EX-99.1 3 exhibit991.htm EXHIBIT 99.1 Exhibit 99.1


Exhibit 99.1
 
DAKO A/S
 
CONSOLIDATED FINANCIAL STATEMENTS

Statement by the board of directors and the Executive management
The Board of Directors and the Executive Management have today approved the consolidated balance sheets of Dako A/S and subsidiaries (the Group) as of December 31, 2011 and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended.

The consolidated financial statements referred to above have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

It is our opinion that the consolidated financial statements give a true and fair view of the Group's financial position at December 31, 2011 and of the results of the Group's operations and cash flows for the year then ended.


Glostrup, Denmark
September 5, 2012

EXECUTIVE MANAGEMENT

                        
/s/Lars Holmqvist
 
/s/Egil Mølsted Madsen
Lars Holmqvist
 
Egil Mølsted Madsen
President & CEO
 
Executive Vice President & CFO




BOARD OF DIRECTORS


/s/Hubertus Rolf Kühner
 
/s/Anne Cathrine Baltzer
Hubertus Rolf Kühner
 
Anne Cathrine Baltzer
Chairman
 
 
 
 
 
 
 
 
 
 
 
/s/Stephen Dale Williams
 
 
Stephen Dale Williams
 
 
 
 
 
 
 
 
 
 
 
 
 
 







Report of Independent Auditors
To the Board of Directors and Shareholders of Dako A/S


We have audited the accompanying consolidated balance sheet of Dako A/S and subsidiaries (the "Group") as of December 31, 2011 and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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 Group'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, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our qualified opinion.

The Group did not present comparative consolidated financial information for the year ended December 31, 2010. Presentation of comparative financial information is required by International Financial Reporting Standards. These consolidated financial statements have been prepared solely for the purpose of meeting the requirements of Rule 3-05 of Regulation S-X.

In our opinion, except for the omission of comparative consolidated financial information as discussed in the preceding paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2011 and the consolidated results of its operations and its cash flows for the year then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.


/s/KPMG Statsautoriseret Revisionspartnerselskab

Copenhagen, Denmark
September 5, 2012




















Consolidated statement of income

DKK thousand
Note

2011

Net sales
 
1,917,624

Cost of goods sold
3, 4

(650,125
)
Gross profit
 
1,267,499

 
 
 
Sales and distribution expenses
3, 4

(646,884
)
Research and development expenses
3, 4, 5

(181,507
)
Administrative expenses
3, 4, 6

(155,417
)
Operating profit before other income and expenses
 
283,691

 
 
 
Other income and expenses
6

(12,098
)
Operating profit
 
271,593

 
 
 
Financial income
7

2,328

Financial expenses
8

(345,969
)
Loss before tax
 
(72,048
)
 
 
 
Tax expense for the year
9

(61,038
)
Net loss for the year
 
(133,086
)


Consolidated statement of comprehensive income

DKK thousand
Note
2011

Loss for the year
 
(133,086
)
 
 
 
Other comprehensive income/(loss):
 
 
Exchange difference on translation of foreign operations
 
12,313

Net value loss on cash flow hedges
 
(16,522
)
Income tax relating to components of other comprehensive income
 
474

Other comprehensive loss
 
(3,735
)
Total comprehensive income for the year
 
(136,821
)












1


Consolidated statement of changes in equity


DKK thousand
Share
 capital
Hedging
reserve
Translation
reserve
Retained
earnings
Total
2011
 
 
 
 
 
Equity at January 1
101,605

(30,752
)
24,504

2,567,353

2,662,710

 
 
 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
Net loss for the year
—

—

—

(133,086
)
(133,086
)
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
Exchange difference on translation
of foreign operations
—

—

12,313

—

12,313

Value adjustment of derivatives*
—

(13,900
)
—

—

(13,900
)
Tax on value adjustments of derivatives
—

474

—

—

474

Amortization of derivatives
—

(2,622
)
—

—

(2,622
)
Total other comprehensive income/(loss)
—

(16,048
)
12,313

—

(3,735
)
Total comprehensive income
for the year
—

(16,048
)
12,313

(133,086
)
(136,821
)
 
 
 
 
 
 
Transactions with owners of the company:
 
 
 
 
 
Capital increases
96

—

—

2,965

3,061

Total contributions by the owners
of the company
96

—

—

2,965

3,061

Equity at December 31
101,701

(46,800
)
36,817

2,437,232

2,528,950


* The value adjustment of derivatives includes a loss of DKK 253 thousand related to assessment of effectiveness.

Hedging reserve
The hedging reserve contains the accumulated net change in the fair value of hedging transactions which meet the criteria for hedging future cash flows where the hedged transaction has yet to be realized.

Translation reserve
The translation reserve contains all the exchange differences arising on translation of the financial statements of units with a functional currency other than DKK, exchange differences relating to assets and liabilities which form part of the Group's net investment in such units, and exchange differences relating to hedging transactions to hedge the Group's net investment in such units.












2


Consolidated balance sheet


DKK thousand
Note

2011

Intangible assets
10

6,918,745

Property, plant and equipment
11

692,036

Other non-current financial assets
12

10,110

Deferred tax assets
17

59,291

Total non-current assets
 
7,680,182

 
 
 
Inventories
13

319,624

Trade and other receivables
14

542,976

Lease receivables
15

327

Income tax receivable
 
13,742

Prepayments and other receivables
 
24,690

Cash and cash equivalents
 
27,710

Total current assets
 
929,069

 
 
 
Total assets
 
8,609,251

 
 
 
Total equity
 
2,528,950

 
 
 
Provision for deferred tax
17

977,362

Long-term employee benefits
18

8,864

Credit institutions
19

4,492,586

Other liabilities
 
185

Finance lease liabilities
20

8,995

Total non-current liabilities
 
5,487,992

 
 
 
Provisions
21

46,667

Credit institutions
19

109,219

Deferred income
 
17,420

Prepayments from customers
 
1,432

Trade payables
 
97,900

Income tax payable
 
73,274

Other liabilities
22

245,168

Finance lease liabilities
20

1,229

Current liabilities
 
592,309

 
 
 
Total liabilities
 
6,080,301

 
 
 
Total equity and liabilities
 
8,609,251







3


Consolidated statement of cash flows


DKK thousand
Note

2011

Operating profit
 
271,593

 
 
 
Adjustment for non-cash items:
 
 
Depreciation and amortization
4

312,410

Provisions, net
 
(23,419
)
Other non-cash items, net
 
3,260

Interest received
 
2,069

Interest paid
 
(203,576
)
Increase in working capital
23

(71,862
)
Income tax paid
 
(96,121
)
Cash flows from operating activities
 
194,354

 
 
 
Investments in intangible assets
24

(139,633
)
Investments in property, plant and equipment
24

(179,221
)
Investments in other non-current assets
24

(627
)
Sale of property, plant and equipment
 
12,900

Sale of other non-current assets
 
1,405

Cash flows to investing activities
 
(305,176
)
 
 
 
Capital increase
 
3,061

New non-current debt
 
62,641

Repayment of non-current debt
 
(17,699
)
Cash flows from financing activities
 
48,003

 
 
 
Decrease in cash and cash equivalents
 
(62,819
)
Cash and cash equivalents at January 1
 
1,789

Exchange rate adjustment
 
(2,456
)
Total cash and cash equivalents at December 31
25

(63,486
)














4


Notes
Accounting policies

1 Accounting policies

General
The consolidated financial statements for the year ended December 31, 2011 include the financial statements of Dako A/S and its subsidiaries (the Group).

The consolidated financial statements of Dako A/S are presented in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements are prepared based on the Danish statutory annual report for 2011. Compared to the Danish annual report that has been filed with the Danish Business Authority the following changes have been made to the consolidated financial statements:

•
Management's Review that is included in the annual report has not been included as part of these financial statements.
•
The parent company financial statements that are included in the annual report have been omitted from the attached financial statements.
•
The notes have been updated so they only reflect information related to the consolidated financial statements.
•
The notes related to Segment Reporting and Fees to statutory auditors have not been included as part of these financial statements.

The consolidated financial statements are presented in Danish kroner (DKK).

Comparative figures are not disclosed in the consolidated financial information for the year ended December 31, 2010 as this is not required for meeting the requirements of Rule 3-05 of Regulation S-X.

