<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[/X/] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. (FEE REQUIRED)
For the fiscal year ended DECEMBER 31, 1995 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (NO FEE REQUIRED)
For the period from __________ to __________
Commission file number 33-26398
ADVANCED MEDICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3492624
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9775 BUSINESSPARK AVE., SAN DIEGO, CALIFORNIA 92131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 566-0426
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
---------------- -------------------------
Common Stock, $0.01 par value American Stock Exchange
10% Cumulative Preferred Stock,
$0.01 par value American Stock Exchange
7 1/4% Convertible Subordinated
Debentures due 2002 American Stock Exchange
15% Subordinated Debentures due 1999 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
--------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES: /X/ NO:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [/X/]
The aggregate market value of the Common Stock held by nonaffiliates of the
registrant, computed by reference to the price at which such stock was last
sold, on March 21, 1996, was $33,349,459. Solely for purposes of this
calculation, persons beneficially owning more than 20% of the Company's common
stock, directors and officers beneficially owning 4,008,049 outstanding shares
of Common Stock, have been deemed affiliates.
As of March 21, 1996, registrant had 16,135,125 shares of its Common Stock
($0.01 par value) outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Advanced Medical, Inc. ("Advanced Medical" or the "Company") through its major
operating subsidiary, IMED Corporation ("IMED"), is a leading developer and
manufacturer of infusion systems and related technologies for the health care
industry. IMED is one of the largest manufacturers of intravenous infusion
instruments (which consist of pumps and controllers) and disposable
administration sets in the United States. The Company acquired IMED on April 2,
1990 and owns 90% of IMED's common stock (on a fully diluted basis).
Advanced Medical was incorporated on September 28, 1988 under the laws of the
State of Delaware.
A description of the business of IMED and the other enterprises which the
Company controls or in which the Company has invested is set forth below.
IMED CORPORATION
GENERAL
IMED is one of the largest manufacturers of intravenous infusion pumps and
disposable administration sets in the United States. IMED's infusion pumps are
used to deliver fluids, generally pharmaceuticals or nutritionals, to patients
in hospitals or in alternate-care sites, such as patients' homes or free-
standing outpatient clinics. IMED's pumps can be used only with IMED's
proprietary disposable administration sets, each of which consists of a plastic
pump interface and tubing. IMED's products are widely used in hospitals and
other patient care settings where accuracy and safety in fluid delivery and
monitoring are crucial. IMED has been an innovator in the intravenous
instrument market since developing the first volumetric pump in 1974. Its
infusion products in development incorporate recent innovations in
microprocessor and electromechanical technologies that are designed to reduce
instrument size and weight significantly. These innovations are also intended
to enhance clinical performance and simplify operation of IMED's products.
Management currently estimates that IMED has a domestic installed base of
approximately 96,000 infusion instruments, approximately 24,000 of which have
been leased to customers. Approximately 150 IMED proprietary disposable
administration sets are used per year with each pump. For the year ended
December 31, 1993, IMED's revenues attributable to pumps and to disposable
administration sets were $30.2 million and $78.8 million, respectively. For the
year ended December 31, 1994, such revenues were $25.2 million and $75.9
million, respectively. For the year ended December 31, 1995, such revenues were
$27.3 million and $77.1 million, respectively.
IMED's products are sold principally in the critical care segment of the
domestic hospital market. The Company is seeking to expand IMED's customer base
by taking advantage of opportunities it perceives in other areas of the domestic
hospital market and in the alternate-site and international markets for infusion
products. In October 1991, IMED sold certain European assets to Pharmacia AB
("Pharmacia"), a major European pharmaceutical company, and entered into a
marketing, distribution and development arrangement with Pharmacia, pursuant to
which IMED granted Pharmacia exclusive marketing and distribution rights for
IMED products in territories which include most of Europe. See "Marketing and
Sales -- INTERNATIONAL." In March 1992, IMED entered into a five-year
agreement with McGaw, Inc. ("McGaw") pursuant to which McGaw has an exclusive
right in the alternate-site market to market, sell and distribute IMED's
ReadyMED 50 mL, 100 mL and 250 mL lightweight disposable ambulatory infusion
pumps in the United States and Puerto Rico ("ReadyMED Agreement"). See
"Marketing and Sales -- DOMESTIC." On May 8, 1995, IMED entered into a
fifteen-year agreement with Debiotech SA ("Debiotech"), a privately held company
located in Lausanne Switzerland, pursuant to which Debiotech granted IMED the
exclusive right to distribute certain products in certain North and Central
American countries (the "Debiotech Agreement"). Debiotech's products are
expected to be sold in both the hospital and alternate-site markets. See
"Marketing and Sales -- DOMESTIC."
- ------------------------------
IMED-Registered Trademark-, Accuset-Registered Trademark-, Graviset-Registered
Trademark-, Microset-Registered Trademark-, Flo-Stop-Registered Trademark-,
Gemini-Registered Trademark-, Gemini PC-1-Registered Trademark-, Gemini PC-2-
Registered Trademark-, Gemini PC-4-Registered Trademark-, Gemini PC-2TX-
Registered Trademark-, PC-1-Registered Trademark-, PC-2-Registered Trademark-,
PC-4-Registered Trademark-, Autotaper-Registered Trademark-, Versataper-
Registered Trademark-, ReadyMED-Registered Trademark- and Versasafe are
registered trademarks of IMED. SAFSITE-Registered Trademark- is a registered
trademark of B. Braun, Inc.
2
<PAGE>
INFUSION THERAPY INDUSTRY
Infusion therapy generally involves the delivery of one or more fluids,
primarily pharmaceuticals or nutritionals, to a patient through an infusion line
inserted into the circulatory system. The intravenous infusion of fluids was
pioneered in the early 1900's and is now a frequent and sophisticated component
of patient care. Over the past 20 years, as both the reliance on intravenous
drug therapy and the potency of the drugs administered have increased, the need
for extremely precise administration and monitoring of intravenous fluids has
risen significantly.
The infusion therapy industry can be divided generally into two markets: the
hospital market and the alternate-site market. The hospital market can be
further divided into a critical care segment, which includes pediatric and adult
intensive care units (ICUs), coronary care and oncology units, operating rooms,
and a general care segment, which also includes hospital outpatient clinics.
The alternate-site market is comprised primarily of home health care and also
includes free standing clinics and skilled nursing facilities.
In recent years, a number of trends have affected the hospital market for
infusion products. Sophisticated treatments and technologies, often involving
more complex infusion therapies, now allow hospitals to treat more acutely ill
patients. Consequently, the average patient now requires a greater number of
intravenous lines and has a greater need for technologically advanced infusion
instruments. For example, while in 1985 a typical ICU patient required
approximately two instrumented intravenous lines, today it is not unusual for
such a patient to require four or more instrumented intravenous lines. Other
factors work to reduce demand for IMED products. Demand for disposable
administration sets, for example, depends on the frequency with which sets must
be changed. Many hospitals have introduced new clinical protocols increasing
the maximum time between disposable set changes for certain applications from
every 24 hours to as much as every 72 hours.
Complications associated with intravenous therapy are well recognized, and
technology to minimize patient risks and enhance safety of infusion systems is
increasingly demanded. One such complication is unintentional free-flow --
the unregulated flow of fluids into the patient. Unintentional free-flow can
result in severe patient injury or death. All of IMED's infusion products are
designed to prevent unintentional free-flow. Most of IMED's competitors have
incorporated a version of free-flow protection into some of their products.
As intravenous therapies have become more complex, the need for monitoring of
patients has increased. Implementation of cost containment measures by
hospitals has reduced the number of hospital personnel available to monitor
patients. Accordingly, health care providers have become increasingly aware of
the need for accuracy and safety features in infusion instruments. IMED's
products compete primarily on the basis of technological sophistication,
quality, accuracy, safety and flexibility in application.
Implementation of cost containment measures, including those relating to
Medicare reimbursement, has resulted in the treatment of less seriously ill
patients as outpatients, often in the alternate-site market. This growth in the
alternate-site market has stimulated the development of new infusion instrument
technology. In 1992, IMED introduced the ReadyMED which is a lightweight
disposable ambulatory infusion pump for the alternate-site market and on May 8,
1995, IMED entered into an agreement with Debiotech to distribute an
electromechanical ambulatory infusion pump designed for, among others,
alternate-site infusions. The Debiotech product is expected to be marketed in
1996. See "Marketing and Sales -- DOMESTIC."
INFUSION INSTRUMENTS
Infusion instruments may be classified according to the method by which they
deliver fluids. Controllers, which use gravity; and infusion pumps, which use
positive pressure. Controllers typically are nonvolumetric devices that
regulate flow by electronically counting drops rather than by measuring a
3
<PAGE>
specific volume of fluid. Since an equal number of drops of two different
fluids may represent significantly different fluid volumes, this method of
regulating flow is less accurate than volumetric methods. Drop-counting
controllers have generally been used to administer less critical fluids and
drugs that do not require precise volumetric measurement. IMED does not
currently market a traditional controller, but some of its products can be used
in a controller mode. See IMED Product Line -- INFUSION INSTRUMENTS.
Infusion pumps use positive pressure to overcome the resistance existing in
infusion sets and the back pressure generated by the patient's circulatory
system. Infusion pumps administer precise, volumetrically measured quantities
of fluids more accurately and over a wider range of infusion rates than drop-
counting controllers. For this reason infusion pumps are used with increasing
frequency to administer expensive, high-potency therapeutics. IMED has
concentrated its product offerings in infusion pumps.
Historically, controllers held a major share of the installed base of
instruments, principally because they were significantly less expensive than
pumps. As pump prices declined and their technological capabilities increased,
the purchasing trend has been toward pumps. As of the end of 1995, infusion
pumps represented approximately 97%, and controllers represented approximately
3%, of the installed base of infusion instruments in the U.S. hospital market
and less than 1% of the instruments sold in 1995 were controllers.
All intravenous pumps and controllers require the use of disposable
administration sets. A set consists of a plastic pump interface and tubing and
may have a variety of features including multiple entry ports for injecting
medications or combining several lines. Almost all of these sets, including
those manufactured by IMED, are proprietary and compatible only with their
particular manufacturer's line of intravenous infusion instruments.
IMED PRODUCT LINE
IMED manufactures and markets single channel (one intravenous line), dual
channel and four channel infusion instruments and disposable administration
sets. The Company estimates that IMED has a domestic installed base of
approximately 96,000 intravenous instruments, of which approximately 61,000 are
single channel instruments, approximately 31,000 are dual channel instruments
and approximately 4,000 are four channel instruments. Based upon past
experience and current usage patterns, the Company estimates that IMED's single
channel instruments use on average approximately 130 disposable administration
sets per year, its dual channel instruments use on average approximately 180
disposable administration sets per year and its four channel instruments use on
the average 275 disposable administration sets per year. For the year ended
December 31, 1993, disposable administration sets accounted for approximately
66%, and infusion instruments accounted for approximately 26%, of IMED's total
revenue. For the year ended December 31, 1994, disposable administration sets
accounted for approximately 68%, and infusion instruments accounted for
approximately 23%, of IMED's total revenue. For the year ended December 31,
1995, disposable administration sets accounted for approximately 69%, and
infusion instruments accounted for approximately 25%, of IMED's total revenue.
IMED's inventory levels reflect the need to deliver critical supplies
immediately and minimize back-ordered products. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
4
<PAGE>
The following table summarizes the key features and actual or estimated market
introduction dates of IMED's current infusion product line and products in
development. For sales information for IMED's major product groups, see "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION STATUS
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
INFUSION INSTRUMENTS
<S> <C> <C>
Piston Cassette Pumps Full line of single channel pumps. Various models introduced between
1974 and 1981
Peristaltic Pumps Single channel instrument with pump and Marketed since 1988
GEMINI PC-1 controller capability.
GEMINI PC-2 Dual channel instrument with pump and Marketed since 1987
controller capability.
GEMINI PC-2TX Dual channel instrument with pump and Marketed since May 1994
controller capability; programmable
drug delivery/dose calculations and
pressure history.
GEMINI PC-4 Four channel instrument with pump and Marketed since December 1992
controller capability; programmable
drug delivery/dose calculations and
pressure history.
Electromechanical Compact, mobile, light weight, multiple Market introduction estimated in
Ambulatory Pump therapy pump designed primarily for 1996.
ambulatory and alternate-site infusions
requiring device-based flow control.
ReadyMED Ambulatory Compact, disposable, lightweight 100 mL marketed since July
Infusion Pumps ambulatory infusion pump designed for 1992 and 50 mL and 250 mL
alternate-site use. introduced in 1993
Modular Infusion System Compact, flexible, lightweight modular Market introduction estimated in
infusion pump system with an adjustable 1997
hardware and software platform with
advanced programming capabilities.
DISPOSABLE ADMINISTRATION Proprietary administration sets for use Marketed and in development
SETS with each of IMED's existing and
proposed infusion instruments.
Needleless access systems Marketed in February 1995 and
in development
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
INFUSION INSTRUMENTS
PISTON CASSETTE PUMPS. Since 1974, IMED has manufactured and marketed various
models of volumetric piston cassette pumps which utilize IMED's Accuset,
Graviset or Microset disposable administration sets to regulate the flow of
fluid through a syringe-like mechanism. IMED's piston cassette pumps are as
accurate as its Gemini series of peristaltic pumps but do not have some of the
features of the Gemini series, such as multi-channel capability, programmable
drug delivery and the ability to operate either as a pump or a controller. The
installed base of piston cassette pumps is expected to decline in size over time
as customers replace piston cassette pumps with the Gemini product line or other
new technology offered by IMED or its competitors. IMED discontinued
manufacturing piston cassette pumps in the first quarter of 1995 and all revenue
related to piston cassette pumps subsequently recognized results primarily from
the shipment of reconditioned instruments.
5
<PAGE>
PERISTALTIC PUMPS -- GEMINI SERIES OF PUMPS. The Gemini series is a line of
peristaltic pumps that regulate fluid flow by means of a multi-finger-like
mechanism that alternately compresses sections of the tubing contained in the
pumping chamber. Peristaltic pumps represent the largest portion of IMED's
installed base of instruments. The family of Gemini pumps is based on the
foundation of a flexible hardware and software technology platform. This
technology platform has allowed incremental feature enhancements based on
evolving customer needs.
In late 1987, IMED introduced the Gemini PC-2, the first of its line of Gemini
pumps. The PC-2 has two channels that can be programmed from the pump's single
keypad. Each channel can operate independently and can be easily switched from
pump to controller mode without changing the disposable administration set.
In 1988, IMED introduced the Gemini PC-1, a single channel version of the PC-2.
The PC-1 can be programmed automatically to taper-up and taper-down infusion
rates to facilitate delivery of total parenteral nutrition therapy (the
intravenous administration of nutrients, such as proteins, carbohydrates, fats
and vitamins, in predigested form) and other complex drug-dosing regimens.
In 1989, IMED incorporated into the PC-1 a capability to operate in either micro
mode (0.1 to 99.9mL/hr) for use with neonatal patients, among others, or macro
mode (1 to 999mL/hr) for use with adult patients. This micro/macro capability,
which is not available in IMED's piston cassette pumps, was added to the PC-2
during the second quarter of 1991. During the same period, IMED incorporated
into the PC-2 a rapid rate titration feature, which allows rapid adjustments of
the flow rate in small increments and is designed for use in the operating room
and critical care settings. IMED incorporated rapid rate titration into the PC-
1 during the first quarter of 1992.
In 1992, IMED introduced the Gemini PC-4, a four channel version of the PC-1.
The PC-4 has all the features currently available with the PC-2 and, in
addition, offers such features as drug dose calculation and programmable drug
delivery to meet the special needs associated with intensive care, anesthesia
and oncology applications.
IMED introduced the PC-2TX, an enhanced version of the PC-2, in the second
quarter of 1994. The PC-2TX has all the features currently available with the
PC-2 and the PC-4 discussed previously and, in addition, offers enhanced
features such as pressure monitoring, pressure history and volume/time dosing.
IMED incorporated these enhanced features into the PC-4 during the fourth
quarter of 1994.
The Gemini series of instruments incorporates a patented pressure sensor system
within the peristaltic pumping mechanism. This technology permits the Gemini to
be operated as either a pump or a controller. When operated in the pump mode,
the Gemini automatically adjusts pressure settings to permit rapid detection of
occlusions (blockages) at all flow rates. The Gemini pressure sensor system
also allows an instrument to operate as a volumetric controller, thereby
eliminating the need for remote electronic drop sensing used in traditional
controllers. The Gemini technology significantly reduced the frequency of
nuisance alarms (alarms with no clinical significance) associated with patient
movement and transport. Nuisance alarms often occur during transport of
patients, when the IV bag can sway and cause the controller's remote electronic
drop sensor to monitor drop flow incorrectly.
Unintentional free-flow can result in severe patient injury or death. IMED
pioneered free-flow protection and all Gemini instruments use a patented Flo-
Stop mechanism in the disposable administration set, which is designed to
automatically clamp off the administration set to prevent unintentional free-
flow of fluids into the patient when the set is removed from an instrument.
Most of IMED's competitors have incorporated some version of free-flow
protection in their products.
6
<PAGE>
ELECTROMECHANICAL AMBULATORY PUMP. IMED has acquired exclusive United States
distribution rights for an ambulatory pump under the Debiotech Agreement. The
lightweight device is capable of multiple therapeutic applications including
continuous delivery, Total Parenteral Nutrition ("TPN") administration with
adjustable tapering regimes, intermittent dose delivery (for example,
intravenous antibiotics), and an analgesia mode which includes full PCA (Patient
Controlled Analgesia) and epidural functionality. Design criteria for the
development of this pump have included patient safety as well as ease of use for
medical and nonmedical personnel. This has resulted in a proprietary disposable
administration set which is simple to install and a display which guides the
user through pump operation.
The system includes many advanced features such as user adjustable air-in-line
sensitivity, automatic secondary delivery, and delayed start. In consideration
of evolving catheter technologies which have led to more restrictive patient
venous access, there are several levels of user selectable occlusion pressure
settings. In addition to its use in alternate-site care, the pump is well
suited for patient transport, post-operative ambulation, and transition from
hospital to home infusion therapies.
READYMED AMBULATORY INFUSION PUMPS. ReadyMED is a disposable, compact,
ambulatory device for the intravenous administration of antibiotics. The
ReadyMED pump is designed to offer a number of advantages over systems currently
in use for this purpose. With traditional systems, the patient must attach a
small bag and tubing set, through which the antibiotics are administered, to a
catheter placed in the patient's circulatory system. The patient must eliminate
all air from the system and set a manual rate adjustment clamp, a process that
generally must be repeated every four to six hours. Since traditional systems
are gravity driven, the bag must remain on an IV pole during infusion, thereby
restricting the patient's movement. The ReadyMED pump is provided to patients
pre-filled (in 50 mL, 100 mL and 250 mL sizes) and pre-primed, allowing infusion
to be initiated when the patient simply opens a clamp. In addition, since the
ReadyMED pump is small and uses positive pressure, the patient is able to carry
the device in a pocket or wear it on a belt.
MODULAR INFUSION SYSTEM. During the fourth quarter of 1993, IMED commenced
designing a modular infusion system as the basis for its next generation of
infusion instruments. In addition to all of the features available on the
Gemini series, the system is being designed to incorporate advanced programming
capabilities in a smaller system that is simpler to operate. A modular,
building-block design is intended to allow the user of the system to easily
combine a number of infusion instruments into an integrated multi-channel
delivery system tailored for a specific patient's needs.
The Company's strategy will be to unbundle certain hardware and software
features to stratify pricing and thus increase customer value. This will allow
flexibility in providing product configurations to meet the requirements of both
the domestic and international marketplaces. The design of this system is
intended to supply the best combination of price and performance by allowing an
extended product life cycle, improved asset utilization and lower cost per use
over the product life.
