into financial guarantee with third parties. The Company does not expect
the amendment to have any impact on the Company financial statements.
44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(e) In December 2003, the Company initiated legal proceedings in the Superior
Court of Middlesex County, Massachusetts against Inverness Medical and its
affiliate Wampole (collectively, Defendants) for declaratory judgment,
breach of contract and unfair and deceptive business practices in
connection with the Defendants' performance under a distribution agreement
initially entered into in 1995 by Clark Laboratories Inc (now part of the
Trinity Biotech Group) and subsequently amended in 2002. Inverness Medical,
through its affiliate, Wampole Laboratories, has acted as exclusive
distributor for certain of Trinity Biotech's infectious disease products in
the US. This exclusivity ended on September 30, 2004, at which time it had
been agreed that both Trinity Biotech and Inverness Medical would sell the
products under their respective labels. Among other things, the suit
requested a judgement declaring that Trinity was entitled to sell certain
products directly in the US and Puerto Rico before October 1, 2004 under
the terms of the 2002 amendment to the distribution agreement. The suit
also alleged that the Defendants were attempting to convert customers from
Trinity's products to products manufactured by a competitor (which were
modified to look like the Trinity products) by misrepresenting to the
customers that the Trinity product was unavailable and was being
discontinued. In January 2004, the Defendants countersued alleging, among
other things, various breaches of the distribution agreement and subsequent
amendments, and that Defendants were entitled to rescind the distribution
agreement and any amendments thereto, including any agreement to grant
certain intellectual property rights to Trinity. The Defendants sought a
preliminary injunction to prevent Trinity from selling directly in the
Territory any of its products which are competitive with products sold by
the Defendants and sourced from other suppliers. The Superior Court of
Middlesex County, Massachusetts, denied this motion for a preliminary
injunction on January 28, 2004. In April of 2004, Trinity amended its
complaint to add additional claims alleging breaches of the distribution
agreement by the Defendants. In May of 2004, the Defendants amended their
counterclaims to add claims alleging, among other things, that Trinity was
selling certain products without a license. Following the expiration of the
Defendants' exclusive distribution rights under the distribution agreement
on October 1, 2004, Trinity moved to amend its complaint to eliminate the
declaratory judgment claims and add additional claims for breach of the
distribution agreement and tortious interference with advantageous business
relations that had arisen after December 2003. The Defendants filed a
cross-motion to amend their complaint. On April 22, 2005, the court granted
both parties' motions to amend. The case is currently in the discovery
phase. It is possible that the Company will incur a loss arising out of
this legal case. However, it is currently not possible to quantify the
amount of this potential loss.
(f) Arising out of its acquisition of Primus in July 2005, the Company has
provided the former shareholders with a promissory note to pay the
remaining US$3,000,000 of the purchase consideration on the first
anniversary of the transaction. Until the promissory note is paid the
former shareholders have a lien over all of the shares in Primus.
(g) For finance leases outstanding at year end, the lessor has a charge over
the relevant assets.
28. RELATED PARTY TRANSACTIONS
The Group has related party relationships with its subsidiaries, associate and
joint venture entities (see note 29) and with its directors and executive
officers.
The Company has entered into various arrangements with JRJ Investments ("JRJ"),
a partnership owned by Mr O'Caoimh and Dr Walsh, directors of the Company, to
provide for current and potential future needs to extend its premises at IDA
Business Park, Bray, Co. Wicklow, Ireland. It has entered into an agreement with
JRJ pursuant to which the Company has taken a lease of premises adjacent to the
existing facility for a term of 20 years at a rent of (euro)7.62 per square foot
("the Current Extension"). The lease commenced on the newly completed 25,000
square foot building in July 2000. On November 20, 2002, the Company entered
into an agreement for a 25 year lease with JRJ for offices that have been
constructed on part of these lands. The annual rent of (euro)381,000
(US$451,000) is payable from January 1, 2004. Independent valuers have advised
the Company that the rent fixed in respect of the Current Extension and the
agreement for lease represents a fair market rent. The rent for any future
property constructed will be set at the then open market value. The Company and
its directors (excepting Mr O'Caoimh and Dr Walsh who express no opinion on this
point) believe that the arrangements entered into represent a fair and
reasonable basis on which the Company can meet its ongoing requirements for
premises.
45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Compensation of key management personnel of the Group
The key management personnel of the Group is made up of the four executive
directors of the Company. Compensation for the year ended December 31, 2005 of
these personnel is detailed below:
December 31, 2005 December 31, 2004
US$'000 US$'000
Short-term employee benefits (note 5) 1,752 1,321
Post-employment benefits (note 5) 131 172
Share-based payments 828 339
------------------ ------------------
2,711 1,832
================== ==================
Total remuneration is included in "personnel expenses" (see note 6).
Directors' and executive officers interests in the Company's shares and share
option plan
'A' Ordinary Shares Share options
At January 1, 2005 1,379,530 6,108,541
Exercised - (2,546,875)
Granted - 650,000
Shares sold - -
Shares purchased 4,501,675 -
------------------ --------------
At December 31, 2005 5,881,205 4,211,666
================== ==============
'A' Ordinary Shares Share options
At January 1, 2004 2,988,105 4,838,541
Exercised - -
Granted - 1,270,000
Shares sold (1,608,575) -
Shares purchased - -
------------------ --------------
At December 31, 2004 1,379,530 6,108,541
================== ==============
29. INTEREST IN JOINT VENTURE ENTITY
Through its investment in Primus, the Groups holds a 50% interest in Primus
International LLC, a jointly controlled entity. Under the terms of the
shareholders agreement between Primus Corporation and Progressive Group Inc (the
holder of the remaining 50%), control of Primus International LLC is exercised
jointly by both parties. The share of the assets and liabilities, at December
31, 2005 and income and expenses for the period from acquisition (July 19, 2005)
to December 31, 2005 of the jointly controlled entity, which are included in the
consolidated financial statements using the proportionate consolidation method,
are as follows:
December 31, 2005 December 31, 2004
US$'000 US$'000
Non-current assets 103 -
Current assets 372 -
================= ===================
475 -
Current liabilities (247) -
Non-current liabilities - -
----------------- -------------------
228 -
================= ===================
Period ended December Period ended December
31, 2005 31, 2004
US$'000 US$'000
Revenue 13 -
Cost of sales (12) -
Selling, general and administrative costs (21) -
--------------------- ---------------------
Loss before tax (20) -
Tax - -
--------------------- ---------------------
Net loss (20) -
===================== =====================
46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
30. INVESTMENT IN ASSOCIATE
Through its investment in Primus Corporation, the Group holds a 32% interest in
Chronomed Inc. Under the terms of the shareholders agreement for Chronomed Inc,
Primus Corporation does not have control of this entity and hence it is treated
as an associate. In determining the carrying value of the investment in the
associate, the Group considered its share of the net assets as at December 31,
2005. As Chronomed Inc. had net liabilities as at December 31, 2005 and the
Company had no legal or constructive obligations to make payments on behalf of
the associate a carrying value of nil has been assigned to the investment.
December 31, 2005 December 31, 2004
US$'000 US$'000
Carrying amount of investment - -
================= =================
31. DERIVATIVES AND FINANCIAL INSTRUMENTS
The Group uses a range of financial instruments (including cash, bank
borrowings, convertible notes, promissory notes and finance leases) to fund its
operations. These instruments are used to manage the liquidity of the Group in a
cost effective, low-risk manner. Working capital management is a key additional
element in the effective management of overall liquidity. The Group does not
trade in financial instruments or derivatives.
The main risks arising from the utilisation of these financial instruments are
interest rate risk, liquidity risk, foreign exchange and credit risk.
INTEREST RATE RISK
The Group borrows in US dollars at floating and fixed rates of interest.
Year-end borrowings totalled US$27,128,000 (2004: US$24,011,000), (net of cash
and restricted cash: US$8,247,000 (2004: US$1,723,000)), at interest rates
ranging from 3.0% to 5.65% (2004: 3.0% to 5.5%) and including US$9,714,000
(2004: US$16,680,000) of fixed rate debt at interest rates ranging from 3% to 5%
(2004: 3% to 5.5%). In broad terms, a one-percentage point increase in interest
rates would increase interest income by US$189,000 (2004: US$223,000) and
increase the interest expense by US$174,000 (2004: US$73,000) resulting in a
decrease in the net interest charge of US$15,000 (2004: decrease by US$150,000).
EFFECTIVE INTEREST RATE AND REPRICING ANALYSIS
The following table sets out all interest-earning financial assets and interest
bearing financial liabilities held by Trinity Biotech at December 31, indicating
their effective interest rates and the period in which they reprice.
The following table for 2005 is prepared under IFRS as adopted by the EU. By
adopting IAS 32 and 39 from January 1, 2005, interest on the convertible notes
is charged to the income statement at an effective interest rate of 6.23%. The
effective interest rate on all other loans and borrowings is the same as actual
interest rates.
AS AT DECEMBER 31, 2005 NOTE EFFECTIVE TOTAL 1 YEAR 1-2 YEARS 2-5 YEARS
US$'000 INTEREST RATE US$'000 US$'000 US$'000 US$'000
Cash and cash equivalents 16 4.22% 9,881 9,881 - -
Financial asset -- 17 4.22% 9,000 9,000 - -
restricted cash
Secured bank loans -- 20 5.65% (14,414) (14,414) - -
floating
Secured bank loans -- fixed 20 5% (53) - - (53)
Promissory note -- floating 20 4.27% (3,000) (3,000) - -
Convertible notes -- fixed 21 6.23% (9,039) - (9,039) -
Finance lease liabilities 20 5.60% (622) (54) - (568)
- fixed
----------- ------------ ---------- ------------
TOTAL (8,247) 1,413 (9,039) (621)
=========== ============ ========== ============
47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The following table for 2004 is prepared in line with Previous GAAP. The Company
has availed of the exemption in IFRS 1 and has not applied IAS 32 and IAS 39
until January 1, 2005. The convertible notes are presented under IFRS in line
with Previous GAAP at December 31, 2004 and as a result the effective interest
rate is the normal coupon interest rate of 3% as adjusted for the effect of
transaction costs. The effective interest rate on all other loans and borrowings
is the same as actual interest rates.
AS AT DECEMBER 31, 2004 NOTE EFFECTIVE TOTAL 1 YEAR 1-2 YEARS 2-5 YEARS
US$'000 INTEREST RATE US$'000 US$'000 US$'000 US$'000
Cash and cash equivalents 16 2.33% 15,139 15,139 - -
Financial asset - 17 2.33% 7,148 7,148 - -
restricted cash
Secured bank loans - 20 3.37% (6,662) (6,662) - -
floating
Other financial 20 4.86% (669) (669) - -
liabilities - floating
Secured bank loans -fixed 20 5% (69) - - (69)
Convertible notes - fixed 21 3% (15,819) - - (15,819)
Finance lease liabilities 20 5.04% (791) (25) (121) (645)
- fixed
----------- ------------ ---------- ------------
TOTAL (1,723) 14,931 (121) (16,533)
=========== ============ ========== ============
Trinity Biotech has no interest earning financial assets and interest bearing
financial liabilities with a maturity greater than 5 years.
LIQUIDITY RISK
The Group's operations are cash generating. Short-term flexibility is achieved
through the management of the group's short-term deposits and through the use of
a revolver loan facility.
FOREIGN EXCHANGE RISK
The majority of the Group's activities are conducted in US Dollars. The primary
foreign exchange risk arises from the fluctuating value of the Group's euro
denominated expenses as a result of the movement in the exchange rate between
the US Dollar and the euro. Arising from this, the Group pursues a treasury
policy which aims to sell US Dollars forward to match a portion of its uncovered
euro expenses at exchange rates lower than budgeted exchange rates. These
forward contracts are primarily cashflow hedging instruments whose objective is
to cover a portion of these euro forecasted transactions. All of the forward
contracts at December 31, 2005 have maturities of less than one year after the
balance sheet date. Where necessary, the forward contracts are rolled over at
maturity.
