<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Filed pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
November 26, 1996 (November 26, 1996)
Date of Report (Date of earliest event reported)
IVAC MEDICAL SYSTEMS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware
-----------------------------------------------------
(State or other jurisdiction of incorporation)
33-96928
-----------------------------------------------------
(Commission File Number)
95-3177311
-----------------------------------------------------
(IRS Employer Identification No.)
10221 Wateridge Circle
San Diego, CA 92121-2733
-----------------------------------------------------
(Address of principal executive officers)
(619) 458-7000
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
- ------ ------------------------------------
On November 26, 1996, Advanced Medical, Inc., a Delaware corporation
("AM"), acquired the outstanding shares of common stock of IVAC Holdings,
Inc.("Holding Co."), a Delaware corporation and the parent corporation of IVAC
Medical Systems, Inc., a Delaware corporation (the "Registrant").
The acquisition was effected through the merger (the "Merger") of IMED
Merger Sub, Inc., a then wholly-owned subsidiary of IMED Corporation ("IMED"),
which was then a wholly-owned subsidiary of AM, with and into Holding Co.
pursuant to an Agreement and Plan of Merger by and among IMED, IMED Merger Sub,
Inc., Holding Co., the Registrant and certain stockholders of Holding Co. (the
"Participating Stockholders"). Immediately following and in connection with the
Merger, the Registrant and IMED were merged with and into Holding Co. As a
result of such merger transactions, Holding Co. became a wholly-owned subsidiary
of AM, and the Registrant and IMED ceased to exist as independent entities.
The Merger consideration of approximately $400 million consisted of
cash and was determined by arms-length negotiations between AM, IMED and IMED
Merger Sub, Inc., on the one hand, and Holding Co., the Registrant and the
Participating Stockholders, on the other. The source for the funds used to
finance the Merger was: (i) a $250 million bank credit facility,(ii) $200
million from a private offering of 9-3/4% senior subordinated notes due 2006 of
IMED, and (iii) $40 million of cash derived from the sale of 13,333,333 shares
of AM's common stock to AM's chairman and principal stockholder, Jeffrey M.
Picower. In connection with the transactions, affiliates of Mr. Picower
surrendered promissory notes having an aggregate principal amount of $37.5
million in exchange for an aggregate of 29,416,086 shares of AM's common stock.
Holding Co. develops and manufactures infusion systems and vital signs
measurement products. Holding Co.'s manufacturing facilities are located at
plants in San Diego, California; Creedmoor, North Carolina; Tijuana, Mexico; and
Hampshire, England. Holding Co. intends to continue to use the facilities owned
or leased by it and its subsidiaries for the purposes which they are currently
applied, subject to applicable consolidation of facilities as determined from
time to time.
In connection with the foregoing transactions, AM and IMED entered
into employment agreements dated August 23, 1996, which became effective upon
the Merger, with each of: (i) William J. Mercer pursuant to which Mr. Mercer
serves as President and
<PAGE>
Chief Executive Officer of AM and Holding Co.; and (ii) Joseph W. Kuhn pursuant
to which Mr. Kuhn serves as Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of AM and Holding Co.
Concurrently with the filing of this Form 8-K, the Registrant is
filing a Form 15 to reflect the termination of its reporting obligations under
the Securities Exchange Act of 1934, as amended.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The required financial statements are filed hereto.
(b) The required PRO FORMA financial information is not presently
available and will be filed as soon as practicable and not later than sixty (60)
days after the due date of this Report.
(c) Exhibits.
Exhibit 2 Agreement and Plan of Merger dated August 23, 1996 by
and among IMED, IMED Merger Sub, Inc., IVAC Holdings,
Inc., IVAC Medical Systems, Inc. and the Participating
Stockholders (incorporated by reference to the Form 8-K
of AM filed with the Securities and Exchange Commission
on August 27, 1996).
Exhibit 10.1 Credit Agreement among AM, IMED, Various Lending
Institutions, Bankers Trust Company, as Administrative
Agent and Syndication Agent, Banque Paribas, as
Documentation Agent and Syndication Agent, and
Donaldson, Lufkin & Jenrette Securities Corporation, as
Syndication Agent, dated as of November 26, 1996
(incorporated by reference to the Form 8-K of AM filed
with the Securities and Exchange Commission on December
11, 1996).
Exhibit 10.2 Indenture dated as of November 26, 1996 among IMED,
IMED International Trading Corp. and the United States
Trust Company of New York, as trustee (incorporated by
reference to the Form 8-K of AM filed with the
Securities and Exchange Commission on December 11,
1996).
<PAGE>
Exhibit 10.3 Agreement of Stock Purchase and Plan of
Recapitalization dated November 26, 1996 by and among
AM, Decisions Incorporated and Jeffrey M. Picower
(incorporated by reference to the Form 8-K of AM filed
with the Securities and Exchange Commission on December
11, 1996).
Exhibit 10.4 Employment Agreement dated as of August 23, 1996 by and
among AM, IMED and William J. Mercer (incorporated by
reference to the Form 8-K of AM filed with the
Securities and Exchange Commission on December 11,
1996).
Exhibit 10.5 Employment Agreement dated as of August 23, 1996 by and
among AM, IMED and Joseph W. Kuhn (incorporated by
reference to the Form 8-K of AM filed with the
Securities and Exchange Commission on December 11,
1996).
<PAGE>
IVAC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 18,308 $ 10,447
Accounts receivable, net......................................................... 54,133 46,435
Current portion of contract receivables, net..................................... 5,414 6,034
Inventories, net................................................................. 34,625 39,646
Prepaid expenses and other assets................................................ 3,143 2,490
------------ --------------
Total current assets....................................................... 115,623 105,052
Long-term contract receivables, net................................................ 19,957 18,232
Property, plant and equipment, net................................................. 48,277 44,966
Intangible assets, net............................................................. 30,893 21,105
Other long-term assets............................................................. 1,245 1,626
------------ --------------
$ 215,995 $ 190,981
------------ --------------
------------ --------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued warranty............................................ $ 21,355 $ 20,565
Accrued employee liabilities..................................................... 9,528 8,182
Current portion of long-term debt................................................ 8,091 17,534
Other current liabilities........................................................ 34,799 34,599
------------ --------------
Total current liabilities.................................................. 73,773 80,880
Long-term debt..................................................................... 157,694 142,955
Other non-current liabilities...................................................... 5,043 2,737
Shareholders' equity (deficit):
Common stock:
Class A, $.01 par value; 60,000,000 shares authorized; 20,000,938 and 20,017,627
issued and outstanding at December 31, 1995 and September 30, 1996,
respectively................................................................... 200 200
Class B, $.01 par value; 20,000,000 shares authorized; 19,532,630 and 19,654,744
issued and outstanding at December 31, 1995 and September 30, 1996,
respectively................................................................... 195 197
Additional paid-in capital....................................................... 33,308 33,458
Note receivable from stockholder................................................. (8) (6)
Deferred compensation............................................................ -- (64)
Accumulated deficit.............................................................. (56,057) (70,166)
Foreign currency translation adjustment.......................................... 1,847 790
------------ --------------
Total shareholders' equity (deficit)....................................... (20,515) (35,591)
------------ --------------
$ 215,995 $ 190,981
------------ --------------
------------ --------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-1
<PAGE>
IVAC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Net sales.................................................................... $ 174,663 $ 170,155
Cost of sales................................................................ 118,255 98,836
---------- ----------
Gross profit......................................................... 56,408 71,319
Sales and marketing.......................................................... 32,470 28,872
General and administrative................................................... 18,529 17,479
Research and development..................................................... 10,111 7,663
Restructuring and special items.............................................. 4,460 17,396
Purchased research and development........................................... 19,883 --
---------- ----------
Loss from operations................................................. (29,045) (91)
Interest income (expense):
Contract interest income................................................... 2,130 1,812
Interest expense, net...................................................... (19,686) (13,396)
---------- ----------
Loss before income taxes............................................. (46,601) (11,675)
Provision for (benefit from) income taxes.................................... (3,270) 2,434
---------- ----------
Net loss............................................................. $ (43,331) $ (14,109)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
IVAC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1996
----------- ----------
<S> <C> <C>
Net cash provided by operating activities................................... $ 28,544 $ 15,485
Cash flows from investing activities:
Acquisitions, net of cash and cash equivalents acquired................... (185,955) --
Capital expenditures, net................................................. (7,738) (12,957)
----------- ----------
Net cash used by investing activities....................................... (193,693) (12,957)
----------- ----------
Cash flows from financing activities:
Capital contributions..................................................... 20,000 --
Borrowings under term loan and revolving credit arrangements.............. 68,500 3,000
Exercise of stock options................................................. -- 37
Payment on note receivable from stockholder............................... -- 2
Proceeds from bridge notes................................................ 80,000 --
Proceeds from junior notes................................................ 30,000 --
Repayment of term loan and revolving debt................................. (10,500) (7,500)
Payment of other debt obligations......................................... -- (4,533)
Debt issue costs.......................................................... (6,566) (39)
Capital lease payments.................................................... (260) (299)
----------- ----------
Net cash (used) provided by financing activities............................ 181,674 (9,332)
----------- ----------
Effect of exchange rate changes on cash..................................... 1,401 (1,057)
----------- ----------
Net (decrease) increase in cash and cash equivalents........................ 17,926 (7,861)
Cash and cash equivalents at the beginning of the period.................... 0 18,308
----------- ----------
Cash and cash equivalents at the end of the period.......................... $ 17,926 $ 10,447
Supplemental disclosure of non-cash financing activities:
Contribution of River capital stock....................................... $ 13,333 --
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1--BUSINESS
IVAC Holdings, Inc. ("Holdings" or the "Company"), through its wholly owned
subsidiaries, designs, manufactures, distributes and services intravenous
infusion therapy and vital signs measurement instruments and related disposables
and accessories. The Company sells a full range of products to hospitals and
alternate site facilities in the United States, Canada and Europe.
In management's opinion, the accompanying unaudited condensed consolidated
financial statements of the Company for the nine months ended September 30, 1996
and 1995 have been prepared in accordance with generally accepted accounting
principles for interim financial statements and include all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial position, results of operations and cash flows for all periods
presented. All such financial statements are unaudited except for the December
31, 1995 balance sheet. The unaudited condensed consolidated financial
statements include the accounts and results of operations of the Company and its
subsidiaries, all of which are wholly owned. All significant intercompany
balances and transactions have been eliminated. Interim operating results are
not necessarily indicative of operating results for the full year. These
financial statements should be read in conjunction with the financial statements
and notes thereto for the year ended December 31, 1995.
