UNITED STATES
SECURITIES EXCHANGE AND COMMISSION
Washington, D. C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 14, 1998
ARTERIAL VASCULAR ENGINEERING, INC.
(Exact name of registrant as specified in its charter)
0-27802
(Commission File Number)
Delaware 94-3144218
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
3576 Unocal Place, Santa Rosa, California 95403
(Address of principal executive offices) (Zip Code)
(707) 525-0111
(Registrant's telephone number, including area code)
This Current Report on Form 8-K/A amends and supplements the Current Report on
Form 8-K filed by Arterial Vascular Engineering, Inc. (the "Company" or "AVE")
on October 15, 1998 (the "Initial Form 8-K") to include financial statements and
pro forma financial information permitted pursuant to Item 7 of Form 8-K to be
excluded from the Initial Form 8-K and required to be filed by amendment to the
Initial Form 8-K not later than 60 days after the date the Initial Form 8-K was
required to be filed.
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 1, 1998, Arterial Vascular Engineering, Inc. (the "Company")
announced the closing of its previously announced agreement to acquire the
coronary catheter lab business (the "Business") of C. R. Bard, Inc. ("Bard"), as
well as rights to the supply by Bard of certain materials, for approximately
$550 million in cash, subject to adjustment. The transaction was structured as
an acquisition of the assets and certain liabilities of Bard related to the
Business and the acquisition of stock of certain subsidiaries (the
"Subsidiaries") of Bard engaged in the Business. Pursuant to the definitive
agreement, AVE did not acquire any cash or accounts receivable of the Business
in consideration for the $550 million purchase price. However, AVE did purchase
the trade accounts receivable of the Subsidiaries for 95% of the "net" book
value of the Subsidiaries' trade accounts receivable as of the closing Date
("net" meaning after deduction of the amount of the reserves for doubtful
accounts).
The acquisition was financed by term loans and revolving credit
facilities syndicated among various banks and financial institutions. AVE
expects to incur a significant one-time charge related to the acquisition,
largely in connection with the write-off of in-process research and development
and restructuring.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
THE FOLLOWING FINANCIAL STATEMENTS OF C.R. BARD, INC. CARDIOLOGY
DIVISION - CORONARY CATHETER LAB PRODUCTS ARE INCORPORATED BY REFERENCE
TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-4 NO. 333-53421:
Report of Independent Accountants (at page F-19)
Statement of Net Assets to be Sold as of December 31, 1997 and 1996 (at
page F-20)
Statement of Net Revenues and Certain Expenses for the years ended
December 31, 1997, 1996 and 1995 (at page F-21)
Notes to Statements (at page F-22)
THE FOLLOWING CONDENSED INTERIM FINANCIAL STATEMENTS ARE INCLUDED
HEREIN:
C.R. Bard, Inc. Cardiology Division - Coronary Catheter Lab Products at
September 30, 1998 and the nine months ended September 30, 1998 and
1997 (unaudited)
2.
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED HEREIN:
Unaudited Pro Forma Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined Balance Sheet as of September
30, 1998
Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended June 30, 1998 and the three months ended September 30, 1998
Notes to Financial Statements
(c) EXHIBITS
See Index to Exhibits
3.
<PAGE>
<TABLE>
C.R. BARD, INC. CARDIOLOGY DIVISION -- CORONARY CATHETER LAB
PRODUCTS
INDEX TO CONDENSED FINANCIAL STATEMENTS
September 30, 1998 (unaudited)
CONTENTS
<CAPTION>
<S> <C>
Condensed Statements of Net Assets to be Sold at September 30, 1998 (unaudited)..................5
Condensed Statements of Net Revenues and Certain Expenses for the Nine Months Ended
September 30, 1998 and 1997 (unaudited)....................................................6
Notes to Condensed Statements (unaudited)........................................................7
</TABLE>
4.
<PAGE>
C. R. BARD, INC.
CARDIOLOGY DIVISION -- CORONARY CATHETER LAB PRODUCTS
STATEMENT OF NET ASSETS TO BE SOLD
(Thousands of dollars)
ASSETS
September 30,
1998
-------------
(Unaudited)
Current assets:
Cash...................................................... $ 196
Marketable securities..................................... 105
Accounts receivable, net.................................. 15,249
Inventories............................................... 54,301
Other current assets...................................... 2,013
---------
Total current assets.............................. 71,864
---------
Property, plant and equipment at cost:
Land...................................................... 777
Buildings and improvements................................ 25,733
Machinery and equipment................................... 35,369
---------
61,879
Accumulated depreciation.................................... (31,437)
---------
Net property, plant and equipment........................... 30,442
Other assets................................................ 5,505
---------
Total assets...................................... $ 107,811
==========
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 3,088
Accrued compensation and benefits......................... 5,679
Other accrued expenses.................................... 13,954
Income tax liabilities.................................... 4,029
---------
Total current liabilities......................... 26,750
---------
Long-term liabilities....................................... 1,601
---------
Total parent company investment and advances (net assets to
be sold).................................................... 79,460
---------
Total liabilities and parent company investment and advances $ 107,811
==========
The accompanying note is an integral part of this statement.