With an increasing level of euro denominated sales, the Group anticipates that,
over the next three years, a higher proportion of its non-US Dollar expenses
will be matched by non-US Dollar revenues. The Group had foreign currency
denominated cash balances equivalent to US$1,486,000 at December 31, 2005 (2004:
US$874,000).
IFRS 1 exemption from IAS 39
The Group has availed of the exemption in IFRS 1 and is applying the
requirements of IAS 39 prospectively from January 1, 2005. At December 31, 2004
these forward contracts are accounted for under IFRS in line with Previous GAAP.
If they were accounted for under IAS 39, the unrecognised gains and losses with
hedged transactions would be recognised in the statement of recognised income
and expenditure and the fair value of these contracts would be recognised on the
balance sheet.
Forecasted transactions
From January 1, 2005 the Group states its forward exchange contracts at fair
value in the balance sheet. The Group classifies certain of its forward exchange
contracts as hedging forecasted transactions and thus accounting for them as
cash flow hedges. During 2005 changes in the fair value of these contracts were
recognized in equity and then in the case of contracts which were exercised
during 2005, the cumulative gain or losses were transferred to the income
statement. Changes in the fair value of ineffective cash flow hedges were
recognized in the income statement during 2005. The fair value of all forward
exchange contracts amounted to a liability of US$44,000. The liability of
US$44,000 in respect of the fair value of all forward exchange contracts at
December 31, 2005 comprises assets of US$6,000,000 and liabilities of
US$6,044,000.
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
CREDIT RISK
The Group has no significant concentrations of credit risk. Exposure to credit
risk is monitored on an ongoing basis. The Group maintains specific provisions
for potential credit losses. To date such losses have been within management's
expectations. Due to the large number of customers and the geographical
dispersion of these customers, the Group has no significant concentrations of
accounts receivable.
With respect to credit risk arising from the other financial assets of the
Group, which comprise cash and cash equivalents, restricted cash and forward
contracts, the Group's exposure to credit risk arises from default of the
counter-party, with a maximum exposure equal to the carrying amount of these
instruments.
The Group maintains cash and cash equivalents and restricted cash with various
financial institutions. These financial institutions are located in a number of
countries and Group policy is designed to limit exposure to any one institution.
The Group performs periodic evaluations of the relative credit standing of those
financial institutions.
The carrying amount reported in the balance sheet for cash and cash equivalents
and restricted cash approximates their fair value.
FAIR VALUE OF INTEREST BEARING FINANCIAL LIABILITIES
Carrying Value Fair Value
US$'000 US$'000
Convertible notes 9,039 9,009
Interest bearing loans 17,467 17,465
Finance leases 622 623
----------------- ----------------
TOTAL 27,128 27,097
================= ================
INTEREST RATE PROFILE OF FINANCIAL LIABILITIES
The interest rate profile of financial liabilities of the Group was as follows:
December 31, 2005 December 31, 2004
US$ '000 US$ '000
Floating rate financial liabilities 17,414 7,331
Fixed rate financial liabilities 9,714 16,680
----------------- -----------------
27,128 24,011
================= =================
Floating rate financial liabilities comprise other borrowings that bear interest
at rates of between 4.27% and 5.65%. These borrowings are provided by lenders at
margins ranging from 0.5% to 1.25% over interbank rates.
The table below provides information about the Company's long-term debt
obligations that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates. Weighted average variable rates are based on rates set at the
balance sheet date. The information is presented in US Dollars, which is the
Company's reporting currency.
MATURITY AFTER FAIR
BEFORE DECEMBER 31 2006 2007 2008 2009 2010 2011 TOTAL VALUE
LONG-TERM DEBT
Variable rate -- US$000 7,462 2,488 2,488 2,488 2,487 - 17,413 17,413
Average interest rate 5.11% 5.11% 5.11% 5.11% 5.11% - 5.11%
Fixed rate -- US$000 7,460 2,057 193 4 - - 9,714 9,684
Average interest rate 3.08% 3.23% 5.07% 5.0% - - 3.15%
49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
December 31, 2005 December 31, 2004
FIXED RATE FINANCIAL LIABILITIES
Weighted average interest rate 3.15% 3.20%
Weighted average period for which rate is fixed 1.13 years 2.15 years
MATURITY OF FINANCIAL LIABILITIES
The maturity profile of the Group's financial liabilities was as follows:
December 31, 2005 December 31, 2004
US$ '000 US$ '000
In one year or less, or on demand 14,922 11,088
In more than one year, but not more than two 4,546 8,733
In more than two years, but not more than three 2,680 2,835
In more than three years, but not more than four 2,492 1,352
In more than four years, but not more than five 2,488 3
------------------ ------------------
27,128 24,011
================== ===================
FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
There is no significant difference between the fair value and the carrying value
of the Group's Financial Assets and Liabilities as at December 31, 2005 or
December 31, 2004. At December 31, 2005 forward contracts with a carrying value
of US$44,000 (2004:$NIL) had a fair value of US$44, 000 (2004: US$418,000).
32. ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of these financial statements requires us to make estimates and
judgements that affect the reported amount of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those related to
intangible assets, contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
KEY SOURCES OF ESTIMATION UNCERTAINTY
Note 11 contains information about the assumptions and their risk factors
relating to goodwill impairment. Note 19 outlines information regarding the
valuation of share options. In note 31 detailed analysis is given about the
interest rate risk, credit risk, liquidity risk and foreign exchange risk of the
Group.
CRITICAL ACCOUNTING JUDGMENTS IN APPLYING THE GROUP'S ACCOUNTING POLICIES
Certain critical accounting judgements in applying the Group's accounting
policies are described below:
Research and development expenditure
Under IFRS as adopted by the EU, we write-off research and development
expenditure as incurred, with the exception of expenditure on projects whose
outcome has been assessed with reasonable certainty as to technical feasibility,
commercial viability and recovery of costs through future revenues. Such
expenditure is capitalised at cost within intangible assets and amortised over
its expected useful life of 15 years, which commences when commercial production
starts (see note 11).
Factors which impact our judgement to capitalise certain research and
development expenditure include the degree of regulatory approval for products
and the results of any market research to determine the likely future commercial
success of products being developed. We review these factors each year to
determine whether our previous estimates as to feasibility, viability and
recovery should be changed.
Impairment of intangible assets and goodwill
Definite lived intangible assets are reviewed for indicators of impairment
annually while goodwill and indefinite lived assets are tested for impairment
annually, individually or at the cash generating unit level.
Factors considered important, as part of an impairment review, include the
following:
o significant underperformance relative to expected historical or
projected future operating results;
o significant changes in the manner of our use of the acquired assets or
the strategy for our overall business;
o obsolescence of products;
significant decline in our stock price for a sustained period; and
o our market capitalisation relative to net book value.
50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
When we determine that the carrying value of intangibles, non-current assets
and related goodwill may not be recoverable based upon the existence of one or
more of the above indicators of impairment, any impairment is measured based on
our estimates of projected net discounted cash flows expected to result from
that asset, including eventual disposition. Our estimated impairment could prove
insufficient if our analysis overestimated the cash flows or conditions change
in the future.
Allowance for slow-moving and obsolete inventory
We evaluate the realisability of our inventory on a case-by-case basis and make
adjustments to our inventory provision based on our estimates of expected
losses. We write-off any inventory that is approaching its "use-by" date and for
which no further re-processing can be performed. We also consider recent trends
in revenues for various inventory items and instances where the realisable value
of inventory is likely to be less than its carrying value.
Allowance for impairment of receivables.
We make judgements as to our ability to collect outstanding receivables and
where necessary make allowances for impairment. Such impairments are made based
upon a specific review of all significant outstanding receivables. In
determining the allowance, we analyse our historical collection experience and
current economic trends. If the historical data we use to calculate the
allowance for impairment of receivables does not reflect the future ability to
collect outstanding receivables, additional allowances for impairment of
receivables may be needed and the future results of operations could be
materially affected (see note 1).
Accounting for income taxes
Significant judgement is required in determining our worldwide income tax
expense provision. In the ordinary course of a global business, there are many
transactions and calculations where the ultimate tax outcome is uncertain. Some
of these uncertainties arise as a consequence of revenue sharing and cost
reimbursement arrangements among related entities, the process of identifying
items of revenue and expense that qualify for preferential tax treatment and
segregation of foreign and domestic income and expense to avoid double taxation.
Although we believe that our estimates are reasonable, no assurance can be given
that the final tax outcome of these matters will not be different than that
which is reflected in our historical income tax provisions and accruals. Such
differences could have a material effect on our income tax provision and profit
in the period in which such determination is made. Deferred tax assets and
liabilities are determined using enacted or substantively enacted tax rates for
the effects of net operating losses and temporary differences between the book
and tax bases of assets and liabilities.
While we have considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing whether deferred tax assets can be
recognised, there is no assurance that these deferred tax assets may not be
realisable. The extent to which deferred tax assets which are recognised are not
realisable could have a material adverse impact on our income tax provision and
net income in the period in which such determination is made. In addition, we
operate within multiple taxing jurisdictions and are subject to audits in these
jurisdictions. These audits can involve complex issues that may require an
extended period of time for resolution. In management's opinion, adequate
provisions for income taxes have been made (see note 8 and 12).
Warranty Provision
We make judgements as to extent to which we have to replace products which are
returned by customers due to quality issues. In determining the level of
provision required for such returns we consider our historical experience of
customers returning products. If our historical experience does / does not
reflect future levels of returned products then the level of provision is
increased / released as appropriate.
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
33. EXPLANATION OF TRANSITION TO IFRS AS ADOPTED BY THE EU
As stated in note 1(a), these are the Group's first consolidated financial
statements prepared in accordance with IFRS as adopted by the EU. The accounting
policies set out in note 1 have been applied in preparing the financial
statements for the year ended December 31, 2004 and in the preparation of the
opening IFRS as adopted by the EU balance sheet at January 1, 2004 (the Group's
date of transition).
In preparing its opening IFRS as adopted by the EU balance sheet, the Group has
adjusted amounts reported previously in financial statements prepared in
accordance with its old basis of accounting, Irish GAAP ("Previous GAAP"). An
explanation of how the transition from Previous GAAP to IFRS as adopted by the
EU has affected the Group's financial position, financial performance and cash
flows is set out in the following tables and the notes that accompany the
tables.