NOTE 2--INVENTORIES
Inventories at December 31, 1995 and September 30, 1996 consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Finished products............................................... $ 14,998 $ 16,464
Work-in-process................................................. 3,472 7,237
Raw materials................................................... 17,867 19,254
------------ -------------
36,337 42,955
Less reserves................................................... (1,712) (3,309)
------------ -------------
$ 34,625 $ 39,646
------------ -------------
------------ -------------
</TABLE>
NOTE 3--LONG-TERM DEBT
On March 29, 1996, the Company amended and restated its Bank Credit
Facility. The amended and restated senior credit facility (the "Facility") is
available through March 29, 1999, provides for borrowings of up to $40,000 and
is secured by substantially all of the Company's domestic assets. Borrowings
under the Facility bear interest at a rate equal to the Alternate Base Rate (as
defined in the Facility) plus 0.25% or Adjusted LIBOR plus 1.50%, at the option
of the Company. The interest rate is also subject to change quarterly based upon
certain debt and interest coverage ratios.
NOTE 4--LITIGATION
The Company is a party to various other legal actions which have occurred in
the normal course of business. Management believes the Company has meritorious
defenses and intends to defend vigorously against these allegations and claims.
In management's opinion, liabilities arising from the above matters, if
F-4
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 4--LITIGATION (CONTINUED)
any, will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
NOTE 5--RIVER MEDICAL, INC. DIVESTITURE
The Company has closed River and is divesting the subsidiary's assets.
River's primary assets include patents, technologies, trade secrets, inventories
and manufacturing equipment. The Company has recorded a restructuring charge of
$17,396 during the three months ended June 30, 1996, including an accrual of
$7,808. At September 30, 1996, the related accrual balance was $6,159.
NOTE 6--MERGER AGREEMENT
On August 23, 1996, the Company entered into an Agreement and Plan of Merger
among the Company; IVAC Medical Systems, Inc.; IMED Corporation ("IMED"), a
subsidiary of Advanced Medical, Inc.; a wholly owned subsidary of IMED and the
holders of Common Stock of Holdings named therein, pursuant to which IMED will
acquire, directly or indirectly through a wholly owned subsidiary, 100% of the
capital stock of Holdings for approximately $400,000 less certain
indebtedness.The proposed transaction received regulatory approval in October
1996 and is subject to certain other closing conditions, including the
completion of the financing necessary to consummate the merger (the "Merger").
NOTE 7--GUARANTOR SUBSIDIARY
Following the consummation of the Merger, the operations of IMED and IVAC
Medical Systems, Inc. will be transferred to Holdings and Holdings will become
the successor obligor under the Senior Subordinated Notes due 2006 of IMED (the
"IMED Notes") that will be issued in connection with the Merger. In addition,
certain subsidiaries of Holdings will guarantee the IMED Notes. Accordingly,
condensed combining financial information for Holdings and its guarantor and
non-guarantor subsidiaries at September 30, 1996 and for the nine months ended
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
NON
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets...................................... $ 64,367 $ 41,178 -- $ (493) $ 105,052
Non-current assets.................................. 101,102 9,146 $ 13,741 (38,060) 85,929
---------- ----------- ----------- ------------ ------------
$ 165,469 $ 50,324 $ 13,741 $ (38,553) $ 190,981
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
Current liabilities................................. $ 60,431 $ 29,486 $ 5,465 $ (14,502) $ 80,880
Long-term debt and other liabilities................ 145,692 -- -- -- 145,692
---------- ----------- ----------- ------------ ------------
206,123 29,486 5,465 (14,502) 226,572
Common stock and other shareholders' equity......... (40,654) 20,838 8,276 (24,051) (35,591)
---------- ----------- ----------- ------------ ------------
$ 165,469 $ 50,324 $ 13,741 $ (38,553) $ 190,981
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-5
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 7--GUARANTOR SUBSIDIARY (CONTINUED)
<TABLE>
<CAPTION>
NON
CONDENSED STATEMENT OF OPERATIONS PARENT GUARANTOR GUARANTOR
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
- ---------------------------------------------------- ---------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 141,066 $ 63,703 -- $ (34,614) $ 170,155
Cost of sales....................................... 88,494 45,561 -- (35,219) 98,836
---------- ----------- ----- ------------ ------------
52,572 18,142 -- 605 71,319
Operating expenses.................................. 38,275 33,894 -- (759) 71,410
Interest (income) expense, net...................... 10,097 1,487 -- 11,584
---------- ----------- ----- ------------ ------------
Income (loss) before income taxes and equity
interest in subsidiary income...................... 4,200 (17,239) -- 1,364 (11,675)
Equity interest in subsidiary income................ -- -- $ 166 (166) --
Provision for (benefit from) income taxes........... 3,230 (796) 58 (58) 2,434
---------- ----------- ----- ------------ ------------
Net income (loss)................................... $ 970 $ (16,443) $ 108 $ 1,256 $ (14,109)
---------- ----------- ----- ------------ ------------
---------- ----------- ----- ------------ ------------
</TABLE>
F-6
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 7--GUARANTOR SUBSIDIARY (CONTINUED)
<TABLE>
<CAPTION>
NON
CONDENSED STATEMENT OF CASH FLOWS PARENT GUARANTOR GUARANTOR
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
- ---------------------------------------------------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used) provided by operating activities.... $ 30,818 $ (14,896) -- $ (437) $ 15,485
Cash flows from investing activities:
Intercompany advances to River Medical............ (9,165) -- 9,165 --
Intercompany advances from Parent................. 9,165 (9,165) --
Capital expenditures, net......................... (9,493) (4,480) 1,016 (12,957)
---------- ----------- ----------- ------------ ------------
Net cash (used) provided by investing activities.... (18,658) 4,685 -- 1,016 (12,957)
---------- ----------- ----------- ------------ ------------
Cash flows from financing activities:
Borrowings under term loan and revolving credit
arrangements.................................... 3,000 -- 3,000
Exercise of stock options......................... 37 -- 37
Payment on note receivable from stockholder....... 2 -- 2
Repayment of term loan and revolving debt......... (7,500) -- (7,500)
Payment of other debt obligations................. (4,533) -- (4,533)
Debt issue costs.................................. (39) -- (39)
Capital lease payments............................ -- (299) (299)
---------- ----------- ----------- ------------ ------------
Net cash (used) provided by financing activities.... (9,033) (299) -- -- (9,332)
---------- ----------- ----------- ------------ ------------
Effect of exchange rate changes on cash............. (478) (579) (1,057)
---------- ----------- ----------- ------------ ------------
Net (decrease) increase in cash and cash
equivalents........................................ 3,127 (10,988) -- -- (7,861)
Cash and cash equivalents at the beginning of the
period............................................. 2,203 16,105 -- -- 18,308
---------- ----------- ----------- ------------ ------------
Cash and cash equivalents at the end of the
period............................................. $ 5,330 $ 5,117 -- -- $ 10,447
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
IVAC Holdings, Inc.
In our opinion, the, accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholders' equity
(deficit) present fairly, in all material respects, the financial position of
IVAC Holdings, Inc. and its subsidiaries at December 31, 1995, and the results
of their operations and their cash flows for the year in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Diego, California
March 29, 1996
F-8
<PAGE>
IVAC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................................... $ 18,308
Accounts receivable, net.......................................................................... 54,133
Current portion of contract receivables, net...................................................... 5,414
Inventories....................................................................................... 34,625
Prepaid expenses and other assets................................................................. 3,143
------------
Total current assets.......................................................................... 115,623
Long-term contract receivables, net................................................................. 19,957
Property, plant and equipment, net.................................................................. 48,277
Intangible assets, net.............................................................................. 30,893
Other long-term assets.............................................................................. 1,245
------------
$ 215,995
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................................................. $ 14,407
Accrued warranty.................................................................................. 6,948
Accrued employee liabilities...................................................................... 9,528
Current portion of long-term debt................................................................. 8,091
Other current liabilities......................................................................... 34,799
------------
Total current liabilities..................................................................... 73,773
Long-term debt...................................................................................... 157,694
Other non-current liabilities....................................................................... 5,043
Commitments and contingencies (Note 11)
Shareholders' equity (deficit):
Common stock:
Class A, $.01 par value; 60,000,000 shares authorized; 20,000,938 issued and outstanding.......... 200
Class B, $.01 par value; 20,000,000 shares authorized; 19,532,630 issued and outstanding.......... 195
Additional paid-in capital.......................................................................... 33,308
Note receivable from shareholder.................................................................... (8)
Accumulated deficit................................................................................. (56,057)
Foreign currency translation adjustment............................................................. 1,847
------------
Total shareholders' equity (deficit).......................................................... (20,515)
------------
$ 215,995
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
IVAC HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales........................................................................................... $ 240,971
Cost of sales................................................................................... 157,869
------------
Gross profit........................................................................................ 83,102
Sales and marketing................................................................................. 43,994
General and administrative.......................................................................... 28,381
Research and development............................................................................ 12,083
Purchased research and development.................................................................. 22,883
Restructuring and special items..................................................................... 5,944
Other expense, net.................................................................................. 1,497
------------
Loss from operations............................................................................ (31,680)
Interest income (expense):
Contract interest income.......................................................................... 3,013
Interest expense, net............................................................................. (27,476)
------------
Loss before income taxes........................................................................ (56,143)
Benefit from income taxes........................................................................... 378
------------
Net loss........................................................................................ $ (55,765)
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
IVAC HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Cash flows from operating activities:
Net loss....................................................................................... $ (55,765)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................................ 23,736
Debt issuance cost amortization.............................................................. 5,902
Purchased research and development........................................................... 22,883
Deferred income taxes........................................................................ (1,898)
Gain on disposal of property, plant and equipment............................................ (55)
Accretion of discount........................................................................ 4,664
Changes in assets and liabilities:
Receivables................................................................................ (11,837)
Inventories................................................................................ 23,176
Prepaid expenses and other assets.......................................................... 223
Accounts payable........................................................................... 4,975
Accrued warranty........................................................................... (557)
Accrued employee liabilities............................................................... (900)
Other current liabilities.................................................................. 9,265
Other non-current liabilities.............................................................. (829)
Payables to and receivables from Lilly, net................................................ 15,160
--------
Net cash provided by operating activities.............................................. 38,143
--------
Cash flows from investing activities:
Acquisitions, net of cash and cash equivalents acquired...................................... (190,793)
Capital expenditures, net.................................................................... (13,752)
Proceeds from sale of facility, net.......................................................... 25,258
--------
Net cash used by investing activities.................................................. (179,287)
--------
Cash flows from financing activities:
Capital contributions........................................................................ 20,000
Exercise of stock options.................................................................... 70
Borrowings under term loan and revolving credit arrangements................................. 68,500
Proceeds from bridge notes................................................................... 80,000
Proceeds from senior notes................................................................... 100,000
Proceeds from junior subordinated notes...................................................... 30,000
Repayment of term loan and revolving debt.................................................... (49,000)
Repayment of bridge notes.................................................................... (80,000)
Debt issue costs............................................................................. (11,486)
Capital lease payments....................................................................... (479)
--------
Net cash provided by financing activities.............................................. 157,605
--------
Effect of exchange rate changes on cash........................................................ 1,847
--------
Net increase in cash and cash equivalents...................................................... 18,308
Cash and cash equivalents at the beginning of the year......................................... 0
--------
Cash and cash equivalents at the end of the year............................................... $ 18,308
--------
--------
Supplemental disclosure of cash flow information:
Cash paid for interest....................................................................... $ 15,380
Cash paid for income taxes................................................................... $ 12
Supplemental disclosure of non-cash financing activities:
Contribution of River capital stock.......................................................... $ 13,333
Stock dividend (3 for 1)..................................................................... $ 292
Capital lease financing...................................................................... $ 1,200
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
IVAC HOLDINGS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL SHAREHOLDER
------------------------ ------------------------ PAID-IN NOTE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT
----------- ----------- ----------- ----------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Contribution of capital:
Cash.................... $ 20,000
River capital stock..... 5,000,000 $ 50 4,740,388 $ 47 13,236
Foreign currency
translation adjustment..