5.
<PAGE>
C. R. BARD, INC.
CARDIOLOGY DIVISION -- CORONARY CATHETER LAB PRODUCTS
STATEMENTS OF NET REVENUES AND CERTAIN EXPENSES
(Thousands of dollars)
Nine months
ended September 30,
--------------------
1998 1997
--------------------
(Unaudited)
Net revenues ....................................... $143,446 $159,157
Cost of goods sold ............................... 76,712 73,503
-------- --------
Gross profit .................................. 66,734 85,656
-------- --------
Direct selling expense ........................... 22,772 24,599
Direct marketing expense ......................... 8,833 9,042
-------- --------
33,605 33,641
-------- --------
Net revenues in excess of certain expenses ........ $ 33,129 $ 52,015
======== ========
The accompanying note is an integral part of this statement.
6.
<PAGE>
C. R. BARD, INC.
CARDIOLOGY DIVISION -- CORONARY CATHETER LAB PRODUCTS
NOTE TO STATEMENTS (unaudited)
1. Basis of Presentation
The accompanying unaudited statements were prepared in accordance with the
rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete presentation of the C. R. Bard, Inc. (Bard) Cardiology
Division -- Coronary Catheter Lab Products' financial statements in accordance
with generally accepted accounting principles. These statements have not been
audited. Significant expenses are incurred on a Bard corporate-wide basis and
benefit multiple Bard product groups and any allocation of such expenses would
be arbitrary and potentially misleading. Bard does not prepare financial
statements which are intended to report a complete presentation of financial
position, results of operations or cash flows of Coronary Catheter Lab Products
in accordance with generally accepted accounting principles. Accordingly, the
accompanying statements of net revenues and certain expenses do not purport to
present the full operations of Bard Cardiology Division -- Coronary Catheter Lab
Products that would have resulted if it had operated as an independent company.
On July 9, 1998, Bard and AVE entered into a stock and asset purchase
agreement whereby AVE agreed to buy Bard's Coronary Catheter Lab Products
business, as defined, for $550,000,000 subject to adjustment, as defined.
Coronary Catheter Lab Products includes Percutaneous Transluminac Coronary
Angioplasty (PTCA) balloon catheters, coronary stents (excluding myocardial
stents), saphenous graft stents for coronary applications, PTCA guidewires, PTCA
guide catheters, coronary diagnostic catheters, coronary introducers, coronary
diagnostic guidewires, femostop, vessel closure devices for coronary
applications, right heart pressure monitoring catheters, PTCA accessories,
coronary angiographic accessories, coronary OEM products and related coronary
components and accessories. The LifeMed product line sold in Australia is
excluded.
In addition to the domestic Coronary Catheter Lab Products' related assets
to b e sold and liabilities to be assumed, the following foreign subsidiaries of
Bard will also be sold to AVE: Bard Japan Limited, C. R. Bard Ireland Limited,
Bard Galway Limited, Milu S.A., X-Trode S.r.l. and Bard Connaught and thus are
included in the accompanying statement of net assets to be sold. Net revenues
and certain expenses, as defined, of these subsidiaries are included in the
accompanying statements of net revenues and certain expenses. The majority of
business conducted by these subsidiaries relates to Bard's Coronary Catheter Lab
Products business, as defined.
The assets and liabilities associated with the Coronary Catheter Lab
Products are components of Bard's Cardiology Division and various Bard
international business centers. Separate Coronary Catheter Lab Products specific
asset and liability accounts are not maintained.
7.
<PAGE>
Similarly, the operations associated with the product lines are integrated into
the Bard Cardiology Division and various Bard international business centers.
Foreign subsidiaries sell numerous Bard products. In addition, various
international administrative groups including human resources, finance, customer
service and administration support numerous Bard product lines and divisions and
are not being sold as part of the transaction and thus, their costs have been
excluded from the accompanying statements of net revenues and certain expenses.
The accompanying statements of net revenues and certain expenses include
cost of sales and direct product costs related to direct selling and marketing
activities of the Coronary Catheter Lab Products' business, as defined.
8.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements of AVE give effect to the Merger and the Bard Cath Lab Acquisition
applying the purchase method of accounting. The unaudited pro forma condensed
combined balance sheet gives effect to these transactions as if they had
occurred on September 30, 1998. The unaudited pro forma condensed combined
statements of operations gives effect to these transactions as if they had
occurred on July 1, 1997.