DISPOSABLE ADMINISTRATION SETS
The Company estimates that IMED has a domestic installed base of approximately
96,000 intravenous infusion instruments, each of which uses proprietary
disposable administration sets designed and manufactured only by IMED.
Disposable administration sets consist of a plastic pump interface and tubing
and have a variety of features, such as clamps for flow regulation and multiple
entry ports for injecting medications or combining several lines. Each of
IMED's current and proposed infusion instrument product lines uses disposable
sets designed for that particular product line.
Based upon past experience and current usage patterns, the Company estimates
that single channel pumps typically use approximately 130 disposable sets per
year, dual channel pumps typically use approximately 180 disposable sets per
year and its four channel instruments use on the average 275 disposable
administration sets per year. The rate at which disposables are used depends on
the utilization rate for the
7
<PAGE>
pump and the frequency with which sets must be changed, which in turn depends on
the therapy being administered. Certain hospitals have effected a change in
protocol increasing the maximum time between set changes for certain
applications from every 24 hours to as much as every 72 hours. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
IMED's disposable sets are designed to automatically stop or restrict the flow
of fluids when removed from an infusion instrument, protecting against
unintentional free-flow. Given the potency of medications administered to
seriously ill patients, the Company believes that this has become an
increasingly important feature in the infusion market. IMED pioneered free-flow
protection. Most of IMED's competitors have incorporated a version of free-flow
protection in some of their products. As a result, IMED improved its free-flow
protection and introduced into the market an enhanced Flo-Stop in late 1994.
There is increasing pressure by regulatory agencies, such as Occupational Safety
and Health Administration ("OSHA") and the Food and Drug Administration ("FDA"),
for more stringent control of needles in hospitals. OSHA requires that
hospitals must put in place systems to reduce the potential for accidental
needle sticks. The FDA recommends using needleless systems or protected needle
systems to replace hypodermic needles for accessing intravenous lines. IMED's
needleless strategy is a dual product line approach which incorporates the
ability to access IMED's administration sets without the use of needles, thus
reducing the potential for accidental needle sticks. The VersaSafe system
utilizes a blunt cannula device, combined with a split-septum "Y" site. IMED
has a non-exclusive license to the VersaSafe system which was a cooperative
development effort of IMED, Elcam Plastic of Israel and Medical Associates
Network. Additionally, IMED has entered into an agreement with B. Braun, Inc.
for the purchase of their SAFSITE-Registered Trademark- valve. The SAFSITE-
Registered Trademark- valve provides needle-free access through the use of a
standard male luer, eliminating the need for needleless blunt cannulae to access
the administration set. This parallel product strategy will satisfy IMED
customer requirements for needle-free systems, as well as assist its customers
in complying with OSHA standards.
MARKETING AND SALES
DOMESTIC. IMED supplies its infusion instruments and related proprietary
disposable administration sets to approximately 1,300 hospitals in the United
States. Sales are made primarily through IMED's experienced direct sales force
of approximately 54 sales representatives and regional managers. IMED's
domestic marketing efforts are supported by a staff of 16 nurses and pharmacists
who consult with customers with respect to evaluation, installation and use of
IMED products and provide ongoing clinical support. IMED operates six
instrument service centers from which service engineers provide product
maintenance and conduct training seminars.
In response to cost containment pressures, many hospitals have joined buying
groups that negotiate contracts with suppliers of medical products. These
contracts typically establish pricing structures for qualified vendors'
products. In many cases, qualification as an approved vendor to a buying group
is important in gaining access to the member hospitals. IMED has been approved
as a qualified vendor for a number of buying groups. IMED is actively seeking
contracts with additional groups.
IMED also sells its products to a number of alternate site care providers.
Management believes that this segment of the infusion market, although much
smaller than the hospital segment, should experience significant growth. In
1992, IMED introduced the ReadyMED, a lightweight disposable ambulatory infusion
pump, and entered into the ReadyMED Agreement with McGaw. IMED granted McGaw
exclusive right in the alternate-site market to market, sell and distribute
IMED's ReadyMED 50 mL, 100 mL and 250 mL lightweight disposable ambulatory
infusion pumps in the United States and Puerto Rico. On May 8, 1995, IMED
entered into the Debiotech Agreement, whereby Debiotech granted IMED the
exclusive right to distribute an electromechanical ambulatory infusion pump and
related disposables administration sets in certain North and Central American
countries.
8
<PAGE>
Approximately 24,000 of IMED's 96,000 domestic installed base of infusion
instruments are leased to customers. IMED's leases have terms ranging from one
to six years and generally provide the customers with a purchase option at the
end of the lease term. In the case of some customers who lease infusion
instruments, the related supply agreements for disposables also provide for the
purchase of minimum quantities at agreed prices. As of December 31, 1995,
disposables relating to approximately 18,000 instruments were being sold under
such agreements.
IMED does not rely on one or a small number of customers. In 1995, no single
customer accounted for more than 3% of IMED's sales. For information concerning
domestic and foreign sales, see "Item 8. Financial Statements and Supplementary
Data -- Note 14 to the Consolidated Financial Statements."
INTERNATIONAL. In 1995, approximately 9% of IMED's sales were made to customers
by its foreign subsidiaries. These sales were concentrated in Australia
(approximately 60%) and Canada (approximately 40%). Additionally, products
exported in 1995 from IMED's domestic operation to unaffiliated customers were
approximately 9% of sales.
In October 1991, IMED sold certain European assets to Pharmacia and entered into
a marketing, distribution and development arrangement with Pharmacia, pursuant
to which Pharmacia obtained the exclusive right to market and distribute IMED's
infusion products in a territory that includes most of Europe. IMED supplies
its pumps and related proprietary disposable administration sets to hospitals
outside the United States (excluding territories served by Pharmacia) through a
combination of 11 direct sales representatives and a network of 38 dealers.
On August 12, 1994, Advanced Medical, IMED and Pharmacia amended their
distribution agreement. Under the terms of the Amended and Restated
Distribution Agreement ("Amended Distribution Agreement"), Pharmacia retains the
exclusive right (subject to certain exceptions) to distribute IMED's infusion
products in the territory that includes most of Europe. Under the Amended
Distribution Agreement, Pharmacia has the right not to distribute certain
products currently under development by IMED. In the event of such an election,
IMED has the right to sell such products directly or through others, and under
certain circumstances, has the right to repurchase from Pharmacia the
distribution rights to IMED products currently distributed by Pharmacia in the
territory. In addition, Pharmacia has the right to terminate the Amended
Distribution Agreement at any time on 12 months notice, in which event Pharmacia
would be required to make a payment of $2.5 million to IMED and IMED would be
required to make payments to Pharmacia based on net sales of products currently
distributed by Pharmacia for the 4 years following termination.
COMPETITION
The primary market for IMED's existing products is mature and highly
competitive. IMED's primary domestic competitors are major diversified health
care companies with greater financial and other resources than IMED. Management
believes that IMED's products, which are in the upper price range of infusion
products, compete primarily on the basis of technical sophistication, quality,
accuracy, safety and flexibility of application. IMED's competitors engage in a
strategy of offering their products at reduced prices in order to enhance their
market share positions. Two of IMED's largest domestic competitors, Abbott
Laboratories ("Abbott") and Baxter Healthcare Corporation ("Baxter"), offer
customers volume discounts based on purchases of a broad range of their medical
equipment and supplies, including infusion instruments and intravenous
solutions, a strategy that IMED is unable to pursue.
According to industry sources, as of December 31, 1995, IMED together with IVAC
Corporation ("IVAC"), Abbott, Baxter and McGaw accounted for approximately 94%
of the U.S. installed base of instrument channels.
9
<PAGE>
IMED sells infusion instruments which are multi-channeled. According to
industry sources, IMED had the fourth largest installed base of instrument
channels as of December 31, 1995 with a market share of 19.5%, behind Baxter
(25.3%), IVAC (21.7%), Abbott (21.6%) and ahead of McGaw (6.2%). For the year
ended December 31, 1995, IMED was third in the domestic placement of new
infusion instrument channels with a market share of 16.1%, Baxter was first
(28.3%), Abbott was second (28.1%), IVAC was fourth (15.5%) and McGaw was fifth
(6.3%). See "Marketing and Sales -- INTERNATIONAL" for information concerning
the foreign markets in which IMED competes.
RESEARCH AND DEVELOPMENT
IMED engages in product design, engineering, development and performance
validation to enhance its existing products and to develop new products. IMED
expended approximately $5.5 million, $6.3 million and $7.4 million on in-house
research and development for the years ended December 31, 1993, 1994 and 1995,
respectively. In addition, the Company expended $3.6 million for the year ended
December 31, 1993 on early-state and new products research and development
performed by an outside contractor.
During the fourth quarter of 1993, IMED's product development process was re-
engineered to utilize concurrent engineering and cross-functional development
teams (R&D, marketing, manufacturing, etc.). Management believes the new
development process will reduce product development time, improve product
manufacturability, and meet customers' needs. The increase in IMED's research
and development expenses in 1995 resulted primarily from the costs of additional
personnel.
MANUFACTURING
IMED's instrument manufacturing facility is located in San Diego, California. A
contractor provides IMED with assembly services for disposable administration
sets in Tijuana, Mexico. The agreement between IMED and the contractor may be
terminated by either party on 90 days' notice and requires that IMED pay the
contractor an hourly rate per employee hour worked on assembly of IMED products.
At the end of 1995, approximately 96% of IMED's completed disposable
administration sets were assembled at the Tijuana facility.
During 1994, IMED sold its Irish manufacturing facility to Pharmacia. The Irish
manufacturing facility primarily produced molded components used to assemble
disposable administration sets. In connection with the sale of the Irish
manufacturing facility, IMED entered into an agreement with Pharmacia for the
purchase, at fixed prices, of minimum quantities of disposable administration
sets and components used to assemble disposable administration sets for three
years, effective January 1, 1994. See Note 2 to the Consolidated Financial
Statements.
The raw materials used in IMED's production process are available from several
suppliers. IMED generally has an alternate supplier for its raw materials or
can readily replace the primary supplier. Although IMED is generally not
dependent upon any single source of supply, it has chosen to rely upon a single
supplier for certain components used in its infusion pumps and disposable
administration sets. Although the Company believes that IMED can find an
alternate supplier for these components, the loss of any such supplier could
result in a temporary interruption in the manufacturing of its instruments and
disposables.
PATENTS AND PROPRIETARY RIGHTS
IMED's policy is to secure patent protection for significant innovations. IMED
currently holds 102 unexpired patents in the United States and in foreign
countries, principally in Europe, Canada, Japan and Australia. Additional
applications are pending or in preparation. In addition, Advanced Medical
currently holds 44 unexpired patents granted in the United States and various
foreign countries which it has licensed to IMED on an exclusive worldwide basis
for $ 1.1 million annually. The patents owned or licensed to IMED which the
Company deems material to IMED's operations expire at various times through
2010.
10
<PAGE>
There can be no assurance that the patents on which IMED principally relies will
not be invalidated or that any issued patent will provide protection that has
commercial significance. Litigation may be necessary to protect IMED's patent
position. Such litigation can be costly and time consuming, and there can be no
assurance that IMED would be successful if such litigation were instituted. The
invalidation of patents owned by or licensed to IMED could have a material
adverse effect on IMED.
IMED sells its products under a variety of trademarks, some of which are
considered by IMED to be of sufficient importance to warrant registration in the
United States and various foreign countries in which IMED does business. IMED
also relies on trade secrets, unpatented know-how and continuing technological
advancement to maintain its competitive position. It is IMED's practice to
enter into confidentiality agreements with key technical employees and
consultants. There can be no assurance, however, that these measures will
prevent the unauthorized disclosure or use of IMED's trade secrets and know-how
or that others may not independently develop similar trade secrets or know-how
or obtain access to IMED's trade secrets, know-how or proprietary technology.
GOVERNMENT REGULATION
The research, development, testing, production and marketing of IMED's products
are subject to extensive governmental regulation in the United States and
certain other countries. Non-compliance with applicable requirements may result
in recall or seizure of products, total or partial suspension of production,
refusal of the government to allow clinical testing or commercial distribution
of products, civil penalties or fines and criminal prosecution.
The Food and Drug Administration ("FDA") regulates the development, production,
distribution and promotion of medical devices in the United States. Virtually
all of the products being developed, manufactured and sold by IMED (and products
likely to be developed, manufactured or sold in the foreseeable future) are
subject to regulation as medical devices by the FDA. Pursuant to the Federal
Food, Drug and Cosmetic Act (the "FDA Act"), a medical device is classified as
either a Class I, Class II or Class III device. Class I devices are subject to
general controls, including registration, device listing, recordkeeping
requirements, labeling requirements and "Good Manufacturing Practices" (as such
term is defined in the FDA Act). In addition to general controls, Class II
devices may be subject to special controls that could include performance
standards, postmarket surveillance, patient registries, guidelines,
recommendations and other actions as the FDA deems necessary to provide
reasonable assurance of safety and effectiveness. Class III devices must meet
the most stringent regulatory requirements and must be approved by the FDA
before they can be marketed. Such premarket approval can involve extensive pre-
clinical and clinical testing to prove safety and effectiveness of the devices.
Virtually all of IMED's products are Class II devices. IMED is not currently
developing, manufacturing or distributing any Class III devices, although it may
do so in the future. All medical devices introduced to the market since 1976
are required by the FDA, as a condition of marketing, to secure a 510(k)
premarket notification clearance ("510(k)"). A product qualifies for a 510(k)
if it is substantially equivalent in terms of safety, effectiveness and intended
use to another legally marketed medical device. If a product is not
substantially equivalent to such a device, the FDA must first approve a
Premarket Approval Application ("PMA") before it can be marketed. An approved
PMA application indicates that the FDA has determined the device has been
proven, through the submission of clinical data and manufacturing information,
to be safe and effective for its labeled indications. The PMA process typically
takes more than a year and requires the submission of significant quantities of
clinical data and supporting information, while the process of obtaining a
510(k) typically takes less than one year and involves the submission of less
clinical data and supporting information. Management believes that IMED's
proposed products described under "IMED Product Line" should qualify for the
510(k) procedure.
11
<PAGE>
At present, all of IMED's products and manufacturing facilities and all phases
of its manufacturing and distribution process are subject to pervasive and
continuing regulation by the FDA. Labeling and promotional activities are
subject to scrutiny by the FDA and, in certain instances, by the Federal Trade
Commission. The export of infusion products is also subject to regulation. In
complying with the standards set forth in these regulations, manufacturers must
continue to expend time, money and effort in the areas of production and quality
systems to ensure full technical compliance. Failure to comply subjects the
manufacturer to possible FDA action, such as recall or seizure of the product or
the suspension of manufacturing of the product. IMED's manufacturing facilities
are subject to periodic inspections by the FDA and the Food and Drug Branch of
the California Department of Health Services, as well as by several foreign
governments. If significant violations of applicable regulations are noted
during these inspections, the continued marketing of any product manufactured by
IMED may be adversely affected.
Medical Device Reporting ("MDR") regulations obligate IMED to provide
information to the FDA on serious injuries or death which may have been
associated with the use of a product or in connection with certain product
malfunctions which could potentially cause injury. If, as a result of FDA
inspections, MDR reports or other information, the FDA believed that IMED was
not in compliance with the law, the FDA could institute proceedings to detain or
seize products, enjoin future violations, or assess civil or criminal penalties
against IMED, its officers and employees. In addition, if the FDA believed any
of IMED's products presented a potential health hazard, the FDA could also
require IMED to notify the users to cease use of the product, and could require
IMED to recall, or repair or replace, or refund to the user the cost of, such
product. To date, IMED and its products have not been the subject of such FDA
enforcement action, although MDR reports with respect to the Company's products
have been filed in the past. From time to time, the Company has voluntarily
recalled products to make repairs and enhancements/upgrades to its products and
may do so in the future as circumstances warrant. Any enforcement action by the
FDA could result in a disruption of IMED's operations for an undetermined period
of time.
IMED is also subject to foreign regulatory authorities. Whether or not FDA
market clearance has been obtained, registration of a product by comparable
regulatory authorities of foreign countries must be obtained prior to the
commencement of marketing of the product in those countries. The approval
process varies from country to country, and the time required may be longer or
shorter than that required by the FDA.
The European Union ("EU") has developed a new approach to the regulation of
medical products which significantly changes the way products are regulated in
these countries. The EU's medical device directive establishes a set of
regulatory requirements for medical devices sold in Europe.
IMED is subject to regulation by the OSHA and the Environmental Protection
Agency ("EPA") and their state and local counterparts. IMED, like most medical
device manufacturing companies, is subject to regulation under the Toxic
Substances Control Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act and other
environmental regulatory statutes and may in the future be subject to other
federal, state or local regulations. Either one or both of OSHA and the EPA or
their state or local counterparts may promulgate regulations that may affect
IMED's development or manufacturing programs. The Company is unable to predict
whether any agency will adopt any regulation or take other action which would
have a material adverse effect on IMED's operations, and there can be no
assurance that changes in such regulations will not impose the need for
additional capital expenditures or other requirements. Compliance with federal,
state and local environmental and employee health safety laws has not had a
material effect on the capital expenditures, earnings and competitive position
of IMED, and management does not anticipate that it will make any material
capital expenditures for environmental control facilities in the near future.
12
<PAGE>
Heightened public awareness and concerns regarding the growth in overall health
care expenditures in the United States may result in the enactment of national
health care reform or other legislation affecting payment mechanisms and health
care delivery. Legislation which imposes limits on the number and type of
medical procedures which may be performed or which has the effect of restricting
a provider's ability to select specific devices or products for use in
administrating medical care may adversely impact the demand for the Company's
products. In addition, legislation which imposes restrictions on the price
which may be charged for medical products may adversely affect the Company's
results of operations. However, it is not possible to predict the extent to
which the Company or the health care industry in general may be adversely
affected by the aforementioned in the future.
EMPLOYEES
As of February 29, 1996, IMED employed a work force of 545 individuals. Of
these employees, 429 were located in San Diego, 85 were located in the field in
the United States and 31 were located in foreign locations. In addition, IMED's
contractor in Tijuana employed approximately 444 employees who assemble certain
IMED disposable products. Of IMED's employees, 50 were engaged in product
development. IMED's employees are not represented by a union.
Management considers IMED's relationship with its employees to be good and is
not aware of any problems with respect to the work force employed in Tijuana.
DESCRIPTION OF OTHER HOLDINGS
ALTEON, INC. ("ALTEON")
Alteon is a development stage pharmaceutical company engaged in the discovery
and development of novel therapeutic and diagnostic products for the
complications associated with diabetes and aging. Alteon's present focus is on
the development of compounds to treat the major complications of diabetes, which
include diseases of the kidney, cardiovascular system, nervous system and the
eye.
The Company owns 432,600 shares of Alteon common stock, which represented less
than 5% of the issued and outstanding shares of Alteon common stock on a fully
diluted basis as of December 31, 1995. On October 1, 1993, the Alteon shares
owned by the Company were registered under the Securities Act of 1933. The
Alteon common stock owned by the Company is pledged to secure senior debt.
Under the terms of senior debt agreements, the Company is permitted to sell such
shares, see" Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
FIDATA CORPORATION
At the time of the Company's acquisition of Fidata in 1989, Fidata had cash but
no operations, and its business primarily consisted of defending and settling
claims and liquidating its business. Fidata disposed of substantially all of
its businesses in 1985 and 1986. As of this date, Fidata has settled
substantially all of the claims against it and is continuing to wind down its
business which is expected to be completed in 1996.
COMPANY EMPLOYEES
The Company's operations are supported by persons employed by IMED. The
Company's principal offices are located in San Diego, California.