Stock dividend (3 for 1).. 15,000,000 150 14,221,164 142 $ (292)
Exercise of stock
options................. 938 571,078 6 72 $ (8)
Net loss.................. (55,765)
--
----------- ----- ----------- ----- ----------- ------------
Balance at December 31,
1995.................... 20,000,938 $ 200 19,532,630 $ 195 $ 33,308 $ (8) $ (56,057)
----------- ----- ----------- ----- ----------- -- ------------
----------- ----- ----------- ----- ----------- -- ------------
<CAPTION>
FOREIGN TOTAL
CURRENCY SHAREHOLDERS'
TRANSLATION EQUITY
ADJUSTMENT (DEFICIT)
----------- --------------
<S> <C> <C>
Contribution of capital:
Cash.................... $ 20,000
River capital stock..... 13,333
Foreign currency
translation adjustment.. $ 1,847 1,847
Stock dividend (3 for 1)..
Exercise of stock
options................. 70
Net loss.................. (55,765)
----------- --------------
Balance at December 31,
1995.................... $ 1,847 $ (20,515)
----------- --------------
----------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
IVAC Holdings, Inc. ("Holdings" or the "Company"), through its wholly owned
subsidiaries, designs, manufactures, distributes and services intravenous
infusion therapy and vital signs measurement instruments and related disposables
and accessories. The Company sells a full range of products to hospitals and
alternate site facilities in the United States, Canada and Europe.
All outstanding common stock of IVAC Medical Systems, Inc. ("IVAC") is owned
by Holdings. Holdings was formed through the contribution of $20,000 cash from
an investor group, including DLJ Merchant Banking Partners, L.P. ("DLJMB") and
investors in River ("the River Group"), and other investors in exchange for
20,000,000 shares of Class A Common Stock, and the issuance of 18,961,552 shares
of Class B Common Stock in exchange for the outstanding capital stock of River
Medical, Inc. (the "River Transaction"). In connection with the formation of
Holdings, after the close of business on December 31, 1994, the Company acquired
the outstanding capital stock of IVAC from Eli Lilly and Company ("Lilly") for
approximately $195,000, including transaction costs (the "Acquisition"). Through
a series of subsequent transactions, River became a wholly owned subsidiary of
IVAC. The proceeds received from the investor group were contributed as capital
to IVAC Medical Systems, Inc.
In connection with the Acquisition, Holdings issued Junior Subordinated
Notes due 2006 (the "Subordinated Notes") to DLJMB, the River Group and others
for an aggregate of $30,000. Interest accrues to principal annually at an
effective fixed rate of 13.2%. IVAC does not guarantee repayment of the notes on
behalf of Holdings nor are these notes secured by IVAC's assets. The proceeds
from the Subordinated Notes were contributed as capital to IVAC Medical Systems,
Inc.
The consolidated financial statements includes the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities of 90
days or less at date purchased.
REVENUE RECOGNITION
Revenue is recorded upon product shipment, net of an allowance for estimated
returns, or service delivery. The Company also sells instruments via long-term
financing arrangements to a number of hospitals under No Capital Agreements
("NCA's"). These agreements allow hospitals to acquire instruments with no
initial payment. The sales price for the instruments is recovered via surcharges
applied to minimum purchase commitments of related disposables. The term of the
financing is generally three to five years, with interest at rates of 9% to 15%.
The related contract receivables at December 31, 1995 are presented net of
unearned finance revenue of $6,813 which reflects the remaining interest to be
earned on unshipped disposables. Unearned finance revenue is calculated using
the inherent rate of interest on each NCA, the expected disposable shipment
period and the principal balance financed. Finance revenue is recognized as
disposables are shipped using a reducing principal balance method which
approximates the interest method. Contract provisions include liquidated damage
clauses which are sufficient to recover the sales price of the instruments in
the event of customer cancellation.
F-13
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. Credit
risk associated with this concentration is limited due to the large number and
geographic dispersion of the accounts and the overall stability of the hospital
industry. Management believes that adequate provision has been made for such
credit risk.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market. Cost of inventories at the beginning of the
year was determined based on an allocation of the purchase price to all assets
and liabilities including inventory, as determined by an independent appraisal,
at the date of acquisition.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Cost of
acquired assets (see Note 3) was determined based on an allocation of the
purchase price to all assets and liabilities, as determined by an independent
appraisal, at the date of acquisition. Additions to property, plant and
equipment, including significant betterments and renewals, are capitalized.
Maintenance and repair costs are charged to expense as incurred. Depreciation is
computed using the straight-line method over estimated useful lives of 3 to 20
years. Depreciation expense amounted to $15,076 for the year ended December 31,
1995.
INCOME TAXES
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred tax asset or liability is computed for
the expected future impact of differences between the financial reporting and
tax basis of assets and liabilities as well as the expected future tax benefit
to be derived from tax loss and tax credit carryforwards. Deferred income tax
expense (benefit) is determined as the net change during the year in the
deferred income tax asset or liability. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount "more likely than
not" to be realized in future tax returns. Tax rate changes are reflected in
income during the period such changes are enacted.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries are
translated into U.S. dollars using period-end exchange rates for assets and
liabilities and weighted average exchange rates during the period for revenues
and expenses. Gains and losses from translation are excluded from results of
operations and accumulated as a separate component of shareholders' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-14
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including cash
and cash equivalents, trade receivables and payables, approximates their fair
value due to their short term maturities. The fair values of the Company's
long-term contract receivables are estimated by discounting future cash flows
using discount rates that reflect the risk associated with similar types of
loans. The fair value of the Company's long-term debt is estimated based on
comparison with similar issues or current rates offered to the Company for debt
of the same remaining maturities. The estimated fair values of both the
Company's long-term contract receivables and long-term debt approximate their
carrying values.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," which establishes a fair value based method of
accounting for compensation costs related to stock option plans and other forms
of stock based compensation plans as an alternative to the intrinsic value based
method of accounting defined under Accounting Principles Board Opinion No. 25.
Companies that do not elect the new method of accounting beginning in 1996 will
be required to provide pro forma disclosures as if the fair value based method
had been applied. The Company anticipates that it will not elect the fair value
based method of accounting and will provide pro forma disclosure as required.
INTANGIBLE ASSETS
Intangible assets are amortized as follows:
<TABLE>
<S> <C> <C>
Supply agreements............................. Straight-line 3 years
Trademarks.................................... Straight-line 10 years
Patents....................................... Straight-line 10 years
Interest Terms of related
Debt acquisition costs........................ method debt
Excess purchase price......................... Straight-line 10 years
</TABLE>
Intangibles are presented net of accumulated amortization of $11,776. In
connection with the acquisition of IVAC, Lilly agreed to continue providing
certain administrative services on behalf of IVAC for a period of six months.
The amount capitalized as service support agreement ($2,786) has been fully
amortized as of December 31, 1995.
IMPAIRMENT OF LONG-LIVED ASSETS
During 1995, the FASB issued Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles and excess
purchase price related to those assets to be held and used and for long-lived
assets and certain intangible assets to be disposed of. In the fourth quarter of
1995, the Company elected to early
F-15
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adopt the new accounting pronouncement. Based upon an analysis performed in
accordance with SFAS 121, the Company believes that no material impairments
exist at December 31, 1995.
NOTE 3--THE ACQUISITION AND THE RIVER TRANSACTION
The Acquisition and the River Transaction have been accounted for under the
purchase method; accordingly, the purchased assets and liabilities have been
recorded at their estimated fair value at the date of acquisition. The purchase
price of River of $13,333 was determined based on the fair value of the River
assets contributed to Holdings relative to the purchase price paid by the DLJMB
led investor group for their initial equity in Holdings. The application of the
purchase method to the Acquisition and the River Transaction resulted in an
excess of cost over net assets acquired of approximately $90,804. The excess
purchase price has been allocated to property, plant and equipment ($20,315),
inventory ($14,774), intangibles ($23,356) and in-process research and
development ($22,883) with a remaining excess purchase price over net assets
acquired of $9,476. The in-process research and development of River and IVAC
were charged to earnings in 1995. The purchase price allocations reflect the
resolution of certain purchase contingencies including the arbitration
settlement of a dispute with Lilly over the final IVAC purchase price subsequent
to December 31, 1995, the resolution of certain contingent liabilities, and the
ultimate realization of certain acquired receivables and property, plant and
equipment. Additionally, the Company and Lilly jointly elected to make an
Internal Revenue Code Section 338(h)(10) election for Federal and state tax
purposes in the third quarter of 1995. This election resulted in treatment of
the acquisition as if Lilly sold assets in a taxable transaction and resulted in
adjustments to reflect the fair value of the acquired tax assets and liabilities
as of the date of purchase.