Adoption of new and revised IFRSs
IASB has issued the following new standards and interpretations (IFRSs and International Financial Reporting Interpretation Committees (IFRICs) that are not yet effective:
•
IFRS 9 Financial Instruments
•
IFRS 10 Consolidated Financial Statements
•
IFRS 11 Joint Arrangements
•
IFRS 12 Disclosure of Interest in Other Entities
•
IFRS 13 Fair Value Measurement
•
Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards
•
Amendments to IFRS 7 Financial Instruments: Disclosures
•
Amendments to International Accounting Standards (IAS) 1 Presentation of Financial Statements
•
Amendments to IAS 12 Income Taxes
•
Amendments to IAS 19 Employee Benefits
•
Amendments to IAS 27 Consolidated and Separate Financial Statements
•
Amendments to IAS 28 Investments in Associates
•
Improvements to IFRSs (2011)

Dako has assessed the impact on the consolidated financial statements from the adoption of these IFRSs that are not yet effective and concluded that it will be insignificant.

Effective from 1 January 2011, Dako A/S has implemented:

•
Revised IAS 24: Related Party Disclosures
•
Amendments to IFRIC 14 regarding prepayments of a minimum funding requirement
•
Amendment to IAS 32 regarding classification of rights issues
•
Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards: Limited exemption from the requirement in IFRS 7 on disclosure of comparative figures for first-time adopters
•
Improvements to IFRSs May 2010
•
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments.


5


None of the new standards and interpretations have affected recognition and measurement in 2011 and, thus, not earnings and diluted earnings per share.
Dako does not anticipate any significant impact on the future periods from the adoption on these new IFRSs.

Consolidation
The consolidated financial statements comprise Dako A/S (the Parent Company) and the companies (subsidiaries) controlled by the Parent Company. Control is achieved where the Parent Company directly or indirectly holds more than 50% of the voting rights or otherwise exercises a controlling influence.

The consolidated financial statements are prepared on the basis of the financial statements of the Parent Company and the subsidiaries by combining items of a similar nature and by eliminating intercompany income and expenses, investments, balances and unrealized gains and losses on transactions between the consolidated companies. Account is taken of the deferred tax effect of such eliminations.

Companies which are not subsidiaries but in which Dako A/S holds 20% or more of the voting rights or otherwise exercises a significant influence are regarded as associated companies. The proportionate share of the profits or losses of associated companies is recognized in the income statement according to the equity method. Transactions with consolidated companies, including realized and unrealized gains and losses, are eliminated proportionately.

An overview of subsidiaries and associated companies is shown in note 30, Group overview.

Business combinations
Newly acquired or established companies are recognized in the consolidated financial statements from the time of acquisition. Companies sold or discontinued are recognized in the consolidated income statement until the time of sale or discontinuation.

Acquisitions of new companies over which the Parent Company then exercises a controlling influence are accounted for using the purchase method of accounting. The date of acquisition is the date on which control is transferred to the acquirer. The cost of the acquisition is measured as the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree, plus any costs directly attributable to the combination. The identifiable assets, liabilities and contingent liabilities of acquired companies are measured at fair value at the time of acquisition. Identifiable intangible assets are recognized if they are separable or derive from a contractual right, and if their fair value can be measured reliably.

Acquired non-current assets (disposal groups) classified as held for sale are recognized at fair value less costs to sell. A restructuring provision is recognized only when it is an existing liability of the acquirer at the acquisition date. The deferred tax effects of the revaluations made are recognized.


Any excess of the cost of the company and the fair value of the identifiable assets, liabilities and contingent liabilities acquired (goodwill) is recognized under intangible assets as goodwill. Goodwill is not amortized but is tested annually for impairment. The first impairment test is carried out before the end of the acquisition year. At the time of acquisition, goodwill is allocated to the cash-generating units which subsequently form the basis for impairment testing. Goodwill and fair value adjustments relating to the acquisition of a foreign unit with a functional currency other than the Group's presentation currency are treated as assets and liabilities of the foreign unit and are translated into the foreign unit's functional currency at the exchange rate on the transaction date. Any excess of fair value over cost (negative goodwill) is recognized in the income statement at the time of acquisition.

If there is uncertainty at the time of acquisition about the measurement of the identifiable assets, liabilities and contingent liabilities acquired, initial recognition is based on provisionally determined fair values. Should it subsequently emerge that the identifiable assets, liabilities and contingent liabilities had different fair values at the time of acquisition than initially assumed, goodwill is adjusted up to 12 months from the time of acquisition. The effect of the adjustments is recognized in opening equity, and comparative figures are restated. Unless material errors have been made, goodwill is then adjusted only as a result of changes in estimates of conditional purchase prices. However, subsequent realization of deferred tax assets in the acquired company which were not recognized at the time of acquisition will result in the recognition of these tax assets in the income statement and a simultaneous write-down in the carrying amount of goodwill to the amount that would have been recognized had the deferred tax assets been recognized as an identifiable asset at the time of acquisition.

Gains and losses on the disposal of subsidiaries and associated companies are determined as the difference between the sale or

6


discontinuation proceeds and the carrying amount of the net assets including goodwill at the time of sale plus the cost of sale or discontinuation.

Translation of foreign currency
A functional currency is determined for each of the reporting companies in the Group. The functional currency is the currency of the primary economic environment in which the reporting company operates.

Transactions in currencies other than the functional currency are transactions in foreign currency and are translated to the functional currency on initial recognition at the exchange rate at the transaction date. Exchange differences arising between the exchange rates on the transaction date and the settlement date are recognized in the income statement as financial income/expenses.

Receivables, payables and other monetary items in foreign currency are translated at the exchange rate at the balance sheet date. Exchange differences arising between the exchange rates at the balance sheet date and the time when the receivable or payable originated are recognized in the income statement as financial income/expenses.

When including foreign companies with a functional currency other than Dako A/S's presentation currency in the consolidated financial statements, their income statements are translated at the exchange rate at the transaction date and balance sheet items are translated at the exchange rate at the balance sheet date. An average rate for each month is used as the exchange rate at the transaction date unless this gives a materially different effect. Exchange differences arising on the translation of foreign companies' equity at the beginning of the year to the exchange rate at the balance sheet date and on the translation of their income statements from the exchange rate at the transaction date to the exchange rate at the balance sheet date, are recognized directly in equity.

Exchange differences on loans to/from foreign companies which are regarded as part of the overall net investment in the company in question are recognized directly in equity in the consolidated financial statements if the balance is denominated in the functional currency of either the Parent Company or the foreign company.

Derivative financial instruments
Derivative financial instruments are recognized initially at cost. Subsequent to initial recognition, derivative financial instruments are recognized in the balance sheet at fair value calculated according to generally accepted valuation methods. Realized and unrealized value adjustments are recognized in the income statement as financial income/expenses, apart from derivative financial instruments qualifying for hedge accounting. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties.

Changes in the fair value of derivative financial instruments designated as a cash flow hedge are recognized directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in the income statement.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then the hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognized in equity is transferred to the carrying amount of the asset when it is recognized. In other cases, the amount recognized in equity is transferred to the income statement in the same period as the hedged item affects profit or loss.

Consolidated Income statement

Net sales
Net sales from sales of goods for resale and manufactured goods are recognized in the income statement on the date of the transfer of risk and ownership. Net sales comprise invoiced sales for the year less returned goods, sales taxes mainly comprising value-added tax and price reductions directly related to sales. Net sales also include license and royalty income.

Sale of standardized instruments is included in net sales on the transfer of risk and ownership.

Sale of customized instruments is included in net sales on receipt of the customer's acceptance of risk and ownership.

Revenue from rental agreements is recorded over the term of the rental agreement.


7


Government grants
Government grants include subsidies and financing of development projects as well as investment subsidies, etc.

Subsidies for research and development expenses included in the income statement are recognized under research and development expenses so as to offset the expenses they are compensating.

Subsidies for the purchase of assets and development assets included in the balance sheet are offset against the cost of the assets for which the subsidies are given.

Cost of goods sold
Cost of goods sold includes the cost of raw materials, consumables and goods for resale, direct labor and indirect costs of production, including the cost of operating and depreciating manufacturing facilities, and amortization of know-how. Cost of goods sold also includes any write-down to net realizable value of obsolete and slow-moving items, and royalty expenses relating to sales of goods under a third-party license.

Sales and distribution expenses
Sales and distribution expenses comprise expenses attributable to the distribution, sales and marketing of the Group's products, including salaries, depreciation, other indirect expenses and amortization of customer contracts and relationships.

Research and development expenses
Research and development expenses comprise expenses attributable to the Group's research and development functions, including wages and salaries and maintenance of patents as well as amortization and other indirect expenses.

Research expenses are expensed as incurred.