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
RECONCILIATION OF EQUITY
Previous Effect of IFRS as Previous Effect of IFRS as
GAAP transition adopted GAAP transition adopted
Notes Note ( a) to IFRS as by the Note (a) to IFRS by the
adopted EU EU
by the EU
January 1, 2004 December 31, 2004
US$ '000 US$ '000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment g 13,343 10 13,353 15,997 20 16,017
Intangible assets b, e 39,401 1,881 41,282 58,496 5,058 63,554
Deferred tax assets e 555 762 1,317 1,654 822 2,476
Other assets h 410 (410) - 910 (875) 35
------------ ----------- --------- ----------- ----------- ---------
TOTAL NON-CURRENT ASSETS 53,709 2,243 55,952 77,057 5,025 82,082
------------ ----------- --------- ----------- ----------- ---------
CURRENT ASSETS
Inventories 30,555 - 30,555 37,519 - 37,519
Trade and other receivables d 13,152 (190) 12,962 13,524 (187) 13,337
Cash and cash equivalents 2,562 - 2,562 15,139 - 15,139
Financial assets-restricted cash 18,000 - 18,000 7,148 - 7,148
Income tax receivable 131 - 131 815 - 815
------------ ----------- --------- ----------- ----------- ---------
TOTAL CURRENT ASSETS 64,400 (190) 64,210 74,145 (187) 73,958
------------ ----------- --------- ----------- ----------- ---------
------------ ----------- --------- ----------- ----------- ---------
TOTAL ASSETS 118,109 2,053 120,162 151,202 4,838 156,040
============ =========== ========= =========== =========== =========
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO THE EQUITY
HOLDERS OF THE PARENT
Issued capital 670 - 670 776 - 776
Share premium account 87,596 - 87,596 120,444 - 120,444
Retained earnings i (3,913) (2,630) (6,543) 1,266 (1,337) (71)
Translation reserve f,g (4,091) 4,091 - (3,975) 4,093 118
Other reserves c - - - (2,373) - (2,373)
------------ ----------- --------- ----------- ----------- ---------
TOTAL EQUITY 80,262 1,461 81,723 116,138 2,756 118,894
------------ ----------- --------- ----------- ----------- ---------
CURRENT LIABILITIES
Trade and other payables and
provisions 8,916 - 8,916 8,631 - 8,631
Interest-bearing loans and borrowings 7,749 - 7,749 4,056 - 4,056
Convertible notes 1,162 - 1,162 7,031 - 7,031
Income tax payable 1,592 - 1,592 792 - 792
------------ ----------- --------- ----------- ----------- ---------
TOTAL CURRENT LIABILITIES 19,419 - 19,419 20,510 - 20,510
------------ ----------- --------- ----------- ----------- ---------
NON-CURRENT LIABILITIES
Other payables - - - 35 - 35
Interest-bearing loans and 5,484 - 5,484 4,135 - 4,135
borrowings
Convertible notes 11,875 - 11,875 8,788 - 8,788
Deferred tax liabilities e 911 592 1,503 1,435 2,082 3,517
Other income tax payable 158 - 158 161 - 161
------------ ----------- --------- ----------- ----------- ---------
TOTAL NON-CURRENT LIABILITIES 18,428 592 19,020 14,554 2,082 16,636
------------ ----------- --------- ----------- ----------- ---------
TOTAL LIABILITIES 37,847 592 38,439 35,064 2,082 37,146
------------ ----------- --------- ----------- ----------- ---------
------------ ----------- --------- ----------- ----------- ---------
TOTAL EQUITY AND LIABILITIES 118,109 2,053 120,162 151,202 4,838 156,040
============ =========== ========= =========== =========== =========
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTES TO THE RECONCILIATION OF EQUITY
a. IAS 1, Presentation of Financial Statements
IAS 1, Presentation of Financial Statements, requires separate
disclosure of (i) current tax assets and liabilities, (ii) deferred
tax assets and liabilities and (iii) financial assets and liabilities.
IAS 38, Intangible Assets requires that certain items be classified as
intangible assets and not as property, plant and equipment. The
following reclassifications were made to comply with the requirements
of IAS 1 and IAS 38:
Previous Reclassification Adjusted Previous Reclassification Adjusted
GAAP GAAP
Note (a)
January 1, 2004 December 31, 2004
US$ '000 US$ '000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 13,660 (317) 13,343 15,942 55 15,997
Intangible assets 38,851 550 39,401 57,870 626 58,496
Deferred tax assets - 555 555 - 1,654 1,654
Other assets 550 (140) 410 1,330 (420) 910
----------- ------------------ ---------- ------------ ------------------ ----------
TOTAL NON-CURRENT ASSETS 53,061 648 53,709 75,142 1,915 77,057
----------- ------------------ ---------- ------------ ------------------ ----------
CURRENT ASSETS
Inventories 30,555 - 30,555 37,519 - 37,519
Trade and other receivables 13,913 (761) 13,152 15,880 (2,356) 13,524
Cash and cash equivalents 20,562 (18,000) 2,562 22,287 (7,148) 15,139
Financial assets-restricted cash - 18,000 18,000 - 7,148 7,148
Income tax receivable - 131 131 - 815 815
----------- ------------------ ---------- ------------ ------------------ ----------
TOTAL CURRENT ASSETS 65,030 (630) 64,400 75,686 (1,541) 74,145
----------- ------------------ ---------- ------------ ------------------ ----------
----------- ------------------ ---------- ------------ ------------------ ----------
TOTAL ASSETS 118,091 18 118,109 150,828 374 151,202
=========== ================== ========== ============ ================== ==========
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO THE
EQUITY HOLDERS OF THE PARENT
Issued capital 670 - 670 776 - 776
Share premium account 87,596 - 87,596 120,444 - 120,444
Retained earnings (4,169) 256 (3,913) 997 269 1,266
Translation reserve (4,091) - (4,091) (3,975) - (3,975)
Other reserves 256 (256) (2,104) (269) (2,373)
----------- ------------------ ---------- ------------ ------------------ ----------
TOTAL EQUITY 80,262 - 80,262 116,138 - 116,138
----------- ------------------ ---------- ------------ ------------------ ----------
CURRENT LIABILITIES
Trade and other payables and
provisions 19,401 (10,485) 8,916 20,260 (11,629) 8,631
Interest-bearing loans and
borrowings - 7,749 7,749 - 4,056 4,056
Convertible notes - 1,162 1,162 - 7,031 7,031
Current tax payable - 1,592 1,592 - 792 792
----------- ------------------ ---------- ------------ ------------------ ----------
TOTAL CURRENT LIABILITIES 19,401 18 19,419 20,260 250 20,510
----------- ------------------ ---------- ------------ ------------------ ----------
NON-CURRENT LIABILITIES
Other payables 17,517 (17,517) - 13,119 (13,084) 35
Interest-bearing loans and - 5,484 5,484 - 4,135 4,135
borrowings
Convertible notes - 11,875 11,875 - 8,788 8,788
Deferred tax liabilities 911 - 911 1,311 124 1,435
Other tax payable - 158 158 - 161 161
----------- ------------------ ---------- ------------ ------------------ ----------
TOTAL NON-CURRENT LIABILITIES 18,428 - 18,428 14,430 124 14,554
----------- ------------------ ---------- ------------ ------------------ ----------
TOTAL LIABILITIES 37,829 18 37,847 34,690 374 35,064
----------- ------------------ ---------- ------------ ------------------ ----------
----------- ------------------ ---------- ------------ ------------------ ----------
TOTAL EQUITY AND LIABILITIES 118,091 18 118,109 150,828 374 151,202
=========== ================== ========== ============ ================== ==========
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
January 1, 2004
Property, plant and equipment included software with a net book value
of US$550,000 which was reclassified to intangible assets. Instruments
owned by the Group with a net book value of US$233,000 were
reclassified from trade and other receivables (US$93,000) and other
assets (US$140,000) to property, plant and equipment.
Trade and other receivables included US$555,000 relating to deferred
tax assets and US$113,000 relating to current tax assets which are now
classified separately. A further US$18,000 of income tax receivable
had previously been included in income tax payable.
US$18,000,000 of restricted cash which was previously included in cash
and cash equivalents is now separately disclosed.
Trade and other payables included US$7,749,000 relating to current
interest-bearing loans and borrowings, US$1,162,000 relating to
current convertible debentures and US$1,574,000 relating to current
tax liabilities which are now classified separately.
Long-term liabilities included US$4,540,000 relating to long-term
interest-bearing loans and borrowings , US$11,875,000 relating to
long-term convertible debentures and a further US$158,000 relating to
other tax payable.
Other reserves included US$256,000 relating to share-based payments
which have been netted off against the income statement reserve
("retained earnings").
December 31, 2004
Property, plant and equipment included software with a net book value
of US$626,000 which was reclassified to intangible assets. Instruments
owned by the Group with a net book value of US$681,000 were
reclassified from trade and other receivables (US$261,000) and other
assets (US$420,000) to property, plant and equipment.
Trade and other receivables included US$1,654,000 relating to deferred
tax assets, US$579,000 relating to current tax assets and US$138,000
relating to deferred tax liabilities which are now classified
separately. A further US$236,000 of current tax receivable had
previously been included in current tax payable.
US$7,148,000 of restricted cash which was previously included in cash
and cash equivalents is now separately disclosed.
Trade and other payables included US$4,056,000 relating to short-term
interest-bearing loans and borrowings, US$7,031,000 relating to
short-term convertible debentures and US$542,000 relating to current
tax liabilities which are now classified separately.
A further US$14,000 of current tax payable had previously been
included in deferred tax liabilities.
Long-term liabilities included US$4,135,000 relating to long-term
interest-bearing loans and borrowings, US$8,788,000 relating to
long-term convertible debentures and a further US$161,000 relating to
other tax payable.
Other reserves included US$269,000 relating to share-based payments
which have been netted off against the income statement reserve
("retained earnings").
b. IFRS 3 Business Combinations, IAS 38 Intangible Assets
The Group has applied IFRS 3 to all business combinations that have
occurred since January 1, 2004 (the date of transition to IFRS as
adopted by the EU). The Group has availed of the exemption under IFRS
1 enabling non restatement of business combinations undertaken prior
to the transition date and, accordingly, goodwill as at the transition
date is carried forward at its net book value. The principal
implications of IFRS 3 are as follows:
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
o Cessation of goodwill amortisation in respect of subsidiary
undertakings resulting in a credit of US$2,756,000 to the
Consolidated Income Statement in 2004.
o De-recognition of the carrying amount of negative goodwill,
resulting in an increase in the carrying amount of goodwill of
US$1,878,000 and US$1,258,000 at January 1, 2004 and December 31,
2004 respectively. The reversal of negative goodwill amortised
under Irish GAAP resulted in a charge of US$620,000 in the 2004
Consolidated Income Statement.
o The acquisition balance sheets for business combinations
completed by the Group during 2004 have been restated to
recognise intangible assets (comprised of customer and supplier
relationships) and this resulted in a reduction of US$10,050,000
in the goodwill figure in the acquisition balance sheets. The
amortisation charge in respect of the intangible assets thus
recognised during 2004 was US$532,000, and the net change in
intangible assets at December 31, 2004 amounted to US$9,518,000.
o Recognition of deferred tax liabilities on the fair value uplifts
of US$11,123,000 gave rise to an increase in the carrying amount
of goodwill of US$1,532,000 at December 31, 2004 (see note (e)).
o As dictated by IFRS 3, IAS 36 (Revised) Impairment of Assets has
been applied to the carrying amount of goodwill at the date of
transition and at December 31, 2004. No impairment arose.
c. IFRS 2 Share-based Payment
The fair value of share-based payments (share options) is expensed to
the Income Statement on a straight-line basis over the vesting period
of the options. In accordance with the exemption allowed on transition
to IFRS as adopted by the EU, the fair value calculations have only
been applied in respect of share options granted after November 7,
2002 which have not vested by January 1, 2005. The effect is to
increase retained earnings by US$153,000 and US$898,000 at January 1,
2004 and December 31, 2004 respectively. An expense of US$745,000 has
been recognised in respect of the year ended December 31, 2004.
d. Sales on extended credit terms
During 2003 and 2004 the Company made certain sales on extended
credit terms. Under IAS 18, Revenue, such sales on extended credit
would not be recognisable as revenue until the subsequent year.
The effect is to decrease accounts receivable by US$144,000 and
US$80,000 at January 1, 2004 and December 31, 2004 respectively.
A credit of US$64,000 was recognised in respect of such sales in the
2004 Consolidated Income Statement. Refer to note (e) for the
deferred tax consequences of this item.
e. IAS 12 Income Taxes
The requirements of IAS 12 have been retrospectively applied in the
restatement of the Group's 2004 results with the cumulative adjustment
at the transition date reflected in the opening balance sheet.