In conjunction with purchase accounting, the Company recorded a severance
liability in the amount of $5,659 pursuant to a plan in place as of the purchase
date to subsequently terminate employees. The liability was determined based on
the expected employee resources to be terminated at an estimated cost of
severance benefits as provided for in the purchase agreement at the time of the
Acquisition to include separation payments based on years of service, continued
medical benefits and outplacement assistance for a specified time. These costs
were paid to employees terminated during the six month period following the
Acquisition and did not materially differ from the amount initially accrued.
In connection with the Acquisition and the River Transaction, certain
stockholders of Holdings received approximately $3,650 in connection with the
exchange of their capital stock or services rendered. These amounts have been
capitalized as a component of the purchase price.
F-16
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Accounts receivable:
Trade......................................................................... $ 58,677
Less allowance for doubtful accounts.......................................... (4,544)
------------
$ 54,133
------------
------------
Inventories:
Finished products............................................................. $ 14,998
Work-in-process............................................................... 3,472
Raw materials................................................................. 17,867
------------
36,337
Less reserves................................................................. (1,712)
------------
$ 34,625
------------
------------
Property, plant and equipment:
Land.......................................................................... $ 640
Buildings..................................................................... 4,554
Equipment..................................................................... 50,179
Construction in process....................................................... 6,341
------------
61,714
Less accumulated depreciation................................................. (13,437)
------------
$ 48,277
------------
------------
Intangibles:
Excess purchase price......................................................... $ 9,476
Supply agreements............................................................. 10,296
Trademarks.................................................................... 5,140
Patents....................................................................... 5,186
Debt acquisition costs........................................................ 11,486
Other......................................................................... 1,085
------------
42,669
Less accumulated amortization................................................. (11,776)
------------
$ 30,893
------------
------------
Other current liabilities:
Accrued expense reimbursement to former parent................................ $ 12,212
Other......................................................................... 22,587
------------
$ 34,799
------------
------------
</TABLE>
F-17
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Senior notes.................................................................... $ 100,000
Term loan borrowings under the Bank Credit Facility............................. 19,500
Junior subordinated notes....................................................... 33,961
Other........................................................................... 12,324
------------
165,785
Less current portion............................................................ (8,091)
------------
Long-term debt.................................................................. $ 157,694
------------
------------
</TABLE>
In connection with the acquisition of IVAC, the Company entered into an
$80,000 credit facility (the "Bank Credit Facility") with a syndicate of
financial institutions which consists of $60,000 of term loans and a $20,000
revolving credit facility, each of which matures on December 30, 1999. Available
funds under the revolving credit facility are limited to the difference between
$20,000 and the amount of letters of credit issued under the Bank Credit
Facility, which cannot exceed $15,000. Borrowings under the Bank Credit Facility
bear interest at a rate equal to the Alternate Base Rate plus 1.75% or Adjusted
LIBOR plus 3.00%, at the option of the Company, payable quarterly (10.25% and
8.69%, respectively, at December 31, 1995). The Bank Credit Facility is secured
by the stock of IVAC and all of its subsidiaries and substantially all of the
assets of Holdings, IVAC and IVAC's domestic subsidiaries. The Bank Credit
Facility is guaranteed by Holdings and substantially all of the Company's
subsidiaries. As more fully discussed in Note 13, subsequent to December 31,
1995, the Company amended and restated certain terms of the Bank Credit
Facility.
Immediately following the Acquisition, the Company entered into an interest
rate swap agreement to fix the rate of interest payable on a portion of the term
loan principal borrowed under the Bank Credit Facility. The swap has a three
year term and an initial notional amount of $30,000, which amortizes at a rate
equal to 50% of the original term loan principal paydown schedule, with
quarterly payments at a fixed rate of 11.05% of the outstanding notional amount
and quarterly receipts at a LlBOR-based floating rate plus 3.00%.
The Bank Credit Facility contains covenants which, among other matters,
restrict or limit the ability of the Company to pay dividends, incur
indebtedness, and make capital expenditures. The Company must also maintain
certain ratios regarding interest coverage and leverage, among other
restrictions.
On November 8, 1995, the Company issued $100,000 of senior unsecured public
notes (the "Notes") due December 1, 2002. The Notes bear interest at the rate of
9.25% annually, which is payable semi-annually in arrears on June 1 and December
1 of each year, commencing June 1, 1996. The Company is not required to make any
mandatory redemption or sinking fund payments with respect to the Notes prior to
maturity. The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 1, 1998 at the redemption prices set
forth in the indenture plus accrued and unpaid interest to the date of
redemption. In addition, at any time prior to December 1, 1998, the Company may
redeem the Notes with the proceeds of one or more public offerings of common
stock at a redemption price equal to 108.25% of the principal amount plus
accrued and unpaid interest; provided that at least
F-18
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5--LONG-TERM DEBT (CONTINUED)
$65,000 in aggregate principal amount of the Notes remain outstanding
immediately after the occurrence of each such redemption. In the event of a
Change of Control (as defined in the indenture), holders of the Notes will have
the right to require the Company to purchase their Notes, in whole or in part,
at a price equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest to the date of purchase. The Notes are senior unsecured
obligations of the Company and rank senior in right of payment to all
subordinated indebtedness of the Company.
The indenture contains covenants which, among other matters, restrict or
limit the ability of the Company to pay dividends, incur indebtedness, make
asset sales, create liens and restrict the ability of the Company to enter into
mergers, consolidations or sales of all or substantially all of its assets.
The Company also issued $30,000 of Junior Subordinated Notes due 2006. The
notes accrue interest at 13.2% per annum, compounded annually.
The net proceeds from the bridge notes, Junior Subordinated Notes, and term
loan were used to pay the cash purchase price in connection with the Acquisition
and to pay fees and expenses related to the Acquisition. The proceeds of the
revolving loan will be used for general corporate purposes in the ordinary
course of the business.
Other debt consists of consideration owed to Siemens Infusion Systems, Ltd.
("SIS") resulting from IVAC's acquisition of the MiniMed product line from SIS
in 1993. In accordance with the acquisition agreement, IVAC is obligated to pay
SIS $1,571 in 1996 based on 1994 product sales and the greater of $3,000 per
year or 8% of the prior year's product sales in 1996 through 1999. The minimum
$12,000 liability was discounted at an imputed interest rate of 7% and recorded
as debt. The unamortized discount, which is amortized using the interest method
over the term of the payments, is $1,247 at December 31, 1995.
The aggregate minimum annual maturities on long-term debt are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 8,091
1997.............................................................. 7,375
1998.............................................................. 7,901
1999.............................................................. 8,457
2000.............................................................. --
Thereafter........................................................ 133,961
---------
$ 165,785
---------
---------
</TABLE>
NOTE 6--LEASES
Leases are generally for buildings, computers and office equipment. The
leases for the Company's San Diego corporate headquarters and manufacturing
facilities provide for scheduled rent increases. Total rent expense amounted to
approximately $2,035 for the year ended December 31, 1995.
The Company maintains a lease line of credit with a leasing company for
acquisitions of equipment under capital lease arrangements.
F-19
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6--LEASES (CONTINUED)
Future minimum payments are as follows:
<TABLE>
<CAPTION>
NONCANCELLABLE
CAPITAL OPERATING
LEASES LEASES
--------- --------------
<S> <C> <C>
1996........................................................................ $ 770 $ 3,413
1997........................................................................ 722 2,931
1998........................................................................ 425 2,990
1999........................................................................ 241 2,916
2000........................................................................ -- 2,803
Thereafter.................................................................. -- 11,298
--------- -------
2,158 $ 26,351
-------
-------
Less amounts representing interest.......................................... (304)
---------
Capital lease obligations................................................... 1,854
Less current portion........................................................ (595)
---------
$ 1,259
---------
---------
</TABLE>
NOTE 7--INCOME TAXES
The benefit from income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
Current:
Federal....................................................................... $ --
Foreign....................................................................... 3,307
State......................................................................... 5
------
3,312
------
Deferred:
Federal....................................................................... (3,192)
Foreign....................................................................... 142
State......................................................................... (640)
------
(3,690)
------
Total........................................................................... $ (378)
------
------
</TABLE>
F-20
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred tax assets:
Net operating loss and research and development credit carryforwards.......... $ 5,742
Intangibles................................................................... 3,666
State income taxes............................................................ 2,987
Product return/warranty reserves.............................................. 1,895
Rebate reserve................................................................ 1,479
Other......................................................................... 5,430
------------
Total deferred tax assets....................................................... 21,199
Valuation allowance........................................................... (21,199)
------------
Net deferred tax assets......................................................... 0
------------
Deferred tax liabilities:
Foreign taxes................................................................. (142)
------------
Total deferred tax liabilities.................................................. (142)
------------
Net deferred taxes.............................................................. $ (142)
------------
------------
</TABLE>
The Company has recorded a valuation allowance against deferred tax assets
since it is more likely than not that the deferred tax assets will not be
realized.
As of December 31, 1994, River net operating loss carryforwards for Federal
and state tax purposes totaled approximately $4,156 and $1,513, respectively. As
specified in the Internal Revenue Code, a more than 50% ownership change by a
combination of significant shareholders during any three year period would
result in certain limitations on the Company's ability to utilize net operating
loss carryforwards and research and development credit carryforwards. Such a
change is likely to have occurred in connection with the acquisition transaction
discussed in Note 3. These net operating loss and research and development
credit carryforwards expire from 2008 to 2009 for Federal tax purposes and from
1998 and 1999 for state tax purposes.
During 1995, net operating loss carryforwards for Federal and state tax
purposes totaling approximately $4,245 and $236, respectively, were generated by
the consolidated group. These net operating loss carryforwards expire in 2010
for Federal tax purposes and in 2000 for state tax purposes.
F-21
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
Following is a reconciliation of the effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
---------------
<S> <C>
Tax benefit at statutory rate................................................... (35.0)%
Add (deduct):
Foreign taxes................................................................. 6.2
State taxes................................................................... (5.8)
Other......................................................................... (.2)
-----
(34.8)
Valuation allowance........................................................... 34.1
-----
(.7)%
-----
-----
</TABLE>
NOTE 8--BENEFITS
Effective December 30, 1994, in connection with the purchase of IVAC
discussed in Note 1, the Company's U.S. noncontributory defined benefit plan was
terminated and the assets and liabilities of the IVAC Retirement Plan were
merged into The Lilly Retirement Plan. All eligible participants in the IVAC
Retirement Plan became participants in The Lilly Retirement Plan, and all
benefits previously earned will be paid by The Lilly Retirement Plan.