ITEM 2. PROPERTIES.
Pursuant to five separate leases, IMED rents a total of approximately 189,000
square feet in San Diego, California. These facilities house Advanced Medical's
principal executive offices, IMED's principal executive offices, engineering and
development facilities and IMED's approximately 104,000 square foot
13
<PAGE>
domestic manufacturing and warehouse operations. One of the leases for the San
Diego facility provides for termination by either IMED or the landlord on six
months' notice. The remaining leases have terms expiring at various times
through 1997 and have varying clauses providing for renewal at IMED's option.
In addition, the disposable administration sets assembly is provided by a
contractor in a 41,190 square foot facility in Tijuana, Mexico.
During the fourth quarter of 1993, IMED adopted a plan to reduce its facilities
in San Diego by approximately 27,000 square feet. This plan was completed in
1995.
Fidata leases approximately 200 square feet of office space in New York, New
York. The Company is renting space on a monthly basis until the wind down is
complete.
ITEM 3. LEGAL PROCEEDINGS.
On March 19, 1996, the Company entered into a memorandum of understanding with
respect to the settlement of an action commenced in the Court of Chancery of the
State of Delaware (the "Court"). The action was originally filed on October 17,
1995 as a class action lawsuit on behalf of holders of the Company's 10%
cumulative preferred stock and asserted, among other things, claims for breach
of contract against the Company and others based on the Company's failure to
redeem its outstanding shares of 10% preferred stock. As subsequently amended,
the action also asserted claims on behalf of holders of the Company's common
stock, both as a class and on a derivative basis, with respect to certain
transactions between the Company and certain persons related to it.
Pursuant to the memorandum of understanding, the Company will: (1) agree to
redeem its outstanding 10% preferred stock for a price of $10.00 per share, plus
accrued dividends, less amounts (not to exceed $1.50 per share), if any, awarded
by the Court as fees to counsel for the plaintiffs; (ii) amend its bylaws to
provide that the Company will not enter into a material related party
transaction with any control person without the approval of a special committee
advised by independent counsel, and at the request of such committee, an
independent financial advisor; and (iii) not object to an award of up to $.5
million in attorneys' fees to be paid by the Company to plaintiff's counsel in
connection with the settlement of action. The settlement is subject to
negotiation of a definitive agreement and to approval of the Court.
The Company is a defendant in a QUI TAM lawsuit filed by a former IMED employee
in the United States District Court for the Northern District of Illinois which
alleges fraud in the inducement, breach of employment contract, violation of the
Illinois Sales Representative Act, common law fraud, RICO and violations of the
Federal False Claims Act and Medicare Fraud and Abuse Act. To date, the United
States has declined to intervene in this action. On January 3, 1996, counsel
for plaintiff voluntarily dismissed the complaint with leave to file an Amended
Complaint. An Amended Complaint, alleging substantially the same matters, was
filed on February 22, 1996. The Company believes that it has sufficient
defenses to all claims by the plaintiff.
The Company is a defendant in various other actions, claims, and legal
proceedings arising from normal business operations. Management believes they
have meritorious defenses and intends to vigorously defend against all
allegations and claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is listed on the American Stock Exchange under the
symbol AMA. The following table sets forth the high and low last reported sale
prices for the common stock of the Company as reported by the American Stock
Exchange for the quarters indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994:
First Quarter. . . . . . . . . . . . . . $ 1 7/16 $ 1
Second Quarter . . . . . . . . . . . . . 1 3/4 5/8
Third Quarter. . . . . . . . . . . . . . 1 7/16 1/2
Fourth Quarter . . . . . . . . . . . . . 2 1/2 7/8
1995:
First Quarter. . . . . . . . . . . . . . 3 7/8 1 3/4
Second Quarter . . . . . . . . . . . . . 2 13/16 2 3/16
Third Quarter. . . . . . . . . . . . . . 3 3/8 1 15/16
Fourth Quarter . . . . . . . . . . . . . 3 5/16 2 5/8
</TABLE>
As of March 21, 1996, there were 532 holders of record of the Company's common
stock.
The Company has not paid any dividends on its common stock since its
organization, and it is not contemplated that it will pay any dividends on the
common stock in the foreseeable future. The Company is prohibited from
declaring and paying dividends on the common stock under certain debt agreements
and pursuant to the terms of its convertible preferred stock. In addition, the
Amended IMED Loan Agreement limits IMED's ability to declare and pay dividends
and to make other distributions and payments to the Company. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company did not declare and pay the September 1993, March 1994, September
1994, March 1995, September 1995 and March 1996 dividends and the March 1994
redemption on its 10% mandatorily redeemable preferred stock, $.01 per share par
value ("10% Preferred Stock"). As a result, the 10% Preferred Stock
shareholders are entitled to elect, as a class, two members to the Company's
board of directors. See "Item 3. Legal Proceedings."
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical consolidated financial data of the Company at
December 31, 1991, 1992, 1993, 1994 and 1995, and for the years then ended, have
been derived from the Company's annual financial statements including the
consolidated balance sheets at December 31, 1994 and 1995 and the related
consolidated statements of operations for the three years ended December 31,
1995 and notes thereto which appear elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------------------------
1991(1) 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(dollars and share amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . $ 127,131 $ 128,286 $ 119,417 $ 111,681 $ 112,110
Cost of sales. . . . . . . . . . . . . . . . . . . . . . 71,008 72,952 72,209 65,590 63,219
--------- --------- --------- --------- ---------
Gross margin . . . . . . . . . . . . . . . . . . . . . . 56,123 55,334 47,208 46,091 48,891
License fee revenue. . . . . . . . . . . . . . . . . . . 91 356 441 441 441
Total operating expenses (3) . . . . . . . . . . . . . . (55,584) (44,918) (47,118) (33,941) (34,614)
--------- --------- --------- --------- ---------
Income from operations . . . . . . . . . . . . . . . . . 630 10,772 531 12,591 14,718
Interest expense . . . . . . . . . . . . . . . . . . . . (16,951) (11,617) (10,880) (8,690) (8,153)
Interest income. . . . . . . . . . . . . . . . . . . . . 2,012 2,637 2,767 2,526 2,525
Other (expense) income, net. . . . . . . . . . . . . . . 1,940 2,285 2,065 1,136 313
--------- --------- --------- --------- ---------
Income (loss) before income taxes, minority
interests, extraordinary item and cumulative
effect of change in accounting principle (2) (6) . . (12,369) 4,077 (5,517) 7,563 9,403
Provision (benefit) for income taxes . . . . . . . . . . 2,204 1,956 926 1,886 (9,374)
--------- --------- --------- --------- ---------
(14,573) 2,121 (6,443) 5,677 18,777
Minority interests in consolidated subsidiaries. . . . . (1,781) (4,565) 3,755 (6,500)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle . . . . . . (16,354) (2,444) (2,688) 5,677 12,277
Dividends and accretion on mandatorily redeemable
preferred stock. . . . . . . . . . . . . . . . . . . 2,249 1,832 1,387 874 650
--------- --------- --------- --------- ---------
Income (loss) applicable to common stock before
extraordinary item and cumulative effect of
change in accounting principle . . . . . . . . . . . $ (18,603) $ (4,276) $ (4,075) $ 4,803 $ 11,627
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per common share before extraordinary
item and cumulative effect of change in accounting
principle assuming no dilution . . . . . . . . . . . $ (1.55) $ (.30) $ (.29) $ .34 $ .74
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per common share before extraordinary
item and cumulative effect of change in accounting
principle assuming full dilution . . . . . . . . . . $ (1.55) $ (.30) $ (.29) $ .22 $ .37
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding
assuming no dilution . . . . . . . . . . . . . . . . 12,012 13,962 14,073 14,069 15,755
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding
assuming full dilution . . . . . . . . . . . . . . . 12,012 13,962 14,073 24,099 33,183
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1991(1) 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 3,039 $ 2,443 $ 1,762 $ 1,340 $ 1,862
Working capital (deficit). . . . . . . . . . . . . . . . (10,958) 4,246 (2,833) 29,576 31,938
Total assets . . . . . . . . . . . . . . . . . . . . . 168,654 177,496 142,891 132,124 169,630
Short-term debt (4) (5). . . . . . . . . . . . . . . . . 29,569 34,382 35,815 1,214 322
Long-term debt (2) (4) (5) (6) (7) . . . . . . . . . . . 66,525 83,821 70,999 91,803 86,789
Mandatorily redeemable equity securities . . . . . . . . 18,187 9,451 6,478 6,567 7,217
Stockholders' (deficit) equity (6) (8) . . . . . . . . . (18,093) (8,560) (8,274) (2,238) 31,532
</TABLE>
16
<PAGE>
(1) In June 1991, Controlled Therapeutics Corporation, formerly a wholly-owned
subsidiary of the Company, ceased operations and in October 1991 IMED sold
its European operations. These transactions affect the comparability of
the 1991 data to 1992.
(2) On October 29, 1991, the Company repaid $13,000 of subordinated debt and
recorded a $1,236 extraordinary loss on this extinguishment of debt. On
January 31, 1992 the Company repaid and restructured its debt and recorded
a $8,632 extraordinary loss on extinguishment of debt.
(3) In 1991 and 1993 the Company restructured its operations. Included in
operating expenses for the years ended December 31, 1991 and 1993 include
restructuring charges of $2,000 and $5,413, respectively.
(4) In January 1992, the Company issued 7 1/4% convertible subordinated
debentures in the principal amount of $60,000 and 500 shares of its common
stock at $15.375 per share. For further discussion, see Note 6 to the
Consolidated Financial Statements.
(5) In August 1994, IMED amended its Loan Agreement with General Electric
Capital Corporation ("GECC"). For further discussion, see Note 6 to the
Consolidated Financial Statements.
(6) In 1995, the Company completed exchanges wherein $43,848 of the Company's 7
1/4% convertible subordinated debentures were exchanged for an aggregate of
$21,924 of the Company's 15% subordinated debentures and 2,062 shares of
the Company's common stock. As a result of these transactions the
Company's long term debt was reduced $21,924 and the Company recorded an
extraordinary gain on extinguishment of debt of $15,177. For further
discussion, see Note 6 to the Consolidated Financial Statements.
(7) On December 4, 1995, the Company issued a $25,000 secured promissory note.
For further discussion, see Note 6 to the Consolidated Financial
Statements.
(8) The Company has never paid dividends on its common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Advanced Medical is a holding company for IMED, Fidata and several investments.
It also identifies and evaluates potential acquisitions and investments and
performs various corporate functions. As a holding company, Advanced Medical
currently has no revenues to fund its operating and interest expense and relies
on cash generated by cash flow from IMED, external borrowings, sale of
investments and other external sources of funds to meet its obligations.
The following discussion and analysis should be read in conjunction with "Item
6. Selected Financial Data," and "Item 8. Financial Statements and Supplementary
Data" included elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
Management currently believes that sufficient cash will be available through
IMED, based upon current operations, to satisfy debt service and other corporate
expenses of Advanced Medical in the foreseeable future. In particular, the loan
agreement between IMED and GECC ("Amended Loan Agreement") permits IMED to
transfer to Advanced Medical up to $9.25 million annually to fund Advanced
Medical's cash requirements.
17
<PAGE>
In 1995, IMED's cash flow from operations was $24.0 million which was used for
(i) repayments of $7.8 million under the revolving credit facility, (ii)
advances of $7.6 million to Advanced Medical, as permitted under the Amended
Loan Agreement, (iii) payments of $3.4 million for the Debiotech Agreement, and
(iv) capital expenditures of $4.8 million. In addition to IMED's cash flow from
operations, IMED has readily available financial resources under a $38.5 million
revolving credit facility. IMED relies on cash generated from operations,
together with funds available from the revolving credit facility, to fund its
working capital requirements, interest on the GECC credit facility, capital
expenditures and transfers to Advanced Medical.
In addition to financial resources available to IMED from operations and the
revolving credit facility, management considered it important for Advanced
Medical to maintain financial resources to take advantage of growth and
investment opportunities. Accordingly, on December 4, 1995, the Company
borrowed $25.0 million from Decisions Incorporated ("Decisions") (the "$25.0
Million Note"). The $25.0 Million Note bears interest at 7% per annum and is
payable on January 4, 2001. The $25.0 Million Note is convertible at the option
of the holder into up to 9.524 million shares of Common Stock at a conversion
price of $2.625 per share (subject to antidilution protection). The proceeds
from the $25.0 Million Note, which are classified as restricted cash
(noncurrent) in the consolidated balance sheet are limited in use (i) to acquire
or assist the Company to acquire any business or line of business, (ii) to
invest in or acquire any securities (or right to acquire any securities) of IMED
any other affiliate of the Company or any other entity (other than the Company),
(iii) for the payment of principal and interest on the $25.0 Million Note or
the other $12.5 million of borrowings from Decisions, or (iv) to pay any and all
costs and expenses incurred in connection with the foregoing activities.
Advanced Medical considers its investments in the common stock of Alteon, Inc.
("Alteon") to be a significant source of capital and liquidity. Under loan
agreements, the Alteon common stock holdings and the proceeds from any sales are
pledged as security and are restricted to the satisfaction of working capital
requirements. As of December 31, 1995, the Company owned 432,600 shares of
Alteon common stock which had an aggregate market value of approximately $7.0
million based upon the closing price per share on the NASDAQ National Market
System ("NASDAQ"). Prices obtainable in any private sales of such securities
are likely to be lower than those quoted on the NASDAQ. Alteon is engaged in
the research and development of medical and pharmaceutical products and as such
has not yet successfully brought products to the market. Therefore, failure of
Alteon to develop and market their products successfully could adversely affect
the ability of the Company to dispose of its investments therein upon favorable
terms.
During 1995, the Company completed transactions wherein $43.8 million, or
approximately 73%, in principal amount of the Company's 7 1/4% Convertible
Subordinated Debentures due 2002 were exchanged for an aggregate of $21.9
million in principal amount of newly created 15% subordinated Debentures due
1999 and 2.062 million shares of the Company's common stock ("Common Stock").
As a result of these transactions, the Company's long term debt was reduced
$21.9 million and shareholders' equity increased $20.1 million. See Note 6 to
the Consolidated Financial Statements. As a result of the aforementioned
transactions, coupled with the Company's increased profitability and cash flow,
net borrowings (the Company's borrowings less cash) decreased by more than $30
million during 1995.
The Company had working capital of $29.6 million as of December 31, 1994
compared with working capital of $31.9 million as of December 31, 1995. The
increase in working capital from December 31, 1994 to December 31, 1995 resulted
from an increase in the market value of securities available for sale and an
increase in receivables. The increase in working capital was partially offset
by reductions in finished goods inventory levels due to a better matching of
production and sales volumes in 1995.
18
<PAGE>
The Company did not pay the March 28, 1994 mandatory redemption of all
outstanding shares of 10% Preferred Stock and has not declared and paid
dividends since March 1993. As of December 31, 1995, there were 329,913 shares
of 10% Preferred Stock currently outstanding with a liquidation preference of
$10 per share and accrued and unpaid dividends were approximately $.9 million.
In addition to the 10% Preferred Stock as of December 31, 1995, there were
333,000 shares of 15% convertible preferred stock currently outstanding with a
liquidation preference of $6.40 per share and accrued and unpaid dividends were
approximately $.9 million. Since the Company has obtained the consent of the
holders of the $25 Million Note to do so, the Company intends to redeem the
outstanding 10% Preferred Stock, the 15% convertible preferred stock and to pay
all accrued dividends thereon, in the near future from a portion of the proceeds
from the $25.0 Million Note. See "Item 3. Legal Proceedings."
In connection with borrowings associated with the IMED acquisition, IMED issued
to GECC a warrant to acquire at a de minimis price common shares equal to 10%,
on a fully diluted basis of the common stock of IMED. The IMED warrant is
redeemable at the option of GECC until August 12, 2004 at the higher of fair
value or fully-diluted net book value at the redemption date. Additionally,
IMED has the option to redeem not less than 25% of the warrant, or warrant stock
if the warrant is exercised. The Company's liquidity would be adversely
affected, and financial resources would be significantly reduced in the event
GECC exercises its mandatory redemption rights. However, the Company believes
it has sufficient borrowing capacity and readily available financial resources
under the $25.0 Million Note to acquire the IMED warrant.
RESULTS OF OPERATIONS
The comparability of the Company's consolidated results of operations for the
three years ended December 31, 1995 is significantly affected by (i) the plan
adopted by the Company in 1993 to sell its Irish manufacturing facility and (ii)
the restructurings of the Company's operations in 1993. See Notes 2 and 13 to
the Company's Consolidated Financial Statements.
The Company's sales, cost of sales, and selling expenses for the historical
periods shown consist exclusively of IMED's sales, cost of sales and selling
expenses and are presented in the table below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
U.S. sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.6 $ 90.8 $ 91.7
International sales. . . . . . . . . . . . . . . . . . . . . 17.3 18.3 20.4
Discontinued IMED Irish Operations (1) . . . . . . . . . . . 1.5 2.6
------- ------- -------
Total sales. . . . . . . . . . . . . . . . . . . . . . . . $ 119.4 $ 111.7 $ 112.1
------- ------- -------
------- ------- -------
Total sales. . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . 60.5 58.8 56.4
------- ------- -------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 39.5% 41.2% 43.6%
------- ------- -------
Selling expenses . . . . . . . . . . . . . . . . . . . . . . $ 18.9 $ 16.9 $ 16.6
------- ------- -------
------- ------- -------
Selling expenses as a percentage of sales. . . . . . . . . . 15.8% 15.1% 14.8%
------- ------- -------
------- ------- -------
</TABLE>
(1) Represents revenue associated with Pharmacia products manufactured in
IMED's Irish Manufacturing Facility ("IMED Ireland") for Pharmacia during
1993 and 1994 that has discontinued due to the sale of IMED Ireland in
August 1994.
19
<PAGE>
SALES
The following table sets forth IMED sales by major product groups, for the
periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Piston Cassette Disposables. . . . . . . . $ 30.8 $ 22.1 $ 16.6
Peristaltic Disposables. . . . . . . . . . 48.0 53.8 60.5
Piston Cassette Pumps. . . . . . . . . . . 1.7 .7 .5
Peristaltic Pumps. . . . . . . . . . . . . 26.4 22.5 25.3
ReadyMED . . . . . . . . . . . . . . . . . 3.8 3.5 2.5
Pharmacia product manufactured in Ireland. 1.5 2.6
Other (1). . . . . . . . . . . . . . . . . 7.2 6.5 6.7
------ ------ ------
Total. . . . . . . . . . . . . . . . . . . $119.4 $111.7 $112.1
------ ------ ------
------ ------ ------
- ----------------------------
</TABLE>
(1) Primarily includes operating lease income relating to pumps, service fees
and accessory sales.
The Company's major source of revenue is the sale of proprietary disposable
administration sets for its installed infusion instrument base. The overall
volume of disposables sold has grown from 1993 through 1995. This growth has
been achieved despite a change in protocol at certain hospitals increasing the
maximum time between set changes from every 24 hours to as much as every 72
hours, and results primarily from an increase in IMED's installed base,
including the addition of new accounts. The Company is unable to predict the
potential effect of this change in protocol, which is expected to continue with
respect to certain applications of IMED's products, on the Company's future
financial condition or results of operations. IMED's products are at the high
end of the industry price range and compete on the basis of technological
sophistication, quality, safety and flexibility in application.
Prior to the third quarter of 1992, disposable administration sets used with
IMED's piston cassette pumps had generated a majority of IMED's overall sales of
disposables and total revenues. However, during 1995 fewer than 2% of the
worldwide unit sales of new pumps were attributable to piston cassette pumps,
with the remainder being represented by sales of Gemini pumps. Virtually all
placements to new customers since 1992 have consisted of Gemini instruments.