IAS 12 requires that deferred tax be accounted for on the basis of
temporary differences rather than timing differences which form the
basis of the equivalent under the Previous GAAP. This difference in
methodology results in an overall increase in the Group's net deferred
tax liability under IFRS as adopted by the EU. The adjustments made to
deferred tax assets and liabilities on transition to IFRS as adopted
by the EU principally relate to the following issues:
o Under Previous GAAP deferred tax was not provided on fair value
asset uplifts in business combinations if these uplifts did not
affect the tax base of the assets acquired. The recognition under
IAS 12 of the deferred tax liabilities on the differences arising
from such revaluations gave rise to a deferred tax liability of
US$638,000 and US$2,080,000 at January 1, 2004 and December 31,
2004, respectively. A portion of this deferred tax (US$638,000
and US$625,000 at January 1, 2004 and December 31, 2004,
respectively), relates to the fair value on a building acquired
as part of an acquisition in 2002. As the purchase price
allocation adjustment period for this acquisition had closed
during 2003, the corresponding charge is included in retained
earnings. The deferred tax liability recognised on the fair
valuation on intangibles acquired in business combinations after
January 1, 2004 of US$1,532,000 was recognised in the carrying
value of goodwill at December 31, 2004 (see note (b) and note
26). The recognition of these deferred tax liabilities gave rise
to a deferred tax credit of US$90,000 in the 2004 Consolidated
Income Statement.
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
o Under Previous GAAP deferred tax was calculated on unrealised
intercompany profit adjustments using the seller's rate. IAS 12
requires that the buyer's rate be used. The net effect at January
1, 2004 was to recognise an additional deferred tax asset of
US$748,000 and at December 31, 2004 to recognise an additional
deferred tax asset of US$814,000 and to de-recognise a deferred
tax liability of US$14,000 at December 31, 2004. The recognition
of these deferred tax assets gave rise to a deferred tax credit
of US$52,000 in the 2004 Consolidated Income Statement.
o A deferred tax asset of US$14,000 and US$8,000 at January 1, 2004
and December 31, 2004 respectively was recognised in relation to
the deductible temporary difference relating to sales on extended
credit terms (see note (d)). The recognition of these deferred
tax assets gave rise to a deferred tax charge of US$6,000 in the
2004 Consolidated Income Statement.
o Under Previous GAAP, a deferred tax liability was recognised on
the taxable temporary differences arising from the deferral of
certain costs under Previous GAAP (see note (h)), the write off
of these costs under IFRS as adopted by the EU has resulted in a
decrease in the deferred tax liability of US$46,000 and
US$106,000 at January 1, 2004 and December 31, 2004,
respectively. There was a corresponding deferred tax credit of
US$60,000 in the 2004 Consolidated Income Statement.
o From January 1, 2004 the Group ceased the amortisation of
goodwill in accordance with the provisions of IFRS 3 (see note
b). This has resulted in an increase in the taxable temporary
difference between the carrying amount of tax deductible goodwill
in the United States and its basis for tax. Accordingly, the
deferred tax liability as December 31, 2004 has increased by
US$94,000 and there has been a comparable charge to the 2004
Consolidated Income Statement.
f. IFRS 1 Currency Translation Differences
IFRS as adopted by the EU require that on disposal of a foreign
operation, the cumulative amount of currency translation differences
previously recognised directly in reserves for that operation be
transferred to the income statement as part of the profit or loss on
disposal. The Group has availed of the exemption in IFRS 1 and has
deemed the cumulative currency translation differences of US$4,091,000
applicable to foreign operations to be zero at the transition date.
This has had no net impact on capital and reserves attributable to the
Company's equity holders. The cumulative currency translation
differences arising after the transition date (that is, during 2004)
have been classified as a separate component of equity.
g. IAS 16 Property, Plant and Equipment
Certain land and buildings owned by the Group had previously been
accounted for as one item and depreciation charged on both elements.
Each element is now accounted for separately and no depreciation is
charged on the land. This has resulted in a credit of US$8,000 in the
Consolidated Income Statement in 2004 and an increase in the carrying
amount of property, plant and equipment of US$10,000 and US$20,000 at
January 1, 2004 and December 31, 2004, respectively. There was a
corresponding increase in the currency translation reserve of US$2,000
at December 31, 2004.
h. IAS 38 Intangible Assets
Certain costs were deferred under Previous GAAP; these costs no longer
meet the criteria for recognition as an asset. This has resulted in a
decrease in the carrying amount of trade and other receivables and
other assets of US$46,000 and US$410,000, respectively and an increase
in the carrying amount of intangible assets of US$3,000 at January 1,
2004. The corresponding effect at December 31, 2004 was a decrease in
the carrying amount of trade and other receivables and other assets of
US$107,000 and US$875,000, respectively and an increase in the
carrying amount of intangible assets of US$44,000. An expense of
US$485,000 has been recognised in respect of the year ended December
31, 2004.
i. IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39:
Financial Instruments: Recognition and Measurement
The Group has availed of the exemption under IFRS 1 and has not
restated the 2004 results for the effects of the above two standards,
that is, financial instruments are accounted for under IFRS in line
with Previous GAAP.
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The Group uses financial instruments throughout its businesses:
borrowings (including convertible debt), cash and cash equivalents are
used to finance the Group's operations; trade debtors and trade
creditors arise directly from operations and derivatives (principally
forward contracts) are used to manage exchange risk.
IAS 39 requires, in general, that financial instruments are recorded
initially at fair value with subsequent measurement either at fair
value or at amortised cost dependent on the nature of the financial
asset or liability. Except for the convertible debt and forward
contracts as outlined below, this would not result in any adjustments
as:
o Cash and cash equivalents, accounts receivable and payable are
stated at cost, which approximates fair value given the
short-dated nature of these assets and liabilities.
o Loans are stated at cost which approximates amortised cost as the
interest rate re-prices at regular, short intervals.
If IAS 32 and IAS 39 had been applied from the transition date the
effects of this would have been:
o Convertible debt: If they were accounted for as compound
financial instruments in accordance with IAS 32; the equity and
liability elements would have been separately recorded, with the
equity component of the convertible notes being calculated as the
excess of the issue proceeds over the present value of the future
interest and principal payments, discounted at the market rate of
interest applicable to similar liabilities that do not have a
conversion option, the liability portion being the residual.
Transaction costs would have been allocated to the liability and
equity components in proportion to the allocation of proceeds.
The corresponding interest expense recognised in the income
statement would have been calculated using the effective interest
rate method.
o Forward contracts: The Group has entered into a number of forward
contracts; these forward contracts are cash-flow hedging
instruments. Under Previous GAAP these contracts were not
recognised in the financial statements until they settled. If
accounted for under IAS 39, the unrecognised gains and losses
would be recognised in equity and the fair value of these
contracts would be recognised on the balance sheet. From January
1, 2005 the Group has followed the criteria in IAS 39 regarding
documentation and designation of instruments used for hedging
purposes.
j. Effect on retained earnings
The effect of the above adjustments is to increase / (decrease)
retained earnings as follows:
January 1, December
2004 31, 2004
Note US$ '000 US$ '000
Goodwill amortisation add-back b - 2,756
Amortisation of new intangibles b - (532)
Elimination of negative goodwill b 1,878 1,258
Equity-settled transactions (recognition of expense) c (153) (898)
Equity-settled transactions (offset to retained earnings) c 153 898
Sales on extended credit terms d (144) (80)
Deferred tax on sales on extended credit terms d,e 14 8
Deferred tax on unrealised intercompany inventory profit e 748 800
Deferred tax on fair value of acquired property, plant
and equipment e (638) (625)
Deferred tax on recognition of intangibles b,e - 77
Deferred tax on write off of costs e 46 106
Deferred tax on amortisable goodwill e - (94)
Currency translation differences f (4,091) (4,091)
Depreciation on land g 10 18
Write-off of deferred costs h (453) (938)
------------- ----------
Total adjustment to retained earnings (2,630) (1,337)
============= ==========
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
RECONCILIATION OF PROFIT FOR 2004
Effect of
Previous transition to
Notes GAAP IFRS as IFRS
adopted by
the EU
US$'000 US$'000 US$'000
Revenues d 79,944 64 80,008
----------- --------------- ------------
Cost of sales -- including share-based payments of g, c (39,974) (73) (40,047)
US$81,000
----------- --------------- ------------
GROSS PROFIT 39,970 (9) 39,961
Other operating income 302 - 302
Research and development expenses -- including share- c (4,648) (96) (4,744)
based payments of US$96,000
Selling, general and administrative expenses -- including b, c, h (29,883) 551 (29,332)
share-based payments of US$581,000
----------- --------------- ------------
OPERATING PROFIT BEFORE FINANCING COSTS b, d, h 5,741 446 6,187
----------- --------------- ------------
Financial income 302 - 302
Financial expenses (824) - (824)
----------- --------------- ------------
NET FINANCING COSTS (522) - (522)
----------- --------------- ------------
PROFIT BEFORE TAX 5,219 446 5,665
Income tax (expense) / credit e (53) 102 49
----------- --------------- ------------
PROFIT FOR THE YEAR 5,166 548 5,714
=========== =============== ============
Basic earnings per ordinary share (US Dollars) 0.09 0.10
Diluted earnings per ordinary share (US Dollars) 0.09 0.09
k. Reclassifications within the Consolidated Income Statement
Other operating income of US$302,000 has been separately classified in
the Consolidated Income Statements, this resulted in an increase in
the cost of sales expense of US$286,000, an increase in the research
and development expense of US$7,000 and an increase in selling,
general and administrative expenses of US$9,000.
EXPLANATION OF MATERIAL ADJUSTMENTS TO THE CASH FLOW STATEMENT FOR 2004
There are no material differences between the cashflow statement presented under
IFRS as adopted by the EU and the cashflow statement presented under Previous
GAAP. Restricted cash has been classified separately.
TRANSITION TO IAS 32 AND IAS 39
The Company has availed of the exemption in IFRS 1 and has not applied IAS 32
and IAS 39 until January 1, 2005. The convertible debentures and forward
contracts are presented under IFRS in line with Previous GAAP at December 31,
2004.
Convertible notes
The application of IAS 32 to the compound financial instruments resulted in the
separation of the equity and liability elements, with the equity component of
the convertible notes being calculated as the excess of the issue proceeds over
the present value of the future interest and principal payments, discounted at
the market rate of interest applicable to similar liabilities that do not have a
conversion option. Transaction costs were allocated to the liability and equity
components in proportion to the allocation of proceeds. Certain transaction
costs which had been included in share premium on conversion of the convertible
debentures are reclassified to the carrying value of the liability. Interest
expense is calculated using the effective interest rate method.
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Forward contracts
The application of IAS 32 and IAS 39 to the Group's forward contracts has
resulted in the fair value of these contracts being recognised on the balance
sheet, the unrecognised gains and losses are recognised in equity.
Deferred tax
A deferred tax liability was created on the temporary difference between the tax
base of the convertible debenture and its tax base at the inception of the
convertible debenture. This liability is being unwound over its life and regular
timing differences arise on the accrued and paid convertible debenture interest.
This has resulted in a deferred tax asset at January 1, 2005.
A deferred tax liability was created on the temporary difference that arose on
the fair value of the forward contracts as this gain is not chargeable for tax
purposes until it is recognised.