In connection with the River Transaction, all outstanding stock options
issued under the River Medical Stock Option Plan were assumed by Holdings
subject to the same terms, vesting, duration and cancellation existing prior to
the acquisition. On a converted basis, there were 467,370 options exercisable
into Holdings Class B common stock outstanding at December 31, 1995 at exercise
prices ranging from $.13 to $.52. The options expire not more than ten years
from the date of grant and were fully vested at December 31, 1995.
A summary of Class B stock option transactions follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
OPTIONS OUTSTANDING
-----------------------------------
NUMBER OF NUMBER OF
SHARES SHARES
AT $.52 AT $.13
PER SHARE PER SHARE TOTAL
----------- ---------- ----------
<S> <C> <C> <C>
Converted from River Plan................................................... 24,611 1,013,837 1,038,448
Options exercised........................................................... (8,204) (562,874) (571,078)
----------- ---------- ----------
Balance at December 31, 1995................................................ 16,407 450,963 467,370
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The 1995 Stock Option/Stock Issuance Plan (the "Plan") of Holdings
authorizes up to 4,000,000 shares of Holdings Class A common stock to be granted
no later than February 2005. Under the Plan, the Board of Directors of Holdings
may grant options to selected key employees, directors and consultants to the
Company to purchase shares of Holdings common stock, at a price not less than
85% of the fair market
F-22
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--BENEFITS (CONTINUED)
value of the stock at the date of grant. The Plan provides for the grant of both
incentive stock options and non-qualified stock options. Generally, options
outstanding vest over a four to eight year period and are exercisable for up to
ten years from the grant date. At December 31, 1995, 633,343 options were
exercisable at $1.00 for an aggregate exercise price of $633.
A summary of Class A stock option transactions follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
OPTIONS OUTSTANDING
OPTIONS -----------------------
AVAILABLE NUMBER OF PRICE PER
FOR GRANT SHARES SHARE
----------- ---------- -----------
<S> <C> <C> <C>
Options authorized.......................................................... 4,000,000 -- --
Options granted............................................................. (3,668,656) 3,668,656 $ 1.00
Options exercised........................................................... -- (938) --
Options forfeited on termination of employment.............................. 360,516 (360,516) --
----------- ---------- -----
Balance at December 31, 1995................................................ 691,860 3,307,202 $ 1.00
----------- ---------- -----
----------- ---------- -----
</TABLE>
During 1995, the Company issued a 3 for 1 stock dividend to all holders of
record of Class A and Class B common stock held at the close of business on
February 1, 1995.
The Company maintains a defined contribution savings plan which covers
substantially all of its U.S. employees. Contributions under the plan amounted
to $757 for the year ended December 31, 1995.
The Company was self-insured for medical benefits through June 30, 1995.
Effective July 1, 1995, the Company transitioned its medical and dental
insurance to coverage under a health maintenance organization.
F-23
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9--GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales to unaffiliated customers:
United States................................................................. $ 163,323
United Kingdom................................................................ 18,217
Germany....................................................................... 18,516
Spain......................................................................... 10,248
Other......................................................................... 30,667
------------
$ 240,971
------------
------------
Income (loss) before income taxes:
United States................................................................. $ (61,462)
United Kingdom................................................................ 3,869
Germany....................................................................... 127
Spain......................................................................... 587
Other......................................................................... 1,398
Eliminations and adjustments.................................................. (662)
------------
$ (56,143)
------------
------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Total assets:
United States................................................................. $ 190,640
United Kingdom................................................................ 17,384
Germany....................................................................... 7,230
Spain......................................................................... 11,860
Other......................................................................... 17,216
Eliminations and adjustments.................................................. (28,335)
------------
$ 215,995
------------
------------
</TABLE>
Transfers between geographic areas are made at prices calculated to reflect
a profit attributable to manufacturing operations.
Remittances to the United States are subject to various regulations of the
respective governments as well as to fluctuations in exchange rates.
NOTE 10--LITIGATION
River is a defendant in an action alleging misappropriation of trade secrets
and other proprietary information of the plaintiff. The Company believes the
allegations to be without merit and has filed a countersuit with respect to this
matter. In addition, the Company is a party to various other legal actions which
have occurred in the normal course of business. Management believes the Company
has meritorious
F-24
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10--LITIGATION (CONTINUED)
defenses and intends to defend vigorously against these allegations and claims.
In management's opinion, liabilities arising from the above matters, if any,
will not have a material adverse effect on the Company's consolidated financial
position or results of operations.
NOTE 11--COMMITMENTS AND CONTINGENCIES
In connection with the Acquisition, Lilly agreed to perform certain
administrative functions for the Company's foreign subsidiaries including the
collection of receivables and the payment of certain direct expenses incurred by
Lilly on behalf of the Company. The Company agreed to reimburse Lilly for such
direct expenses and anticipates that a payment of less than $8,000 will be made
to Lilly in 1996. The Company is currently waiting for notification from Lilly
of the amount owed under this arrangement. Management does not believe that this
amount will be materially different from the amount accrued at December 31,
1995.
The Company is obligated to pay additional purchase consideration related to
previous acquisitions. As discussed in Note 5, the Company is obligated to pay
additional consideration to SIS. In connection with another acquisition, the
Company is contingently liable to certain prior shareholders of the acquiree for
up to approximately $1,850 for additional purchase consideration through 1996,
based upon the acquired entity achieving certain sales and pre-tax performance
in each year subsequent to such acquisition. Any additional consideration paid
will be treated as additional cost of the acquired entity.
NOTE 12--RESTRUCTURING
In 1995, management approved and committed the Company to a non-voluntary
termination plan in compliance with the terms of the Acquisition purchase
agreement in an effort to reduce operating expenses. The terminations were not
concentrated in one particular area of the Company's operations and the plan
does not contemplate any significant changes to the operations or product lines
that the Company offers. In connection with these terminations the Company
charged severance and related costs of $5,319 to earnings. As of December 31,
1995, the remaining accrual related to these terminations totaled $1,510.
NOTE 13--SUBSEQUENT EVENT
On March 29, 1996, the Company amended and restated its Bank Credit
Facility. The amended and restated senior credit facility (the "Facility")
matures on March 29, 1999 and provides for borrowings of up to $40,000, secured
by substantially all U.S. domestic assets. Borrowings under the Facility bear
interest at a rate equal to the Alternate Base Rate ("ABR") plus 0.25% or
Adjusted LIBOR plus 1.50%, at the option of the Company. The pricing is subject
to change quarterly based upon certain debt and interest coverage ratios.
NOTE 14--GUARANTOR SUBSIDIARY
On August 23, 1996, the Company entered into an Agreement and Plan of Merger
among the Company; IVAC Medical Systems, Inc.; IMED Corporation ("IMED"), a
subsidiary of Advanced Medical, Inc.; a wholly owned subsidary of IMED and the
holders of Common Stock of Holdings named therein, pursuant to which IMED will
acquire, directly or indirectly through a wholly owned subsidiary, 100% of
F-25
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 14--GUARANTOR SUBSIDIARY (CONTINUED)
the capital stock of Holdings for approximately $400,000 less certain
indebtedness. The proposed transaction received regulatory approval in October
1996 and is subject to certain other closing conditions, including the
completion of the financing necessary to consummate the merger (the "Merger").