For pro forma purposes, (i) AVE's audited consolidated balance sheet as
of September 30, 1998 has been combined with World Medical's unaudited
consolidated balance sheet as of September 30, 1998 as if the Merger had
occurred on September 30, 1998, (ii) AVE's consolidated statement of operations
for the fiscal year ended June 30, 1998 has been combined with World Medical's
unaudited consolidated statement of operations for the twelve-month period ended
June 30, 1998 as if the Merger had occurred on July 1, 1997, (iii) AVE's
unaudited condensed consolidated statement of operations for the three-month
period ended September 30, 1998 has been combined with World Medical's unaudited
condensed consolidated statement of operations for the same period as if the
Merger had occurred on July 1, 1997, (iv) the AVE/World Medical unaudited pro
forma combined balance sheet as of September 30, 1998 has been combined with the
Bard Cath Lab business unaudited Statement of Net Assets to be Sold as of
September 30, 1998, (v), the AVE/World Medical unaudited pro forma combined
statement of operations for the twelve-month period ended June 30, 1998 has been
combined with the Bard Cath Lab business Statement of Net Revenues and Certain
Expenses for the twelve-month period ended June 30, 1998 as if the acquisition
had occurred on July 1, 1997, and (vi) the AVE/World Medical unaudited pro forma
combined statement of operations for the three-month period ended September 30,
1998 has been combined with the Bard Cath Lab business unaudited Statement of
Net Revenues and Certain Expenses for the three-month period ended September 30,
1998 as if the acquisition had occurred on July 1, 1997. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if the Merger and the Bard Cath Lab Acquisition had been consummated on
July 1, 1997 or September 30, 1998, respectively, nor is it necessarily
indicative of future operating results or financial position.
The unaudited pro forma condensed combined financial information has
been prepared on the basis of assumptions described in the notes thereto and
includes assumptions relating to the allocation of the consideration paid for
the assets and liabilities of World Medical and the Bard Cath Lab business based
on preliminary estimates of the fair value of such assets and liabilities. The
actual allocation of such consideration may differ from that reflected in the
unaudited pro forma condensed combined financial information after the
completion of independent valuations and other procedures to be performed. AVE
does not expect that the final allocation of the aggregate purchase price for
the Merger and the Bard Cath Lab business will differ materially from the
preliminary allocations. In the opinion of AVE, all adjustments necessary to
present fairly such unaudited pro forma condensed combined financial information
have been made based on the proposed terms and structure of the Merger.
9.
<PAGE>
These pro forma condensed combined financial statements should be read
in conjunction with the historical consolidated financial statements and the
related notes thereto of AVE, included in the Form 10-K, as amended, dated
November 10, 1998, and the historical consolidated financial statements and
related notes of World Medical and the Bard Cath Lab incorporated by reference
herein.
10.
<PAGE>
<TABLE>
ARTERIAL VASCULAR ENGINEERING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 1998
(dollars in thousands)
ASSETS
<CAPTION>
Historical
---------------------------
World Pro Forma Reference
AVE Medical Adjustments (Note 2)
---------- ---------- -----------------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .............. $ 135,555 $ 219 $ --
Short-term investments ................. 96,729 -- --
Accounts receivable, net ............... 90,456 1,508 --
Inventories ............................ 11,544 927 250 (A)
Deferred income tax .................... 14,687 -- 515 (A)
Prepaid expenses and
other current assets ................. 9,042 -- (1,000) (H)
--------- --------- ---------
Total current assets ............. 358,013 2,654 (235)
Deferred income tax ...................... 896 -- 1,031 (A)
Property, plant and
equipment, net ......................... 78,573 722 (298) (B)
Developed technology ..................... -- -- 33,345 (C)
Goodwill ................................. -- -- --
Intangible assets ........................ -- -- 3,260 (D)
Other assets ............................. 445 150 --
--------- --------- ---------
Total assets ..................... $ 437,927 $ 3,526 $ 37,103
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings .................. $ -- $ 1,000 $ (1,000) (H)
Accounts payable ....................... 11,718 587 --
Accrued expenses ....................... 54,414 327 3,500 (E)
Merger related obligations ............. -- -- 2,450 (F)
Income taxes payable ................... 32,813 -- --
Current maturities of
long-term debt ....................... -- -- --
--------- --------- ---------
Total current liabilities......... 98,945 1,914 4,950
Long-term debt, less current ............. -- -- --
Deferred income tax ...................... -- -- 13,544 (G)
Long-term liabilities .................... -- -- --
Stockholders' equity:
Common stock ........................... 64 147 (147) (H)
Additional paid-in capital ............. 125,100 7,574 (7,574) (H)
-- -- 62,000 (I)
Treasury stock, at cost ................ (390) -- --
Cumulative translation
adjustment ........................... (767) -- --
Deferred compensation .................. (224) (11) 11 (H)
Net assets to be sold .................. -- -- --
Retained earnings
(accumulated deficit) ............... 215,199 (6,098) 6,098 (H)
-- -- (41,779) (J)
--------- --------- ---------
Total stockholders'
equity ......................... 338,982 1,612 18,609
--------- --------- ---------
Total liabilities and
stockholders' equity ........... $ 437,927 $ 3,526 $ 37,103
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AVE/World Historical