Development projects which are clearly defined and identifiable, where technical feasibility, adequate resources and a potential future market or internal use can be demonstrated, and where there is an intention to produce, market or sell the project, are recognized as intangible assets provided that there is a connection between expenses incurred and future benefits. Otherwise development expenses are expensed as incurred. If there is any uncertainty about the development of new products, the criteria for capitalization are not deemed to have been met.

Administrative expenses
Administrative expenses comprise the cost of the Group's administrative functions, including the salaries of Management and other administrative staff, office expenses, depreciation and other indirect costs, as well as bad debt provisions and realized losses on receivables.

Other income and expenses
Other income and expenses comprise items of a secondary nature in relation to the Group's activities.

Financial income and expenses
Financial income and expenses include interest income and expenses which are recognized in the income statement at the amounts relating to the financial year.

Financial income and expenses also include the interest element of payments under finance leases, value adjustments of financial assets and liabilities measured at fair value, gains and losses on items denominated in foreign currency, and forward exchange contracts and other derivative financial instruments not used for hedging purposes.

Taxation
Dako A/S is covered by the Danish rules on compulsory joint taxation of Danish subsidiaries in the Group. Danish subsidiaries are included in joint taxation from the date they are consolidated in the consolidated financial statements until they are deconsolidated.

Current Danish income tax is distributed by calculating the joint taxation contribution between the jointly taxed companies in proportion to their taxable income. This means that Dako A/S with a tax loss receives a joint taxation contribution from the Danish subsidiary Dako Denmark A/S, which has been able to use this loss to reduce its own taxable profit.

Tax for the year, which comprises current income tax for the year, the joint taxation contribution for the year and change in deferred tax, including as a result of changes in the tax rate, is recognized in the income statement where it can be attributed to net profit for the year, and directly in equity where it can be attributed to items in equity.

8



Pursuant to the joint taxation rules, as the administration company Dako A/S assumes liability for the payment of tax by Dako Denmark A/S to the tax authorities in line with Dako Denmark A/S's payment of joint taxation contributions.

Current tax liabilities and tax receivable are recognized in the balance sheet as tax calculated on the taxable income for the year, adjusted for tax on the taxable income for previous years and for tax paid on account.

Joint taxation contributions due and receivable are recognized in the balance sheet under amounts owed by or due to subsidiaries.

Deferred tax is measured using the balance sheet liability method for all temporary differences between accounting and tax values of assets and liabilities. However, no deferred tax is recognized for temporary differences relating to consolidated goodwill, which is non-tax-deduc-tible, and other items where temporary differences - with the exception of company acquisitions - have arisen at the date of purchase without this having any effect on profit or taxable income. In cases where specification of tax value may be made in accordance with different tax rules, deferred tax is measured on the basis of Management's planned use of the asset or disposal of the liability.

Deferred tax assets, including the tax value of tax loss carry-forwards, are recognized at the value at which they are expected to be used, either through set-off against tax on future earnings or through set-off against deferred tax liabilities within the same legal tax entity and jurisdiction.

Adjustment is made for deferred tax relating to elimination of unrealized intercompany gains and losses.

Deferred tax is measured on the basis of the tax rules and tax rates in the respective countries which, under the legislation in force at the balance sheet date, will be applicable when the deferred tax is expected to be realized as current tax.

Tax arising on the possible sale of subsidiaries is not recognized in the balance sheet unless the shares are expected to be divested within a short period of time.

Consolidated Balance Sheet

Intangible assets
Intangible assets are measured at cost less accumulated amortization and impairment losses. Borrowing costs in respect of construction of major assets are capitalized.

The cost of internally generated intangible assets includes the direct costs of materials and labor. Internally generated intangible assets are capitalized if the criteria for capitalization are deemed to have been met.

When measuring software developed for internal use, external costs related to consultants and software are included as well as internal costs directly related to the development phase. Internal development of software and related costs in connection with major IT projects for internal use are capitalized under completed development projects.

Other development expenses which cannot be shown to have probable future economic benefits for the Group are expensed as incurred.

Intangible assets excluding goodwill and brands are systematically amortized based on an individual assessment of the useful life of the asset.

The normal assumptions for useful life are:
 
Period
Know-how
 
10 years
Brands
 
Indefinite
Customer contracts and related relationships
 
25 years
Completed development projects
Max.
10 years
Acquired patents, licenses and similar rights
Max.
7 years
Computer licenses/systems and implementation expenses
Max.
7 years


9


The accounting treatment of goodwill is presented in the section on business combinations.

Know-how
Know-how is recognized at fair value at the date of acquisition and subsequently carried at cost less accumulated amortization and any accumulated impairment losses, while acquired know-how with a finite useful life is measured at historical cost less accumulated amortization and any accumulated impairment losses. Amortization is provided on a straight-line basis over the expected useful life of the know-how.

The valuation of acquired know-how is based on a discounted cash flow model using the after-tax royalty payments (the royalty relief method). Cash flows are discounted on an after-tax basis using the Weighted Average Cost of Capital (WACC) plus a risk premium for the assumed risk inherent in the know-how.

The net present value of the cash flows is increased by an estimated portion of the discounted tax amortization benefit applicable to a potential buyer, based on the tax amortization opportunity available for know-how when bought as a trade and asset purchase. The tax amortization benefit is discounted. This increased value of know-how equals the fair value at the date of acquisition. A deferred tax liability is calculated at the tax rate on the difference between the carrying amount and tax value. The initial recognition of this deferred tax liability increases the amount of goodwill.

The value of know-how is tested for impairment as part of the impairment test.

Brands
Brands are recognized at fair value at the date of acquisition. Subsequently, acquired brands with indefinite useful lives are measured at historical cost less any accumulated impairment losses, while acquired brands with finite useful lives are measured at historical cost less accumulated amortization and any accumulated impairment losses. Amortization is provided on a straight-line basis over the expected useful life of the brand.

The valuation of acquired brands is based on a discounted cash flow model using the after-tax royalty payments (the royalty relief method). Cash flows are discounted on an after-tax basis using the Weighted Average Cost of Capital (WACC) plus a risk premium for the assumed risk inherent in the brand.

The net present value of the cash flows is increased by an estimated portion of the discounted tax amortization benefit applicable to a potential buyer, based on the tax amortization opportunity available for brand names when bought as a trade and asset purchase. The tax amortization benefit is discounted. This increased value of the brand equals the fair value at the date of acquisition. A deferred tax liability is calculated at the tax rate on the difference between the carrying amount and tax value. The initial recognition of this deferred tax liability increases the amount of goodwill.

The value of brands is tested for impairment as part of the impairment test.

Customer contract portfolios and related customer relationships
Customer contract portfolios and related customer relationships are recognized at fair value at the date of acquisition and subsequently carried at cost less accumulated amortization and any accumulated impairment losses. The value is amortized based on the churn rate of the acquired portfolio using the straight-line method.

The valuation of customer contract portfolios and related customer relationships is based on a discounted cash flow model using an estimated split of the acquired revenue in segments and the related churn rates and profitability of the revenue at the time of the acquisition.

A contributory asset charge as a cost or return requirement for assets supporting the intangible asset has been included in the model. Cash flows are discounted on an after-tax basis using the Weighted Average Cost of Capital (WACC) plus a risk premium for the assumed risk inherent in customer contract portfolios and related customer relationships.

The net present value of the cash flows is increased by an estimated portion of the discounted tax amortization benefit applicable to a potential buyer, based on the tax amortization opportunity available for customer contract portfolios and customer relationships when bought as a trade and asset purchase. The tax amortization benefit is discounted. This increased value of customer contract portfolios and related customer relationships equals the fair value at the date of acquisition.

For know-how, brands and customer contract portfolios and related customer relationships, a deferred tax liability is calculated at the tax rate on the difference between the carrying amount and the tax value. The initial recognition of this deferred tax liability increases the amount of goodwill.

10



The value of customer contract portfolios and related customer relationships is tested for impairment as part of the impairment test.

Property, plant and equipment
Land and buildings, plant and machinery, other fixtures and fittings, tools and equipment, and apparatus and instruments leased to customers are measured at purchase price or cost less accumulated depreciation and impairment losses. Borrowing costs in respect of construction of major assets are capitalized.

Cost comprises the purchase price and expenses related to the purchase up to the time when the asset is ready for use. For assets gene-rated internally, cost includes direct costs of materials, components, subcontractors and labor. The cost of a composite asset is divided between its constituent components, which are depreciated individually if the useful lives of the individual components vary.