Therefore, sales of piston cassette products (pumps and disposables) are
expected to continue to decline as demand for IMED's pumps and proprietary
disposable administration sets reflects to an increasing extent the expected
gradual shift away from piston cassette technology and toward peristaltic
technology, such as that used in IMED's Gemini series of instruments, and other
newer technology. IMED's current sales efforts, which emphasize its Gemini
series of products, are both consistent with and encourage this shift. Although
the decline in sales of piston cassette products from 1993 to 1994 exceeded the
increase in sales of Gemini products from comparable years, management believes
a general slowdown in hospital buying decisions caused by uncertainties
regarding health care reform and an increase in competitive pressures resulted
in a decline in the sales volume of Gemini pumps during 1993 and 1994. The
decline in sales of piston cassette products from 1994 to 1995 were more than
offset by the increase in sales of Gemini products from 1994 to 1995. There can
be no assurance that future sales of peristaltic products will be sufficient to
offset the anticipated continued decline in sales of older technology.
The volume of disposable administration sets sold in the U.S. decreased slightly
from 1993 to 1994 and increased from 1994 to 1995. Additionally, declines in
selling prices for disposable administration sets from 1993 to 1994 and from
1994 to 1995 are a result of market conditions. As hospitals continue to seek
ways to control operating costs, IMED can expect continuing pressure to reduce
prices. The Company believes that its future levels of profitability will
depend on reducing manufacturing costs, successful new product introductions and
the development of new markets for these new products. See "Item 1. Business
- -- IMED Product Line and -- Government Regulation."
20
<PAGE>
The decrease in U.S. sales from 1993 to 1994 is due primarily to (i) decreased
volume of instruments and (ii) a decline in selling prices of instruments and
disposable administration sets. The increase in U.S. sales from 1994 to 1995 is
due primarily to increased volumes of instruments and disposable administration
sets partially offset by a slight decline in selling prices of instruments and
disposable administration sets and a reduction of ReadyMED volume due to lower
demand for the product.
The increase in international sales from 1993 to 1994 is primarily due to (i)
revenue associated with Pharmacia products manufactured in Ireland during 1994
for Pharmacia, which will not continue due to the sale of the Irish
manufacturing facility to Pharmacia in August 1994, (ii) increased volume of
instruments and disposables in Australia and (iii) increased volume of
disposables sold in the European territory covered by the distribution agreement
with Pharmacia ("European Territory"). These increases were partly offset by
decreased instrument sales volume in the European Territory. The increase in
international sales from 1994 to 1995 is primarily due to (i) increased volumes
of instruments sold in the Middle East, the Far East and in the European
Territory and (ii) increased volumes of disposables sold in Australia, the
Middle East and the Far East. The increased volume of instruments and
disposables in the Middle East and the Far East reflect the additional
investment in personnel in these territories previously covered exclusively by
dealer networks. These increases were partially offset by decreased volumes of
disposables sold in the European Territory reflecting a decline in installed
instrument base.
IMED's policy is to maintain sufficient inventory to permit shipping of products
within a short period after receiving firm purchase orders. Accordingly,
backlog at the end of any period is usually relatively insignificant and
generally not indicative of future sales (backlog was $.1 million at December
31, 1994 and December 31, 1995). IMED expects to fill the orders comprising the
December 31, 1995 backlog in the first quarter of 1996.
GROSS MARGIN
The gross margin percentage increased from 1993 to 1994 primarily due to (i)
reductions in the manufacturing costs of disposable administration sets due to
cost containment programs which were implemented as part of the restructuring
during the fourth quarter of 1993 and resulted in the elimination of certain
non-value added activities and expenditures, (ii) molded parts and components
for disposable administration sets sourced from outside vendors at lower costs
than previous costs to manufacture in Ireland and (iii) the 1993 resolution of a
disputed sales contract with a major customer. The increase in gross margin
percentage from 1993 to 1994 was partially offset by (i) the decline in
instrument and disposable administration sets selling prices in the U.S. market
as previously discussed and (ii) higher unit costs for instruments in inventory
at December 31, 1993 that were sold in 1994 than the unit costs for instruments
in inventory at December 31, 1992 that were sold in 1993 due to the unfavorable
effect on unit overhead costs during the year ended December 31, 1993 from lower
instrument volumes.
The gross margin percentage increased from 1994 to 1995 primarily due to (i)
additional cost savings from molded parts and components for disposable
administration sets sourced from outside vendors at lower costs than previous
costs to manufacture at IMED Ireland, (ii) the discontinuance of sales generated
from low margin Pharmacia products manufactured by IMED Ireland for Pharmacia
discussed previously and (iii) the favorable effects of the peso devaluation on
the labor cost on assembly of disposable administration sets at the Tijuana
facility of $885 in 1995. The increase in gross margin percentage from 1994 to
1995 was partially offset by the decline in instrument and disposable
administration sets selling prices in the U.S. market as previously discussed.
SELLING EXPENSES
The decrease in selling expenses from 1993 to 1994 is primarily due to (i) cost
containment programs for the field sales force which were implemented as part of
the restructuring during the fourth quarter of 1993 discussed previously and
(ii) reductions in promotion and advertising expenses. Selling expenses in 1993
21
<PAGE>
were reduced $.7 million by adjustments to the liability recorded for stock
appreciation rights granted to a hospital buying group as consideration for
purchasing IMED's products. No such adjustments were required during 1994.
The decrease in selling expenses from 1994 to 1995 is primarily due to cost
containment programs which continue to reduce expenses. This decrease was
partially offset by expenses associated with certain 1995 sales meetings not
held in 1994 and increases in personnel costs associated with additional
headcount in international territories previously covered exclusively by dealer
networks.
GENERAL AND ADMINISTRATIVE EXPENSES
The following table sets forth general and administrative ("G&A") expenses for
Advanced Medical and its subsidiaries for the periods presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
IMED . . . . . . . . . . . . . . . . . . . . . . $ 10.4 $ 8.7 $ 8.9
Advanced Medical . . . . . . . . . . . . . . . . 2.5 1.5 1.2
Fidata . . . . . . . . . . . . . . . . . . . . . 0.9 0.5 0.6
------ ------ ------
Total general and administrative expenses. . . $ 13.8 $ 10.7 $ 10.7
------ ------ ------
------ ------ ------
</TABLE>
The decrease in IMED's G&A expenses from 1993 to 1994 results from (i)
implementation costs incurred in 1993 and not in 1994 for Total Quality
Management programs and (ii) reductions in personnel and related costs resulting
from the restructurings during the fourth quarter of 1993.
Due to the nature of Advanced Medical's operations, G&A expenses fluctuate from
period to period as the majority of its costs are comprised of (i) professional
and consulting fees and indirect costs (such as travel costs) associated with
identifying, evaluating and making acquisitions and investments, (ii)
communication and meeting costs of shareholder and investor relations and (iii)
other costs of performing general holding company functions. G&A expenses
decreased from 1993 to 1994 primarily due to the elimination of a management
layer as part of the restructurings implemented in 1993.
Advanced Medical has been winding down Fidata's remaining operations and
settling its remaining claims and operations since it was acquired in March
1989. Due to unresolved claims and lack of court and regulatory approval, the
liquidation of Fidata did not occur in 1995. Management expects to settle
certain remaining claims and liquidate Fidata completely in 1996. However,
there can be no assurance that Fidata will be completely liquidated in 1996 as
such will require court and regulatory approval.
RESEARCH AND DEVELOPMENT EXPENSES
The following table sets forth research and development ("R&D") expenses for the
periods presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
IMED . . . . . . . . . . . . . . . . . . . . . . $ 5.5 $ 6.3 $ 7.4
Third Party R&D Contract . . . . . . . . . . . . 3.6
------ ------ ------
Total research and development expenses. . . $ 9.1 $ 6.3 $ 7.4
------ ------ ------
------ ------ ------
</TABLE>
22
<PAGE>
IMED's R&D expenses have increased from 1993 to 1994 and from 1994 to 1995
primarily due to increases in personnel and related costs associated with the
acceleration of IMED's in-house development of a new line of hospital infusion
pumps and associated disposable administration sets based upon its patented
technology and know-how which began in late 1993.
RESTRUCTURINGS
The Company restructured its corporate operations during 1993 and recorded a $.9
million restructuring charge. The restructuring, primarily severance costs,
eliminated a management layer. Expenditures of approximately $.5 million and
$.4 million were paid and charged against the restructuring accrual during 1993
and 1994, respectively.
As more fully described in Note 2 to the Consolidated Financial Statements, the
Company recorded a $3.5 million restructuring charge during 1993 in connection
with the sale of its Irish manufacturing operations and relocation of its
molding operations to the United States. Due to the time required to relocate
molding operations, the Company will purchase molded parts and components from
Pharmacia in declining quantities over several years, pursuant to an agreement.
The charge included accruals of $1.3 million related to estimated relocation
costs and professional fees. Cash payments of approximately $.1 million, $.4
million and $.3 million were made during 1993, 1994 and 1995, respectively.
Expenditures of $.5 million are expected to be paid during 1996.
The Company implemented a plan to restructure the operations of IMED during the
fourth quarter of 1993 and recorded a $1.0 million restructuring charge. The
restructuring included (i) consolidation of certain operations, (ii) the
reduction in IMED's domestic work force by approximately 10%, (iii) the
modification of certain employee benefit plans and (iv) the elimination of non-
value added activities and expenditures. Accrued severance costs and other
restructuring expenses of approximately $1.2 million remained at December 31,
1993, of which $.7 million and $.4 million were paid during 1994 and 1995,
respectively.
SEASONALITY
Infusion instrument sales are typically higher in the fourth quarter due to
sales compensation plans which reward the achievement of annual quotas and the
seasonal characteristics of the industry, including hospital purchasing
patterns. First quarter sales are traditionally not as strong as the fourth
quarter. The Company anticipates that this trend will continue in the first
quarter of 1996.
OTHER MATTERS
Other income (expenses), net for 1993, 1994 and 1995 in the accompanying
Consolidated Statements of Operations include income of $6.7 million, $1.4
million and $.5 million, respectively, from the sale of marketable securities.
See Note 5 to the Consolidated Financial Statements. Other income (expenses)
for 1993 includes $1.9 million in litigation settlements and a non-cash charge
of $1.9 million, consisting of the write-off of unamortized technology licenses
of $3.9 million less a non-refundable product development fee of $2.0 million.
See Notes 4 and 8 to the Consolidated Financial Statements.
The Company's operations are not significantly affected by inflation.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument. It also
allows an entity to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company has elected to continue to measure its stock-based
compensation in accordance with APB 25. Certain proforma disclosures required
by SFAS 123 will be made in 1996 in accordance with SFAS 123. The Company does
not expect the adoption of SFAS 123 to have a significant effect on its
financial position or results of operations. See Note 1 to the Consolidated
Financial Statements.
23
<PAGE>
HEALTH CARE REFORM
Heightened public awareness and concerns regarding the growth in overall health
care expenditures in the United States may result in the enactment of national
health care reform or other legislation affecting payment mechanisms and health
care delivery. Legislation which imposes limits on the number and type of
medical procedures which may be performed or which has the effect of restricting
a provider's ability to select specific devices or products for use in
administrating medical care may adversely impact the demand for the Company's
products. In addition, legislation which imposes restrictions on the price
which may be charged for medical products may adversely affect the Company's
results of operations. It is not possible to predict the extent to which the
Company or the health care industry in general may be adversely affected by the
aforementioned in the future.
FORWARD-LOOKING STATEMENTS
Forward-Looking Statements in this report are made pursuant to the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995. Persons
reading this report are cautioned that such forward-looking statements involve
risks and uncertainties, including, without limitation, the effect of
legislative and regulatory changes effecting the health care industry; the
potential of increased levels of competition; technological changes; the
dependence of the Company upon the success of new products and ongoing research
and development efforts; restrictions contained in the instruments governing the
Company's indebtedness; the significant leverage to which the Company is
subject; and other matters referred in this report.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Advanced Medical, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a)(1) and (2) on page 55 present fairly, in all
material respects, the financial position of Advanced Medical, Inc. and its
subsidiaries at December 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, 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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for income taxes in 1993 to comply with the provisions of
Statement of Financial Accounting Standards No. 109.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for investments in 1994 to comply with the provisions of
Statement of Financial Accounting Standards No. 115.
PRICE WATERHOUSE LLP
San Diego, California
March 19, 1996
25
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,340 $ 1,862
Restricted cash and investment securities. . . . . . . . . . . . . . . . . . . . . 1,732 2,218
Securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,883 6,975
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,841 27,023
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,347 15,829
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . 2,140 3,651
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,283 57,558
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Net investment in sales-type and direct financing leases . . . . . . . . . . . . . . 14,807 15,179
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 11,595 12,653
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,921 11,834
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,518 47,406
---------- ----------
$ 132,124 $ 169,630
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,214 $ 322
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,427 7,881
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . 14,066 17,417
---------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,707 25,620
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,803 86,789
Other non-current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,285 6,972
---------- ----------
99,088 93,761
---------- ----------
Minority interests in consolidated subsidiaries. . . . . . . . . . . . . . . . . . . 5,000 11,500
---------- ----------
Contingent liabilities and commitments (Notes 8 and 13)
Mandatorily redeemable equity securities . . . . . . . . . . . . . . . . . . . . . . 6,567 7,217
---------- ----------
Non-redeemable preferred stock, common stock and other stockholders'
equity (deficit):
Preferred stock, authorized 6,000 and 3,000 shares at $.001 and $.01 par
value, respectively; issued and outstanding -- none
Common stock, authorized 75,000 shares at $.01 par value; issued and
outstanding -- 14,152 shares and 16,214 shares issued and outstanding
at December 31, 1994 and 1995, respectively . . . . . . . . . . . . . . . . . . 142 162
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . 58,703 62,965
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61,922) (34,468)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (734) (734)
Unrealized holding gains from securities available for sale, net of tax. . . . . . 883 3,577
Other equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690 30
---------- ----------
Total non-redeemable preferred stock, common stock and other
stockholders' equity (deficit). . . . . . . . . . . . . . . . . . . . . . . . . (2,238) 31,532
---------- ----------
$ 132,124 $ 169,630
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
26
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 119,417 $ 111,681 $ 112,110
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,209 65,590 63,219
---------- ---------- ----------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,208 46,091 48,891
---------- ---------- ----------
License fees revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441 441 441
---------- ---------- ----------
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,882 16,850 16,567
General and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . 13,773 10,746 10,661
Research and development expenses. . . . . . . . . . . . . . . . . . . . . . . . 9,050 6,345 7,386
Restructuring charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,413
---------- ---------- ----------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,118 33,941 34,614
---------- ---------- ----------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 531 12,591 14,718
---------- ---------- ----------
Other income (expenses):
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,767 2,526 2,525
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,880) (8,690) (8,153)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065 1,136 313
---------- ---------- ----------
(6,048) (5,028) (5,315)
---------- ---------- ----------
Income (loss) before income taxes, minority interests,
extraordinary item and cumulative effect of change
in accounting principle. . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,517) 7,563 9,403
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . 926 1,886 (9,374)
---------- ---------- ----------
Income (loss) before minority interests, extraordinary item
and cumulative effect of change in accounting principle. . . . . . . . . . . . (6,443) 5,677 18,777
Minority interests in consolidated subsidiaries. . . . . . . . . . . . . . . . . 3,755 (6,500)
---------- ---------- ----------
Income (loss) before extraordinary item and cumulative effect of change
in accounting principle. . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,688) 5,677 12,277
Extraordinary item -- gain on early retirement of debt, net of taxes . . . . . . 15,177
---------- ---------- ----------
Income (loss) before cumulative effect of change in accounting principle . . . . (2,688) 5,677 27,454
Cumulative effect on prior years of accounting change for
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,985
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,297 5,677 27,454
Dividends and accretion on mandatorily redeemable preferred stock. . . . . . . . 1,387 874 650
---------- ---------- ----------
Net income (loss) applicable to common stock . . . . . . . . . . . . . . . . . . $ (90) $ 4,803 $ 26,804
---------- ---------- ----------
---------- ---------- ----------
Income (loss) per common share assuming no dilution:
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle . . . . . . . . . . . . . . . . . . . . . $ (.29) $ .34 $ .74
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
Cumulative effect of change in accounting principle. . . . . . . . . . . . . . .28
---------- ---------- ----------
Net income (loss) per common share assuming no dilution. . . . . . . . . . . . $ (.01) $ .34 $ 1.70
---------- ---------- ----------
---------- ---------- ----------
Income (loss) per common share assuming full dilution:
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle . . . . . . . . . . . . . . . . . . . . . $ (.29) $ .22 $ .37
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Cumulative effect of change in accounting principle. . . . . . . . . . . . . . .28
---------- ---------- ----------
Net income (loss) per common share assuming full dilution. . . . . . . . . . . $ (.01) $ .22 $ .83
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding assuming no dilution. . . . . . . . . 14,073 14,069 15,755
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding assuming full dilution. . . . . . . . 14,073 24,099 33,183
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
27
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,297 $ 5,677 $ 27,454
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . 10,581 8,492 8,096
Cumulative effect of change in accounting principle. . . . . . . . . . . . . . (3,985)
Restructuring charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,413
Net gain on disposal/write-off of property and investments . . . . . . . . . . (3,895) (880) (176)
Equity in net loss (gain) of investee and minority interests . . . . . . . . . (3,755) 6,500
Extraordinary gain -- early retirement of debt, net of taxes . . . . . . . . . (15,177)
(Increase) decrease, net of effects from acquisitions and divestitures:
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,944 1,283 (2,096)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,233) (976) 4,518
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . 753 (409) (1,511)
Net investment in sales-type leases. . . . . . . . . . . . . . . . . . . . . (107) 458 (458)
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . (1,681) 1,509 (10,718)
Increase (decrease), net of effects from acquisitions and divestitures:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,404) 1,918 (546)
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . (3,768) (1,530) 2,900
Litigation settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000) (250)
Other non-current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 371 (3,502) (313)
---------- ---------- ----------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . 531 11,790 18,473
---------- ---------- ----------
Cash flows from investing activities:
Net decrease (increase) in restricted cash and investments . . . . . . . . . . (746) 130 (25,486)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,616) (4,549) (4,803)
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,960)
Payment for product distribution rights. . . . . . . . . . . . . . . . . . . . (3,402)
Proceeds from disposal of property . . . . . . . . . . . . . . . . . . . . . . 104 253 17
Proceeds from sale of investments. . . . . . . . . . . . . . . . . . . . . . . 20,027 7,534 859
Note receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
---------- ---------- ----------
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . 16,009 3,368 (32,815)
---------- ---------- ----------
Cash flows from financing activities:
Net repayments under credit facilities . . . . . . . . . . . . . . . . . . . . (2,823) (5,296) (7,764)
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . (10,535) (44,998) (1,218)
Proceeds from issuance of notes payable and long-term debt . . . . . . . . . . 300 36,293 25,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (544)
Offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,205) (498)
Redemption/repurchase of preferred stock . . . . . . . . . . . . . . . . . . . (3,816) (686)
---------- ---------- ----------
Net cash (used in) provided by financing activities. . . . . . . . . . . . . . . (17,418) (15,892) 15,520
---------- ---------- ----------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . . 197 312 (656)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . (681) (422) 522
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . 2,443 1,762 1,340
---------- ---------- ----------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . $ 1,762 $ 1,340 $ 1,862
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
28
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------------------------------------------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAINS
FROM
COMMON STOCK CAPITAL IN TREASURY STOCK SECURITIES
----------------- EXCESS OF ACCUMULATED --------------- AVAILABLE OTHER
SHARES AMOUNT PAR VALUE DEFICIT SHARES AMOUNT FOR SALE EQUITY TOTAL
------- ------ --------- -------- --------------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 . . . . . 14,152 $ 142 $60,864 $(68,896) 63 $ (593) $ (77) $(8,560)
Accretion and dividends on
mandatorily redeemable
preferred stock. . . . . . . . . . . (1,387) (1,387)
Other equity transactions. . . . . . . 1 20 (141) 516 376
Net income for the year. . . . . . . . 1,297 1,297
------- ------ ------- -------- ----- ------- ------ ----- -------
Balance at December 31, 1993 . . . . . 14,152 142 59,478 (67,599) 83 (734) 439 (8,274)
Accretion and dividends on
mandatorily redeemable
preferred stock. . . . . . . . . . . (874) (874)
Unrealized holding gains from
securities available for sale. . . . $ 883 883
Other equity transactions. . . . . . . 99 251 350
Net income for the year. . . . . . . . 5,677 5,677
------- ------ ------- -------- ----- ------- ------ ----- -------
Balance at December 31, 1994 . . . . . 14,152 142 58,703 (61,922) 83 (734) 883 690 (2,238)
Issuance of common stock . . . . . . . 2,062 20 4,912 4,932
Dividends on mandatorily redeemable
preferred stock. . . . . . . . . . . (650) (650)
Unrealized holding gains from
securities available for sale. . . . 2,694 2,694
Other equity transactions. . . . . . . (660) (660)
Net income for the year. . . . . . . . 27,454 27,454
------- ------ ------- -------- ----- ------- ------ ----- -------
Balance at December 31, 1995 . . . . . 16,214 $ 162 $62,965 $(34,468) 83 $ (734) $3,577 $ 30 $31,532
------- ------ ------- -------- ----- ------- ------ ----- -------
------- ------ ------- -------- ----- ------- ------ ----- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
29
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 1 -- BUSINESS AND ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS AND ORGANIZATION:
Advanced Medical, Inc. ("Advanced Medical"), operating through its consolidated
subsidiaries, is a leading developer and manufacturer of infusion products and
related technologies for the health care industry. On April 2, 1990, Advanced
Medical acquired the IMED Division of Fisher Scientific Company through IMED
Corporation ("IMED"). IMED is a 90% owned subsidiary on a fully-diluted basis.