Pro Forma Bard Pro Forma Reference Pro Forma
Combined Cath Lab Adjustments (Note 4) Combined
---------- ---------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .............. $ 135,774 $ 196 $ -- $ 135,970
Short-term investments ................. 96,729 105 -- 96,834
Accounts receivable, net ............... 91,964 15,249 -- 107,213
Inventories ............................ 12,721 54,301 -- 67,022
Deferred income tax .................... 15,202 -- -- 15,202
Prepaid expenses and
other current assets ................. 8,042 2,013 -- 10,055
----------- ----------- ----------- -----------
Total current assets ............. 360,432 71,864 -- 432,296
Deferred income tax ...................... 1,927 -- -- 1,927
Property, plant and
equipment, net ......................... 78,997 30,442 -- 109,439
Developed technology ..................... 33,345 -- 72,000 (N) 105,345
Goodwill ................................. -- -- 314,040 (O) 314,040
Intangible assets ........................ 3,260 -- 16,200 (P) 19,460
Other assets ............................. 595 5,505 12,000 (Q) 18,100
----------- ----------- ----------- -----------
Total assets ..................... $ 478,556 $ 107,811 $ 414,240 $ 1,000,607
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings .................. $ -- $ -- $ -- $ --
Accounts payable ....................... 12,305 3,088 -- 15,393
Accrued expenses ....................... 58,241 19,633 -- 77,874
Merger related obligations ............. 2,450 -- 41,100 (R) 43,550
Income taxes payable ................... 32,813 4,029 -- 36,842
Current maturities of
long-term debt ....................... -- -- 10,125 (S) 10,125
----------- ----------- ----------- -----------
Total current liabilities ........ 105,809 26,750 51,225 183,784
Long-term debt, less current ............. -- -- 539,875 (S) 539,875
Deferred income tax ...................... 13,544 -- -- 13,544
Long-term liabilities .................... -- 1,601 -- 1,601
Stockholders' equity:
Common stock ........................... 64 -- -- 64
Additional paid-in capital ............. --
187,100 -- -- 187,100
Treasury stock, at cost ................ (390) -- -- (390)
Cumulative translation
adjustment ........................... (767) -- -- (767)
Deferred compensation .................. (224) -- -- (224)
Net assets to be sold .................. -- 79,460 (79,460) (U) --
Retained earnings
(accumulated deficit) ............... --
173,420 -- (97,700) (T) 76,020
----------- ----------- ----------- -----------
Total stockholders'
equity ......................... 359,203 79,460 (176,860) 261,803
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity ........... $ 478,556 $ 107,811 $ 414,240 $ 1,000,607
=========== =========== =========== ===========
<FN>
The accompanying notes to the unaudited pro forma condensed combined
balance sheet are an integral part of this statement.
</FN>
</TABLE>
11.
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
Year Ended June 30, 1998
(dollars in thousands, except for per share amounts)
Historical Pro Forma
--------------------------- Adjustments Reference
AVE World Medical (Note 2) (Note 2)
----------- -------------------------- -----------
Net sales........... $ 387,645 $ 5,731 $ --
Cost of sales....... 72,690 3,082 2,216 (K)
--------- ------- -------
Gross profit........ 314,955 2,649 (2,216)
Operating expenses:
Research and
development
expenses........ 37,208 2,264 --
Selling, general and
administrative
expenses........ 96,964 2,523 --
Amortization of
purchased
intangible assets -- -- 694 (L)
--------- ------- -------
Total operating
expenses.......... 134,172 4,787 694
--------- ------- -------
Operating income
(loss)............ 180,783 (2,138) (2,910)
Interest expense.... -- -- --
Interest and other
income............ 5,463 36 --
--------- ------- -------
Income (loss) before
provision (benefit)
for income taxes.. 186,246 (2,102) (2,910)
Provision (benefit)
for income taxes.. 71,126 1 (1,812) (M)
--------- ------- -------
Net income (loss)... $ 115,120 $(2,103) $(1,098)
========= ======= =======
Net income per
share -- basic.... $ 1.86
=========
Net income per
share -- diluted.. $ 1.76
=========
Shares used in per
share calculation
-- basic.......... 61,989
=========
Shares used in per
share calculation
-- diluted........ 65,228
=========
<TABLE>
<CAPTION>
AVE/World Historical Pro Forma
Pro Forma Bard Adjustments Reference Pro Forma
Combined Cath Lab (Note 2) (Note 4) Combined
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales........... $ 393,376 $ 200,000 $ -- $ 593,376
Cost of sales....... 77,988 99,500 12,248 (V) 189,736
--------- --------- ---------- ----------
Gross profit........ 315,388 100,500 (12,248) 403,640
Operating expenses:
Research and
development
expenses........ 39,472 -- -- 39,472
Selling, general an
administrative
expenses........ 99,487 44,800 144,287
Amortization of
purchased
intangible assets 694 -- 18,452 (V) 19,146
--------- --------- ---------- ----------
Total operating
expenses.......... 139,653 44,800 18,452 202,905
--------- --------- ---------- ----------
Operating income
(loss)............ 175,735 55,700 (30,700) 200,735
Interest expense.... -- -- (45,645) (W) (45,645)
Interest and other
income............ 5,499 -- -- 5,499
--------- --------- ---------- ----------
Income (loss) before
provision (benefit)
for income taxes.. 181,234 55,700 (76,345) 160,589
Provision (benefit)
for income taxes.. 69,315 -- (8,258) (X) 61,057
--------- --------- ---------- ----------
Net income (loss)... $ 111,919 $ 55,700 $(68,087) $ 99,534
========= ========= ========== ==========
Net income per
share -- basic.... $ 1.58
==========
Net income per
share -- diluted... $ 1.49
==========
Shares used in per
share calculation
-- basic.......... 63,054
==========
Shares used in per
share calculation
-- diluted......... 66,681
==========
<FN>
The accompanying notes to the unaudited pro forma condensed combined
balance sheet are an integral part of this statement.