Property, plant and equipment are depreciated on a straight-line basis over the expected useful lives of the assets taking account of their anticipated residual value. The useful life of major assets is determined individually, while the useful lives of other assets are determined for groups of similar assets.

The following expected useful lives are used:
 
Period
Buildings
Max.
40 years
Plant and machinery
Max.
10 years
Other fixtures and fittings, tools and equipment
Max.
7 years
Leasehold improvements
 
7-15 years

The costs of maintaining property, plant and equipment are expensed as incurred, either directly in the statement of comprehensive income or as part of indirect costs of production.

Expenses incurred that significantly increase the value in use of the asset concerned are added to the asset's cost as an improvement and are depreciated over the expected useful life of the improvement.

Gains or losses on the disposal or scrapping of property, plant and equipment are calculated as the difference between the carrying amount and the selling price reduced by dismantling and disposal costs. Gains and losses are included in the statement of comprehensive income under the same items as the associated depreciation.

The Group's rabbits and goats are not recognized as assets as it is not possible to measure cost reliably.

Impairment
The carrying amount of intangible assets and property, plant and equipment is assessed on a regular basis. For goodwill and intangible assets with an indefinite useful life or which are not yet available for use, an impairment test is performed once a year. For other assets, specific impairment tests are performed if there are factors indicating that the carrying amount of the asset exceeds the value of expected future cash flows from it. If this test concludes that the value of expected cash flows from the asset will be lower than the carrying amount, the asset is written down to the higher of fair value less selling expenses and value in use. Impairment losses are recognized in the income statement as other income/expenses.

Financial assets
Receivables with a fixed maturity that the Group intends to hold until maturity are measured at amortized cost.

Other financial assets are stated at fair value with any resultant gain or loss recognized in the income statement.

Financial assets are recognized/derecognized on the day they are transferred to/from the Group.

Inventories
Raw materials, consumables and goods for resale are measured at cost plus the cost incurred in bringing the inventories to their present location and condition according to an approximated FIFO principle.

Work in process and manufactured goods are measured at standard cost, which approximates cost calculated according to the FIFO principle. Cost includes the cost of materials and direct labor as well as a share of indirect costs of production, including

11


the cost of operating and depreciating manufacturing facilities. Interest incurred during production is not included in cost.

Inventories are written down to net realizable value if this is lower than the purchase price or cost. The net realizable value is calculated as the expected ordinary selling price less the costs of completion and expenses incurred to make the sale. The net realizable value is usually calculated per product or, alternatively, for similar goods with a similar sales process.

Receivables
Receivables arising in the Group's normal course of business are measured at nominal value less impairment losses to reflect the risk of losses calculated on the basis of an individual evaluation.

Dividends
Any proposed dividend would be presented separately in equity until approved by the Annual General Meeting. The dividend would then be shown as a liability.

Pension liabilities
The Group has entered into defined contribution pension plans and similar agreements with most of the Group's employees. The agreements vary according to statutory, contractual and other local rules.

Payments to these defined contribution plans are recognized in the period to which they relate. Any contributions payable are recognized in the balance sheet under current liabilities.

With respect to other long-term employee benefits, provisions in the balance sheet are calculated as the present value of the expected payments.

The Group has no defined benefit plans.


Other provisions
Liabilities relating to the financial year or previous financial years which are uncertain with respect to size or due date are recognized in the balance sheet under other provisions.

Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events and it is probable it will lead to an outflow of financial resources. It is measured at the "best estimate" of the expenditure to be incurred by Management.

Liabilities other than provisions
Debt to credit institutions, etc. is initially recognized at the value of the amount received less transaction costs paid. Subsequent to initial recognition, financial liabilities are measured at amortized cost, equivalent to the capitalized value when a constant effective rate of interest is used, so that the difference between the amount received and the nominal value is recognized in the income statement over the loan period.

Other liabilities are measured at net realizable value.

Leasing

Dako as lessee
Leases that transfer substantially all risks and rewards incident to ownership of an asset to Dako are classified as finance leases. Other leases are classified as operating leases.

Assets held under finance leases are recognized in the balance sheet at the lower of the asset's fair value at the time of entering into the lease and the present value of the minimum lease payments. The discount rate used in calculating the present value is the internal rate of return laid down in the lease or the Group's alternative loan rate. Assets held under finance leases are depreciated on a straight-line basis over the estimated useful life in the same way as similar assets owned by the Group.

The corresponding lease liability is recognized as a liability in the balance sheet and the interest thereon is recognized in the income statement under financial expenses.

Lease payments under operating leases are expensed as incurred. The total lease payments are disclosed under contingent liabilities.

12



Dako as lessor
For leases an assessment is made as to whether the lease is a finance lease or an operating lease.

The Group has mainly entered into operating leases for instruments with a short duration relative to the life of the asset. Assets leased under operational lease are recognized, measured and presented in the balance sheet as non-current assets. Lease payments relating to operating leases are recognized as income as they fall due for payment.

Assets leased by the Group to customers under leases classified as finance leases are recognized in the balance sheet under receivables at an amount equal to the Group's net investment. Lease payments are accounted for as repayments on the receivable and interest thereon. Expenses incurred in connection with entering into the leases are recognized in the income statement.

Consolidated statement of cash flows

The consolidated statement of cash flows is presented according to the indirect method and shows the composition of the Group's cash flows, divided into operating, investing and financing activities, and the Group's cash and cash equivalents at the beginning and the end of the year.

Cash flows from operating activities are calculated as the Group's operating profit or loss, adjusted for non-cash operating items, change in working capital, financial income/expenses and income taxes.

Cash flows from investing activities include payments in connection with purchases and sales of non-current assets, including investments in companies. For purchases and sales of subsidiaries, the cash selling or purchase price is adjusted for cash in the purchased/sold company under cash flows from investing activities.

Cash flows from financing activities include payments to and from shareholders, the raising of and principal repayments on mortgage debt, and other non-current liabilities.

Cash and cash equivalents as presented in the statement of cash flows include cash less bank overdrafts.

Cash flows denominated in foreign currencies, including cash flows in foreign subsidiaries, are translated at the average exchange rates during the year as an approximation of the rates at the date of payment. Cash and cash equivalents at year-end are translated at the exchange rates at the balance sheet date.


















13


Notes
Consolidated Income Statement


2 Accounting estimates and judgments

As part of the preparation of the consolidated financial statements, certain estimates and assumptions are made. These are based on historical experience and other factors that Management considers reasonable under the circumstances, but which are inherently uncertain and unpredictable. Such assumptions may be incomplete or inaccurate, and unexpected events or circumstances may occur. In addition, the Group is subject to risks and uncertainties that may cause actual outcomes to deviate from such estimates.

Impairment of assets
Intangible assets are tested annually for impairment irrespective of whether there is any indication of impairment. The impairment test of goodwill and the particularly sensitive associated factors and sensitivity analyses are described in note 10 to the consolidated financial statements.

Inventories
Inventories are measured at cost in accordance with the first-in, first-out method. In Dako, inventories are measured at cost using the standard cost method, which includes normal levels of raw materials, consumables and labor as well as production overheads such as wages and other production expenses. The standard cost method is reviewed on a regular basis to ensure relevant measures of batch volumes, utilization, production lead time, etc. Where the net realizable value is lower than cost, a write-down is recognized for the amount by which the carrying amount exceeds its net realizable value. Write-downs are based on an individual assessment of products.

Development costs
Development costs are capitalized if the criteria for such capitalization are deemed to have been met and it is found to be probable that future earnings will cover the development costs. Management has assessed that development costs relating to certain instrument projects continue to meet the conditions for capitalization.

Development of computer software for internal use and other development costs related to significant IT projects for internal use are recognized under intangible assets as Other intangibles.

Trade receivables
Trade receivables are measured at nominal value less impairment losses. The economic situation in Europe has increased Management's focus on the development of the outstanding receivables especially from this region. Factors such as payment terms and market conditions, historical losses and customer type are analyzed by Management when evaluating the adequacy of the allowance for impairment in respect of trade receivables. A geographical split of trade receivables are presented in note 14.

Provisions
It is Dako's normal policy that products are supplied with warranties. Dako has recorded provisions for expected warranty costs based on an analysis of the estimated costs related to product repairs, which are determined based on historical experience of warranty costs and other relevant factors.

Deferred tax
Judgment is required by Management in determining Dako's provision for tax, deferred tax assets and deferred tax liabilities. On the basis of the coming years' activities and budgets, Management believes that tax assets can be used against future profits. Please refer to note 17 for further information.