(Advanced Medical and its subsidiaries are collectively referred to as the
"Company".)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION:
The financial statements include the accounts of Advanced Medical and its
greater than 50 percent-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. IMED's foreign
subsidiaries are consolidated as of and for the periods ended November 30, 1993,
1994 and 1995 in the December 31, 1993, 1994 and 1995 consolidated financial
statements, respectively.
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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the period. Actual results could differ from those estimates.
REVENUE RECOGNITION:
Revenues from sales of fluid delivery instruments and related disposable
products, and from instrument capital lease contracts, are recognized at the
time such products are shipped. Revenues from instrument operating lease
contracts are recognized over the terms of the lease agreements, ranging from 1
to 6 years.
LICENSE FEE REVENUE RECOGNITION:
During 1991, IMED entered into a marketing, distribution and development
agreement with Pharmacia AB ("Pharmacia"). Pursuant to the agreement, a product
distribution fee of $6,530 was classified as deferred revenue (a non-current
liability) and is recognized on a straight-line basis over the 15 year term of
the agreement.
CONCENTRATIONS OF CREDIT RISK:
The Company provides a variety of financing arrangements for its customers. The
majority of the Company's accounts receivable are from hospitals throughout the
United States with credit terms of generally 30 days. The Company maintains
adequate reserves for potential credit losses and such losses, which have been
minimal, have been within management's estimates.
SECURITIES AVAILABLE FOR SALE:
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). In accordance with SFAS 115, the Company's investment
in Alteon, Inc. (Note 5) is classified as securities available for sale and is
required to be carried at fair market value.
30
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
INVENTORIES:
Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost. Depreciation and amortization
is provided using the straight-line method based upon the following estimated
useful lives of the assets or lease terms, if shorter, for leasehold
improvements and instrument operating leases:
Leasehold improvements. . . . . . . . . . . . . . 3 to 10 years
Machinery and equipment . . . . . . . . . . . . . 3 to 10 years
Furniture and fixtures. . . . . . . . . . . . . . 4 to 8 years
Instruments on operating lease contracts. . . . . 1 to 6 years
INTANGIBLE ASSETS:
The excess of purchase price over the estimated fair values of assets acquired
and liabilities assumed has been recorded as goodwill and is amortized using the
straight-line method over 35 years. Patents are amortized using the straight-
line method over estimated useful lives of 4 to 12 years. Technology licenses
are amortized using the straight-line method over estimated useful lives of 15
years. Management periodically reviews intangible assets for impairment.
DEBT ISSUE COSTS:
Debt issue costs of $4,074 and $1,980 at December 31, 1994 and 1995,
respectively, are amortized using the straight-line method over the respective
terms of the debt agreements and are included in other non-current assets.
FOREIGN CURRENCY TRANSLATION:
The accounts of foreign subsidiaries which use local currencies as functional
currencies are translated into U.S. dollars using year-end exchange rates for
assets and liabilities, historical exchange rates for equity and weighted
average exchange rates during the period for revenues and expenses. The gains
or losses resulting from translations are excluded from results of operations
and accumulated as a component of stockholders' equity (deficit).
RESEARCH AND DEVELOPMENT COSTS:
Research and development costs are expensed as incurred.
INCOME TAXES:
The Company and its domestic subsidiaries file a consolidated Federal income tax
return. Domestic subsidiaries file income tax returns in multiple states on
either a stand-alone or combined basis. Foreign subsidiaries file income tax
returns in their respective jurisdictions based on their separate taxable
income. The Company provides for deferred income taxes on undistributed
earnings of its foreign subsidiaries.
Effective January 1, 1993 the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Upon adoption the Company
recognized a cumulative effect of the accounting change of $3,985.
The Company recognizes deferred tax assets and liabilities based on the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse (see Note 7).
31
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
STATEMENT OF CASH FLOWS:
For the purpose of the statement of cash flows, the Company considers short-term
investments with an original maturity of three months or less to be cash
equivalents, excluding restricted amounts held in escrow or trust.
STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument. It also
allows an entity to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company has elected to continue to measure its stock-based
compensation in accordance with APB 25. Certain disclosures required by SFAS
123 will be made in 1996, in accordance with SFAS 123. The Company does not
expect the adoption of SFAS 123 to have a significant effect on its financial
position or results of operations.
NET INCOME (LOSS) PER COMMON SHARE:
The Company's net income (loss) per common share assuming no dilution is
computed using the weighted average number of common shares outstanding during
the respective periods. Net income per common share assuming no dilution does
not include common stock equivalents (options and warrants) when the effect
would be antidilutive. The Company's net income (loss) per common share
assuming full dilution is computed using the weighted average number of common
shares outstanding plus, for the year ended December 31, 1995, the shares that
would be outstanding assuming conversion of the $6,000 secured promissory note
("$6,000 Note") issued to Decisions Incorporated ("Decisions") on January 4,
1994, conversion of the $6,500 secured promissory note ("$6,500 Note") issued to
Decisions on August 12, 1994, and conversion of the $25,000 secured promissory
note ("$25,000 Note") (collectively, "the Notes") issued to Decisions on
December 4, 1995 (see Note 6). Net income applicable to common stock for the
year ended December 31, 1994 has been increased by $386 for the interest expense
(net of tax) on the $6,000 Note and $6,500 Note since conversion on January 4,
1994 and August 12, 1994, respectively, was assumed. Net income applicable to
common stock for the year ended December 31, 1995 has been increased by $684 for
the interest expense (net of tax) on the Notes since conversion on January 1,
1995, for the $6,000 Note and $6,500 Note and conversion on December 4, 1995, on
the $25,000 Note, was assumed. The calculation of net income (loss) per common
share assuming full dilution excludes common stock equivalents and convertible
securities that are antidilutive.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform to the
classifications used in 1995.
NOTE 2 -- RESTRUCTURINGS:
During 1993, the Company adopted a plan to sell its Irish manufacturing facility
to a wholly-owned subsidiary of its European marketing and distribution partner,
Pharmacia. The Irish manufacturing facility primarily produces molded
components used to assemble disposable administration sets ("Sets"). The
Company recorded a $3,515 restructuring charge in connection with the proposed
sale of its Irish manufacturing operations and the relocation of its molding
operations to the United States. Professional fees and relocation costs of
$1,300 are included in the restructuring charge.
32
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
During 1993, the Company also recorded a $1,898 charge to consolidate certain of
the Company's operations. The provision included severance payments, facilities
consolidation costs and the write-off of equipment associated with discontinued
products, net of the defined benefit plan curtailment gain (see Note 11).
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
Receivables:
Trade receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,822 $ 20,473
Allowance for doubtful accounts. . . . . . . . . . . . . . . . . . . . . . . (855) (875)
--------- ---------
16,967 19,598
Current portion of net investment in sales-type and direct financing leases
(Note 12). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,948 7,034
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926 391
--------- ---------
$ 24,841 $ 27,023
--------- ---------
--------- ---------
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
Inventories:
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,311 $ 6,946
Work-in-process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,753 1,686
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,283 7,197
--------- ---------
$ 20,347 $ 15,829
--------- ---------
--------- ---------
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
Property, plant and equipment:
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,530 $ 9,885
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,915 3,389
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,776 2,681
Instruments on operating lease contracts . . . . . . . . . . . . . . . . . . 10,729 12,762
Construction-in-process. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,717 1,991
--------- ---------
26,667 30,708
Accumulated depreciation and amortization. . . . . . . . . . . . . . . . . . (15,072) (18,055)
--------- ---------
$ 11,595 $ 12,653
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $5,659, $3,893 and $4,211 for 1993, 1994 and 1995,
respectively.
33
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
Other non-current assets
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 423 $ 9,491
Debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,074 1,980
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424 363
--------- ---------
$ 4,921 $ 11,834
--------- ---------
--------- ---------
Accrued expenses and other current liabilities:
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,958 $ 3,819
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,234 686
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,230 2,323
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637 600
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,025 3,248
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,355 2,210
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,627 4,531
--------- ---------
$ 14,066 $ 17,417
--------- ---------
--------- ---------
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
Other non-current liabilities:
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,119 $ 4,618
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,185 1,385
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781 969
--------- ---------
$ 7,285 $ 6,972
--------- ---------
--------- ---------
NOTE 4 -- INTANGIBLES: DECEMBER 31,
------------------------
1994 1995
--------- ---------
Intangible assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,513 $ 47,513
Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,816 15,116
Product distribution license fee . . . . . . . . . . . . . . . . . . . . . . 3,402
--------- ---------
63,329 66,031
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . (15,811) (18,625)
--------- ---------
$ 47,518 $ 47,406
--------- ---------
--------- ---------
</TABLE>
On May 8, 1995, IMED entered into a development and exclusive distribution
agreement ("the Agreement") with Debiotech SA ("Debiotech"). Pursuant to the
Agreement, Debiotech granted IMED the exclusive right to distribute Debiotech's
products in certain North and Central American countries. IMED paid Debiotech
$3,000 upon the signing of the Agreement and also agreed to pay Debiotech
additional amounts upon attainment of agreed upon milestones by Debiotech with
respect to the development of certain future products. IMED will purchase the
products it sells from Debiotech at predetermined prices. The product
distribution fee of $3,000 and related expenses of $402 have been classified as
an intangible asset and are being amortized on a straight-line basis over the 15
year term of the Agreement.
34
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 5 -- SECURITIES AVAILABLE FOR SALE:
Current marketable securities comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1994 1995
------------------- -----------------
MARKET MARKET
COST VALUE COST VALUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Alteon, Inc. ("Alteon"). . . . . . . $ 2,000 $ 2,883 $ 1,687 $ 6,975
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
During 1993, the Company sold 327 shares of its Applied Immune Sciences, Inc.
("AIS") common stock for $6,332, resulting in a realized gain of $3,681 and sold
554 shares of its Alteon common stock for $5,180, resulting in a realized gain
of $3,020.
During 1994, the Company sold all remaining 107 shares of its AIS common stock
for $1,005, resulting in a realized gain of $133 and sold 378 shares of its
Alteon common stock for $2,763, resulting in a realized gain of $1,293.
During 1995, the Company sold 80 shares of its Alteon common stock for $858,
resulting in a realized gain of $546. At December 31, 1995, the Company owned
433 shares of Alteon common stock.
The market value at December 31, 1995 is based on the quoted market price and is
considered to represent fair value as determined under SFAS 115. The fair value
may not represent actual value of the Alteon common stock that could have been
realized as of December 31, 1995 or that will be realized in the future.
The gross unrealized gain as of March 19, 1996 on the current marketable equity
securities was $3,396.
NOTE 6 -- NOTES PAYABLE AND LONG-TERM DEBT:
In connection with the acquisition of the IMED Division, IMED entered into a
revolving credit facility and a term loan agreement with GECC. During 1994,
IMED restructured its loan agreement with GECC ("Amended Loan Agreement").
Long-term debt comprises the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
--------- ---------
<S> <C> <C>
GECC revolving credit facility (IMED). . . . . . . $ 18,497 $ 10,733
7 1/4% Convertible Subordinated Debentures
due 2002 (Advanced Medical) . . . . . . . . . . . 60,000 16,152
15% Subordinated Debentures
due 1999 (Advanced Medical) . . . . . . . . . . . 21,924
The Notes (Advanced Medical) . . . . . . . . . . . 12,500 37,500
Other. . . . . . . . . . . . . . . . . . . . . . . 2,020 802
--------- ---------
93,017 87,111
Current portion. . . . . . . . . . . . . . . . . . (1,214) (322)
--------- ---------
$ 91,803 $ 86,789
--------- ---------
--------- ---------
</TABLE>
GECC LONG-TERM DEBT
The Amended Loan Agreement includes a $38,500 ($42,000 at December 31, 1994)
revolving credit facility. The interest rate on the Amended Loan Agreement is
the index rate plus 2% (10 1/2% and 10 3/4% at
35
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
December 31, 1994 and 1995, respectively). Outstanding indebtedness under the
Amended Loan Agreement matures in March 1999. Advances under the Amended Loan
Agreement are made against a borrowing base consisting of 85% of eligible
accounts receivable, 65% of eligible inventory and 85% of the future value of
eligible instrument lease receivables. The Amended Loan Agreement contains
affirmative and negative covenants, including, among others, the maintenance of
certain financial ratios, balances, and earnings levels, limitations on capital
expenditures and transfer of funds to Advanced Medical and restrictions on
incurring additional debt. The Amended Loan Agreement is secured by a first
priority interest in all of IMED's assets and the IMED capital stock and certain
patents used in IMED's business, owned by Advanced Medical.
DEBENTURES
At December 31, 1994, the Company had outstanding 7 1/4% convertible
subordinated debentures ("7 1/4% Debentures") in the principal amount of
$60,000. The 7 1/4% Debentures are convertible at the option of the holder into
common stock of the Company at any time prior to maturity, unless previously
redeemed or repurchased, at a conversion price of $18.14 per share, subject to
adjustment in certain events. The 7 1/4% Debentures mature on January 15, 2002.
Interest on the 7 1/4% Debentures is payable semi-annually on each January 15
and July 15. The 7 1/4% Debentures are redeemable in whole or in part at the
option of the Company at any time on or after January 15, 1993, at the
redemption prices set forth in the indenture, together with accrued and unpaid
interest. The 7 1/4% Debenture holders may require the Company to repurchase
the 7 1/4% Debentures, in whole or in part, in certain circumstances involving a
change in control of the Company. The 7 1/4% Debentures are subordinate to all
existing or future senior indebtedness of the Company, and are also effectively
subordinated to liabilities of the Company's subsidiaries. The indenture does
not restrict the incurrence of senior indebtedness or other indebtedness by the
Company or any subsidiary.
On March 31, 1995, the Company completed an exchange (the "Exchange") wherein
$28,245, or approximately 47%, in principal amount of the Company's 7 1/4%
Convertible Subordinated Debentures due 2002 ("Old Debentures") were exchanged
for an aggregate of $14,123 in principal amount of newly created subordinated
debentures ("First Debentures") and 1,340 shares of the Company's common stock
("Common Stock"). As a result of this transaction, the Company recognized an
extraordinary gain on the extinguishment of debt of $8,807 (net of the write-off
of unamortized debt issue costs of $1,343 related to the Old Debentures and net
of $705, the taxes applicable to the Exchange).
On May 19, 1995, the Company completed a second exchange ("Second Exchange")
wherein $15,603 of Old Debentures were exchanged for an aggregate of $7,801 of
newly created 15% Subordinated Debentures due 1999 ("New Debentures") and 735
shares of Common Stock. In addition, the Company accepted for exchange all of
the First Debentures and Common Stock from the Exchange for an aggregate of
$14,123 of New Debentures and 1,327 shares of Common Stock. As a result of
these transactions, the Company recognized an extraordinary gain on the
extinguishment of debt of $6,370 (net of the write-off of unamortized debt issue
costs of $727 related to the Old Debentures and net of $362, the taxes
applicable to the Second Exchange).
The New Debentures mature on July 15, 1999 and bear interest at a rate of 15%
per annum. Interest on the New Debentures is payable semi-annually on each
January 15 and July 15. The New Debentures are redeemable in whole or in part
at the option of the Company at any time on or after March 31, 1996, at the
redemption prices set forth in the indenture, together with accrued and unpaid
interest. The New Debenture holders may require the Company to repurchase the
New Debentures, in whole or in part, in certain circumstances involving the
change in control of the Company as defined in the indenture. The New
36
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
Debentures are subordinate to all existing and future senior indebtedness of the
Company, and effectively subordinated to liabilities of the Company's
subsidiaries. The indenture does not restrict the incurrence of senior
indebtedness or other indebtedness by the Company or any subsidiaries.
REFINANCINGS
During January 1994, the Company issued the $6,000 Note and borrowed $6,000 from
Decisions (the "$6,000 Note"). The $6,000 Note bears interest at 7% and is
payable on the earlier of January 4, 2001 or on demand by Decisions provided the
repayment is generated by net income of the Company exclusive of IMED, any
borrowing or debt or equity offering by the Company, or funds available through
distribution from affiliates, including IMED. The principal portion of the
$6,000 Note is convertible at the option of the holder into 6,030 shares of the
Company's common stock at a conversion price of $1.00 per share (subject to
antidilution protection). The $6,000 Note is secured by a first priority
security interest in all of the Company's assets subject to the rights of GECC
under the Amended Loan Agreement. The proceeds of the $6,000 Note were used by
the Company to pay $6,000 of indebtedness to Aeneas Venture Corporation
("Aeneas").
During August 1994, the Company issued the $6,500 Note and borrowed an
additional $6,500 from Decisions (the "$6,500 Note"). The proceeds of the loan
were used to (i) pay all remaining indebtedness to Aeneas in the amount of
$3,188, (ii) make the July 15, 1994 interest payment on the Company's 7 1/4%
Debentures in the amount of $2,187 and (iii) pay other obligations of the
Company. The payment of all indebtedness owed by Advanced Medical to Aeneas
released Advanced Medical from its obligations under a letter agreement with
Aeneas thereby removing the restrictions imposed on Advanced Medical's use of
its available cash. The $6,500 Note is payable on January 4, 2001 and has an
annual interest rate of 9%. Interest on the principal is due on June 30 and
December 31 of each year. In regards to security, the $6,500 Note ranks pari
passu with the $6,000 Note. The $6,500 Note is convertible, at the option of
the holder, into up to 10,535 shares of the Company's common stock at a
conversion price of $.62 per share (subject to antidilution protection). Any
shares of common stock converted cannot be sold into the public market prior to
August 12, 1996.