</FN>
</TABLE>
12.
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Three Months Ended September 30, 1998
(dollars in thousands, except for per share amounts)
Historical Pro Forma
--------------------------- Adjustments Reference
AVE World Medical (Note 2) (Note 2)
----------- -------------------------- -----------
Net sales........... $ 161,268 $ 2,515 $ --
Cost of sales....... 24,574 1,114 556 (K)
--------- ------- -------
Gross profit........ 136,694 1,401 (556)
Operating expenses:
Research and
development
expenses........ 14,938 754 --
Selling, general and
administrative
expenses........ 36,387 840 --
Amortization of
purchased
intangible assets -- -- 174 (L)
--------- ------- -------
Total operating
expenses.......... 51,325 1,594 174
--------- ------- -------
Operating income
(loss)............ 85,369 (193) (730)
Interest expense.... -- -- --
Interest and other
income............ 3,260 (18) --
--------- -------- -------
Income (loss) before
provision (benefit)
for income taxes.. 88,629 (211) (730)
Provision (benefit)
for income taxes.. 35,452 -- (344) (M)
--------- ------- -------
Net income (loss)... $ 53,177 $ (211) $ (386)
========= ======= =======
Net income per
share -- basic.... $ .84
=========
Net income per
share -- diluted... $ .80
=========
Shares used in per
share calculation
-- basic.......... 63,189
=========
Shares used in per
share calculation
-- diluted........ 66,181
=========
<TABLE>
<CAPTION>
AVE/World Historical Pro Forma
Pro Forma Bard Adjustments Reference Pro Forma
Combined Cath Lab (Note 2) (Note 4) Combined
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales........... $ 163,783 $ 48,046 $ -- $ 211,829
Cost of sales....... 26,244 26,812 3,062 (V) 56,118
--------- --------- ---------- ----------
Gross profit........ 137,539 21,234 (3,062) 155,711
Operating expenses:
Research and
development
expenses........ 15,692 -- -- 15,692
Selling, general and
administrative
expenses........ 37,227 11,105 -- 48,332
Amortization of
purchased
intangible assets 174 -- 4,490 (V) 4,664
--------- --------- ---------- ----------
Total operating
expenses.......... 53,093 11,105 4,490 68,688
--------- --------- ---------- ----------
Operating income
(loss)............ 84,446 10,129 (7,552) 87,023
Interest expense.... -- -- (11,150) (W) (11,150)
Interest and other
income............ 3,242 -- -- 3,242
--------- --------- ---------- ----------
Income (loss) before
provision (benefit)
for income taxes.. 87,688 10,129 (18,702) 79,115
Provision (benefit)
for income taxes.. 35,108 -- (3,429) (X) 31,679
--------- --------- ---------- ----------
Net income (loss)... $ 52,580 $ 10,129 $(15,273) $ 47,436
========= ========= ========== ==========
Net income per
share -- basic.... $ .74
==========
Net income per
share -- diluted... $ .70
==========
Shares used in per
share calculation
-- basic.......... 64,254
==========
Shares used in per
share calculation
-- diluted........ 67,634
==========
<FN>
The accompanying notes to the unaudited pro forma condensed combined
balance sheet are an integral part of this statement.