Following the consummation of the Merger, the operations of IMED and IVAC
Medical Systems, Inc. will be transferred to Holdings and Holdings will become
the successor obligor under the Senior Subordinated Notes due 2006 of IMED (the
"IMED Notes") that will be issued in connection with the Merger. In addition,
certain subsidiaries of Holdings will guarantee the IMED Notes. Accordingly,
condensed combining financial information for Holdings and its guarantor and
non-guarantor subsidiaries at December 31, 1995 and for the year ended December
31, 1995 is as follows:
<TABLE>
<CAPTION>
NON
CONDENSED BALANCE SHEET PARENT GUARANTOR GUARANTOR
DECEMBER 31, 1995 COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
- ----------------------------------------------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets................................. $ 71,181 $ 45,683 -- $ (1,241) $ 115,623
Non-current assets............................. 120,431 20,368 $ 16,027 (56,454) 100,372
----------- ----------- ----------- ------------ ------------
$ 191,612 $ 66,051 $ 16,027 $ (57,695) $ 215,995
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
Current liabilities............................ $ 44,327 $ 38,872 $ 7,859 $ (17,285) $ 73,773
Long-term debt and other liabilities........... 161,052 1,685 -- -- 162,737
----------- ----------- ----------- ------------ ------------
205,379 40,557 7,859 (17,285) 236,510
Common stock and other shareholders' equity.... (13,767) 25,494 8,168 (40,410) (20,515)
----------- ----------- ----------- ------------ ------------
$ 191,612 $ 66,051 $ 16,027 $ (57,695) $ 215,995
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
NON
CONDENSED STATEMENT OF OPERATIONS PARENT GUARANTOR GUARANTOR
FOR THE YEAR ENDED DECEMBER 31, 1995 COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
- ------------------------------------------------ ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $ 203,767 $ 78,442 -- $ (41,238) $ 240,971
Cost of sales................................... 144,089 55,350 -- (41,570) 157,869
---------- ----------- ----------- ------------ ------------
59,678 23,092 -- 332 83,102
Operating expenses.............................. 73,114 40,674 -- 994 114,782
Interest (income) expense, net.................. 23,168 1,295 -- -- 24,463
---------- ----------- ----------- ------------ ------------
Income (loss) before income taxes and equity
interest in subsidiary income................. (36,604) (18,877) -- (662) (56,143)
Equity interest in subsidiary income............ -- -- $ 730 (730) --
Provision for (benefit from) income taxes....... 4 (382) 256 (256) (378)
---------- ----------- ----------- ------------ ------------
Net income (loss)............................... $ (36,608) $ (18,495) $ 474 $ (1,136) $ (55,765)
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-26
<PAGE>
IVAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 14--GUARANTOR SUBSIDIARY (CONTINUED)
<TABLE>
<CAPTION>
NON
CONDENSED STATEMENT OF CASH FLOWS PARENT GUARANTOR GUARANTOR
FOR THE YEAR ENDED DECEMBER 31, 1995 COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
- ------------------------------------------------ ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used) provided by operating
activities.................................... $ 31,580 $ 7,625 -- $ (1,062) $ 38,143
Cash flows from investing activities:
Acquisitons, net of cash and cash equivalents
acquired.................................... (192,652) 1,859 $ (15,297) 15,297 (190,793)
Intercompany advances to River Medical........ (12,389) -- -- 12,389 --
Intercompany advances from Parent............. 12,389 15,297 (27,686) --
Capital expenditures, net..................... (7,678) (6,342) -- 268 (13,752)
Proceeds from sale of facility, net........... 25,258 -- -- -- 25,258
---------- ----------- ----------- ------------ ------------
Net cash (used) provided by investing
activities.................................... (187,461) 7,906 -- 268 (179,287)
---------- ----------- ----------- ------------ ------------
Cash flows from financing activities:
Capital contributions......................... 20,000 -- -- -- 20,000
Exercise of stock options..................... 70 -- -- -- 70
Borrowings under term loan and revolving
credit arrangements......................... 68,500 -- -- -- 68,500
Proceeds from bridge notes.................... 80,000 -- -- -- 80,000
Proceeds from senior notes.................... 100,000 -- -- -- 100,000
Proceeds from junior subordinated notes....... 30,000 -- -- -- 30,000
Repayment of term loan and revolving debt..... (49,000) -- -- -- (49,000)
Repayment of bridge notes..................... (80,000) -- -- -- (80,000)
Debt issue costs.............................. (11,486) -- -- -- (11,486)
Capital lease payments........................ -- (479) -- -- (479)
---------- ----------- ----------- ------------ ------------
Net cash (used) provided by financing
activities.................................... 158,084 (479) -- -- 157,605
---------- ----------- ----------- ------------ ------------
Effect of exchange rate changes on cash......... -- 1,053 -- 794 1,847
---------- ----------- ----------- ------------ ------------
Net increase in cash and cash equivalents....... 2,203 16,105 -- -- 18,308
Cash and cash equivalents at the beginning of
the period.................................... -- -- -- -- --
---------- ----------- ----------- ------------ ------------
Cash and cash equivalents at the end of the
period........................................ $ 2,203 $ 16,105 -- -- $ 18,308
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
IVAC Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholder's equity
present fairly, in all material respects, the financial position of IVAC
Corporation and its subsidiaries at December 31, 1994, and the results of their
operations and their cash flows for the year in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Diego, California
June 29, 1995
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
IVAC Corporation
We have audited the accompanying consolidated balance sheet of IVAC
Corporation and subsidiaries and certain IVAC related entities as of December
31, 1993 and the related consolidated statements of operations, shareholder's
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IVAC
Corporation and subsidiaries and certain IVAC related entities at December 31,
1993 and the consolidated results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
San Diego, California
February 28, 1994
F-29
<PAGE>
IVAC CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 4,683 $ 3,226
Accounts receivable, net................................................................ 45,516 43,324
Receivable from Lilly................................................................... 43,963 1,581
Current portion of contract receivables, net............................................ 6,753 7,014
Inventories............................................................................. 49,696 43,828
Prepaid expenses and other current assets............................................... 7,874 3,333
---------- ----------
Total current assets................................................................ 158,485 102,306
Long-term contract receivables, net....................................................... 15,965 18,164
Property, plant and equipment, net........................................................ 54,087 50,095
Intangible assets, net.................................................................... 20,372 3,579
---------- ----------
$ 248,909 $ 174,144
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................................................ $ 9,330 $ 7,950
Accrued warranty........................................................................ 6,502 7,339
Accrued employee liabilities............................................................ 7,354 4,715
Current portion of long-term debt....................................................... -- 1,571
Other current liabilities............................................................... 15,842 6,607
---------- ----------
Total current liabilities........................................................... 39,028 28,182
Long-term debt............................................................................ 12,000 10,050
Other non-current liabilities............................................................. 5,370 5,931
Commitments and contingencies (Note 14)
Shareholder's equity:
Common stock, no par value; 100 shares authorized, issued and outstanding............... 162 --
Additional paid-in capital.............................................................. 37,200 58,343
Retained earnings....................................................................... 158,126 73,574
Foreign currency translation adjustment................................................. (2,977) (1,936)
---------- ----------
Total shareholder's equity.......................................................... 192,511 129,981
---------- ----------
$ 248,909 $ 174,144
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
IVAC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
Net Sales................................................................................. $ 214,244 $ 223,227
Cost of sales............................................................................. 125,542 146,659
---------- ----------
Gross profit.......................................................................... 88,702 76,568
Sales and marketing....................................................................... 40,190 45,055
General and administrative................................................................ 16,032 21,586
Research and development.................................................................. 18,742 18,504
Excess purchase price write-down.......................................................... -- 13,143
Expense allocation from Lilly............................................................. 6,416 7,480
Restructuring and special items........................................................... 3,967 --
Other expense, net........................................................................ 269 3,560
---------- ----------
Income (loss) from operations......................................................... 3,086 (32,760)
Interest income (expense):
Contract interest income................................................................ 2,724 2,927
Interest income (expense), net.......................................................... 1,316 (2,227)
---------- ----------
Income (loss) before income taxes..................................................... 7,126 (32,060)
Provision for income taxes................................................................ 1,710 3,793
---------- ----------
Net income (loss)..................................................................... $ 5,416 $ (35,853)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
IVAC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1993 1994
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................................................... $ 5,416 $ (35,853)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................... 10,249 15,119
Excess purchase price write-down........................................................ -- 13,143
Lilly allocated expenses contributed as paid-in-capital................................. 4,300 7,480
Loss on disposal of fixed assets........................................................ 181 1,363
Changes in assets and liabilities:
Receivables........................................................................... (1,828) 766
Inventories........................................................................... (2,548) 5,481
Prepaid expenses and other assets..................................................... 112 3,864
Accounts payable...................................................................... 3,383 (1,744)
Accrued warranty...................................................................... 100 1,584
Accrued employee liabilities.......................................................... (589) (2,514)
Other liabilities..................................................................... 2,398 2,523
Payables to and receivables from Lilly, net........................................... (13,059) (4,710)
--------- ----------
Net cash provided by operating activities........................................... 8,115 6,502
Cash flows from investing activities:
Capital expenditures, net................................................................. (9,920) (9,000)
Acquisitions.............................................................................. (26,801) --
--------- ----------
Net cash used by investing activities............................................... (36,721) (9,000)
--------- ----------
Cash flows from financing activities:
Acquisition funding borrowed from Lilly................................................... 26,469 --
Line of credit advances................................................................... 3,748 --
--------- ----------
Net cash provided by financing activities........................................... 30,217 --
--------- ----------
Effect of exchange rate changes on cash..................................................... (2,328) 1,041
--------- ----------
Net decrease in cash and cash equivalents................................................... (717) (1,457)
Cash and cash equivalents at the beginning of the year...................................... 5,400 4,683
--------- ----------
Cash and cash equivalents at the end of the year............................................ $ 4,683 $ 3,226
--------- ----------
--------- ----------
Supplemental disclosure of cash flow information:
Cash paid for income taxes................................................................ $ 10,000 $ 1,854
Supplemental non-cash financing activities:
Dividends paid through forgiveness of intercompany receivable from Lilly.................. -- $ 48,699
Net liabilities assumed by Lilly credited to paid-in-capital.............................. -- $ 13,663
Supplemental non-cash investing activities:
Acquisition financed through forgiveness of intercompany receivable from Lilly............ $ 1,071 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
IVAC CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN TOTAL
COMMON STOCK ADDITIONAL CURRENCY SHARE-
-------------------- PAID-IN ACCUMULATED TRANSLATION HOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
--------- --------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992...................... 100 $ 162 $ 32,900 $ 152,710 $ (646) $ 185,126
Transactions with Lilly:
Lilly corporate expense allocation............ -- -- 4,300 -- -- 4,300
Foreign currency translation adjustment......... -- -- -- -- (2,331) (2,331)
Net income...................................... -- -- -- 5,416 -- 5,416
--------- --------- ----------- ------------ ----------- ----------
Balance at December 31, 1993...................... 100 162 37,200 158,126 (2,977) 192,511
Transactions with Lilly:
Lilly corporate expense allocation............ -- -- 7,480 -- -- 7,480
Assumption of net liabilities................. -- -- 13,663 -- -- 13,663
Non-cash dividend............................. -- -- -- (48,699) -- (48,699)
Other......................................... -- (162) -- -- -- (162)
Foreign currency translation adjustment......... -- -- -- -- 1,041 1,041
Net income...................................... -- -- -- (35,853) -- (35,853)
--------- --------- ----------- ------------ ----------- ----------
Balance at December 31, 1994...................... 100 $ -- $ 58,343 $ 73,574 $ (1,936) $ 129,981
--------- --------- ----------- ------------ ----------- ----------
--------- --------- ----------- ------------ ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
IVAC Corporation ("IVAC" or the "Company") designs, manufactures,
distributes and services intravenous infusion therapy and vital signs
measurement instruments and related disposables and accessories. Prior to and
during fiscal 1994, the Company operated as a wholly owned subsidiary of Eli
Lilly and Company ("Lilly"). As more fully discussed in Note 15, after the close
of business on December 31, 1994, the outstanding capital stock of IVAC was
acquired by IVAC Holdings, Inc. ("Holdings"). The accompanying consolidated
financial statements do not reflect adjustments resulting from this subsequent
purchase transaction.
The consolidated financial statements include the accounts and results of
operations of the Company, its wholly owned subsidiary MIS Scandinavia A.B., and
affiliate activities conducted through subsidiaries or divisions of Lilly. Where
activities were conducted through a subsidiary or division of Lilly or related
to the joint venture in Spain, productive assets such as accounts receivable,
inventory and equipment specifically related to IVAC operations are included in
the accompanying consolidated balance sheets. With respect to the operations of
Germany, there are certain assets and liabilities included in the accompanying
consolidated balance sheets prior to 1994 which related to affiliated companies.
Management believes the value of these net assets is not material. All
significant intercompany accounts and transactions have been eliminated in
consolidation. These statements reflect the financial position, results of
operations, and cash flows of the Company as a component of Lilly and may not be
indicative of the actual results of operations and financial position of the
Company under new ownership.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities of 90
days or less at date purchased.