On December 4, 1995, the Company borrowed $25,000 from Decisions and issued the
$25,000 Note (the "$25,000 Note"). The $25,000 Note bears interest at 7% per
annum and all accrued and unpaid interest shall be due and payable in arrears on
October 11, 1996, and thereafter on June 30 and December 31 of each calendar
year. The $25,000 Note is payable on January 4, 2001 and ranks pari passu with
the $6,000 and $6,500 Notes. The $25,000 Note is convertible, at the option of
the holder, into up to 9,524 shares of Common Stock at a conversion price of
$2.625 per share (subject to antidilution protection). The proceeds from the
$25,000 Note, which are in restricted cash (noncurrent), are limited in use (i)
for the payment of principal and interest on the $25,000 Note, the $6,000 Note
or the $6,500 Note, (ii) to acquire or assist the Company to acquire any
business or line of business, (iii) to invest in or acquire any securities (or
right to acquire any securities) of IMED, any other affiliate of the Company or
any other entity (other than the Company), or (iv) to pay any and all costs and
expenses incurred in connection with the foregoing activities.
MATURITIES
Maturities of long-term debt during the years subsequent to December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997. . . . . . . . . . . . . $ 149
1998. . . . . . . . . . . . . 160
1999. . . . . . . . . . . . . 32,828
2000. . . . . . . . . . . . . --
Thereafter. . . . . . . . . . 53,652
---------
$ 86,789
---------
---------
</TABLE>
At December 31, 1995, the fair value, as determined under SFAS No. 107, of long-
term debt, including current maturities, was $81,118. The estimated fair values
represent the quoted market price for the Debentures and carrying amounts for
all other debt.
37
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 7 -- INCOME TAXES:
Income (loss) before income taxes, minority interests, extraordinary item and
cumulative effect of change in accounting principle comprises the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Domestic operations. . . . . . . . . . . . . . . . . . . . $ (9,650) $ 2,515 $ 8,468
Foreign operations . . . . . . . . . . . . . . . . . . . . 4,133 5,048 935
-------- -------- --------
$ (5,517) $ 7,563 $ 9,403
-------- -------- --------
-------- -------- --------
</TABLE>
The provision for income taxes comprises the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . . . . . . . . . . . . . . . $ 60 $ 221
State. . . . . . . . . . . . . . . . . . . . . . . . . $ 281 664 1,524
Foreign. . . . . . . . . . . . . . . . . . . . . . . . 818 1,049 157
-------- -------- --------
1,099 1,773 1,902
-------- -------- --------
Deferred:
Federal. . . . . . . . . . . . . . . . . . . . . . . . (338) 81 (9,132)
State. . . . . . . . . . . . . . . . . . . . . . . . . 509 115 (2,613)
Foreign. . . . . . . . . . . . . . . . . . . . . . . . (344) (83) 469
-------- -------- --------
(173) 113 (11,276)
-------- -------- --------
$ 926 $ 1,886 $ (9,374)
-------- -------- --------
-------- -------- --------
</TABLE>
The principal items accounting for the differences in income taxes computed at
the U.S. statutory rate (34%) and the effective income tax rate comprise the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Taxes computed at statutory rate . . . . . . . . . . . $ (1,875) $ 2,578 $ 3,197
State income taxes, net of federal benefit . . . . . . 521 884 1,018
Foreign taxes. . . . . . . . . . . . . . . . . . . . . 442 965 164
Taxes above the U.S. rate on earnings deemed
repatriated . . . . . . . . . . . . . . . . . . . . 374 397 (59)
Amortization of non-deductible intangible assets . . . 744 442 442
Losses for which no current benefits are available . . 451
Limitations of acquired tax benefits . . . . . . . . . 306
Items affected by valuation allowance. . . . . . . . . (3,380) (14,136)
Miscellaneous. . . . . . . . . . . . . . . . . . . . . (37)
-------- -------- --------
Provision for income taxes before extraordinary item . 926 1,886 (9,374)
-------- -------- --------
Extraordinary item:
Taxes computed at statutory rate. . . . . . . . . . 5,523
State income taxes, net of federal benefit. . . . . 488
Items affected by valuation allowance . . . . . . . (4,944)
-------- -------- --------
1,067
-------- -------- --------
Total $ 926 $ 1,886 $ (8,307)
-------- -------- --------
-------- -------- --------
</TABLE>
38
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
As of December 31, 1995 the Company has net operating loss carryforwards of
approximately $3,000 for federal income tax purposes which expire in varying
amounts through 2008. As of December 31, 1995 the Company has capital loss
carryforwards of approximately $5,400 for federal income tax purposes which
expire in varying amounts through 1998. The availability of the Company's net
operating loss and capital loss carryforwards would be subject to substantial
limitations if it should be determined that certain stockholders of the Company
have increased their percentage of ownership of the Company's stock by more than
50% during a specified period. Sufficient evidence existed in December 1995 to
release $10,528 of valuation allowance against the deferred tax assets of the
Company pursuant to SFAS 109 criteria.
The components of the net deferred tax asset as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Net operating loss carryforward . . . . . . . . . . . . . $ 1,312
Accrued liabilities and reserves. . . . . . . . . . . . . 3,326
Unearned income . . . . . . . . . . . . . . . . . . . . . 2,047
Credit carryforwards. . . . . . . . . . . . . . . . . . . 2,434
Inventory . . . . . . . . . . . . . . . . . . . . . . . . 948
Book and tax depreciation/amortization differences. . . . 956
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 1,243
---------
12,266
Valuation allowance . . . . . . . . . . . . . . . . . . . (430)
---------
Total deferred tax assets . . . . . . . . . . . . . . . . 11,836
Deferred tax liabilities:
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 922
---------
Net deferred tax assets . . . . . . . . . . . . . . $ 10,914
---------
---------
</TABLE>
NOTE 8 -- LITIGATION AND CONTINGENCIES:
The Company is a defendant in various actions, claims, and legal proceedings
arising from normal business operations. Management believes they have
meritorious defenses and intends to vigorously defend against all allegations
and claims. As the ultimate outcome of these matters is uncertain, no contingent
liabilities or provisions have been recorded in the accompanying financial
statements for such matters. However, in management's opinion, based upon
discussion with legal counsel, liabilities arising from these matters, if any,
will not have a material adverse effect on the consolidated financial position
or results of operations.
During 1993 and 1994, the Company settled certain claims and legal proceedings
and recorded charges to income in 1993 of $2,100.
39
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 9 -- MANDATORILY REDEEMABLE EQUITY SECURITIES AND MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES:
PREFERRED STOCK:
Mandatorily redeemable preferred stock activity comprises the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period . . . . . . . . . . . . . $ 9,451 $ 6,478 $ 6,567
Retirement of 10% preferred stock. . . . . . . . . . . . (3,816)
Repurchase of 10% preferred stock. . . . . . . . . . . . (785)
Accretion of amounts payable upon redemption . . . . . . 575 177
Accrued dividends. . . . . . . . . . . . . . . . . . . . 812 697 650
Payment of dividends . . . . . . . . . . . . . . . . . . (544)
-------- -------- --------
Balance at end of period . . . . . . . . . . . . . . . . $ 6,478 $ 6,567 $ 7,217
-------- -------- --------
-------- -------- --------
</TABLE>
In connection with the capitalization of Advanced Medical and mergers during
1989, 1,594 shares of $.01 par value mandatorily redeemable preferred stock
("10% Preferred Stock") were issued (1,800 shares authorized). The 10% preferred
stockholders are entitled to cumulative dividends in preference to any dividends
on common stock, payable semi-annually on March 27 and September 27, if
declared, out of funds legally available. The 10% Preferred Stock has a
liquidation value of $10.00 per share plus accrued and unpaid dividends. The 10%
preferred stockholders have limited voting rights under certain circumstances;
the stock is not convertible into any other class of stock.
The 10% Preferred Stock was recorded at its fair value at the issuance date
($6.26 per share). The carrying amount was periodically increased for the
amounts which will be payable upon redemption. The accretion to the carrying
amount was determined using the interest method and resulted in a corresponding
decrease to paid-in capital.
The Company redeemed 180 shares of its 10% Preferred Stock during 1990. To
satisfy the remaining redemption requirement of 219 shares, the Company redeemed
262 shares of its 10% Preferred Stock in March 1991 through the issuance of 333
shares of a newly created class of mandatorily redeemable convertible preferred
stock ("Convertible Preferred Stock") to a stockholder or entities controlled by
the stockholder. The Convertible Preferred Stock is subordinate to the existing
10% Preferred Stock and has a liquidation preference of $6.40 per share.
Cumulative dividends are payable semi-annually at 15% of the liquidation
preference. Each share is convertible into .617 common shares, subject to anti-
dilution adjustments, at any time prior to redemption. The Convertible Preferred
Stock is redeemable after all the 10% preferred shares are redeemed (a) at the
holder's option at the liquidation preference plus accrued dividends, or (b) at
the Company's option at the liquidation preference plus accrued dividends, plus
$1.50 per share. The Convertible Preferred Stock is mandatorily redeemable at
the liquidation preference plus accrued dividends on the later of March 26, 1998
or the date all existing 10% preferred stock is redeemed.
During July 1994, IMED commenced a Tender Offer for up to all of the outstanding
shares of 10% Preferred Stock for a cash price equal to $9.00 per share (the
"Tender Offer"). The Tender Offer expired on August 30, 1994, at which time 69
shares of the 10% Preferred Stock were tendered. Immediately upon
40
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
purchase thereof, IMED distributed all such shares of the 10% Preferred Stock
acquired by it pursuant to the Tender Offer to Advanced Medical and received a
credit from Advanced Medical against the amount of accrued and unpaid dividends
on shares of IMED's preferred stock held by Advanced Medical in an amount equal
to the liquidation value of the 10% Preferred Stock ($10 per share) plus accrued
and unpaid dividends thereon ($1.45 per share).
The Company has not made the March 1994 redemption or declared and paid the
semi-annual dividends since September 1993 on its 10% Preferred Stock. On March
19, 1996, the Company entered into a memorandum of understanding with respect to
the settlement of an action based on the Company's failure to redeem its
outstanding shares of 10% Preferred Stock. Pursuant to the memorandum of
understanding, the company agreed to (i) redeem its outstanding 10% Preferred
Stock, plus accrued and unpaid dividends and (ii) the payment of up to $500 in
attorney's fees. The settlement is subject to negotiation of a definitive
agreement and approval of the court. See "Item 3. Legal Proceedings."
COMMON STOCK WARRANT
IMED's common stock warrant held by GECC and included in minority interests in
consolidated subsidiaries on the accompanying consolidated balance sheet
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
IMED common stock warrant (includes cumulative net accretion
to estimated redemption price of $2,491 and $8,991 at
December 31, 1994 and 1995, respectively). . . . . . . . . . . . . $ 5,000 $ 11,500
--------- ---------
--------- ---------
</TABLE>
In connection with the loan agreements, IMED issued a warrant allowing GECC to
purchase 10% of IMED's common stock on a fully-diluted basis for nominal
consideration, subject to adjustment as provided in the agreement, and
exercisable at any time until August 12, 2004. IMED is required to purchase not
less than 25% of the shares under the warrant, or warrant stock if exercised, at
the option of GECC, and also upon (a) the filing of a registration statement for
the offering of IMED's common stock; (b) the sale of IMED; (c) the prepayment in
full of the GECC loans, or (d) the termination by GECC of the revolving loan
under provisions of the loan agreement. Additionally, IMED has the option to
redeem not less than 25% of the shares under warrant, or warrant stock if
exercised, beginning April 2, 1995. The purchase price per share will be the
higher of fair value (determined by either an investment banking firm or at
quoted price if the shares are publicly traded) or fully-diluted net book value
at the purchase date. Additionally, the warrant shares, or warrant stock if
exercised, have specified registration rights.
NOTE 10 -- STOCK OPTION PLANS:
The Company maintains several stock option and purchase plans under which
incentive stock options may be granted to key employees and nonqualified stock
options may be granted to key employees, directors, officers, independent
contractors and consultants. A maximum of 1,950 shares of common stock are
subject to issuance under the Plans.
The exercise price for incentive stock options generally may not be less than
the underlying stock's fair market value at the grant date. The exercise price
for non-qualified stock options granted to non-directors will not be less than
the par value of a share of common stock, as determined by a committee appointed
by the Board of Directors ("the Committee"). The exercise price for non-
qualified stock options granted to directors may not be less than the underlying
stock's fair market value at the grant date.
41
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
Options granted to non-directors generally vest and become exercisable as
determined by the Committee. Options granted to directors generally vest and
become exercisable at a rate of four thousand shares for each 12 month period of
continuous service as a director. Options granted to non-directors generally
expire upon the earlier of the termination of the optionee's employment or ten
years from the grant date. Options granted to directors generally expire upon
the earlier of the date the optionee is no longer a director or five years from
the grant date.
STOCK OPTION ACTIVITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Outstanding, beginning of year . . . . . . . . . . . . . . . . . 589 471 328
Granted during the year. . . . . . . . . . . . . . . . . . . . . 8 1,270
Cancelled during the year. . . . . . . . . . . . . . . . . . . . (126) (143) (505)
--------- --------- ---------
Outstanding, end of year (at prices ranging from $1.8125
to $16.94 per share) . . . . . . . . . . . . . . . . . . . . . 471 328 1,093
--------- --------- ---------
--------- --------- ---------
Fully vested and exercisable at end of the year (at prices
ranging from $4.47 to $16.94 per share). . . . . . . . . . . . 294 254 36
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1995, there were 785 shares reserved for future grants.
NOTE 11 -- BENEFIT PLANS:
PENSION PLANS
The Company has a defined benefit pension plan (the "Plan") which covers
substantially all of its U.S. employees. On December 1, 1993, the Company's
Board of Directors approved amendments to the Plan provisions which include,
among other matters, cessation of benefit accruals after December 31, 1993,
resulting in a Plan curtailment gain of $652 which was included in restructuring
charges as described in Note 2. All earned benefits as of that date are
preserved and the Company continues to contribute to the Plan as necessary to
fund earned benefits.
42
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
The following table sets forth the Plans' estimated funded status and amounts
recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 7,080 $ 10,343
--------- ---------
--------- ---------
Accumulated benefit obligation $ 7,310 $ 10,440
--------- ---------
--------- ---------
Projected benefit obligation for service rendered
to date $ 7,310 $ 10,440
Plan assets at fair value, consisting of equity and
fixed income restricted funds 8,937 11,305
--------- ---------
Plan assets greater than projected benefit
obligation 1,627 865
Unrecognized net gain (1,533) (697)
--------- ---------
Prepaid pension cost $ 94 $ 168
--------- ---------
--------- ---------
</TABLE>
The components of net periodic pension cost (benefit) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
Service cost-benefits earned during the period $ 143 $ 146
Interest cost on projected benefit obligation 631 608
Actual return on Plan assets 263 (2,494)
Amortization and deferred amounts (1,075) 1,666
--------- ---------
Net periodic pension benefit $ (38) $ (74)
--------- ---------
--------- ---------
Discount rates 8.56% 6.82%
Rates of increase in compensation levels 4.00% 4.00%
Expected long-term rate of return on assets 9.00% 9.00%
</TABLE>
43
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 12 -- LEASES:
LEASE RECEIVABLES
The Company leases instruments to customers under non-cancelable capital and
operating lease contracts with terms ranging generally from 1 to 6 years.
Scheduled future minimum lease payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
- ------------------------ -------- ---------
<S> <C> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,577 $ 2,349
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,116 1,855
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,881 1,521
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,353 1,056
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,592 99
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 186
-------- --------
Total minimum lease payments . . . . . . . . . . . . . . . . 26,705 $ 6,880
--------
--------
Allowance for uncollectible lease payments . . . . . . . . . (396)
Unearned income. . . . . . . . . . . . . . . . . . . . . . . (4,096)
--------
22,213
Current portion (see Note 3) . . . . . . . . . . . . . . . . (7,034)
--------
Net investment in sales-type and direct financing leases . . $ 15,179
--------
--------
</TABLE>
Operating lease revenue totaled $2,838, $2,033 and $1,476 during 1993, 1994 and
1995, respectively.
LEASE COMMITMENTS
The Company leases buildings and equipment under non-cancelable operating leases
with initial terms ranging from 2 to 10 years. Scheduled future minimum lease
commitments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,773
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,366
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 14
--------
$ 4,946
--------
--------
</TABLE>
Rent expense was $3,845, $3,740 and $3,149 during 1993, 1994 and 1995,
respectively.
44
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 13 -- RELATED PARTY ARRANGEMENTS AND COMMITMENTS:
In October 1991, IMED sold certain European assets to Pharmacia and entered into
a marketing, distribution and development arrangement with Pharmacia (the
"Pharmacia Transaction"), pursuant to which Pharmacia obtained the exclusive
right to market and distribute IMED's infusion products in a territory that
includes most of Europe. In August 1994, the Company, IMED and Pharmacia
amended their distribution agreement. Under the terms of the Amended and
Restated Distribution Agreement ("Amended Distribution Agreement"), Pharmacia
retains the exclusive right (subject to certain exceptions) to distribute IMED's
infusion products in the territory that includes most of Europe. Under the
Amended Distribution Agreement, Pharmacia has the right not to distribute
certain products currently under development by IMED. In the event of such an
election, IMED has the right to sell such products directly or through others,
and under certain circumstances, has the right to repurchase from Pharmacia the
distribution rights to IMED products currently distributed by Pharmacia in the
territory. In addition, Pharmacia has the right to terminate the Amended
Distribution Agreement at any time on 12 months notice, in which event Pharmacia
would be required to make a payment of $2.5 million to IMED and IMED would be
required to make payments to Pharmacia based on net sales of products currently
distributed by Pharmacia for the 4 years following termination.
During 1994, the Company sold its Irish manufacturing facility to Pharmacia for
$4,089, from which the net proceeds were used to repay a portion of the GECC
long-term debt. The Company entered into an agreement with Pharmacia for the
purchase, at fixed prices, of minimum quantities of disposable administration
sets ("Sets") and components used to assemble Sets through 1996. The Company is
obligated to purchase approximately $1,200 from Pharmacia during 1996.
During 1994 and 1995, the Company issued the Notes to Decisions, a corporation
affiliated with Jeffry M. Picower. Mr. Picower is an officer, director and
significant stockholder of the Company. (See Note 6.)
45
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 14 -- SEGMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 107,434 $ 98,787 $ 102,389
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,983 12,894 9,721
--------- --------- ---------
Net sales as reported in the accompanying statement
of operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 119,417 $ 111,681 $ 112,110
--------- --------- ---------
--------- --------- ---------
Intergeographic sales:
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,014 $ 7,668 $ 6,973
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,948 6,565
--------- --------- ---------
Total intergeographic sales. . . . . . . . . . . . . . . . . . . . . . $ 16,962 $ 14,233 $ 6,973
--------- --------- ---------
--------- --------- ---------
Income from operations:
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,149 $ 12,438 $ 14,875
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676 1,584 929
--------- --------- ---------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,825 14,022 15,804
General corporate expenses . . . . . . . . . . . . . . . . . . . . . . (3,294) (1,431) (1,086)
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,767 2,526 2,525
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,880) (8,690) (8,153)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065 1,136 313
--------- --------- ---------
Income (loss) before income taxes, minority interests, extra-
ordinary item and cumulative change in accounting principle. . . . . $ (5,517) $ 7,563 $ 9,403
--------- --------- ---------
--------- --------- ---------
DECEMBER 31,
------------------------
1994 1995
--------- ---------
Identifiable assets:
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 117,408 $ 119,392
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,875 7,103
--------- ---------
124,283 126,495
General corporate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,841 43,135
--------- ---------
Total assets as reported in the accompanying balance sheet . . . . . . . . . . . . . . $ 132,124 $ 169,630
--------- ---------
--------- ---------
</TABLE>
NOTE 15 -- SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS:
Foreign and state income taxes paid during 1993, 1994 and 1995 totaled $870,
$1,433 and $1,726, respectively. Interest paid during 1993, 1994 and 1995
totaled $10,280, $7,745 and $6,097, respectively.