The reconciliation of the balance stated under IFRS as adopted by the EU (prior
to the application of IAS 32 and IAS 39) at January 1, 2005 to the balance
stated under IFRS as adopted by the EU (including the application of IAS 32 and
IAS 39) at January 1, 2005 is as follows:
US$'000
CONVERTIBLE NOTES
Balance at January 1, 2005 (prior to the application of IAS 32 and IAS 39) 15,819
Accreted interest capitalised 336
Amount classified as equity (226)
Transaction costs (25)
-------------
Balance at January 1, 2005 (following the application of IAS 32 and IAS 39) 15,904
=============
CURRENT ASSETS -- DERIVATIVE FINANCIAL INSTRUMENTS
Balance at January 1, 2005 (prior to the application of IAS 32 and IAS 39) -
Fair value of hedging contracts 418
-------------
Balance at January 1,2005 (following the application of IAS 32 and IAS 39) 418
=============
RETAINED EARNINGS
Balance at January 1, 2005 (prior to the application of IAS 32 and IAS 39) (71)
Convertible notes interest at effective rate (336)
Deferred tax on convertible notes 39
-------------
Balance at January 1, 2005 (following the application of IAS 32 and IAS 39) (368)
=============
DEFERRED TAX LIABILITY
Balance at January 1, 2005 (prior to the application of IAS 32 and IAS 39) 3,517
Deferred tax on fair value of hedging contracts 45
Deferred tax on convertible notes 24
-------------
Balance at January 1, 2005 (following the application of IAS 32 and IAS 39) 3,586
=============
OTHER RESERVES -- CONVERTIBLE NOTES EQUITY COMPONENT
Balance at January 1, 2005 (prior to the application of IAS 32 and IAS 39) -
Convertible notes residual 226
Deferred tax on convertible notes (62)
-------------
Balance at January 1, 2005 (following the application of IAS 32 and IAS 39) 164
=============
OTHER RESERVES -- HEDGING RESERVE
Balance at January 1, 2005 (prior to the application of IAS 32 and IAS 39) -
Fair value of hedging contracts 418
Deferred tax on fair value of hedging contracts (45)
-------------
Balance at January 1, 2005 (following the application of IAS 32 and IAS 39) 373
=============
OTHER RESERVES -- WARRANT RESERVE
Balance at January 1, 2005 (prior to the application of IAS 32 and IAS 39) -
Fair value of warrants 3,803
-------------
Balance at January 1, 2005 (following the application of IAS 32 and IAS 39) 3,803
=============
SHARE PREMIUM
Balance at January 1, 2005 (prior to the application of IAS 32 and IAS 39) 120,444
Fair value of warrants (3,803)
Convertible notes transaction costs 24
-------------
Balance at January 1, 2005 (following the application of IAS 32 and IAS 39) 116,665
=============
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
34. GROUP UNDERTAKINGS
The consolidated financial statements include the financial statements of
Trinity Biotech plc and the appropriate share of the subsidiaries,
associates and joint ventures listed below:
Name and registered office Principal activity Principal Country of Group % holding
incorporation and
operation
Trinity Biotech plc Investment and holding Ireland Holding Company
IDA Business Park, Bray, company
Co. Wicklow, Ireland
ENTITIES DIRECTLY OWNED BY THE COMPANY
Trinity Biotech Manufacturing Limited Manufacture and sale of Ireland 100%
IDA Business Park, Bray, diagnostic test kits
Co. Wicklow, Ireland
Trinity Research Limited Research and development Ireland 100%
IDA Business Park, Bray,
Co. Wicklow, Ireland
Trinity Biotech Sales Limited Non - trading Ireland 100%
IDA Business Park, Bray,
Co. Wicklow, Ireland
Benen Trading Limited Trading Ireland 100%
IDA Business Park, Bray,
Co. Wicklow, Ireland
Trinity Biotech Manufacturing Services Engineering services Ireland 100%
Limited
IDA Business Park, Bray,
Co. Wicklow, Ireland
Trinity Biotech Inc (Formerly Disease Holding Company U.S.A. 100%
Detection International Inc) Girts
Road, Jamestown, NY 14702,USA
Clark Laboratories Inc Manufacture and sale of U.S.A. 100%
Trading as Trinity Biotech (USA) diagnostic test kits
Girts Road, Jamestown
NY14702, USA
FHC Corporation Non - trading U.S.A. 100%
Girts Road, Jamestown
NY14702, USA
Mardx Diagnostics Inc Manufacture and sale of U.S.A. 100%
5919 Farnsworth Court diagnostic test kits
Carlsbad
CA 92008, USA
Fitzgerald Industries International, Management services company U.S.A. 100%
Inc
2711 Centerville Road, Suite 400
Wilmington, New Castle
Delaware, 19808
Biopool Us Inc Sale of diagnostic test U.S.A. 100%
Girts Road, Jamestown kits
NY14702, USA
Primus Corporation Manufacture and sale of U.S.A. 100%
4231 E 75th Terrace diagnostic test kits and
Kansas City, instrumentation
MO 64132
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Eastcourt Limited Non-trading UK 100%
Chichester House
278/282, High Holborn
London, UK
Trinity Biotech UK Holdings Ltd Holding company UK 100%
(Formerly Centocor UK Holdings Ltd)
Shalford
Guildford, Surrey, UK
Trinity Biotech UK Ltd In voluntary liquidation UK 100%
(Formerly Centocor UK Holdings Ltd)
Shalford
Guildford, Surrey, UK
Trinity Biotech (UK Sales) Limited Sales of diagnostic kits UK 100%
54 Queens Road
Reading RG1 4A2, England
Trinity Biotech GmbH Manufacture of diagnostic Germany 100%
Otto Hesse Str 19 instrumentation and
64293 Darmstadt, Germany sale of diagnostic test
kits
Biopool AB Manufacture and Sweden 100%
S-903 47 Umea sale of diagnostic test
Sweden kits
ENTITIES INDIRECTLY OWNED BY THE
COMPANY
Primus International LLC Sale of diagnostic test U.S.A. 50%
2711 Centreville Road, Suite 400 kits and instrumentation
Wilmington, DE 19808
Primus International LLC H.K. Ltd., Sale of diagnostic test China 50%
Room 605-606, Alliance Building, kits and instrumentation
130 Connaught Road,
Central Hong Kong
Primus Medical (Shanghai) Company Ltd. Sale of diagnostic test China 50%
14P, 985 Dong Fan Road, kits and instrumentation
Pudong New Area, PRC 200122
Chronomed Inc. Development of diagnostic U.S.A. 32%
8 Trillium Lane test instrumentation
San Carlos, CA 94070-1525
35. DIFFERENCES BETWEEN IFRS AS ADOPTED BY THE EU AND ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN THE UNITED STATES
The Consolidated Financial Statements are prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU. IFRS as
adopted by the EU differ in certain respects from IFRS as issued by the
International Accounting Standards Board ("IASB"). However, the consolidated
financial statements for the periods presented would be no different had the
Company applied IFRS as issued by the IASB. IFRS as adopted by the EU differ in
certain significant respects from US generally accepted accounting principles
("US GAAP").
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
As a result of the Company's transition to IFRS as adopted by the EU on January
1, 2004, the reconciliations of net income and shareholders' equity as of and
for the year ended December 31, 2004 published in the previous period have been
amended to reflect the profit and stockholders' equity reporting as reported
under IFRS. Consequently, the reconciling items in these reconciliations now
consider the differences between US GAAP and IFRS as adopted by the EU as
opposed to Previous GAAP. The net income and shareholders' equity under US GAAP
have remained unchanged. These differences relate principally to the following
items and the necessary adjustments are shown in the table set out below:
(a) Goodwill:
The difference in the carrying value of goodwill under US GAAP and IFRS as
adopted by the EU relates to the differing treatment of goodwill acquired prior
to 1998 and the different transition dates under US GAAP and IFRS as adopted by
the EU for the move from the systematic amortisation of goodwill over a lifetime
of 20 years to impairment testing of the carrying value of goodwill on an annual
basis or more frequently if there are indicators of impairment. The treatment of
the excess of the acquirer's interest in the net fair value of acquiree's
identifiable assets, liabilities and contingent liabilities over cost ("negative
goodwill") also differs under IFRS as adopted by the EU and US GAAP.
In prior years under Previous 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 statement of income on a systematic
basis over its useful economic life. From 1998 until January 1, 2004, the date
of transition to IFRS as adopted by the EU, goodwill was capitalised and
amortised over the period of its expected useful life, however, historic
goodwill pre 1998 continued to remain an offset against shareholders' equity.
From January 1, 2004 goodwill is accounted for in accordance with IFRS 3
Business Combinations. IFRS 3 prohibits the amortisation of goodwill acquired in
a business combination and instead requires the goodwill to be tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired, in accordance with IAS 36 Impairment
of Assets. Goodwill impairment tests are undertaken at a consistent time in each
annual period. Impairment is determined by assessing the recoverable amount of
the cash-generating unit to which the goodwill relates. Where the recoverable
amount of the cash-generating unit is less than the carrying amount, an
impairment loss is recognised. The Company tested its goodwill for impairment on
the date of its transition to IFRS as adopted by the EU and at December 31, 2004
and December 31, 2005 in the manner prescribed by IAS 36 and determined that its
goodwill was not impaired on these dates.
Negative goodwill arises when the net amounts assigned to assets acquired and
liabilities assumed exceed the cost of an acquired entity. Under IFRS as adopted
by the EU, if the acquirer's interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities exceeds the cost of the business
combination, the acquirer shall (a) reassess the identification and measurement
of the acquiree's identifiable assets, liabilities and contingent liabilities
and the measurement of the cost of the combination and (b) recognise immediately
in profit or loss any excess remaining after that reassessment.
Under US GAAP, goodwill is not amortised, but is instead subject to impairment
tests annually, or more frequently if indicators of impairment are present. On
December 31, 2004 and December 31, 2005, the Group performed its annual
impairment tests of goodwill and indefinite-lived intangible assets, and
concluded that there was no impairment in the carrying value of goodwill at
those dates.
Negative goodwill is allocated to reduce proportionately the values assigned to
the acquired non-current assets, any excess is recognised in income as an
extraordinary gain.
At December 31, 2004, the Company had recognised US$3,451,000 of negative
goodwill in retained earnings under IFRS as adopted by the EU. Under US GAAP
US$2,500,000 of this negative goodwill would be allocated to reduce property,
plant and equipment. The balance of US$951,000 would be recognised in retained
earnings. Depreciation of US$57,000 (2004: US$54,000), under IFRS as adopted by
the EU, on property, plant and equipment acquired would not be recognised under
US GAAP as the value of the acquired building has been fully offset by the
negative goodwill arising on the acquisition.
Under IFRS 3 Business Combinations, following the completion of the fair value
exercises in 2005 in respect of the acquisitions made during 2004, amendments
were made to the fair values reported in the 2004 financial statements related
to the net assets acquired in the 2004 business combinations. The net difference
of US$56,000 was taken as an adjustment to goodwill on acquisition under IFRS in
2005 (See Note 26). Under US GAAP the Company has expensed fair value
adjustments arising in 2005 relating to the 2004 acquisitions as the Company has
applied a stricter interpretation of the purchase price allocation period under
US GAAP.
The aggregate amount of goodwill relating to acquisitions during the period for
the Group and for each reportable segment for each of the periods presented is
as follows:
2005 2004
US$'000 US$'000
Rest of World -- Ireland 3,722 8,728
Americas 7,688 -
-------- --------
11,410 8,728
-------- --------
Identifiable intangible assets comprise goodwill, which is not amortisable, and
certain other non-current intangible assets, which are amortisable. Other
non-current asset amortisation under US GAAP for the year ended December 31,
2005 was US$1,410,000 (2004: US$715,000). Other non-current amortisation of
identifiable intangible assets under US GAAP is estimated to be approximately
US$1,595,000 in 2006, US$1,580,000 in 2007, US$1,503,000 in 2008, US$1,373,000
in 2009, US$1,274,000 in 2010 and US$7,518,000 thereafter.
The net book value of goodwill at December 31, 2005 was US$67,430,000.
(b) Share Capital Not Paid:
Under IFRS as adopted by the EU, unpaid share capital is classified as a
receivable under current assets. Under US GAAP, share capital receivable is
reported as a reduction to Shareholders' Equity. Unpaid share capital at
December 31, 2005 is US$61,000 (2004: US$158,000).