14


3 Staff Expenses

DKK thousand
2011

Wages and salaries
603,399

Defined contribution pension plans and other long-term employee benefits (note 18)
41,234

Other social security costs, etc.
66,167

Total staff expenses
710,800

 
 
Included under the following headings:
 
Cost of goods sold
148,896

Sales and distribution expenses
286,120

Research and development expenses
76,970

Administrative expenses
112,822

Other income and expenses
6,926

Capitalized development projects
79,066

Total
710,800


Average number of employees
1,067

 
 
Remuneration to Executive Management
9,645

Remuneration to Board of Directors
1,507

Total remuneration to Executive Management and Board of Directors
11,152

Remuneration to Executive Management includes pension contributions of
1,273


Executive Management has bonus schemes that are dependent on specific conditions. Executive Management has also entered into termination agreements with a 12-month period of notice.

4 Depreciation and Amortization

DKK thousand
2011

Amortization, intangible assets
161,087

Depreciation, property, plant and equipment
151,323

Total depreciation and amortization
312,410

 
 
Included in the consolidated income statement under the following headings:
 
Cost of goods sold
149,494

Sales and distribution expenses
108,505

Research and development expenses
11,991

Administrative expenses
42,420

Total depreciation and amortization
312,410












15


The depreciation and amortization include losses of DKK 688 thousand in connection with the disposal of property, plant and equipment.

DKK thousand
2011

Amortization on intangible assets
are included under the following headings:
 
Cost of goods sold
40,555

Sales and distribution expenses
95,359

Research and development expenses
8,942

Administrative expenses
16,231

Total amortization
161,087


5 Government Grants

DKK thousand
2011

Government grants received for students employed in Research and Development projects
(550
)
Total government grants
(550
)

6 Other Income and expenses

DKK thousand
2011

Restructuring costs
11,706

Other non-recurring items
392

Total other income and expenses
12,098


Restructuring costs are mainly related to strategic and organizational changes, severance payments for discontinued positions and other strategic initiatives.

7 Financial income

DKK thousand
2011

Interest income
2,069

Other financial income
6

Ineffective portion of cash flow interest rate hedges
253

Total financial income
2,328


8 Financial expenses

DKK thousand
2011

Interest expenses, credit institutions, etc.
268,923

Exchange loss (net)
62,271

Amortization of loan expenses and discontinued swaps
9,269

Unwinding impact from discounted contingent consideration related to the acquisition of InstrumeC AS
3,178

Other financial expenses
2,328

Total financial expenses
345,969






16


9 Tax for the year

DKK thousand
2011

Current tax on profit for the year
64,817

Change in deferred tax
(8,712
)
Prior-year adjustments
5,469

Other taxes
(536
)
Total tax in the income statement for the year
61,038

 
 
Tax charges to equity for the year
(474
)
Total tax for the year
60,564


DKK thousand
2011

Percent

Loss before tax
(72,048
)
 
Calculated tax on pre-tax loss, 25%
(18,012
)
25
 %
 
 
 
Tax effect of:
 
 
Deviation in foreign subsidiaries' tax rates compared to Danish tax rate (net)
2,158

(3.0
)%
Non-tax income less non-tax-deductible expenses (net)*
72,207

(100.2
)%
Change in deferred tax rates
(252
)
0.4
 %
Prior-year adjustments
5,469

(7.6
)%
Other taxes
(536
)
0.7
 %
Currency exchange effects
4

0.0
 %
Total tax in the income statement for the year
61,038

(84.7
)%

* For 2011, DKK 74 million of this is the tax effect of the Danish rules on limitation of interest deductibility.



















17


Notes
Consolidated Balance Sheet


10 Intangible Assets

DKK thousand
Goodwill
Brands*
Know-how
Customer contracts
Other
intangibles**
Development costs
Total
2011
 
 
 
 
 
 
 
Cost at January 1
3,337,578

1,121,000

390,000

2,334,000

399,048

155,441

7,737,067

Correction to prior-year
opening balance
27

—

—

—

(1,265
)
1,238

—

Additions during the year
—

—

—

—

25,002

114,631

139,633

Disposals during the year
—

—

—

—

(27,460
)
—

(27,460
)
Exchange rate adjustment
612

—

—

—

(206
)
24

430

Cost at December 31
3,338,217

1,121,000

390,000

2,334,000

395,119

271,334

7,849,670

 
 
 
 
 
 
 
 
Amortization at January 1
—

—

139,700

334,580

320,361

2,279

796,920

Reclassification
—

—

—

—

(870
)
870

—

Amortization for the year
—

—

39,000

93,360

21,814

6,813

160,987

Amortizations, disposals
—

—

—

—

(27,360
)
—

(27,360
)
Exchange rate adjustment
—

—

—

—

365

13

378

Amortization at December 31
—

—

178,700

427,940

314,310

9,975

930,925

Carrying amount
at December 31
3,338,217

1,121,000

211,300

1,906,060

80,809

261,359

6,918,745



* The Dako brand is considered to have an indefinite useful life since there is no foreseeable limit to the period over which the brand is expected to generate net cash inflows. Factors playing a significant role in determining that the Dako brand has an indefinite useful life are: i) the Dako brand has existed for decades; ii) the Group's strategy is based on the Dako brand; iii) all acquired brands are converted to or co-branded with the Dako brand; and iv) the Dako brand is used in the business-to-business and public segments with low maintenance cost attached.

** Other intangibles include Acquired software, IT development, Patents & acquired rights, and Intangible assets under construction.

Impairment test
Dako prepares a calculation of fair value less cost to sell (the "impairment test") in respect of goodwill and brands (together, the "intangibles") annually or if an indication of impairment exists. The impairment test is prepared at Group level as this represents the lowest level of cash-generating units (CGU) to which the carrying amount of intangibles can be allocated and monitored with any reasonable certainty. This level of allocation and monitoring of intangibles is in accordance with the monitoring for internal management purposes. No impairment losses have been recognized in the year ended December 31, 2011.

The carrying amount of goodwill, brands, know-how and customer contracts and relationships relates to the acquisition of Dako Denmark A/S and underlying subsidiaries effective May 31, 2007 and the acquisition of the Norwegian company InstrumeC AS on August 29, 2008. Know-how, customer contracts and relationships, other intangibles and development costs are amortized and tested for impairment if an indication of impairment exists.

The recoverable amount of the intangibles is measured as the higher of fair value less cost to sell and value in use. Dako's impairment test is prepared as a calculation of fair value less cost to sell using a discounted cash flow model. Future cash flows are based on the budget for 2012, five-year strategy plans including updated market projections for future periods, Earnings Before, Interest, Taxes, Depreciation and Amortization (EBITDA), working capital, investments in non-current assets, among

18


other things.

The key assumptions in the impairment test are assumed growth in net sales and the EBITDA margin. In the impairment test at December 31, 2011, the compound annual growth in net sales is 8.6% from 2012 to 2016 and, in subsequent years, including the terminal period, compound annual growth is assumed at 4.7% p.a. The future EBITDA margin is expected to increase to 39-40% in 2016 and onwards driven by revenue growth. The key assumptions applied in the impairment test are used for accounting purposes and should not be considered a forward-looking statement within the meaning of the US Private Securities Litigation Act of 1995 and similar laws in other countries regarding expectations of future developments.

The rate of discount was determined at 10.1% after tax. Uncertainties reflecting historical performance and possible variations in the amount or timing of future cash flows are reflected in the discount rate.

Sensitivity
A sensitivity analysis on the key assumptions of the impairment test shows that compound annual growth in net sales in the years following 2016, including the terminal period, needs to be above 2.5% p.a. with an unchanged EBITDA margin in the level 39-40% before the recoverable amount equals the carrying amount of goodwill.


11 Property, Plant and Equipment

DKK thousand
Land and buildings
Plant and machinery
Other fixtures and fittings, tools and equipment
Leasehold
improvements
Assets
under
construction
Total
2011
 
 
 
 
 
 
Cost at January 1
586,335

142,704

545,274

6,783

6,462

1,287,558

Reclassification
—

(3,977
)
3,977

—

—

—

Additions during the year
303

8,441

185,834

—

27,650

222,228

Assets put into use
2,955

14,675

360

—

(17,990
)
—

Disposals during the year
(35,807
)
(6,977
)
(97,371
)
—

—

(140,155
)
Exchange rate adjustment
1,845

1,669

10,895

193

215

14,817

Cost at December 31
555,631

156,535

648,969

6,976

16,337

1,384,448

 
 
 
 
 
 
 
Depreciation at January 1
197,988

104,270

309,862

3,549

—

615,669

Reclassification
—

(810
)
810

—

—

—

Depreciation for the year
17,680

11,893

121,393

356

—

151,322

Disposals during the year
(23,010
)
(6,772
)
(55,343
)
—

—

(85,125
)
Exchange rate adjustment
1,133

1,131

8,159

123

—

10,546

Depreciation at December 31
193,791

109,712

384,881

4,028

—

692,412

Carrying amount at December 31
361,840

46,823

264,088

2,948

16,337

692,036


Other fixtures and fittings, tools and equipment include instruments worth DKK 210,098 thousand which are sited at customers' premises under a reagent agreement, as well as finance-leased assets with a net carrying amount of DKK 8,003 thousand.