46
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company and executive officers of
IMED are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY AND IMED
--------------------- --- ---------------------------------------------------
<S> <C> <C>
Jeffry M. Picower 53 Director, Chairman of the Board and Chief
Executive Officer; Chairman of the Board -- IMED
Joseph W. Kuhn 35 President, Chief Financial Officer, Treasurer and
Secretary; President, Treasurer and Secretary --
IMED
Anthony Cerami 55 Director
Norman M. Dean (1)(2) 75 Director
Henry Green 53 Director
Frederic Greenberg (1) 55 Director
Richard B. Kelsky (2) 40 Director
- ---------------------------
</TABLE>
(1) Member of Audit Committee
(2) Member of Compensation Committee
JEFFRY M. PICOWER -- Mr. Picower was a Director, Vice President and Assistant
Treasurer of the Company from September 1988 to March 1989 and Vice Chairman
from December 1988 to June 1989. Mr. Picower was re-elected as a Director and
Co-chairman of the Board in March 1993 and became Chairman of the Board in May
1993. Mr. Picower has been Chief Executive Officer since September 7, 1993. He
has, since 1984, been Chairman of the Board and Chief Executive Officer of
Monroe Systems for Business, Inc. ("Monroe"), a world-wide office equipment,
distribution and service organization. Mr. Picower has been a director of
Physician Computer Network, Inc. ("PCN") since January 1994 and Chairman of the
Board since June 1994. PCN, a corporation whose principal shareholder is Mr.
Picower, operates a computer network linking its office-based physician members
to health care organizations.
JOSEPH W. KUHN -- Mr. Kuhn was appointed President of the Company and IMED in
January 1995. Since August 1993, Mr. Kuhn has been Chief Financial Officer,
Treasurer and Secretary of the Company and Treasurer and Secretary of IMED.
From August 1993 to January 1995, Mr. Kuhn was Vice President of the Company and
Executive Vice President of IMED. Mr. Kuhn was Corporate Controller of the
Company from January 1990 to August 1993. From 1983 to 1989, Mr. Kuhn held
positions of increasing responsibility, including senior manager, with Price
Waterhouse, a public accounting firm. From 1982 to September 1983, Mr. Kuhn was
employed by Main Hurdman, a public accounting firm. Mr. Kuhn holds a B.A.
degree from Rutgers University and is a Certified Public Accountant.
ANTHONY CERAMI, PH.D. -- Dr. Cerami was first elected to the Board of
Directors of the Company in March 1989. He has been President of The Picower
Institute for Medical Research since October 1991. He is an editor of the
JOURNAL -- MOLECULAR MEDICINE and is on the editorial boards of several
biomedical journals. He has been an author of numerous publications covering
many aspects of medical biochemistry. He holds a B.S. from Rutgers University
and a Ph.D. from The Rockefeller University. Dr. Cerami is Chairman of the
Scientific Advisory Board and a director of Alteon.
47
<PAGE>
NORMAN M. DEAN -- Mr. Dean was first elected to the Board of Directors of the
Company in March 1989. Mr. Dean has been a director and President of Foothills
Financial Corporation, a venture capital company, since January 1985 and
Chairman of the Board of Miller Diversified Corp. since May 1990.
HENRY GREEN -- Mr. Green was President and Chief Operating Officer of the
Company from September 1990 to March 1993 and has been a director of the Company
since 1991. Mr. Green became an employee of PCN in March 1993. Mr. Green was
elected President of PCN in May 1993 and Chief Executive Officer in June 1994.
He was elected as a director of PCN in July 1993. From 1988 to September 1990,
Mr. Green was Vice President of Johnson & Johnson International. Mr. Green
holds a B.S. and an M.B.A. from Drexel University.
FREDERIC GREENBERG -- Mr. Greenberg was appointed to the Board of Directors of
the Company on June 7, 1995. Mr. Greenberg is a partner with EGS Partners LLC,
an asset management and merchant banking firm which Mr. Greenberg founded in
1989. From 1974 to 1989, Mr. Greenberg served as a pharmaceutical analyst with
Goldman Sachs & Company, an investment banking firm, where he was instrumental
in organizing healthcare symposiums and conferences for leading pharmaceutical
companies and the investment community. He has participated in numerous merger,
acquisition and valuation analyses of some of the leading healthcare
organizations. Mr. Greenberg serves as an advisor to various healthcare
companies and has been a director of PCN since July 1993.
RICHARD B. KELSKY -- Mr. Kelsky has been a Director of the Company since June
1989. Mr. Kelsky is a director of Monroe and from 1984 to 1996 was its Vice
President and General Counsel and its Vice Chairman since 1996. Mr. Kelsky has
been a director of PCN since January 1992.
Directors are elected for terms of one year and until their successors are duly
elected and have qualified. There are no family relationships among the above
directors.
ITEM 11. EXECUTIVE COMPENSATION.
The following table provides certain summary information concerning compensation
paid or accrued by the Company and IMED to or on behalf of the Company's Chief
Executive Officer and each of the other most highly compensated executive
officers of the Company whose salary and bonus exceeded $100,000 (determined for
and as of the end of 1995) (the "Named Executive Officers") for the years ended
December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ------------------------
OTHER ALL
ANNUAL SECURITIES OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
YEAR ($) ($) ($)(2) OPTIONS ($)(3)
---- ---------- ---------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
JEFFRY M. PICOWER (1) 1995 0 0 10,000 0 0
Chairman of the Board and 1994 0 0 12,500 0 0
Chief Executive Officer 1993 0 0 7,895 0 0
JOSEPH W. KUHN 1995 175,000 60,000 9,250 0 2,053
President, Chief Financial 1994 135,500 40,650 9,250 0 2,063
Officer, Treasurer and Secretary; 1993 138,627 0 104,376 0 2,222
President, Treasurer and
Secretary -- IMED
</TABLE>
- ---------------------------
48
<PAGE>
(1) Mr. Picower does not receive an annual salary or bonus from the Company.
"Other Annual Compensation" for Mr. Picower represents compensation earned
as a director. See "Compensation of Directors."
(2) "Other Annual Compensation" includes annual compensation, other than salary
or bonus, including perquisites and other personal benefits where such
exceed the lesser of $50,000 or 10% of the Named Executives Officer's
annual salary and bonus. In the amounts reported for 1994 and 1995, Mr.
Kuhn received supplemental income for the use of a vehicle valued at
$9,250. In the amounts reported for 1993, Mr. Kuhn received supplemental
income of $67,750 and cancellation of a $35,543 loan in connection with his
acceptance of employment as the Company's Chief Financial Officer and the
use of a vehicle valued at $1,083.
(3) The respective amounts reported as "All Other Compensation" for Mr. Kuhn
represents contributions made by the Company to the Company's 401(K) Plan
on behalf of Mr. Kuhn to match pre-tax elective deferral contributions
(included under salary) made by Mr. Kuhn to such plan.
EMPLOYMENT AGREEMENTS
Mr. Kuhn is employed by the Company and IMED as President pursuant to an
employment agreement providing for a base salary of $225,000 ($175,000 during
1995). The agreement provides that, upon termination of his employment by the
Company other than for cause, Mr. Kuhn will receive an amount, to be paid over a
six-month period commencing with the date his employment terminates, equal to
six months' salary, which amount will be reduced by any salary or compensation
that Mr. Kuhn receives from any other sources during such six-month period. In
addition, subject to certain conditions, the option to purchase shares of common
stock previously granted to Mr. Kuhn will become fully vested when his
employment terminates. From September 1993 through December 1994, Mr. Kuhn was
employed by the Company as Chief Financial Officer and by IMED as Executive Vice
President pursuant to his employment agreement providing for a base salary of
$135,500.
During 1994 and 1995, Mr. Kuhn received performance bonuses of $40,650 and
$60,000, respectively, pursuant to his employment contract.
In connection with Mr. Kuhn's acceptance of employment as the Company's Chief
Financial Officer on September 1, 1993, he received supplemental income of
$67,750 and the cancellation of a $35,543 loan made by the Company to Mr. Kuhn
in connection with his relocation to California in 1990.
STOCK-BASED BENEFIT PLANS
STOCK OPTION PLAN
The Option Plan in its third amended and restated form was approved by the Board
of Directors and became effective on June 28, 1994. Under the Option Plan,
incentive stock options ("ISOs"), as provided in Section 422 of the Internal
Revenue Code, may be granted to key employees of the Company and its
subsidiaries, and nonqualified stock options ("NQSOs") may be granted to key
employees, directors (except directors eligible to participate in the Directors
Plan), and officers of the Company, its subsidiaries or affiliates, as well as
independent contractors and consultants performing services for such entities.
The maximum aggregate number of shares of the Company's common stock that may be
issued under the Option Plan is 1,700,200. The number of shares of common stock
which remain available for issuance under the Option Plan is 1,638,680 of which
1,045,311 are subject to currently outstanding options. The number of shares of
common stock available under the Option Plan will be reduced on a share for
share basis in respect of each share issued other than under the Option Plan to
persons eligible to participate in the Option Plan. In the event of a change in
the capitalization of the Company which affects the common stock, the Committee
may make proportionate adjustments to the number of shares of common stock for
which options may be granted and the number and exercise price of shares of
common stock subject to outstanding options. Options may not be granted under
the Stock Option Plan after December 27, 1998.
49
<PAGE>
The Option Plan provides for administration by a committee appointed by the
Board of Directors (the "Committee"). No member of the Committee is eligible to
receive options under the Option Plan. The Committee has authority, subject to
the terms of the Option Plan, to determine the individuals to whom options may
be granted, the exercise price and number of shares of common stock subject to
each option, whether the options granted to employees are to be ISOs, the time
or times during which all or a portion of each option may be exercised and
certain other provisions of each option.
Pursuant to the Option Plan, the purchase price of shares of common stock
subject to ISOs must be not less than the fair market value of the common stock
at the date of the grant; provided, that the purchase price of shares subject to
ISOs granted to any optionee who owns shares possessing more than 10% of the
combined voting power of the Company or any parent or subsidiary of the Company
("Ten Percent Shareholder") must be not less than 110% of the fair market value
of the common stock at the date of the grant. With respect to NQSOs, the
purchase price of shares will be determined by the Committee at the time of the
grant, but will not be less than the par value of a share of common stock. The
maximum term of an option may not exceed 10 years from the date of grant, except
with respect to ISOs granted to Ten Percent Shareholders which must expire
within five years of the date of grant. Options granted vest and become
exercisable as determined by the Committee. The Committee will limit the grant
so that no more than 250,000 shares of common stock (subject to certain
adjustments) may be awarded to any one employee in any calendar year. During
the lifetime of an optionee, his or her options may be exercised only by such
optionee. Options are not transferable other than by will or by the laws of
descent and distribution.
Payment of the purchase price for the shares of common stock to be received upon
exercise of an option may be made in cash, in shares of common stock or in any
combination thereof. In addition, the Committee may, pursuant to the terms of
the stock option agreement between the optionee and the Company, provide for
payment of the purchase price by promissory note or by any other form of
consideration permitted by law.
Options granted to participants under the Option Plan are subject to forfeiture
under certain circumstances in the event an optionee is no longer employed by or
performing services for the Company. In the event an optionee is terminated for
cause, all unexercised options held by such optionee (whether or not vested)
expire upon such termination. If an optionee is no longer an Officer, Director
or Employee (as defined in the Option Plan) other than as the result of having
been terminated for cause, all unvested options expire at such time and all
vested options expire twelve months thereafter, unless by their terms such
options expire sooner.
In the event of a change of control, as defined in the Option Plan, unless
otherwise determined by the Committee at the time of grant or by amendment (with
the holder's consent) of such grant, all options not vested on or prior to the
effective time of any such change of control shall immediately vest as of such
effective time.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE
SECURITIES TOTAL OPTIONS EXERCISE AT ASSUMED ANNUAL RATE
UNDERLYING GRANTED TO OF BASE OF STOCK APPRECIATION FOR
OPTIONS EMPLOYEES PRICE EXPIRATION THE OPTION TERM
GRANTED IN 1995 ($/SHARE) DATE 5%($) 10%($)
--------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joseph W. Kuhn 125,000 11.2% 1.8125 1-5-2005 $142,188 $360,938
</TABLE>
50
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995
AND OPTION VALUES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF SECURITIES IN-THE-MONEY
ACQUIRED VALUE UNDERLYING UNEXERCISED OPTIONS AT 12/31/95
ON REALIZED OPTIONS AT 12/31/95 ($) (1)
EXERCISE $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffry M. Picower 0 0 0 0 0 0
Joseph W. Kuhn (2) 0 0 0 125,000 0 148,438
</TABLE>
- ---------------------------
(1) Calculated based on the excess of the closing price of the Company's common
stock on December 31, 1995 ($3.00) as reported in the American Stock
Exchange Composite Transactions published in The Wall Street Journal over
the option exercise price.
(2) On January 5, 1995, the Company cancelled the options to acquire 30,000
shares of common stock owned by Mr. Kuhn and granted Mr. Kuhn an option to
acquire 125,000 shares of common stock ($1.8125 per share).
DIRECTORS PLAN
The Directors Plan in its second amended and restated form was approved by the
Board of Directors and became effective on June 28, 1994. Directors who are
eligible participants in the Directors Plan are not eligible to receive awards
under the Option Plan. An aggregate of 250,000 shares of the Company's common
stock may be issued under the Directors Plan. The number of shares of common
stock which remained available for issuance under the Directors Plan was
240,000, of which 48,000 are subject to currently outstanding options. The
number of shares of common stock available under the Directors Plan will be
reduced on a share for share basis in respect of each share issued other than
under the Directors Plan to persons eligible to participate in the Directors
Plan. In the event of a change in the capitalization of the Company which
affects the common stock, the committee which administers the Directors Plan
(the "Plan Committee") may make proportionate adjustments to the number of
shares of common stock for NQSOs which may be granted and to the number and
exercise price of shares of common stock subject to outstanding NQSOs. NQSOs may
not be granted under the Directors Plan after September 7, 2000.
The Plan Committee consists of at least two individuals who are not eligible to
participate in the Directors Plan. The Plan Committee has the authority to
administer all aspects of the Directors Plan other than (i) the grant of NQSOs;
(ii) the number of shares of common stock subject to NQSOs; (iii) the rate at
which options granted thereunder vest and become first exercisable; and (iv) the
price at which each share covered by a NQSO may be purchased, all of which are
determined automatically under the Directors Plan.
On September 10, 1990, initial grants of NQSOs covering 12,000 shares of common
stock were made automatically under the Directors Plan to each of the Company's
three non-employee directors. An initial grant of NQSOs covering 12,000 shares
of common stock also will be made automatically to any person who becomes an
eligible participant after September 10, 1990, on the business day following
such person's election to the Board of Directors. During the term of the
Directors Plan, additional grants of NQSOs covering 12,000 shares of common
stock will be made to each participant in the Directors Plan every three years
on the anniversary of such person's initial NQSO grant. The NQSOs granted under
the Directors Plan will vest and become exercisable at the rate of 4,000 for
every twelve month period of continuous service on the Board, provided that the
optionee is still a member of the Board on that date. For purposes of vesting,
participants will receive credit for any period of continuous service prior to
September 7, 1990. The term of each NQSO is five years from the date of grant.
During the lifetime of an optionee, his or her NQSOs may be exercised
51
<PAGE>
only by the optionee and the NQSOs are not transferable other than by will or by
the laws of descent and distribution. NQSOs granted under the Directors Plan
which have not yet vested are subject to termination if the optionee ceases to
be a director or becomes an employee of the Company and all NQSOs which have
vested expire twelve months after such change in status, unless by their terms
such NQSOs expire sooner. In the event that an optionee is removed from the
Board for cause, all unexercised NQSOs, whether or not vested, expire upon such
removal.
The purchase price of shares of common stock subject to NQSOs is the fair market
value of the common stock on the date of the grant. Payment for the shares of
common stock to be received by a optionee upon exercise of a NQSO may be in cash
or in shares of common stock. In addition, the Plan Committee may provide in
such optionee's stock option agreement for payment of the purchase price by
promissory note or any other form of consideration permitted by law.
In the event of a change of control, as defined in the Directors Plan, all NQSOs
not vested on or prior to the effective time of any such change in control shall
immediately vest as of such effective time.
COMPENSATION OF DIRECTORS
The Company's current policy is to compensate members of its Board of Directors
who are not employees of the Company at the annual rate of $10,000 plus options
to purchase 4,000 shares of the Company's common stock pursuant to the Directors
Plan. See "Stock-Based Benefit Plans -- Directors Plan." Travel and
accommodation expenses of directors incurred in connection with meetings are
reimbursed by the Company.
In March 1993, the Company and Mr. Green entered into a consulting agreement
with a three year term, expiring on March 15, 1996, and providing for the
payment to Mr. Green of consulting fees in the amount of $100,000 annually.
Effective March 16, 1996, Mr. Green will receive the $10,000 annual director's
compensation and the option to purchase the Company's common stock pursuant to
the Directors Plan.
52
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below sets forth, as of March 21, 1996, information regarding the
beneficial ownership of the Company's common stock by (i) all persons known by
the Company to own beneficially more than 5% of its outstanding common stock,
(ii) each director of the Company, (iii) each of the Named Executive Officers
who still hold an office with the Company and/or its subsidiaries, and (iv) all
directors and officers of the Company as a group. Unless otherwise stated, the
Company believes that the beneficial owners of the shares listed below have sole
investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE
OWNED OF TOTAL (1)
------------ ------------
<S> <C> <C>
Jeffry M. Picower. . . . . . . . . . . . . . . . . . . . . . 30,277,946(2) 71.2%
South Ocean Blvd.
Palm Beach, FL 33480
FMR Corporation. . . . . . . . . . . . . . . . . . . . . . . 1,592,115(3) 9.9
Devonshire Street
Boston, MA 02109
Anthony Cerami . . . . . . . . . . . . . . . . . . . . . . . 25,159(4) *
Norman M. Dean . . . . . . . . . . . . . . . . . . . . . . . 16,000(4) *
Henry Green. . . . . . . . . . . . . . . . . . . . . . . . . 5,000 *
Frederic Greenberg . . . . . . . . . . . . . . . . . . . . . 10,000
Richard B. Kelsky. . . . . . . . . . . . . . . . . . . . . . 94,100(4) *
Joseph W. Kuhn . . . . . . . . . . . . . . . . . . . . . . . 25,000(4) *
All directors and officers as a group (7 individuals). . . . 30,453,205(5) 71.5
- -----------------------------------------
</TABLE>
* Less than 1%
(1) Based on 16,135,125 shares of common stock outstanding, which does not
include the shares of common stock issuable upon conversion of the
Debentures or the exercise of the warrants or options or the conversion of
Convertible Preferred Stock or the conversion of the Convertible Notes
described below in footnotes (2) through (5). However, in computing the
respective percentages of the common stock beneficially owned by the
holders described in footnotes (2) and (4), the shares of common stock
subject to the warrant, option or conversion privileges described therein
were deemed outstanding.