REVENUE RECOGNITION
Revenue is recorded upon product shipment, net of an allowance for estimated
returns, or service delivery. The Company also sells instruments via long-term
financing arrangements to a number of hospitals under No Capital Agreements
("NCA's"). These agreements allow hospitals to acquire instruments with no
initial payment. The sales price for the instruments is recovered via surcharges
applied to minimum purchase commitments of related disposables. The term of the
financing is generally three to five years, with interest at rates of 9% to 15%.
The related contract receivables at December 31, 1994 and 1993 are presented net
of unearned finance revenue of $6,468 and $5,315, respectively which reflects
the remaining interest to be earned on unshipped disposable. Unearned finance
revenue is calculated using the inherent rate of interest on each NCA, the
expected disposable shipment period and the principal balance financed. Finance
revenue is recognized as disposables are shipped using a reducing principal
balance method which approximates the interest method. Contract provisions
include liquidated damage clauses which are sufficient to recover the sales
price of the instruments in the event of customer cancellation.
F-34
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. Credit
risk associated with this concentration is limited due to the large number and
geographic dispersion of the accounts and the overall stability of the hospital
industry. Management believes that adequate provision has been made for such
credit risk.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.
EXCESS PURCHASE PRICE
Excess purchase price arising from acquisitions is amortized over estimated
useful lives, ranging from 5 to 7 years, using the straight-line method. At
December 31, 1994 and 1993, excess purchase price is presented net of
accumulated amortization of $1,186 and $1,562, respectively.
At each balance sheet date, the Company evaluates the realizability of
excess purchase price based upon management's best estimations of future
discounted cash flows. If future discounted cash flows are less than the
carrying amount of the excess purchase price, an adjustment is recorded to
reduce the excess purchase price to its fair value. Based on its most recent
analysis, the Company believes that no material impairment existed at December
31, 1994 (Notes 3 and 4).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Additions to
property, plant and equipment, including significant betterments and renewals
are capitalized. Maintenance and repair costs are charged to expense as
incurred. Depreciation is computed using the straight-line method over estimated
useful lives of 3 to 50 years. Depreciation expense amounted to $12,274 and
$9,257 during fiscal 1994 and 1993, respectively.
INCOME TAXES
The Company's operations have historically been included in consolidated
income tax returns filed by Lilly. Income tax expense in the accompanying
consolidated financial statements has been determined on a separate return
basis, in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Differences between income tax expense computed on a separate return basis
and the amount actually charged to IVAC by Lilly has been reflected on the
consolidated balance sheet as an adjustment to paid-in capital.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiary and affiliates
are translated into U.S. dollars using period-end exchange rates for assets and
liabilities and weighted average exchange rates
F-35
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
during the period for revenues and expenses. Gains and losses from translation
are excluded from results of operations and accumulated as a separate component
of shareholder's equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1994 and 1993, the carrying amount of the Company's
financial instruments including cash and cash equivalents, trade receivables and
payables, approximated their fair value due to their short term maturities. The
fair value of the Company's long-term contract receivables are estimated by
discounting future cash flows using discount rates that reflect the risk
associated with similar types of loans. At December 31, 1994 and 1993, the
estimated fair values of both the Company's long-term contract receivables and
long-term debt approximate their carrying values.
EARNINGS PER SHARE
The ownership change of IVAC Corporation that occurred after the close of
business on December 31, 1994 (Note 15) has resulted in the historical earnings
per share calculations becoming irrelevant for purposes of comparability with
future periods. As such, historical earnings per share calculations have not
been presented.
NOTE 3--ACQUISITIONS
In September 1993, IVAC completed the acquisitions of certain of the assets
of the MiniMed product line, a three-channel infusion pump system, from Siemens
Infusion Systems, Ltd. ("SIS"). The acquisition was accounted for as a purchase.
The purchase price was $38,206 and included guaranteed minimum royalties payable
annually from 1996 through 1999. The purchase price was allocated to assets and
liabilities as follows; inventory ($19,173); property and equipment ($2,675);
other assets ($314); accounts payable ($154); accrued minimum royalty liability
($12,000) and accrued warranty ($1,802), with the remaining excess purchase
price over net assets acquired of ($18,000). Under provisions of the acquisition
agreement, the Company is required to pay royalties to SIS in 1995 based on 1994
product sales and will pay in 1996 through 1999 based on the greater of 8% of
the prior year product sales or a guaranteed minimum of $3,000 per year. Excess
purchase price and other intangibles associated with this acquisition are being
amortized on a straight-line basis over 7 years (Note 4).
The following unaudited pro forma summary reflects IVAC's consolidated
results of operations as if the MiniMed product line had been acquired from SIS
as of the beginning of 1993. This summary includes the impact of adjustments for
related income tax effects and the amortization of intangibles associated with
the acquisition.
<TABLE>
<CAPTION>
1993
(UNAUDITED)
-----------
<S> <C>
Sales............................................................................ $ 239,700
Net loss......................................................................... (13,500)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire year, nor are
they intended to be a projection of future results.
F-36
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--EXCESS PURCHASE PRICE ADJUSTMENT
Since the Company's acquisition of the MiniMed product line from SIS in
September 1993, the Company discovered design and other defects of the product
line and evaluated market conditions. Upon the discontinuance of production in
the fourth quarter of 1994, the Company determined that sales and earnings of
the product line acquired from SIS were significantly below that projected at
the time of acquisition. Accordingly, the Company recorded a write-down of
excess purchase price of $13,143 to reduce the carrying value of the excess
purchase price to its estimated fair value.
The methodology used to assess the recoverability of the excess purchase
price recorded in connection with the acquisition was to discount future
projected cash flows over the remaining estimated useful life of the product
line. The projected cash flows represent management's best estimate of the
Company's future results of operations related to this product line. The Company
discounted the resulting projected cash flows using a discount rate of 12% which
is considered a reasonable approximation of the Company's cost of capital at the
time of impairment. Based on the estimated discounted cash flows, the Company
determined that approximately $1,100 of the remaining unamortized excess
purchase price would be recoverable.
NOTE 5--RESTRUCTURING AND SPECIAL ITEMS
In 1993, Lilly took actions designed to enhance its competitiveness in the
health care markets, to reduce expenses and improve efficiencies. As a result of
these actions, IVAC recognized restructuring and special charges amounting to
$4,000 in 1993, respectively. Restructuring costs include those amounts that
arose as a direct result of management's commitment to revise strategic actions.
Special charges represent unusual, nonrecurring expense items.
The 1993 restructuring actions relate to decisions by the Company to
reorganize certain of its operations outside the U.S. ($3,700) and to realign
its U.S. field sales force ($300).
F-37
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6--COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Accounts Receivable:
Trade................................................................. $ 47,667 $ 47,064
Less allowance for doubtful accounts.................................. (2,151) (3,740)
--------- ---------
$ 45,516 $ 43,324
--------- ---------
--------- ---------
Inventories:
Finished products..................................................... $ 19,863 $ 18,974
Work-in-process....................................................... 10,665 5,985
Raw materials......................................................... 22,827 22,129
--------- ---------
53,355 47,088
Less reserve.......................................................... (3,659) (3,260)
--------- ---------
$ 49,696 $ 43,828
--------- ---------
--------- ---------
Property, plant and equipment:
Land.................................................................. $ 1,788 $ 1,788
Buildings............................................................. 38,970 42,421
Equipment............................................................. 75,902 68,031
Construction in process............................................... 7,210 5,112
--------- ---------
123,870 117,352
Less accumulated depreciation......................................... (69,783) (67,257)
--------- ---------
$ 54,087 $ 50,095
--------- ---------
--------- ---------
Other current liabilities:
Line of credit........................................................ $ 3,700 $ --
Restructuring charges................................................. 3,720 --
Accrued contract termination costs.................................... -- 1,500
Deferred revenue...................................................... 1,300 1,057
Other miscellaneous accruals.......................................... 7,122 4,050
--------- ---------
$ 15,842 $ 6,607
--------- ---------
--------- ---------
Other non-current liabilities:
Minority interest..................................................... $ 2,767 $ 3,625
Other................................................................. 2,603 2,306
--------- ---------
$ 5,370 $ 5,931
--------- ---------
--------- ---------
</TABLE>
NOTE 7--DEBT
In 1993, the Company obtained a line of credit with Hypo Bank in Germany to
fund the working capital needs of Lilly's medical device companies located
there. Borrowings under the line of credit, which
F-38
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--DEBT (CONTINUED)
amounted to $3,700 at December 31, 1993 and were guaranteed by Lilly, became due
August 1994. The borrowings were repaid at maturity.
In connection with the acquisition of the MiniMed product line, the Company
is obligated to pay additional consideration to SIS of $1,571 based on 1994
product sales and the greater of $3,000 per year or 8% of the prior year's
product sales in 1996 through 1999. In 1994, the minimum $12,000 liability was
discounted at an imputed interest rate of 7% with a corresponding reduction in
excess purchase price. The unamortized discount, which is amortized using the
interest method over the term of the payments, is $1,950 at December 31, 1994.
NOTE 8--TRANSACTIONS WITH LILLY
Operating expenses include certain services performed by Lilly or its
affiliates and billed directly to IVAC and certain corporate expenses which have
been allocated to the Company based on established allocation methods which in
the opinion of management reflect IVAC's proportionate share of such expenses.
Other transactions include intercompany purchases and sales, service fees and
interest.
A summary of significant actual expenditures charged by or (billed to) Lilly
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Personnel and benefits..................................................... $ 8,193 $ 8,321
Insurance.................................................................. 1,455 1,265
Information systems........................................................ (2,808) (2,589)
Interest................................................................... (1,666) 1,088
Service charges from Physio-Control Corporation............................ 1,275 --
Miscellaneous.............................................................. (540) (3,099)
--------- ---------
$ 5,909 $ 4,986
--------- ---------
--------- ---------
</TABLE>
A summary of corporate expense allocations follows:
<TABLE>
<S> <C> <C>
Business planning........................................... $ 1,614 $ 1,902
Corporate expenses.......................................... 3,690 3,676
International expenses...................................... 1,093 1,103
Other....................................................... 19 799
--------- ---------
$ 6,416 $ 7,480
--------- ---------
--------- ---------
</TABLE>
Lilly did not require the intercompany payable resulting from corporate
expense allocations to be paid. Accordingly, these amounts have been reflected
as an increase to additional paid-in capital.