Leases as lessor
The Group offers instrument leasing under operational leases. Further the Group has entered into reagent agreements with customers, which, according to IFRS, includes an element of operating lease relating to instruments. These agreements have terms up to four years and the customer does not have an option to purchase the instrument at the expiry of the contract period.

Assets placed at the customer site are recognized as non-current assets (Other fixtures and fitting, tools and equipment).




19


The table below breaks down minimum future lease payments under non-cancelable leases:

DKK thousand
2011

Less than one year
42,630

Between one and five years
61,203

More than five years
—

Total non-cancelable leases
103,833


12 Other non-current financial assets

DKK thousand
2011

Carrying amount at January 1
11,217

Additions during the year
627

Disposals during the year
(1,852
)
Exchange rate adjustment
118

Carrying amount at December 31
10,110


Other non-current financial assets include loans to third parties of DKK 7,423 thousand, as security for which Dako holds property mortgage deeds. The loan is repayable over 20 years and was established in 2004. The interest is on market terms.

13 Inventories

DKK thousand
2011

Raw materials and consumables
104,494

Manufactured goods
214,220

Goods for resale
910

Total inventories
319,624

 
 
The amount of inventories recognized as an expense during the year
511,078

The amount of write-down on inventories during the year
6,975

The amount of reversal of write-down on inventories during the year*
9,731

Inventories measured at net realizable value
807


* Reversal of previously written down inventories which have been, or are now, forecasted to be used within the next 12 months.

14 Trade Receivables

DKK thousand
2011

Trade receivables, due within one year
534,714

Other receivables
8,262

Total trade receivables
542,976


The Group has not received any collateral for receivables.

 
Carrying amount

20


DKK thousand
2011

Trade receivables (gross)
545,196

Movements in the allowance for doubtful accounts in respect of
trade receivables during the year were as follows:
 
Balance at January 1
8,296

Provision for the year
4,472

Utilized during the year
(820
)
Reversed during the year
(1,466
)
Balance at December 31
10,482


DKK thousand
Receivables not due

Overdue 1-120 days

Overdue 121-210 days

Overdue 211 days +

Receivables, aging balance

2011
 
 
 
 
 
Total
285,869

123,532

37,226

88,087

534,714

EMEA
174,291

96,034

35,825

86,877

393,027

Americas
63,079

23,496

836

67

87,478

APAC
48,499

4,002

565

1,143

54,209



15 Lease Receivables

DKK thousand
2011

Gross investments in leased assets
446

Interest relating to future years
(119
)
Net investments
327

 
 
Lease receivables, due within one year
70

Lease receivables, due after one year and within five years
257

Total lease receivables
327

 
 
Gross investments, due within one year
111

Gross investments, due after one year and within five years
335

Total gross investments
446


16 Share Capital

2011
Number of shares,
in thousands

Nominal value, DKK thousand

Share capital at January 1
101,605

101,605

Capital increase during the year
96

96

Share capital at December 31
101,701

101,701


The share capital consists of 86,287,632 A shares, or 84.8%, which carry 10 votes per share, and 15,413,288 B shares, or 15.2%, which carry 1 vote per share. The A shares carry a preferential right to the amount paid plus an annual return of 14%. The remaining earnings will be distributed among the holders of B shares.

Right of first refusal on sale or disposal of the investment
The A shares have a right of first refusal to purchase B shares, or part thereof, in the event of a sale of B shares.


21


Shareholders
The majority shareholder is Delphi S.a.r.l., Luxembourg, which holds 96.7% of the shares. Delphi S.a.r.l. is indirectly owned by EQT V. The remaining 3.3% of the shares are primarily distributed among employees, Management and Board members of Dako A/S.


17 Deferred Tax

DKK thousand
2011

Balance at January 1
(915,128
)
Adjustments to prior year's deferred tax
(11,358
)
Exchange rate adjustment
(771
)
Recognized in income statement
8,712

Recognized in equity
474

Balance at December 31
(918,071
)

Recognition
The majority of the deferred tax liability relates to the fair value adjustment of intangible assets recognized in connection with the acquisition of Dako in 2007.

Deferred tax assets are recognized as assets when it is likely that they will reduce future tax payments within a reasonable period of time.


Deferred tax relates to:
DKK thousand
Temporary differences

Deferred tax asset

Deferred tax liability

Net

2011
 
 
 
 
Intangible assets
(3,511,221
)
902

(935,620
)
(934,718
)
Property, plant and equipment
(34,378
)
27,167

(44,707
)
(17,540
)
Inventories
6,156

20,373

(15,223
)
5,150

Other current assets
(99,023
)
3,648

(28,003
)
(24,355
)
Non-current liabilities
44,490

21,002

(11,580
)
9,422

Current liabilities
56,282

16,867

(114
)
16,753

Tax loss carry-forward, etc.
75,551

27,217

—

27,217

Tax asset/(tax liability)
(3,462,143
)
117,176

(1,035,247
)
(918,071
)
Offset within the same legal entity
 
(57,885
)
57,885

—

Net tax asset/(tax liability)
 
59,291

(977,362
)
(918,071
)


Deferred tax assets not recognized relate to:

DKK thousand
2011

Non-deductible exchange losses carried forward in Denmark
74,388

Total
74,388


18 long-term employee benefits

The Group has various pension plans covering certain groups of employees in various subsidiaries. The pension plans are defined contribution plans and, in certain subsidiaries, the Group has long-term liabilities which will be paid before or on the employees' retirement (other long-term employee benefits).


22


DKK thousand
2011

Balance at January 1
8,714

Exchange rate adjustments
179

Expenses for the year
1,655

Provision utilized in the year
(1,684
)
Balance at December 31
8,864


Defined contribution plans
In the case of defined contribution plans, Dako undertakes to pay a defined contribution. These pension plans are funded by premium payments to independent pension companies. Dako has no pension liabilities toward the employees covered by the plan on their retirement.

Pension contributions relating to defined contribution plans are recognized as an expense in the income statement in the qualifying year.

The most important defined contribution plans cover employees in Denmark, the US and France. The expenses for the year relating to defined contribution plans were DKK 42,889 thousand.

The Group has no defined benefit plans.

Other long-term employee benefits
At December 31, 2011, a provision of DKK 8,864 thousand has been recognized to cover other long-term employee benefits in Japan, Italy, Spain, Germany and France. Payment of other long-term employee benefits is conditional upon specified criteria being met.

The expenses for the year relating to other long-term employee benefits were DKK 1,655 thousand.
































23


19 Credit institutions

The majority of the Group's debt is regulated by a Senior Facilities Agreement and a Mezzanine Facility Agreement entered into in connection with the acquisition of Dako in May 2007. In addition, Dako has mortgage debt on the buildings in Denmark and the US and minor local facilities in Japan and Italy.

DKK
thousand
Interest

Maturity
Fixed/variable
Carrying amount

Description
2011
 
 
 
 
 
DKK
DKK O/N + margin

2014
Variable
47,891

Revolving credit facility
USD
Libor 1 month + margin

2014
Variable
69,210

Revolving credit facility
DKK
Cibor 1 month + margin

2014
Variable
58,600

Revolving credit facility
USD
Libor 1 month + margin

2014
Variable
38,302

Capex/R&D facility
EUR
Libor 1 month + margin

2014
Variable
44,877

Capex/R&D facility
EUR
Libor 1 month + margin

2015/2016
Variable
1,571,292

Senior Facility
USD
Libor 3 months + margin

2015/2016
Variable
1,295,376

Senior Facility
USD
Libor 3 months + margin

2017
Variable
1,163,590

Mezzanine Facility
DKK
Cibor 3 months + margin

2027
Variable
251,207

Mortgage debt
USD
7.9
%
2013
Fixed
2,575

Mortgage debt
USD
Libor + margin

Uncommitted credit line
Variable
6,207

Debt affiliates
JPY
0.7
%
Uncommitted credit line
Variable
37,097

Debt affiliates
Total
 
 
 
4,586,224

 


DKK thousand
2011

Credit facilities are recognized in the balance sheet as follows:
 
Non-current liabilities
4,492,586

Credit institutions
91,196

Mortgage debt
2,442

Current liabilities
93,638

Total carrying amount of credit facilities
4,586,224

Accrued interest (included in credit institutions under current liabilities)
15,581

Total credit facilities
4,601,805

 
 
Nominal value (carrying amount adjusted for capitalized loan expenses)
4,636,337

Fair value
4,636,337



At year-end, the Group had undrawn committed credit facilities under the Senior Facilities Agreement amounting to DKK 66 million. The undrawn committed credit facilities consist of a Revolving Facility Commitment of DKK 66 million and a Capex/R&D Facility Commitment of DKK 0 million. The facilities mature in 2014.