</FN>
</TABLE>
13.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1 -- World Medical Merger
The unaudited pro forma condensed consolidated financial statements
reflect the conversion of all of the outstanding shares of World Medical Common
Stock into approximately 1,182,242 shares of AVE's common stock pursuant to the
Merger. This calculation is based on World Medical's capitalization at September
30, 1998 and assumes an Applicable Fraction of 0.7936 and the cashless exercise
of the Vector Warrant which will occur at or prior to the Effective Time, based
upon an assumed market price of $34.14 for one share of World Medical Common
Stock. The following table illustrates this calculation:
World Medical outstanding shares..... 1,474,240
Applicable fraction.................. 0.7936
---------
Number of shares..................... 1,169,957
Vector warrant....................... 25,000
Cashless exercise of warrant......... (9,520)
------
Shares to be issued upon cashless
exercise............................. 15,480
Applicable fraction.................. 0.7936
------
Number of shares..................... 12,285
---------
1,182,242
=========
In the cashless exercise, the Vector Warrant is exchanged for a number
of shares of World Medical Common Stock equal to the value of the warrant (in
the excess of the value per share over the excess price per share of the
warrant).
Certain options and warrants to purchase approximately 407,550 shares
of World Medical common stock will be assumed by AVE pursuant to the Merger and
converted into options to purchase approximately 323,432 shares of AVE common
stock. The total cost of the proposed Merger is estimated to be approximately
$64 million, including the fair value of the Holdback Shares and estimated AVE
transaction costs of $2 million, primarily financial advisory, legal and
accounting fees.
Based upon a valuation by management of tangible and intangible assets,
AVE has allocated the total cost of the merger to the net assets of World
Medical at September 30, 1998. For accounting purposes, the value assigned to
the net assets acquired of World Medical exceeded the acquisition cost of $64
million (including transaction costs). In accordance with paragraph 91 of APB
No. 16, an allocation of this negative goodwill was performed to reduce the
values assigned to the noncurrent assets. The acquisition cost was allocated as
follows:
14.
<PAGE>
<TABLE>
<CAPTION>
Estimated Allocated Deferred As
Fair Value Value Taxes Reported
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Current assets acquired................. $ 3,419 $ 3,419 $ -- $ 3,419
Non-current deferred tax asset.......... 1,031 1,031 -- 1,031
Other non-current assets................ 150 150 -- 150
Property, plant and equipment........... 722 424 -- 424
In-process research and development..... 71,200 41,779 -- 41,779
Developed technology.................... 35,800 21,007 12,338 33,345
Other intangibles....................... 3,500 2,054 1,206 3,260
Liabilities assumed (including World
Medical transaction costs and other
obligations due upon the close of
the Merger)............................ (5,864) (5,864) -- (5,864)
Deferred income tax liability........... -- -- (13,544) (13,544)
-------- -------- --------- --------
$109,958 $ 64,000 $ -- $ 64,000
======== ======== ========= ========
</TABLE>
Pursuant to Regulation S-X, the acquired in-process research and
development has not been reflected in the pro forma condensed combined
statements of operations. The developed technology and other intangibles will be
amortized over lives ranging from 3 to 15 years.
Note 2 -- Pro Forma Adjustments -- World Medical
The unaudited pro forma condensed combined balance sheet includes the
adjustments necessary to give effect to the Merger as if it had occurred on
September 30, 1998 and to reflect the allocation of the proposed acquisition
cost to the fair value of tangible and intangible assets acquired and
liabilities assumed as noted above, including the charge to retained earnings
for in-process technology acquired and the elimination of World Medical's equity
accounts. Adjustments included in the pro forma condensed consolidated balance
sheet are summarized as follows (in thousands):
(A) Valuation of inventories and deferred tax asset (relating to
World Medical's net operating loss carryforwards) of
approximately $1,796;
(B) Proportional allocation of excess appraised value of assets
acquired to property plant and equipment of approximately
$298;
(C) Valuation of developed technology of approximately $33,345;
(D) Valuation of covenant not to compete, assembled work force and
other intangible assets of approximately $3,260;
(E) Accrual of transaction-related costs of approximately $2,000
for AVE and $1,500 for World Medical;
(F) Accrual for distributor termination fee payable and a license
fee payable which become due upon closing of the Merger of
$2,450;
(G) Recognition of deferred tax liability for the difference
between the financial reporting and tax bases of purchased
intangible assets of approximately $13,544;
15.
<PAGE>
(H) Elimination of the World Medical equity accounts and related
party note payable of $1,000;
(I) Issuance of AVE common stock, $0.001 par value, and options
and warrants to purchase common stock, as discussed in Note 1.
The fair value of the AVE common stock is equal to the product
of 1,182,242 shares multiplied by approximately $42.95 per
share, while the options have been recorded at their fair
value of approximately $11.1 million; and
(J) Charge to operations for acquired in-process technology of
approximately $41,779:
Adjustments included in the pro forma condensed combined statement of
operations for the year ended June 30, 1998 and the three months ended September
30, 1998 are summarized as follows (in thousands):
(K) Amortization of developed technology of $2,216 and $556,
respectively;
(L) Amortization of covenant not to compete, assembled workforce
and other intangible assets of $694 and $174, respectively;
(M) Reversal of deferred tax liability related to the amortization
of intangible assets and the tax benefit resulting from World
Medical's losses at the federal statutory rate of $1,812 and
$344, respectively.