(c) Statement of Comprehensive Income:
The Company prepares a "Statement of Recognised Income and Expense" which is
similar to the "Statement of Comprehensive Income" required under US GAAP. SFAS
130 requires disclosure of the cumulative amounts of other comprehensive income.
(d) Sale and Leaseback:
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Under IFRS as adopted by the EU, the Company's sale and leaseback transaction,
which took place in December 1999, was recorded as a disposal of assets with the
gain on the disposal of US$1,014,000 recognised in the income statement in the
period of the transaction. Under US GAAP, this amount is deferred and released
to the income statement over the period of the lease (20 years).
(e) Product Development Costs:
Under IFRS as adopted by the EU, 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. US GAAP, as set forth in SFAS 2,
Accounting for Research and Development Costs, requires development costs to be
written off as incurred. However, SFAS 86 Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed specifies that costs incurred
internally in creating a computer software product shall be charged to expense
when incurred as research and development until technological feasibility has
been established for the product. Technological feasibility is established upon
completion of a detail program design or, in its absence, completion of a
working model. Thereafter, all software production costs shall be capitalized
and subsequently reported at the lower of unamortized cost or net realizable
value. The Company has determined that technological feasibility, as defined by
SFAS 86 i.e. the completion of all planning, designing, coding, and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications including functions, features, and technical
performance requirements has not yet been established for its software
development projects and accordingly the Company has expensed this development
expenditure under US GAAP in 2005 and 2004.
(f) Share-based Payment:
Under IFRS as adopted by the EU, IFRS 2 Share-based Payment requires that for
equity-settled share-based payment transactions (i.e. the issuance of share
options), the Group measures the services received and the corresponding
increase in equity at fair value at the measurement date (which is the grant
date) using a recognised valuation methodology for the valuation of financial
instruments such as the trinomial model. Given that the share options granted do
not vest until the completion of a specified period of service, the fair value
is determined on the basis that the services to be rendered by employees as
consideration for the granting of share options will be received over the
vesting period, which is assessed at the grant date. The expense in the income
statement in relation to share options represents the product of the total
number of options anticipated to vest and the fair value of those options; this
amount is allocated to accounting periods on a straight-line basis over the
vesting period. Given that the performance conditions underlying the Group's
share options are non-market in nature, the cumulative charge to the income
statement is only reversed where the performance condition is not met or where
an employee in receipt of share options relinquishes service prior to completion
of the expected vesting period. The proceeds received net of any directly
attributable transaction costs are credited to share capital (nominal value) and
share premium when the options are exercised. In line with the transitional
provisions applicable to a first-time adopter of IFRS as adopted by the EU as
contained in IFRS 2, Share-based Payment, the Group has elected to implement the
measurement requirements of the IFRS as adopted by the EU in respect of share
options that were granted after November 7, 2002 that had not vested as at the
effective date of the standard (January 1, 2005).
Under US GAAP, the Company has elected to follow Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25, the
cost of awarding stock options to employees is measured by the intrinsic value,
which is the excess of market value over the strike price, if any. Accordingly,
where the exercise price of the Company's employee stock options is less than
the market price of the underlying stock on the grant date, compensation expense
for the intrinsic value is recognised in the income statement over the vesting
period. APB 25 requires that the proforma effect on income and earnings per
share of using the fair value of the options be disclosed in accordance with
Statement No. 123, Accounting for Stock-Based Compensation, as if the Company
had accounted for its employee stock options under the fair value method of that
statement.
In December 2004, the FASB issued SFAS No. 123 (revised 2004) Share-Based
Payment ("SFAS 123R"). This Statement replaces FASB Statement No. 123 and
supersedes APB Opinion No. 25, and its related implementation guidance.
This Statement requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions), and recognise the cost over
the period during which an employee is required to provide service in exchange
for the award---the requisite service period (usually the vesting period). No
compensation cost is recognized for equity instruments for which employees do
not render the requisite service. If an equity award is modified after the grant
date, incremental compensation cost will be recognized in an amount equal to the
excess of the fair value of the modified award over the fair value of the
original award immediately before the modification. This Statement eliminates
the alternative to use Opinion 25's intrinsic value method of accounting that
was provided in Statement 123 as originally issued. The proforma disclosures
previously permitted under Statement 123 no longer will be an alternative to
financial statement recognition.
This Statement is effective for the financial period ended December 31, 2006.
Under SFAS 123R, the Company must determine the appropriate fair value model to
be used for valuing share-based payments, the amortisation method for
compensation cost and the transition method to be used at date of adoption.
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
The Company has not determined the method of adoption or the effect of adopting
SFAS 123R. However, the differing effective dates and transition provisions in
applying the requirements of IFRS 2 and SFAS 123R will result in the recognition
of different amounts for stock-based compensation under IFRS as adopted by the
EU and US GAAP in the 2006 financial statements.
(g) Derivatives and Financial Instruments:
FORWARD CONTRACTS
As part of a managed hedging policy, Trinity Biotech has entered into a series
of forward contracts to sell US Dollars forward for euro. The Company adopted
the provisions of IAS 32 Financial Instruments: Disclosure and Presentation and
IAS 39 Financial Instruments: Recognition and Measurement on January 1, 2005.
IAS 39 requires, in general, that financial instruments are recorded initially
at fair value with subsequent measurement either at fair value or at amortised
cost dependent on the nature of the financial asset or liability. The
unrecognised gains and losses on forward contracts are recognised in the
statement of changes in equity and the fair values of these contracts are
recognised on the balance sheet. From January 1, 2005 the Group has followed the
criteria in IAS 39 regarding documentation and designation of instruments used
for hedging purposes. The Group has availed of the exemption in IFRS 1 First
time Adoption of International Financial Reporting Standards and is presenting
comparative information for derivative financial instruments under IFRS as
adopted by the EU in line with Previous GAAP.
Under US GAAP all derivatives are recognised on the balance sheet at fair value.
Derivatives that are not qualifying hedges or where hedge correlation cannot be
demonstrated must be adjusted to fair value through income. Under IFRS as
presented in line with Previous 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.
During 2001 Trinity Biotech began documenting its hedging transactions in
accordance with the requirements of SFAS 133. In 2004 an unrealised loss of
US$54,000 was taken to comprehensive income in respect of such contracts in
accordance with the standard. During the year ended December 31, 2004 US$868,000
of foreign exchange gains were recognised in the Income Statement. This included
realised foreign exchange gains of US$126,000 on the exercise of forward
contracts under US GAAP, relating to contracts entered into during the year
which had not been designated as hedging instruments. At December 31, 2004
contracts with a fair value of US$47,000 were recorded in other comprehensive
income under US GAAP.
The Company designated all of its forward contracts outstanding at January 1,
2005, as cashflow hedging instruments on its transition to IAS 32 and IAS 39.
Under US GAAP, the Company had not designated forward contracts, with a fair
value of US$244,000 at January 1, 2005, as cashflow hedging instruments at
inception of the contracts. Accordingly, US$244,000 of foreign exchange gains
recognised in the income statement in 2005 under IFRS as adopted by the EU, are
not recognised under US GAAP.
In 2005 an unrealised loss of US$233,000 was taken to comprehensive income in
respect of forward contracts designated as hedging instruments, in accordance
with SFAS 133. During the year ended December 31, 2005 US$51,000 of foreign
exchange gains were recognised in the Income Statement. This included realised
foreign exchange gains of US$16,000 on the exercise of forward contracts under
US GAAP, relating to contracts entered into during the year which had not been
designated as hedging instruments. At December 31, 2005 contracts with a fair
value of (US$60,000) were recorded in other comprehensive income which the
Company anticipates will be reclassified into earnings on the exercise of
forward contracts in the year ending December 31, 2006. The last of the
Company's forward contracts expire in December 2006.
CONVERTIBLE DEBT
Under IFRS from January 1, 2005 the Company's convertible debentures are
accounted for as compound financial instruments in accordance with IAS 32; the
equity and liability elements are separately recorded, with the equity component
of the convertible notes being calculated as the excess of the issue proceeds
over the present value of the future interest and principle payments, discounted
at the market rate of interest applicable to similar liabilities that do not
have a conversion option, the liability portion being the residual. Transaction
costs are allocated to the liability and equity components in proportion to the
allocation of proceeds. The corresponding interest expense recognised in the
income statement is calculated using the effective interest rate method. Under
US GAAP the Company has considered whether the embedded conversion option should
be separated from the debt and accounted for separately at fair value at each
reporting period in accordance with SFAS 133 Accounting for Derivative
Instruments and EITF Issue No.00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, A Company's Own Stock. The
Company has determined that the conversion feature does not have intrinsic value
as the convertible debt securities are convertible into common stock of the
issuer at a specified price at the option of the holder and that conversion
price exceeds the fair market value of the underlying stock at the date the
parties committed o the terms of the convertible debt. Therefore, no portion of
the proceeds from the issuance of the convertible debt is accounted for as
attributable to the conversion feature. As a result of the differing accounting
treatment under IFRS and US GAAP of convertible debt, under US GAAP the Company
has recognised additional shareholders' equity of US$150,000 at December 31,
2005 and additional profit in the income statement in 2005 of US$64,000.
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(h) Capitalisation of Interest Charges in Self-Constructed Assets:
IFRS 23 Capitalisation of Borrowing Costs generally requires the immediate
expensing of borrowing costs. However, the Standard permits, as an allowed
alternative treatment, the capitalisation of borrowing costs that are directly
attributable to the acquisition, construction or production of a qualifying
asset. Under IFRS the Company has elected to expense borrowing costs directly
attributable to qualifying assets. Under US GAAP, SFAS 34 Capitalisation of
Interest Cost requires interest cost to be capitalised as part of the historical
cost of acquiring qualifying assets. To qualify for interest capitalization
under SFAS 34, assets must require a period of time to get them ready for their
intended use. The interest cost eligible for capitalization shall be the
interest cost recognized on borrowings and other obligations. Under US GAAP the
Company has capitalised interest costs of US$52,000 in 2005 (2004: Nil) relating
to qualifying assets.
(i) In-Process Research and Development ("R&D"):
IFRS 3 Business Combinations requires all intangible assets, including
in-process R&D, acquired in a business combination, to be measured at fair value
at the date of acquisition and recognised separately from goodwill. Subsequent
to initial recognition, the intangible asset is carried at cost less any
accumulated amortisation and impairment losses. Under US GAAP intangible assets
acquired in a business combination are initially recognised and measured in
accordance with SFAS 141 Business Combinations. Costs are assigned to all
identifiable tangible and intangible assets of an acquired entity, including any
resulting from research and development activities of the acquired entity or to
be used in research and development activities of the acquired entity, in
accordance with SFAS 141. FIN 4 Applicability of FASB Statement No. 2 to
Business Combinations Accounted for by the Purchase Method addresses the
accounting treatment for identifiable tangible and intangible assts to be used
in research and development activities that are acquired in a purchase business
combination. Costs assigned to assets to be used in a particular research and
development project and that have no alternative future use should be charged to
expense at the date of consummation of the combination. In 2005 the Company
assigned a fair value of US$400,000 to in-process R&D acquired as part of the
acquisition of Primus. Under US GAAP this intangible has been charged to expense
at the date of consummation of the combination.
(j) Deferred Tax:
Deferred tax differences arise between IFRS and US GAAP due to the impact of the
nature and timing of the reconciling items arising. The principal causes of the
deferred tax differences are the reversal of deferred tax liabilities created
under IFRS by the capitalisation of qualifying development expenditure, the
impact of the write off of negative goodwill against non current assets acquired
under US GAAP on the carrying value of the Company's property, plant and
equipment and the recognition of the deferred tax asset on unrealised
intercompany stock profit reflected at the seller's rate under US GAAP and at
the buyer's rate under IFRS. The Company's deferred tax position under IFRS has
also been adjusted to reflect the impact on deferred tax of the immediate write
off of in-process R&D, acquired in a business combination, on consummation of
the combination under US GAAP, the capitalisation of interest charges in
self-constructed assets, the reversal of the deferred tax liability recognised
on the equity component of convertible notes under IFRS and greater taxable
temporary differences under US GAAP on tax-deductible goodwill as a lesser net
book value has been recognised for this goodwill under IFRS than under US GAAP.