There is no amortization of the DKK-denominated mortgage debt until 2017. There is no amortization of the Senior Facilities Agreement and the Mezzanine Facility Agreement until maturity. The carrying amount of the USD Mezzanine Facility includes capitalized interest of DKK 345 million or 7.5% p.a.

The Senior Facilities and Mezzanine Facility are subject to customary undertakings, covenants and other restrictions. Financial

24


covenants include debt and interest cover ratios as well as cash flows and capital expenditure cover ratios. Dako has always met all covenants.

Collateral in a property in the US has been provided as security for the USD debt in affiliates. No collateral has been provided for the JPY denominated debt in affiliates. For contingent assets and liabilities related to the credit facilities, reference is made to note 28, Contingent assets and liabilities.

At December 31, 2011, loan expenses less amortization amounting to DKK 50 million have been recognized in non-current liabilities.

The Company has entered into interest rate swaps to hedge the interest rate risk on floating-rate interest-bearing debt. See note 28.


20 Finance lease liabilities

Obligations regarding finance leases can be specified as follows:
DKK thousand
Lease payments

Interest

Carrying amount

2011
 
 
 
Within one year
1,859

(630
)
1,229

Between one and five years
5,664

(1,564
)
4,100

After five years
5,867

(972
)
4,895

Total
13,390

(3,166
)
10,224



Finance leases relate mainly to contracts regarding buildings for production facilities and IT. The net book value of the leased assets amounts to DKK 8,003 thousand (note 11).


21 Provisions

DKK thousand
Warranties

Restructuring

Other

Total

2011
 
 
 
 
Provisions at January 1
3,983

19,827

43,451

67,261

Provision for the year
1,991

3,855

3,242

9,088

Utilized during the year
(1,746
)
(19,635
)
(7,538
)
(28,919
)
Reversed during the year
(731
)
(109
)
—

(840
)
Exchange rate adjustment
40

6

31

77

Provisions at December 31
3,537

3,944

39,186

46,667



The maturities for provisions are expected to be:

DKK thousand
2011

Current provisions
46,667

Non-current provisions
—

Total provisions
46,667


Warranties
The warranty provision relates to instruments sold. The provision is based on estimates made from historical warranty data for similar products. The Group expects to use the provision over the next year.


25


Restructuring
Costs for restructuring are mainly related to severance packages. For 2011, the year-end balance was DKK 3,944 thousand.

Other provisions
Other provisions include contingent considerations related to the acquisition of InstrumeC AS of DKK 32,102 thousand and obligations of DKK 7,048 thousand for liabilities expected to be incurred over the next year.


22 OTHER LIABILITIES

Other liabilities include negative fair value of derivatives of DKK 70,600 thousand as well as holiday allowances, VAT, salaries, commissions and bonuses.

































26


Notes
Consolidated Statement of Cash Flows


23 Change in Working Capital

DKK thousand
2011

Decrease in inventories
18,829

Increase in receivables
(87,112
)
Decrease in trade payables and other liabilities
(3,579
)
Change in working capital
(71,862
)


24 Investment in Non-current Assets

DKK thousand
2011

Intangible assets
(139,633
)
Property, plant and equipment
(179,221
)
Non-current financial assets
(627
)
Investment in non-current assets
(319,481
)


25 Cash and Cash Equivalents

DKK thousand
2011

Cash
27,710

Short-term bank debt
(91,196
)
Cash and cash equivalents
(63,486
)


















27


Notes
Additional notes


26 Contingent Assets and Liabilities

Senior Facilities Agreement and Mezzanine Facility Agreement
When acquired, Dako A/S executed a share pledge over its shares in Dako Denmark A/S as security for the Senior Facilities and a secondary share pledge over these shares as security for the Mezzanine Facility. Dako A/S, Dako Denmark A/S and certain material subsidiaries of Dako Denmark A/S have provided guarantees for Dako A/S's borrowings under the Senior Facilities and Mezzanine Facility. The borrowings and guarantees of those subsidiaries have been secured by security in the form of bank accounts, trade receivables, intercompany receivables, intellectual property rights and certain other assets of Dako A/S and these subsidiaries. In addition, the shares in the material subsidiaries and certain of their subsidiaries have been pledged. The guarantees and securities shall be deemed not to be assumed if and to the extent required to ensure compliance with Danish statutory provisions on unlawful financial assistance.

Contractual obligations

DKK thousand
2011

Payments of rental and lease liabilities due:
 
Within one year
18,172

Between one and five years
16,149

After five years
—

Total contractual obligations
34,321


The above rental and lease liabilities relate to non-cancelable operating lease agreements mainly regarding offices and cars. Rental and leasing expenses for the year ended December 31, 2011 amount to DKK 19,700 thousand.


Assets pledged as security

DKK thousand
2011

The following assets are pledged as security for the Group's loans:
 
Land and buildings with a carrying amount of
361,840

Total assets held as security
361,840

Carrying amount of secured mortgages
254,464

Assets held under finance leases with a carrying amount of
7,423



Other guarantees

DKK thousand
2011

Total other guarantees
14,114


Pending disputes and litigation
There are a limited number of ongoing disputes which involve companies in Dako. Such disputes may involve claims for compensation and damages. In the opinion of Executive Management, these claims will have no effect on the financial position of the Group beyond what has been recognized in the financial statements.





28


27 Related Party Transactions

Dako A/S was founded on February 25, 2007 by Delphi S.a.r.l., which has the controlling influence in Dako A/S. Furthermore, a number of employees, Management and Board members have acquired shares in Dako A/S. The ultimate controlling party of Dako A/S is EQT V.

Dako A/S has no other related parties with controlling influence.

During the year under review, Dako A/S did not engage in any related party transactions beyond general remuneration to the Board of Directors and the Executive Management. All transactions between related parties take place on an arm's length basis.

Incentive programs
The principal shareholders have offered the Executive Management, Board members and a number of managers in Dako the opportunity to invest in the company through a management participation program.

28 Foreign exchange and interest rate risk, and use of financial instruments

Dako can use financial instruments and derivatives to hedge significant interest rate and foreign exchange risks resulting from the Group's commercial core business. Dako does not use financial instruments or derivatives for speculative purposes. The contractual value of the Group's derivative financial instruments and unrealized gains and losses is specified below.

Financial risks
The Group's financial risk management is based on policies approved by the Board of Directors. The Group may use derivatives to hedge financial risks. Hedging of financial risks is managed at corporate level and is only focused on managing risks arising from the Group's operations and financing. It is not Group policy to take positions in the financial markets.

The financial risk factors primarily comprise foreign exchange, interest rate and credit risks.

Foreign exchange risk
Foreign exchange risk occurs both as a result of imbalance between income and expenses in each foreign currency and because the Group has net assets in a number of foreign subsidiaries.

Subsidiaries outside Denmark mainly do business in local currencies, both internally within the Group and with external partners. Therefore, the majority of the risk relates to translating the income statement of foreign subsidiaries into Danish kroner. It is not Group policy to hedge this risk.

The Group had no material exposure to foreign exchange risk related to receivables and payables in foreign currencies at December 31, 2011 other than related to credit facilities. A translation risk exists when translating intercompany loans and the value of investments in foreign subsidiaries into Danish kroner. It is not Group policy to hedge this risk. The exposure on investments in foreign subsidiaries is shown below.

Currency investment in DKK thousand
2011

EUR
27,741

JPY
54,777

USD
331,925

Other
33,561

Total
448,004


In 2011, the currencies in which the Group's revenue was denominated decreased by an average of 0.5% relative to the DKK, decreasing revenue by DKK 10 million.