In addition, other intercompany balances due to and from Lilly during 1994
were settled in contemplation of and pursuant to the sale of IVAC. In May 1994,
IVAC forgave a net receivable due from Lilly in
the amount of $48,699. This transaction has been reflected as a dividend to
Lilly in the accompanying
F-39
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--TRANSACTIONS WITH LILLY (CONTINUED)
financial statements. In December 1994, Lilly forgave a net intercompany
receivable from IVAC amounting to $19,689. This transaction has been reflected
as an increase to additional paid-in capital in the accompanying financial
statements.
In accordance with the terms of the sale of IVAC, Lilly also assumed
responsibility for employee-related and certain other liabilities existing prior
to December 31, 1994 and IVAC forgave certain additional intercompany balances
due from Lilly. The net effect of this transaction was a reduction in additional
paid-in capital of $6,026.
NOTE 9--LEASES
Total rental expense amounted to approximately $2,368 and $2,403 for the
years ended December 31, 1994 and 1993, respectively. Leases are generally for
computer and office equipment. Future minimum rental commitments as of December
31, 1994 for noncancellable leases are not material.
NOTE 10--INCOME TAXES
The Company accounts for income taxes on the liability method under SFAS
109. The following is the composition of income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Current:
Federal................................................................. $ (228) $ (1,208)
Foreign................................................................. 1,830 748
State................................................................... 245 495
--------- ---------
1,847 35
Deferred:
Federal................................................................. (137) (8,369)
State................................................................... -- (1,937)
--------- ---------
Total before valuation allowance.......................................... 1,710 (10,271)
Valuation allowance....................................................... -- 14,064
--------- ---------
Total..................................................................... $ 1,710 $ 3,793
--------- ---------
--------- ---------
</TABLE>
F-40
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10--INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1993 1994
--------- ----------
<S> <C> <C>
Deferred tax assets:
Excess purchase price write-down...................................... $ -- $ 5,187
Restructuring and other related charges............................... 2,778 --
Inventory............................................................. 3,082 2,484
Product return/warranty reserves...................................... -- 2,937
State income tax...................................................... 655 2,017
Rebate reserve........................................................ -- 1,649
Allowance for doubtful accounts....................................... -- 1,311
Other................................................................. 2,367 1,794
--------- ----------
Total deferred tax assets............................................... 8,882 17,379
--------- ----------
Deferred tax liabilities:
Property and equipment................................................ (3,881) (3,315)
Prepaid employer benefits............................................. (1,545) --
--------- ----------
Total deferred tax liabilities.......................................... (5,426) (3,315)
--------- ----------
Net deferred tax assets................................................. 3,456 14,064
--------- ----------
Valuation allowance..................................................... -- (14,064)
--------- ----------
Net deferred taxes...................................................... $ 3,456 $ 0
--------- ----------
--------- ----------
</TABLE>
SFAS 109 specifies that deferred tax assets are to be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Based on uncertainty as to whether IVAC will
generate adequate future income to recover its deferred tax assets at December
31, 1994, management recorded a valuation allowance against such net deferred
tax assets.
F-41
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10--INCOME TAXES (CONTINUED)
Following is a reconciliation of the effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Tax benefit at statutory rate.......................................... 35.0% (34.0)%
Add (deduct):
State taxes, net of federal tax benefit.............................. 1.7 (1.7)
Benefit from foreign sales corporation............................... (8.5) (.5)
Research tax credit.................................................. (4.4) (1.1)
Effect of international operations................................... (.5) 3.6
Revisions of prior year estimates.................................... .6 (2.2)
Lilly's assumption of net liabilities................................ -- 3.9
--------- ---------
23.9 (32.0)
Valuation allowance.................................................. -- 43.9
--------- ---------
23.9% 11.9%
--------- ---------
--------- ---------
</TABLE>
NOTE 11--BENEFITS
Effective December 30, 1994, in connection with the subsequent sale of IVAC
discussed in Note 15, the Company's U.S. noncontributory defined benefit
retirement plan was terminated and the assets and liabilities of the IVAC
Retirement Plan were merged into The Lilly Retirement Plan. All eligible
participants in the IVAC Retirement Plan became participants in The Lilly
Retirement Plan, and all benefits previously earned will be paid by The Lilly
Retirement Plan.
The Company's U.S. noncontributory defined benefit retirement plan covered
substantially all United States employees. Benefits under the domestic plan were
calculated by using one of several formulas. These formulas were based on a
combination of the following: (1) years of service; (2) final average earnings;
(3) primary social security benefit; and (4) age.
The Company's funding policy was consistent with local governmental and tax
funding regulations. Generally, pension costs accrued were funded. Plan assets,
which were maintained in a trust with Lilly and other Lilly affiliate plan
assets, consisted primarily of equity and fixed income instruments.
F-42
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11--BENEFITS (CONTINUED)
Net pension expense for the Company's U.S. noncontributory defined benefit
retirement plan included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Service cost--benefits earned during the year........................... $ 1,290 $ 1,743
Interest cost on projected benefit obligations.......................... 1,172 1,394
Actual return on assets (gain).......................................... (1,595) (1,492)
Net amortization and deferral........................................... 973 466
--------- ---------
$ 1,840 $ 2,111
--------- ---------
--------- ---------
</TABLE>
The funded status and amounts recognized in the consolidated balance sheets
for the Company's U.S. defined benefit retirement plan at December 31 were as
follows:
<TABLE>
<CAPTION>
1993
---------
<S> <C>
Plan assets at fair value.......................................................... $ 13,189
Actuarial present value of benefit obligations:
Vested benefits.................................................................. 7,993
Nonvested benefits............................................................... 1,901
---------
Accumulated benefit obligation..................................................... 9,894
Effect of projected future salary increase....................................... 8,792
---------
Projected benefit obligation....................................................... 18,686
---------
Funded status...................................................................... (5,497)
Unrecognized net gain.............................................................. 683
Unrecognized prior service cost.................................................... 7,057
---------
Prepaid pension cost............................................................... $ 2,243
---------
---------
</TABLE>
The assumptions used to develop net periodic pension expense and the
actuarial present value of projected benefit obligations are shown below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Discount rate.......................................................... 7.5% 7.5%
Rate of increase in future compensation levels......................... 4.5-8.0% 4.5-8.0%
Expected long-term return on assets.................................... 11.0% 11.0%
</TABLE>
The reduction of the discount rate at December 31, 1993, increased the
projected benefit obligation approximately $3,934.
In addition to employees covered by the above U.S. noncontributory defined
benefit retirement plan, the Company also had employees outside the U.S. who
were covered by retirement plans maintained by
F-43
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11--BENEFITS (CONTINUED)
Lilly or its affiliates. No allocation of expenses for the Company's employees
participating in these plans has been included in the above information.
However, expenses attributable to the Company's employees at these locations are
included in the consolidated statements of operations.
The Company was self-insured for medical and dental benefits. Medical and
dental expense recorded in 1994 and 1993 was $6,884 and $4,216.
Lilly has assumed responsibility for all employee benefit related
liabilities as of December 31, 1994.
The Company's employees are eligible to contribute to the Company's defined
contribution savings plan, which may be matched by the Company. The Company's
expense under the plan totaled $1,215 and $1,800 for the years ended December
31, 1994 and 1993.
NOTE 12--GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
Net sales to unaffiliated customers:
United States....................................................... $ 151,728 $ 153,383
United Kingdom...................................................... 14,308 17,332
Germany............................................................. 14,001 14,960
Spain............................................................... 8,715 9,146
Other............................................................... 25,492 28,406
---------- ----------
$ 214,244 $ 223,227
---------- ----------
---------- ----------
Income (loss) before income taxes:
United States....................................................... $ 9,208 $ (35,218)
United Kingdom...................................................... 1,418 3,576
Germany............................................................. (1,103) 423
Spain............................................................... 2,597 983
Other............................................................... (2,276) (500)
Eliminations and adjustments........................................ (2,718) (1,324)
---------- ----------
$ 7,126 $ (32,060)
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
Total assets:
United States....................................................... $ 203,186 $ 140,706
United Kingdom...................................................... 16,266 9,345
Germany............................................................. 7,940 3,827
Spain............................................................... 7,526 7,766
Other............................................................... 15,402 14,949
Eliminations and adjustments........................................ (1,411) (2,449)
---------- ----------
$ 248,909 $ 174,144
---------- ----------
---------- ----------
</TABLE>
F-44
<PAGE>
IVAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--GEOGRAPHIC INFORMATION (CONTINUED)
Transfers between geographic areas are made at prices calculated to reflect
a profit attributable to manufacturing operations.
Remittances to the United States are subject to various regulations of the
respective governments as well as to fluctuations in exchange rates.
NOTE 13--LITIGATION
Prior to and in connection with the sale of IVAC, Lilly assumed
responsibility for the anticipated cost of resolution of certain legal claims
existing at December 31, 1994. Consequently, the related accrual is not
reflected within the accompanying financial statements. In addition, the Company
is a party to various other legal actions which have occurred in the normal
course of business. Management believes the Company has meritorious defenses and
intends to defend vigorously against these allegations and claims. As the
ultimate outcome of the matters is uncertain, no loss provisions have been
recorded in the accompanying financial statements. In management's opinion,
liabilities arising from these matters, if any, will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
NOTE 14--COMMITMENTS AND CONTINGENCIES
The Company is obligated to pay additional purchase consideration related to
two previous acquisitions. As discussed in Note 7, the Company is obligated to
pay additional consideration to SIS. In connection with another acquisition, the
Company is contingently liable for up to approximately $3,050 for additional
purchase consideration through 1996 based upon the acquired entity achieving
certain sales and pre-tax performance in each year.
NOTE 15--SUBSEQUENT EVENTS
After the close of business on December 31, 1994, Lilly sold the outstanding
stock of lVAC to Holdings, which was formed through the contribution of the
outstanding capital stock of River Medical, Inc. and cash from an investor group
including DLJ Merchant Banking Partners, L.P. and related investors, and other
investors. Through a series of subsequent transactions, River Medical, Inc.
became a wholly owned subsidiary of IVAC.
F-45
<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.
IVAC MEDICAL SYSTEMS, INC.
(Registrant)
Date: November 26, 1996 By: /s/ William J. Mercer
William J. Mercer
Chief Executive Officer,
and President