The systematic amortisation of goodwill ceased under US GAAP in 2002. It
continued for an additional two years under Previous GAAP until the transition
to IFRS on January 1, 2004.
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
CUMULATIVE EFFECT ON SHAREHOLDERS' EQUITY
2005 2004
US$'000 US$'000
(Amended)
Total shareholders' equity before minority interests under IFRS 133,618 118,894
as adopted by the EU
US GAAP adjustments:
Goodwill
- Gross (a) 21,777 21,777
- Gross (b) (2,500) (2,500)
- Gross (c) (56) -
- Aggregate amortisation (9,231) (9,231)
In process R&D acquired in a business combination
- Gross (400) -
- Aggregate amortisation 12 -
Product development costs
- Gross (12,296) (7,416)
- Aggregate amortisation 555 164
Capitalisation of interest in self-constructed assets
- Gross 52 -
- Aggregate depreciation (1) -
Property, plant and equipment 176 119
Share capital not paid (61) (158)
Adjustment for sale and leaseback (709) (760)
Adjustment for fair value of derivative instruments - 418
Adjustment for residual value of convertible debt 150 -
Deferred tax 1,683 726
----------- ------------
Shareholders' equity under US GAAP 132,769 122,033
----------- ------------
(a) Pre -1998 goodwill written-off against shareholders' equity of
US$21,777,000.
(b) Excess of the acquirer's interest in the net fair value of assets,
liabilities and contingent liabilities acquired over cost recognised in
retained earnings under IFRS as adopted by the EU and not against the
carrying value of non-current assets acquired as required by US GAAP.
(c) Fair value adjustments to 2004 business combinations not recognised in
goodwill under US GAAP.
At December 31, 2005 the cumulative total fair value of derivative instruments
in other comprehensive income was (US$60,000) (2004: US$47,000). At December 31,
2005 the total accumulated translation reserve in other comprehensive income was
(US$5,682,000) (2004: (US$3,975,000)).
SFAS 109 Accounting for Income taxes requires that all current deferred tax
assets and liabilities and all non-current deferred tax assets and liabilities
for a particular tax paying component and within a particular tax jurisdiction
be offset and shown as a single amount.
DEFERRED TAX ASSETS AND LIABILITIES
December 31, 2005 December 31, 2004
US$ '000 US$ '000
Current deferred tax asset 1,534 173
Current deferred tax liability - (94)
Non-current deferred tax asset 813 1,227
Non-current deferred tax liability (4,116) (1,621)
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
EFFECT ON NET PROFIT
December 31, 2005 December 31, 2004
For the year ended US$ '000 US$ '000
(Amended)
Profit after taxation under IFRS as adopted by the EU 5,280 5,714
US GAAP adjustments
Fair value adjustments relating to 2004 business
combinations written off (56) -
Write back of depreciation charge for property, plant and
equipment offset by negative goodwill 57 54
Recognition of deferred gain on sale and leaseback
transaction 51 51
Reversal of fair-valued stock-based compensation 1,354 745
Expensing of development costs
- Cost (4,916) (3,201)
- Amortisation 394 164
Capitalisation of interest in self-constructed assets
- Gross 52 -
- Depreciation (1) -
In-process R&D acquired in a business combination
- Gross (400) -
- Amortisation 12 -
Adjustment for fair value of derivative instruments (244) 126
Adjustment for residual value of convertible debt 64 -
Deferred tax 935 395
----------------- ----------------
Profit under US GAAP 2,582 4,048
----------------- ----------------
Restated
Profit per 'A' ordinary share (US Dollars) 0.04 0.07
Profit per 'B' ordinary share (US Dollars) ** 0.08 0.14
Diluted profit per 'A' ordinary share (US Dollar) 0.04 0.07
Diluted profit per 'B' ordinary share (US Dollar) 0.08 0.14
Weighted-average number of 'A' ordinary shares used in
computing basic profit per ordinary share 58,890,084 55,132,024
Diluted weighted-average number of 'A' ordinary shares
used in computing diluted profit per ordinary share 67,142,527 65,740,993
** As the 'B' ordinary shareholders have twice the voting and dividend rights of
the 'A' ordinary shareholders, the basic profit per ordinary share and the
diluted profit per ordinary share for the 'B' ordinary shares is twice that of
the 'A' ordinary shares.
The diluted earnings per share under US GAAP for the year ended December 31,
2004 have been restated to include the effects of certain dilutive shares to be
included in the denominator associated with the Company's convertible notes. The
number of potentially dilutive shares has increased by 1,818,789 shares to
65,740,993 shares. Diluted earnings per 'A' ordinary share and per 'B' ordinary
share under US GAAP for 2004 has remained unchanged for this revision.
The Company's debentures are convertible into Class 'A' Ordinary Shares of the
Company at a price of US$4 at the option of the holder. In addition, under the
terms of the agreement, the Company has the option to satisfy each repayment
either in cash or in shares. Where the repayment of convertible notes is to be
satisfied in shares, the number of shares will be based on, at the holders'
option, either the conversion price or 97% of the volume weighted average price
per ADS for the twenty trading days for the period immediately preceding the
repayment date.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
December 31 December 31
2005 2004
US$'000 US$'000
(Amended)
Profit under US GAAP 2,582 4,048
Translation adjustment (1,707) 116
Fair value of derivative instruments (net of deferred tax) (239) (54)
------------ ------------
Total comprehensive income 636 4,110
------------ ------------
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
CHANGES IN US GAAP EQUITY FOR THE YEARS ENDED DECEMBER 31, 2005 AND DECEMBER 31,
2004
December 31 December 31
2005 2004
US$'000 US$'000
US GAAP Shareholders' Equity at January 1 122,033 87,234
Net profit for the period 2,582 4,048
'A' shares issued for cash - 24,335
'A' shares issued for conversion of debenture 5,466 427
'A' shares issued on conversion of warrant - 348
Options exercised 2,491 1,632
Stock-based compensation - additional paid-in capital 14 13
'A' shares issued as consideration for acquisition - 7,721
Share issue expenses (341) (1,509)
Share proceeds outstanding 2,373 (2,373)
Share capital now paid 97 95
Other comprehensive income:
Translation adjustment (1,707) 116
Fair value of derivative instruments (239) (54)
----------- -----------
US GAAP Shareholders' Equity at December 31 132,769 122,033
----------- -----------
NON CASH TRANSACTIONS
In January 2004, the Company has completed a private placement of 5,294,118 of
Class 'A' Ordinary Shares of the Company at a price of US$4.25 per share. The
investors were granted five year warrants to purchase an aggregate of 1,058,824
Class 'A' Ordinary Shares of the Company at an exercise price of US$5.25 per
share. The Company further granted warrants to purchase 200,000 Class 'A'
Ordinary Shares in the Company to agents of the Company who were involved in
this private placement at an exercise price of US$5.25. Under the terms of the
placement, investors were also granted the right to purchase an additional
2,647,059 Class 'A' Ordinary Shares of the Company at a price of US$4.25 per
share for a period of up to 30 days after the closing of the transaction. An
additional 431,617 Class 'A' Ordinary Shares of the Company were issued within
the 30 day period following the closing of the transaction to investors who
exercised this option.
In April 2004, Trinity completed the acquisition of the assets of Fitzgerald
Industries International Inc (Fitzgerald) for US$16,000,000 in cash. The
acquisition was partly funded by the issue of 2,783,984 'A' Ordinary Shares.
Additional consideration was payable for the acquisition of the business of
Fitzgerald, depending on the financial performance of that business during the
first 18 months of operation post acquisition relative to its pre-acquisition
performance. At December 31, 2004 the payment of these amounts was not
considered to be probable, therefore no provisions for these amounts were made.
At December 31, 2005 it was determined, based on the performance of Fitzgerald
in 2005, that deferred consideration of US$1,002,000 is payable.
In July 2005, Trinity completed the acquisition of Primus Corporation, a leader
in the field of in-vitro diagnostic testing for haemoglobin A1c and haemoglobin
variants for US$14,503,000 consisting of a cash consideration of US$8,587,000
and a one year promissory note of US$3,000,000. Acquisition expenses amounted to
US$211,000. Under the terms of the purchase agreement, the shareholders of
Primus were also entitled to an additional consideration based on the growth of
the Company during the remainder of 2005. At year end, the Company have accrued
US$2,705,000 for this additional consideration which will be paid in early 2006.
RESTATEMENT IN CASH FLOW STATEMENT
On adoption of IFRS as adopted by the EU, the Company determined that it had not
presented restricted cash in the statement of cash flows separately from cash
and cash equivalents at December 31, 2004 in accordance with US GAAP.
Accordingly, this presentation is now restated and is reflected in the same
manner as now set out in the statement of cash flows presented under IFRS as
adopted by the EU.
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
SHARE OPTION SCHEME - ADDITIONAL INFORMATION REQUIRED BY SFAS 123
The Company has elected to follow the intrinsic value method of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
options.
Proforma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a trinomial
option pricing model with the following assumptions:
KEY MANAGEMENT OTHER KEY MANAGEMENT OTHER
PERSONNEL EMPLOYEES PERSONNEL EMPLOYEES
2005 2005 2004 2004
Weighted average fair value at US$0.95 US$0.75 US$1.15 US$1.37
measurement date
Total share options granted 650,000 1,019,000 1,270,000 519,833
=============== =========== ================= ============
Weighted average risk-free interest 5.33% 3.28% 5.28% 3.17%
rate
Weighted average expected dividend - - - -
yield
Weighted average expected volatility 60.30% 59.72% 66.48% 65.24%
Weighted average expected life 5.33 years 3.28 years 5.28 years 3.17 years
The 2004 numbers have been restated to revise certain assumptions previously
used to value the Company's options under US GAAP, in a manner consistent with
those used under IFRS 2 Share-based payments. The Company has used a recognised
valuation methodology for the valuation of its share options (i.e. the
Black-Scholes model).
The information required by SFAS 148, "Accounting for Stock-Based Compensation",
is as follows:
December 31, 2005 December31,2004
US$ '000 US$ '000
Restated
Net income as reported 2,582 4,048
Add:
Total stock based employee compensation included in reported
net income, net of related tax effects 14 13
Deduct:
Total stock based employee compensation under fair value
based methods for all rewards, net of related tax effects (1,607) (1,361)
------------------ ------------------
Proforma net income 989 2,700
------------------ ------------------
Earnings per share:
Basic -- as reported per 'A' ordinary share (US Dollars) 0.04 0.07
Basic -- as reported per 'B' ordinary share (US Dollars) 0.08 0.14
Diluted -- as reported per 'A' ordinary share (US Dollars) 0.04 0.07
Diluted -- as reported per 'B' ordinary share (US Dollars) 0.08 0.14
Basic -- proforma per 'A' ordinary share (US Dollars) 0.02 0.05
Basic -- proforma per 'B' ordinary share (US Dollars) 0.04 0.10
Diluted -- proforma per 'A' ordinary share (US Dollars) 0.02 0.05
Diluted -- proforma per 'B' ordinary share (US Dollars) 0.04 0.10
The fair value of employee stock options for the year ended December 31, 2004
has been restated to reflect a revised estimated life of the options and a
revised expected volatility. The expected volatility was originally calculated
based on the changes in the Company's equity prices in the year prior to the
options being granted. This has now been calculated over a timeframe comparable
with the expected life of each option grant. Pro forma stock compensation
expense determined under the fair value based method of SFAS 123 for 2004 has
been decreased by US$64,000. Pro forma basic and diluted earnings per share for
2004 have remained unchanged.