29


Fluctuations in exchange rates may affect the Group to the extent that the interest expenses are not denominated in the same currencies as the revenue. The majority of the risk on foreign exchange stems from the USD debt. If the USD was weakening 10% against the DKK at December 31, 2011, the foreign exchange adjustment of the debt and interest expenses would impact equity and profit or loss for the year by the amounts shown below.

Effect of a 10% weakening of the USD (DKK thousand)
2011

Equity
275,871

Net profit
275,871


A 10% weakening of the DKK against the USD at December 31, 2011 would have had an equal but opposite effect on equity and net profit.


Interest rate risk
Interest rate risk occurs as a consequence of imbalance between interest-bearing assets and liabilities, and changes in the interest rate influence both the balance sheet and the income statement. Dako uses interest rate swaps (pay fixed rate and receive floating rate) to hedge a part of the floating-rate debt in EUR, USD and DKK. At the end of 2011, the Group's nominal interest-bearing debt (excluding capitalized loan expenses) was DKK 4,636 million, of which DKK 4,633 million was at variable interest rates and DKK 3 million was at fixed interest rates with varying terms. However, the interest rate risk on 74% of the debt has been hedged with interest rate swaps with an average duration of 2.4 years. 80% of the USD-denominated debt and 66% of the EUR-denominated debt have also been hedged. The DKK 251 million mortgage loan has been hedged as well. As a whole, a 1% change in the interest rates at December 31, 2011 would cause a change of DKK 10.4 million in the yearly future interest expenses. The interest rate swaps are adjusted to fair value and recognized directly in equity. The fair value is based on observable current market transactions.

DKK thousand
Fixing period
Contractual value

Unrealized gains/(losses) on adjustment to fair value

Taken directly to equity

2011
 
 
 
 
Interest rate swap maturing September 2012
(DKK 251,889 thousand)
3 months
251,889

(6,068
)
(6,068
)
Interest rate swap maturing July 2012
(USD 93,250 thousand)
3 months
535,777

(13,049
)
(8,094
)
Interest rate swap maturing July 2013
(USD 80,000 thousand)
3 months
459,648

(1,756
)
(1,197
)
Interest rate swap maturing July 2014
(USD 186,500 thousand)
3 months
1,071,554

(18,145
)
(15,584
)
Interest rate swap starting July 2013,
maturing July 2014 (USD 80,000 thousand)
3 months
459,648

(3,519
)
(3,519
)
Interest rate swap starting July 2012,
maturing July 2014 (USD 95,000 thousand)
3 months
545,832

(4,612
)
(4,612
)
Interest rate swap maturing July 2014
(EUR 63,750 thousand)
1 month
473,930

(11,781
)
(11,548
)
Interest rate swap maturing July 2013
(EUR 60,000 thousand)
1 month
446,052

(2,818
)
(2,829
)
Interest rate swap maturing July 2014
(EUR 21,500 thousand)
1 month
159,835

(2,779
)
(2,739
)
Interest rate swap starting July 2013
maturing July 2014 (USD 60,000 thousand)
1 month
446,052

(6,073
)
(6,073
)
Value of terminated swaps, etc.
 
—

—

4,334

Total interest rate instruments
 
4,850,217

(70,600
)
(57,929
)




30


Credit risk
The Group's credit risk primarily relates to receivables, securities, cash and cash equivalents, and positive fair values of derivative financial instruments. The balance sheet valuation of all the items mentioned corresponds to the size of the maximum credit risk. The Group has historically not experienced any material loss on receivables, as most customers are public hospitals or laboratories.

Counterparty risks concerning cash and cash equivalents and financial instruments are managed by only entering into agreements with financial institutions which have achieved a satisfactory rating from recognized international credit-rating institutions. Current hedging counterparties are Nordea Bank Finland PLC, Nykredit A/S and Goldman Sachs International.

Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities as they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The majority of the Group's credit facilities are long-term committed facilities maturing in 2014 and onwards.

Remaining contractual maturity for the Group's non-derivative and derivative financial liabilities:

DKK thousand
Contractual cash flows
Within 1 year
1-3 years

3-5 years

5+ years

Non-derivative financial liabilities
 
 
 
 
 
Credit facilities
4,979,132

105,730

1,873,791

2,712,581

287,030

Contingent consideration
33,558

33,558

—

—

—

Trade payables
97,900

97,900

—

—

—

Finance lease liabilities
13,390

1,859

3,466

2,198

5,867

Total cash flows
5,123,980

239,047

1,877,257

2,714,779

292,897

Derivative financial liabilities
 
 
 
 
 
Fixed interest rate instruments
65,531

33,736

31,795

—

—

Total cash flows
65,531

33,736

31,795

—

—

Total contractual cash flows
5,189,511

272,783

1,909,052

2,714,779

292,897


Assumptions

•
The contractual cash flows are estimated using the estimated forward amount of interest as at the reporting date.
•
The contractual cash flows have been included in the earliest time period in which the Group could be required to make payment of interest or principal.
•
The maturity analysis only comprises of recognized and unrecognized financial liabilities as at the reporting date.

Fair value hierarchy
Analysis of financial instruments carried at fair value, by valuation method.

DKK thousand


Quoted
prices
(Level 1)

Observable
input other
than quoted prices
(Level 2)

Unobservable input
(Level 3)

Total

Interest rate swap used for hedging
—

(70,600
)
—

(70,600
)

The fair value of financial instruments has been determined using discounted cash flow models. The fair value of financial instruments measured at amortized cost is approximately equal to the carrying amount.

Capital management
Dako's capital structure is characterized by an equity ratio of 29%. It is the intention to maintain a substantial equity ratio going forward.


31


The Senior Facilities and the Mezzanine Facility prevent the Group from making distributions unless certain financial tests and other criteria are satisfied. Earnings will therefore be consolidated and, accordingly, it is not the intention to pay out dividends in the near future.

29 Events occurring after the end of the financial year

The owners of Dako decided in December 2011 to invest additional DKK 167 million in the company. The capital increase has been registered by the Danish Business Authority (Erhvervsstyrelsen) in January 2012.

On May 17, 2012, Agilent Technologies Inc. and EQT announced the execution of a definitive agreement for Agilent to acquire Dako. The acquisition was closed on June 21, 2012.

The Board of Directors and Executive Management are not aware of other events subsequent to December 31, 2011 which may have a material impact on the Group's financial position or outlook.

30 Group overview

 
 
Capital (thousand)

Ownership (%)

Company
Currency
2011

2011

Parent
Dako A/S
DKK
101,701

100

 
Sales companies
 
 
 
Dako France S.A.S., Trappes, France
EUR
234

100

Dako Netherlands B.V., Eindhoven, Netherlands
EUR
18

100

Dako Belgium N.V., Heverlee, Belgium
EUR
62

100

Dako Italia S.p.A., Milan, Italy
EUR
1,548

100

Dako Polska Sp. z o.o., Gdynia, Poland
PLN
100

100

Dako Schweiz AG, Baar, Switzerland
CHF
300

100

Dako Österreich GmbH, Vienna, Austria
EUR
18

100

Dako Diagnósticos S.A., Barcelona, Spain
EUR
240

100

Dako Sweden AB, Stockholm, Sweden
SEK
200

100

Dako Deutschland GmbH, Hamburg, Germany
EUR
26

100

Dako Australia Pty. Ltd., Sydney, Australia
AUD
310

100

Dako Canada, Inc., Toronto, Canada
CAD
350

100

Dako Japan Inc., Tokyo, Japan
JPY
80,000

100

Dako Diagnostics Ireland Ltd., Dublin, Ireland
EUR
—

100

Dako UK Ltd., UK
GBP
—

100

Dako Finland Oy, Finland
EUR
3

100

Dako InstrumeC AS, Norway
NOK
970

100

Dako do Brasil LTDA, Brazil
BRL
11,287

100

Dako Diagnostics (Shanghai) Co. Ltd., China
USD
1,707

100

 
Danish companies
Dako Denmark A/S, Glostrup, Denmark
DKK
61,682

100

Dako Norge, Oslo Branch
 
—

—

 
 
 
 
US companies
Dako Holding USA, Inc., Delaware, USA
USD
4,148

100

Dako North America, Inc., Carpinteria, USA
USD
4,148

100

BPI Holding, Inc., Delaware, USA (8,001 shares of USD 0.01)
USD
1

100

DCI Real Estate Holdings, Inc., Delaware, USA
USD
4

100

 
 
 
 
Other companies
Aperio Technologies, Inc., California, USA
USD
105,467

11




32