Note 3 -- Acquisition of Bard Cath Lab Business
The unaudited pro forma condensed combined financial statements give
effect to the acquisition of the Bard Cath Lab business. The transaction is
structured as an acquisition of the assets and certain liabilities of Bard
related to, and the acquisition of stock of certain subsidiaries of Bard engaged
in the coronary catheter lab business and is to be accounted for as a purchase.
Pursuant to the agreement, the Company did not acquire any cash or accounts
receivable of the Bard Cath Lab business except for the trade accounts
receivable of certain subsidiaries of Bard. The purchase price is $550 million
plus 95% of accounts receivable of the subsidiaries (after deducting the
allowance for doubtful account), subject to adjustment based upon the closing
statement of net assets available to be sold.
The Bard Cath Lab financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in filings pursuant to the Securities Act of 1933 and
Securities Exchange Act of 1934 of Arterial Vascular Engineering, Inc. (AVE) and
are not intended to be a complete presentation of the C. R. Bard, Inc. (Bard)
Cardiology Division -- Coronary Catheter Lab Products' financial statements in
accordance with generally accepted accounting principles. Significant expenses
are incurred on a Bard corporate-wide basis and benefit multiple Bard product
groups and any allocation of such expenses would be arbitrary and potentially
misleading. Bard did not prepare financial
16.
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statements which were intended to report a complete presentation of financial
position, results of operations or cash flows of Coronary Catheter Lab Products
in accordance with generally accepted accounting principles. Accordingly, the
statements of net revenues and certain expenses do not purport to present the
full operations of Bard Cardiology Division -- Coronary Catheter Lab Products
that would have resulted if it had operated as an independent company.
The assets and liabilities associated with the Coronary Catheter Lab
Products are components of Bard's Cardiology Division and various Bard
international business centers. Separate Coronary Catheter Lab Products specific
asset and liability accounts are not maintained. Similarly, the operations
associated with the product lines are integrated into the Bard Cardiology
Division and various Bard international business centers. Foreign subsidiaries
sell numerous Bard products. In addition, various international administrative
groups including human resources, finance, customer service and administration
support numerous Bard product lines and divisions and were not sold as part of
the transaction and thus, their costs have been excluded from the accompanying
statements of net revenues and certain expenses.
Based upon a preliminary valuation of tangible and intangible assets,
AVE has allocated the total cost of the acquisition to the net assets acquired
of the Bard Cath Lab at September 30, 1998 as follows (in thousands):
Net tangible assets...................................... $ 107,811
In-process research and development...................... 97,400
Developed technology..................................... 72,000
Goodwill................................................. 314,040
Assembled workforce...................................... 16,200
Payable to Bard for acquired accounts receivable......... (14,500)
Liabilities assumed (including the Bard Cath Lab
transaction costs and other obligations
due related to the acquisition)........................ (42,951)
---------
$ 550,000
=========
Pursuant to Regulation S-X, the acquired in-process research and
development has not been reflected in the pro forma combined statements of
operations. The developed technology, goodwill and other intangible assets will
be amortized over lives ranging from 3 to 25 years.
Note 4 -- Pro Forma Adjustments -- Bard Cath Lab Business
The unaudited pro forma condensed combined balance sheet include the
adjustments necessary to give effect to the acquisition as if it had occurred on
September 30, 1998 and to reflect the allocation of the proposed acquisition
cost to the fair value of tangible and intangible assets acquired and
liabilities assumed, including the charge to retained earnings for in-process
technology acquired and the elimination of the Bard Cath Lab's equity account.
Adjustments included in the pro forma combined balance sheet are summarized as
follows (in thousands):
(N) Valuation of developed technology and core technology of
approximately $72,000;
(O) Valuation of excess of purchase price over fair value of
acquired assets of approximately $314,040;
17.
<PAGE>
(P) Valuation of assembled work force of approximately $16,200;
(Q) Deferred debt issuance costs of $12,000;
(R) Accrual for transaction related costs of approximately $18,000
(including $12,000 of debt issuance costs); accrual for
severance related costs for employees of the acquired Bard
Cath Lab that will not continue after the acquisition of
approximately $8,600 and a payable to Bard of approximately
$14,500 for the acquisition of trade accounts receivable;
(S) The Company has entered into a bank credit agreement to
finance the acquisition comprised of a $200 million five-year
term loan which has principal amounts of $7.5 million due
within one year; and $350 million six-year term loan which has
principal amounts of $2.6 million due within one year.
(T) Charge to operations for acquired in-process technology of
approximately $97,400;
(U) Elimination of the Bard Cath Lab net assets account.