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
CAPITAL SHARES RESERVED FOR FUTURE ISSUANCE
The following table sets forth the shares of common stock reserved for future
issuance:
YEAR ENDED
DECEMBER 31, 2005
Shares issuable on conversion of debentures 2,486,690
Shares underlying outstanding stock options 7,531,133
Shares available for grant under option plans 217,935
Shares issuable upon exercise of warrants 1,317,324
---------
11,553,082
==========
INVESTMENTS
The Company had no trading securities as at December 31, 2005 or
December 31, 2004. The gross realised gains on sales of trading securities
during 2005 was US$Nil (2004: US$Nil). The Company had no "available for sale"
or "held-to-maturity securities" as at December 31, 2005 or December 31, 2004.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents, trade accounts receivable and trade accounts payable:
The carrying amount reported in the balance sheet for cash and cash equivalents,
trade accounts receivable and trade accounts payable approximates their fair
value.
Long and short-term debt: The carrying amounts of the Company's borrowings
approximate their fair value as substantially all of the debt bears interest at
market rates.
Forward contracts: The Company marks its forward contracts to market in
determining fair value.
The carrying amounts and fair values of the Company's financial instruments at
December 31, 2005 and 2004 are as follows:
December 31, 2005 December 31, 2004
Carrying Fair Carrying Fair
Amount Value Amount Value
US$'000 US$'000 US$'000 US$'000
Cash and cash equivalents (restated)* 9,881 9,881 15,139 15,139
Financial assets -- restricted cash (restated)* 9,000 9,000 7,148 7,148
Trade accounts receivable 17,591 17,591 10,798 10,798
Trade accounts payable 6,065 6,065 3,266 3,266
Short-term debt 14,922 14,998 11,087 11,410
Long-term debt 12,206 12,099 12,923 13,316
Forward contracts 64 64 418 418
*The carrying amount and associated fair value of restricted cash of
US$7,148,000 as of December 31, 2004, which was previously included in cash and
cash equivalents is now separately disclosed.
ADDITIONAL UNAUDITED PROFORMA INFORMATION FOR ACQUISITIONS MADE IN 2005
The information below presents the proforma effect of the acquisitions made in
2005 as if they had occurred on January 1, 2005 and January 1, 2004.
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
December 31 December 31
2005 2004
US$'000 US$'000
Proforma revenues 104,885 95,194
Proforma income before extraordinary items 2,561 5,687
Proforma net income 2,561 5,687
Proforma earnings
per 'A' ordinary share (US Dollar) 0.04 0.10
Proforma earnings
per 'B' ordinary share (US Dollar) 0.08 0.20
Proforma diluted earnings
per 'A' ordinary share (US Dollar) 0.04 0.09
Proforma diluted earnings
per 'B' ordinary share (US Dollar) 0.08 0.18
The proforma information was compiled using a combination of available financial
information or where unavailable, extrapolations of the results of Adaltis and
Fitzgerald both of which were acquired during 2004. There were no acquisitions
in 2003.
IMPACT OF RECENTLY ISSUED US ACCOUNTING PRONOUNCEMENTS
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by EU. IFRS as
adopted by the EU differ in certain respects from IFRS as issued by the IASB.
However, the consolidated financial statements for the periods presented would
be no different had the Company applied IFRS as issued by the IASB. The Company
has included a discussion of the potential impact of recently issued accounting
pronouncements by the IASB and the IFRIC on the financial statements of the
Company in Item 5. These standards, interpretations and amendments to existing
standards have not yet been adopted by the EU.
IFRS as adopted by the EU differ in certain respects from US GAAP. The following
discussion considers the potential impact of recently issued US GAAP accounting
pronouncements on the financial statements of the Company.
ACCOUNTING FOR SERVICING OF FINANCIAL ASSETS
In March 2006 the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Reporting No. 156 ("SFAS 156"). This Statement amends
FASB Statement No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, with respect to the accounting for
separately recognized servicing assets and servicing liabilities, and is
effective for financial periods beginning after September 15, 2006. The Company
does not currently engage in transfers of financial fixed assets and accordingly
does not anticipate that the adoption of this statement will have a material
impact on its financial statements.
ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS
In February 2006, the FASB issued SFAS 155 Accounting for certain hybrid
financial instruments -- an amendment of FASB Statements No. 133 and 140. This
Statement amends FASB Statements No. 133, Accounting for Derivative Instruments
and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This Statement resolves
issues addressed in Statement 133 Implementation Issue No. D1, "Application of
Statement 133 to Beneficial Interests in Securitized Financial Asset.", and is
effective for all financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006.
The Company does not anticipate that the adoption of this statement will have a
material impact on its financial statements.
ACCOUNTING CHANGES AND ERROR CORRECTIONS
In May 2005 the FASB issued Statement of Financial Reporting No.154 ('SFAS 154")
Accounting Changes and Error Corrections -- a replacement of APB Opinion No. 20
and FASB Statement No. 3. SFAS 154 replaces APB Opinion No. 20, Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements, and changes the requirements for the accounting for and
reporting of a change in accounting principle. This Statement applies to all
voluntary changes in accounting principle. It also applies to changes required
by an accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. When a pronouncement includes
specific transition provisions, those provisions should be followed.
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
Opinion 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. When it is impracticable to determine the period-specific effects of an
accounting change on one or more individual prior periods presented, this
Statement requires that the new accounting principle be applied to the balances
of assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a corresponding adjustment be
made to the opening balance of retained earnings (or other appropriate
components of equity or net assets in the statement of financial position) for
that period rather than being reported in an income statement.
This Statement is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. Early adoption is
permitted for accounting changes and corrections of errors made in fiscal years
beginning after the date this Statement is issued. This Statement does not
change the transition provisions of any existing accounting pronouncements,
including those that are in a transition phase as of the effective date of this
Statement. The Company does not anticipate that the adoption of this statement
will have a material impact on its financial statements.
ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT OBLIGATIONS
In March 2005 the FASB issued Interpretation No. 47 Accounting for Conditional
Asset Retirement Obligations -- an Interpretation of FASB Statement No. 143.
This Interpretation clarifies that the term conditional asset retirement
obligation as used in FASB Statement No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to perform an asset retirement
activity in which the timing and (or) method of settlement are conditional on a
future event that may or may not be within the control of the entity. The
obligation to perform the asset retirement activity is unconditional even though
uncertainty exists about the timing and (or) method of settlement. Thus, the
timing and (or) method of settlement may be conditional on a future event.
Accordingly, an entity is required to recognize a liability for the fair value
of a conditional asset retirement obligation if the fair value of the liability
can be reasonably estimated. The fair value of a liability for the conditional
asset retirement obligation should be recognized when incurred---generally upon
acquisition, construction, or development and (or) through the normal operation
of the asset.
This Interpretation is effective no later than the end of fiscal years ending
after December 15, 2005 (December 31, 2005, for calendar-year enterprises). The
Company does not anticipate that the adoption of Interpretation No. 47 will have
a material impact on its financial statements.
SHARE-BASED PAYMENT
In December 2004, the FASB issued SFAS No. 123 (revised 2004) "Share-Based
Payment" ("SFAS 123R"). This Statement replaces FASB Statement No. 123,
"Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and its related implementation
guidance.
This Statement establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
This Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. This
Statement does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in Statement 123 as
originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services".
This Statement requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognised
over the period during which an employee is required to provide service in
exchange for the award---the requisite service period (usually the vesting
period). No compensation cost is recognized for equity instruments for which
employees do not render the requisite service.
This Statement eliminates the alternative to use Opinion 25's intrinsic value
method of accounting that was provided in Statement 123 as originally issued.
Under Opinion 25, issuing stock options to employees generally resulted in
recognition of no compensation cost. This Statement is effective for public
entities as of the beginning of the first interim or annual reporting period
that begins after June 15, 2005. Under SFAS 123R, the Company must determine the
appropriate fair value model to be used for valuing share-based payments, the
amortisation method for compensation cost and the transition method to be used
at date of adoption. The transition methods include prospective and retroactive
adoption options. The Company is evaluating the requirements of SFAS 123R and
expects that the adoption of SFAS 123R will have a material impact on the
Company's consolidated results of operations and earnings per share. The Company
has not determined the method of adoption or the effect of adopting SFAS 123R,
and it has not determined whether the adoption will result in amounts that are
similar to the current proforma disclosures under Statement 123 or to the
current IFRS 2 amounts (see note 19).
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
INVENTORY COSTS
The Financial Accounting Standards Board ("FASB") issued SFAS 151, "Inventory
Costs -- an amendment of ARB No. 43, Chapter 4", in November 2004. This standard
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing", to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that "under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and re-handling costs may be so
abnormal as to require treatment as current period charges...".
The amendment removes the ambiguity and requires that all abnormal amounts of
idle facility expense, freight, re-handling costs, and wasted material
(spoilage) be treated as current period costs. In addition, this statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.
The provisions of this Statement shall be effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The Company does not
anticipate that the adoption of SFAS 151 will have a material impact on its
financial statements.
EXCHANGES OF NON-MONETARY ASSETS---AN AMENDMENT OF APB OPINION NO. 29
The FASB issued SFAS 153, "Exchanges of Non-monetary Assets -- an amendment of
APB Opinion No. 29" in December 2004. The guidance in APB Opinion No. 29,
"Accounting for Non-monetary Transactions", is based on the principle that
exchanges of non-monetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends Opinion 29, to eliminate the
exception for non-monetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. A non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a
result of the exchange. The provisions of this statement are effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The Company does not anticipate that the adoption of SFAS 153 will
have a material impact on its financial statements.
36. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
There were no significant events after the balance sheet date which would
require adjustment to or disclosure in the financial statements.
74
SCHEDULE II
TRINITY BIOTECH PLC
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR IMPAIRMENT OF RECEIVABLES
Balance at Charged to Charged to Balance
beginning costs and other at end
of period expenses accounts Deductions of period
US$'000 US$'000 US$'000 US$'000 US$'000
(a) (b)
2005 462 279 (36) (118) 587
2004 478 180 (143) (53) 462
2003 496 262 (38) (242) 478
(a) Amounts recovered during the year.
(b) Amounts written-off during the year.
VALUATION ALLOWANCE FOR INCOME TAXES
Balance at Provided Reductions Balance
beginning at end
of period of period
US$'000 US$'000 US$'000 US$'000
(a) (b)
2005 302 14 - 316
2004 179 302 (179) 302
2003 131 179 (131) 179
(a) Increase in valuation allowance associated with deferred tax asset.
(b) Reduction in valuation of allowance associated with deferred tax asset.
75
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorised the undersigned to sign
this annual report on its behalf.
TRINITY BIOTECH PLC
By: RONAN O'CAOIMH
--------------
Mr Ronan O'Caoimh
Director/
Chief Executive Officer
Date: March 31, 2006
By: RORY NEALON
-----------
Mr Rory Nealon
Director/
Chief Financial Officer
Date: March 31, 2006
76
EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
1 Memorandum and Articles of Association of Trinity Biotech plc
4b.1 Lease agreement between Ronan O'Caoimh and Jim Walsh with
Trinity Biotech Manufacturing Limited in respect of office
premises in Bray, Co Wicklow, Ireland
4b.2 Lease agreement between Ronan O'Caoimh, Jonathon O'Connell
and Jim Walsh with Trinity Biotech plc in respect of
warehouse premises in Bray, Co Wicklow, Ireland
12.1 Certification by Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
12.2 Certification by Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
13.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
13.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
23.1 Consent of Independent Registered Public Accounting Firm (KPMG)
23.2 Consent of Independent Registered Public Accounting Firm
(Ernst & Young)