Adjustments included in the unaudited pro forma combined statements of
operations for the year ended June 30, 1998 and the three months ended September
30, 1998 are summarized as follows:
(V) Amortization of developed technology of approximately $12,248
and $3,062, respectively, and of other acquired intangible
assets including goodwill of $18,452 and $4,490, respectively;
(W) Interest expense of approximately $45,645 and $11,150,
respectively on the $550 million bank credit agreement
including amortization of debt issuance costs;
(X) Income tax benefit related to the Bard Cath Lab net income
plus the amortization of intangible assets using an effective
tax rate of 40%.
As described further in the Bard Cath Lab historical financial
statements incorporated by reference herein, Bard acquired Milu S.A. and X-Trode
S.r.l. in a transaction which included future milestone payments. Bard has
contractually agreed to record an obligation related to these milestone
obligations of approximately $9 million in the closing statement of assets to be
sold as of October 1, 1998. The purchase agreement between the Company and Bard
requires an adjustment upward or downward of the amount by which the net book
value of Bard Cath Lab together with a percentage of certain trade accounts
receivable exceeds or is less than a predetermined amount. Because the recording
of this obligation at closing will result in a reduction of net assets of Bard
Cath Lab and of the purchase price by the amount of the obligation, no
adjustment has been reflected in the pro forma financial information.
18.
<PAGE>
Note 5
<TABLE>
The pro forma condensed combined statements of operations includes the
adjustments necessary to give effect to the transactions as if they had occurred
on July 1, 1997. Adjustments consist of the amortization of acquired intangible
assets using the following preliminary estimated useful lives:
<CAPTION>
Amortization Expense
--------------------------------------------------------------
Three Months ended
Year ended June 30, 1998 September 30, 1998
------------------------------- ------------------------------
World Medical Bard Cath Lab World Medical Bard Cath Lab
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Goodwill................. 25 years $ -- $ 13,052 $ -- $ 3,140
Developed technology..... 5--15 years 2,216 12,248 556 3,062
Assembled workforce...... 3 years 402 5,400 101 1,350
Trademarks............... 7 years 106 -- 27 --
Covenant not to compete.. 7 years 186 -- 46 --
-------------- ------------- ------------- -------------
$ 2,910 $ 30,700 $ 730 $ 7,552
-------------- ------------- ------------- -------------
</TABLE>
The above estimated amortization periods of the acquired intangible
assets are based on a preliminary assessment of the useful lives of the assets
and are subject to revision upon completion of a detailed analysis.
Note 6
Pro forma basic net income per share for the year ended June 30, 1998
and the three months ended September 30, 1998 is based upon the historical
weighted average number of AVE common shares outstanding adjusted to reflect the
issuance, as of July 1, 1997 and 1998, respectively, of approximately 1,065,000
shares of AVE common stock for the acquisition of World Medical, which amount
excludes the contingently issuable Holdback Shares in accordance with SFAS No.
128. The contingently issuable Holdback Shares represent shares of AVE common
stock that AVE will maintain in escrow to secure World Medical's indemnification
obligations as defined in the Agreement and Plan of Merger and Reorganization
dated April 10, 1998, between AVE and World Medical. Pro forma diluted net
income per share for the year ended June 30, 1998 and the three months ended
September 30, 1998 is based upon shares used in the calculation of pro forma
basic net income per share plus (i) the dilutive effect of AVE's stock options
and other dilutive securities calculated using the treasury stock method, (ii)
the Holdback Shares (totaling approximately 119,000 shares), and (iii) the
dilutive effect, calculated using the treasury stock method, of options and
warrants to purchase approximately 407,550 shares of World Medical common stock
which will be assumed by AVE pursuant to the Merger and converted into options
or warrants to purchase approximately 323,432 shares of AVE common stock.
19.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARTERIAL VASCULAR ENGINEERING, INC.
Dated: December 14, 1998 By: /s/ Lawrence J. Fassler
--------------------------------
Lawrence J. Fassler
Vice President of Legal Affairs,
General Counsel, Secretary
20.
<PAGE>
INDEX TO EXHIBITS
1++ Stock and Asset Purchase Agreement between C. R. Bard, Inc. And
Arterial Vascular Engineering, Inc., dated as of July 9, 1998.
2++ Press Release, dated October 1, 1998, entitled "AVE Announces Closing
of Acquisition of Bard's Coronary Cath Lab Business."
23.1 Consent of Arthur Andersen LLP, Independent Accountants
++ Previously filed
21
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 8-K of our report on the Statements of Net Assets to be
Sold and Net Revenues and Certain Expenses of C. R. Bard, Inc. Cardiology
Division -- Coronary Catheter Lab Products as of December 31, 1997 and 1996 and
for the years ended December 31, 1997, 1996 and 1995 dated September 30, 1998
included in Arterial Vascular Engineering, Inc.'s Registration Statement File
No. 333-53421. It should be noted that we have not audited any financial
statements of C. R. Bard, Inc. Cardiology Division -- Coronary Catheter Lab
Products subsequent to December 31, 1997 or performed any audit procedures
subsequent to the date of our report.
Arthur Andersen LLP
Roseland, New Jersey
December 11, 1998