(2) The total for Mr. Picower includes (i) 1,400,327 shares of common stock
owned by Decisions, (ii) 357,100 shares of common stock owned by JA Special
Partnership Limited (the "Partnership"), (iii) 295,350 shares of common
stock issuable upon the conversion of an aggregate of 333,000 shares of
Convertible Preferred Stock owned by Mr. Picower (166,674 shares),
Decisions (30,317 shares) and the Partnership (136,009), (iv) 6,030,151
shares of common stock issuable upon conversion of the $6,000,000
Convertible Note owned by Decisions, (v) 10,534,846 shares of common stock
issuable upon conversion of the $6,500,000 Convertible Note owned by
Decisions and (vi) 9,523,809 shares of common stock issuable upon the
conversion of the $25,000,000 Convertible Note owned by Decisions. The
shares of Convertible Preferred Stock owned by Mr. Picower, Decisions and
the Partnership, collectively, represent 100% of the issued and outstanding
shares of Convertible Preferred Stock. Mr. Picower is the sole stockholder
and sole director of Decisions and the sole general partner of the
Partnership and, as such, shares or has the sole power to vote or direct
the vote of and to dispose or direct the disposition of such shares of
common stock and may be deemed to be the beneficial owner of such shares.
53
<PAGE>
(3) The total for FMR Corp. includes 1,592,115 shares beneficially owned by
Fidelity Management & Research Company, as a result of its acting as
investment advisor to various investment companies registered under Section
8 of the Investment Company Act of 1940. FMR Corp. has sole voting power
with respect to zero shares and sole dispositive power with respect to
1,592,115 shares.
(4) The total includes currently exercisable options on 12,000 shares of Common
Stock for each of Dr. Cerami and Messrs. Dean and Kelsky under the
Directors Plan. In addition, Mr. Kuhn's total includes currently
exercisable options on 25,000 shares of Common Stock, under the Option
Plan.
(5) The total includes currently exercisable options on 36,000 shares under
the Directors Plan and 25,000 under the Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On May 19, 1995, Decisions tendered $441,000, in principal amount, of Debentures
held by it pursuant to the Exchange Offer as defined in "Security Ownership of
Certain Beneficial Owners and Management."
On December 4, 1995, the Company issued the $25,000,000 Note to Decisions, the
proceeds of which can be used (i) for the payment of principal and interest on
this note or the $6,000,000 and $6,500,000 Notes, (ii) to acquire or assist the
Company to acquire any business or line of business, (iii) to invest in or
acquire any securities (or right to acquire any securities) of IMED, any other
affiliate of the Company or any other entity (other than the Company), or (iv)
to pay any and all costs and expenses incurred in connection with the foregoing
activities. The $25,000,000 Note bears interest at 7%, and all accrued and
unpaid interest shall be due and payable in arrears on October 11, 1996, and
thereafter on June 30 and December 31 of each calendar year. The $25,000,000
Note is payable on January 4, 2001 and ranks pari passu with the $6,000,000 and
$6,500,000 Notes. The $25,000,000 Note is convertible, at the option of the
holder, into up to 9,523,809 shares of Common Stock at a conversion price of
$2.625 per share (subject to antidilution protection).
54
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS:
The following financial statements of Advanced Medical, Inc. and its
subsidiaries are included in Part II, Item 8 of this report, on the
following pages:
Page
----
Report of Independent Accountants. . . . . . . . . . . . . . . 26
Consolidated balance sheets at December 31, 1994 and 1995. . . 27
Consolidated statements of operations for the years ended
December 31, 1993, 1994 and 1995 . . . . . . . . . . . . . . 28
Consolidated statements of cash flows for the years ended
December 31, 1993, 1994 and 1995. . . . . . . . . . . . . . . 29
Consolidated statements of stockholders' equity (deficit) for
the period from December 31, 1992 to December 31, 1995. . . . 30
Notes to consolidated financial statements . . . . . . . . . . 31
2. FINANCIAL STATEMENT SCHEDULES:
Schedule III -- Condensed Financial Information of Advanced Medical, Inc.
as of December 31, 1994 and 1995 and for the three years ended December
31, 1995.
Schedule VIII -- Valuation and Qualifying Accounts and Reserves for the
three years ended December 31, 1995.
All other schedules have been omitted because they are inapplicable, not
required or the required information is included in the financial
statements or notes thereto.
3. EXHIBITS:
EXHIBIT
NO.
-------
2.1 -- Asset Sale Agreement dated October 28, 1991 by and among IMED
Limited, IMED France S.N.C., IMED Medizintechnik GmbH, Kabi
Pharmacia Limited, Pharmacia France S.A., Kabi Pharmacia GmbH,
Kabi Pharmacia AB and IMED. (Incorporated by reference to Exhibit
2-10 to the Company's report on Form 10-Q for the quarter ended
September 30, 1991 [the "September 30, 1991 10-Q"].)
2.2 -- Asset Sale Agreement dated October 28, 1991 by and among IMED,
IMED France S.N.C., and Pharmacia France S.A. (Incorporated by
reference to Exhibit 2-11 to the September 30, 1991 10-Q.)
2.3 -- Letter dated October 28, 1991 by and among IMED Limited, IMED
France, S.N.C., IMED Medizintechnik GmbH, Kabi Pharmacia GmbH and
Kabi Pharmacia AB. (Incorporated by reference to Exhibit 2-12 to
the September 30, 1991 10-Q.)
3.1 -- Certificate of Incorporation of the Company and form of
Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1(a) to the
Prospectus/Joint Proxy Statement, dated March 3, 1989, of Fidata
Corporation, Advanced Medical, Inc. and Controlled Therapeutics
Corporation included and forming part of the Registration
Statement on Form S-4 of Advanced Medical [the "Prospectus/Joint
Proxy Statement"].)
55
<PAGE>
EXHIBIT
NO.
-------
3.2 -- By-Laws of the Company, as amended. (Incorporated by reference
to Exhibit 3.1(b) to the Prospectus/Joint Proxy Statement.)
3.3 -- Amendments to Articles First and Fourth of the Restated
Certificate of Incorporation of the Company. (Incorporated by
reference to Exhibits A and B to the Company's Proxy Statement,
dated August 15, 1990, for its Special Meeting of Stockholders
held on September 7, 1990) [the "September 1990 Proxy
Statement"].)
3.4 -- Amendment to Article Fourth of the Restated Certificate of
Incorporation of the Company. (Incorporated by reference to
Annex III to the Company's Proxy Statement, dated July 25, 1994,
for its Special Meeting of Stockholders held on August 11, 1994.)
4.1 -- Form of Certificate of Voting Powers, Designation, Rights,
Preferences and Restrictions of 10% Cumulative Preferred Stock.
(Incorporated by reference to Appendix A to Prospectus/Joint
Proxy Statement.)
4.2 -- Loan Agreement, dated as of April 2, 1990, by and among IMED, as
borrower, and General Electric Capital Corporation ("GECC"), as
agent and lender. (Incorporated by reference to Exhibit 10(a) to
the April 17, 1990 8-K.)
4.3 -- Form of Certificates of Voting Powers, Designation, Rights,
Preferences and Restrictions of Convertible Preferred Stock.
(Incorporated by reference to the Company's report on Form 10-K
for the year ended December 31, 1990 [the "1990 10-K"].)
4.4 -- Registration Rights Agreement, dated as of March 26, 1991, by and
among the Company, Mr. Picower, Decisions and JA Special Limited
Partnership, regarding the Convertible Preferred Stock.
(Incorporated by reference to Exhibit 10.10(a) to the 1990 10-K.)
4.5 -- Common Stock Purchase Warrant, dated July 29, 1991, for 25,000
shares of Common Stock of the Company issued by the Company and
registered in the name of MMV II. (Incorporated by reference to
Exhibit 19-3(a) to the Company's report on Form 10-Q for the
quarter ended June 30, 1991 [the "June 30, 1991 10-Q"].)
4.6 -- Registration Rights Agreement, dated July 29, 1991, by and
between MMV II and the Company. (Incorporated by reference to
Exhibit 19-3(b) to the June 30, 1991 10-Q.)
4.7 -- Indenture to U.S. Trust Company California, N.A., Trustee, dated
January 30, 1992. (Incorporated by reference to Exhibit 4.26 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991 [the "1991 10-K"].)
4.8 -- Letter Agreement, dated as of December 27, 1993, by and between
Mr. Picower and the Company (Incorporated by reference to Exhibit
1 to the Company's report on Form 8-K dated January 12, 1994
["January 12, 1994 8-K"].)
4.9 -- Promissory Note dated January 4, 1994 issued to Decisions.
(Incorporated by reference to Exhibit 4.33 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993
[the "1993 10-K"].)
4.10 -- Promissory Note, dated August 12, 1994, issued to Decisions.
(Incorporated by reference to Exhibit 99.3 to the June 30, 1994
10-Q.)
4.11 -- Modification Agreement dated February 3, 1995, by and between the
Company and Decisions Incorporated. (Incorporated by reference
to Exhibit 4.11 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 [the "1994 10-K].)
4.12 -- Exchange Agreement dated February 3, 1995, by and among the
Company and Fidelity Convertible Securities Fund and Fidelity
Select Healthcare Fund. (Incorporated by reference to the
Company's 1994 10-K.)
4.13 -- Promissory Note, dated October 12, 1995, issued to Decisions.
(Incorporated by reference to Exhibit 2 to the December 5, 1995
8-K.)
4.14 -- Indenture to United States Trust Company of New York dated as of
June 1, 1995 (Incorporated by reference to Exhibit 4.11 to the
Company's September 1995 10-Q.)
56
<PAGE>
EXHIBIT
NO.
-------
10.1 -- Amended and Restated 1988 Stock Option Plan of the Company.
(Incorporated by reference to Exhibit C to the September 1990
Proxy Statement.)
10.2 -- 1988 Stock Purchase Plan of the Company. (Incorporated by
reference to Exhibit 10.1(c) to the Prospectus/Joint Proxy
Statement.)
10.3 -- 1990 Non-Qualified Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit D to the September 1990
Proxy Statement.)
10.4 -- Security Agreement, dated April 2, 1990, by IMED in favor of
GECC. (Incorporated by reference to Exhibit 10-14 to the March
31, 1990 10-Q.)
10.5 -- Limited Recourse Guaranty, dated April 2, 1990, by the Company in
favor of GECC. (Incorporated by reference to Exhibit 10-15 to the
March 31, 1990 10-Q.)
10.6 -- Security Agreement, dated April 2, 1990, by the Company in favor
of GECC. (Incorporated by reference to Exhibit 10-16 to the March
31, 1990 10-Q.)
10.7 -- Stock Pledge Agreement, dated April 2, 1990, by and among the
Company, IMED, IMED Nominee, Inc. and GECC regarding the pledge
by the Company to GECC of the stock of IMED owned by the Company.
(Incorporated by reference to Exhibit 10-17 to the March 31, 1990
10-Q.)
10.8 -- Warrant Purchase Agreement, dated April 2, 1990, between IMED and
GECC. (Incorporated by reference to Exhibit 10-18 to the March
31, 1990 10-Q.)
10.9 -- Warrant to Purchase Common Stock of IMED, dated April 2, 1990.
(Incorporated by reference to Exhibit 10-19 to the March 31, 1990
10-Q.)
10.10 -- Secured Promissory Note, dated March 30, 1992 made by Richard D.
Propper in favor of the Company. (Incorporated by reference to
Exhibit 19.1 to the Company's report on Form 10-Q for the quarter
ended March 31, 1992 [the "March 31, 1992 10-Q"].)
10.11 -- Settlement Agreement, dated May 13, 1992, by and between Rouse &
Associates -- 380 Commerce Drive Limited Partnership and
Controlled Therapeutics Corporation. (Incorporated by reference
to Exhibit 19.2 to the Company's report on Form 10-Q for the
quarter ended March 31, 1992 [the "March 31, 1992 10-Q"].)
10.12 -- Release, dated May 13, 1992, by and between Rouse & Associates --
380 Commerce Drive Limited Partnership and Controlled
Therapeutics Corporation. (Incorporated by reference to Exhibit
19.3 to the Company's report on Form 10-Q for the quarter ended
March 31, 1992 [the "March 31, 1992 10-Q"].)
10.13 -- Escrow Agreement I, dated May 13, 1992, by and among Rouse &
Associates -- 380 Commerce Drive Limited Partnership and
Controlled Therapeutics Corporation, Richard S. Hannye, Esquire
and Thomas C. Zielinski, Esquire. (Incorporated by reference to
Exhibit 19.4 to the Company's report on Form 10-Q for the quarter
ended March 31, 1992 [the "March 31, 1992 10-Q"].)
10.14 -- Escrow Agreement II, dated May 13, 1992, by and among Rouse &
Associates -- 380 Commerce Drive Limited Partnership and
Controlled Therapeutics Corporation, Richard S. Hannye, Esquire
and Thomas Zielinski, Esquire. (Incorporated by reference to
Exhibit 19.5 to the Company's report on Form 10-Q for the quarter
ended March 31, 1992 [the "March 31, 1992 10-Q"].)
10.15 -- Consulting Agreement, dated March 15, 1993, by and between Henry
Green and the Company. (Incorporated by reference to Exhibit
10.89 to the Company's 1992 10-K.)
10.16 -- Acquisition and Common Stock Purchase Agreement, dated October
30, 1992, by and among Himedics, Inc., MMV I, MMV II, Peregrine
Ventures, Peregrine Ventures II, L.P., CTS, CTS Partnership, the
Company, PGE2 Investing Incorporated, PharmaSciences, Inc.,
Philip Heimlich and Richard P. Storm. (Incorporated by reference
to Exhibit 10.92 to the Company's 1992 10-K.)
10.17 -- Letter dated March 30, 1993 from GECC to IMED regarding financial
covenants to Loan Agreement dated as of April 2, 1990.
(Incorporated by reference to Exhibit 10.93 to the Company's 1992
10-K.)
57
<PAGE>
EXHIBIT
NO.
-------
10.18 -- Confidential Settlement Agreement and Mutual General Release of
all Claims, dated May 11, 1993 by and among Richard L. Grounsell,
IMED Corporation, Warner-Lambert Company, Donald O'Neill, John
Sifers, Michael Scharing, Dan Kelly and Bud Humphrey.
(Incorporated by reference to Exhibit 19.1 to the Company's
Report on Form 10-Q for the quarter ended March 31, 1993.)
10.19 -- Employment Agreement, dated as of August 31, 1993, by and among
the Company, IMED and Joseph W. Kuhn. (Incorporated by reference
to Exhibit 10.23 to the Company's 1993 10-K.)
10.20 -- Agreement, dated August 26, 1993, by and among the Company, AM
General, AM Limited, Dean Kamen, Deka Products, Deka Research &
Development Corp., IMED and AMD regarding modification of
existing relationships. (Incorporated by reference to Exhibit
10.24 to the Company's 1993 10-K.)
10.21 -- Amended and Restated Distribution Agreement dated as of August
12, 1994 by and among Pharmacia AB, IMED Corporation and the
Company. (Incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarter ended September 30, 1994 [the
"September 30, 1994 10-Q"].)*
10.22 -- Final Agreement dated as of August 12, 1994 by and among the
Company, AM General Development Corp., AM Development Limited,
Kamen, Deka Research & Development Corp. and IMED Corporation.
(Incorporated by reference to Exhibit 10.26 to the Company's
September 30, 1994 10-Q.)*
10.23 -- Letter Agreement, dated as of June 29, 1994, by and between Mr.
Picower and the Company. (Incorporated by reference to Exhibit
99.1 to the Company's report on Form 10-Q for the quarter ended
June 30, 1994 [the "June 30, 1994 10-Q"].)
10.24 -- Amended and Restated Loan Agreement, dated August 12, 1994, by
and between IMED and GECC. (Incorporated by reference to Exhibit
99.2 to the June 30, 1994 10-Q.)
10.25 -- Letter Agreement, dated July 8, 1994, by and among the Company,
MMV I and MMV II. (Incorporated by reference to Exhibit 99.4 to
the June 30, 1994 10-Q.)
10.26 -- Development and Exclusive Distribution Agreement, dated May 8,
1995, by and between Debiotech SA and IMED Corporation
(Incorporated by reference to Exhibit 10.7 of the Company's
September 1995 10-Q, Amendment No. 2 10-QA dated January 31,
1996.)*
11.1 -- Computation of Net (Loss) Income per share for the three years
ended December 31, 1995.
21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Price Waterhouse LLP.
* The Company has been granted confidential treatment with respect to certain
portions of this exhibit under Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
- ------------------------------
(b) Report on Form 8-K.
A Report on Form 8K was filed on December 5, 1995. The $25 million
promissory note dated October 12, 1995, between the Company and Decisions
was reported.
58
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of Sections 13 or 15(d) 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.
ADVANCED MEDICAL, INC.
By: /s/ JEFFRY M. PICOWER
---------------------
Jeffry M. Picower
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND DIRECTOR
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
- ---- ----- ----
/s/ JEFFRY M. PICOWER Chairman of the Board, March 29, 1996
- ---------------------- Chief Executive Officer and Director
Jeffry M. Picower (Principal Executive Officer)
/s/ JOSEPH W. KUHN President, Treasurer and March 29, 1996
- ---------------------- Secretary (Principal Accounting and
Joseph W. Kuhn Financial Officer)
/s/ ANTHONY CERAMI Director March 29, 1996
- ----------------------
Anthony Cerami
/s/ NORMAN M. DEAN Director March 29, 1996
- ----------------------
Norman M. Dean
/s/ HENRY GREEN Director March 29, 1996
- ----------------------
Henry Green
/s/ FREDERIC GREENBERG Director March 29, 1996
- ----------------------
Frederic Greenberg
/s/ RICHARD B. KELSKY Director March 29, 1996
- ---------------------
Richard B. Kelsky
59
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF ADVANCED MEDICAL, INC.
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
----------------------------
1994 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 199 $ 1,391
Securities available for sale 2,883 6,975
Receivables, prepaid expenses and other current assets 937 993
-------- --------
Total current assets 4,019 9,359
Restricted cash 25,000
Investments in and net advances from subsidiaries 63,738 75,532
Other investments, at cost 235 174
Intangible assets, net of accumulated amortization 4,458 3,409
Other assets 6,250 4,387
-------- --------
$ 78,700 $117,861
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 10
Accrued expenses and other current liabilities $ 2,561 3,556
-------- --------
Total current liabilities 2,561 3,566
-------- --------
Long-term debt 72,500 75,576
-------- --------
Contingent liabilities and commitments (Note 7)
Mandatorily redeemable equity securities 6,567 7,217
-------- --------
Preferred stock, common stock and stockholders' equity (deficit):
Common stock 142 162
Capital in excess of par value 58,703 62,965
Accumulated deficit (61,922) (34,468)
Treasury stock (734) (734)
Unrealized holding gain from securities available for sale, net of tax 883 3,577
-------- --------
(2,928) 31,502
-------- --------
$ 78,700 $117,861
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
60
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF ADVANCED MEDICAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
General and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . $ 3,496 $ 2,616 $ 2,209
Restructuring charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 910
-------- -------- --------
Total operating expenses and loss from operations. . . . . . . . . . . . . . . 4,406 2,616 2,209
-------- -------- --------
Other income (expenses):
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 15 108
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,564) (5,787) (6,044)
Equity in earnings of unconsolidated subsidiaries
(excluding extraordinary item and cumulative effect
of change in accounting principle) . . . . . . . . . . . . . . . . . . . . . 1,700 12,554 19,766
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,514 1,511 656
-------- -------- --------
1,718 8,293 14,486
-------- -------- --------
Income (loss) before income taxes, extraordinary item and
cumulative effect of change in accounting principle. . . . . . . . . . . . . . (2,688) 5,677 12,277
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . -------- -------- --------
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle. . . . . . . . . . . . . . . . . . . . . . . (2,688) 5,677 12,277
Extraordinary item:
Gain on early retirement of debt . . . . . . . . . . . . . . . . . . . . . . . 15,177
Cumulative effect on prior years of accounting change
for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,985
-------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,297 5,677 27,454
Accumulated deficit at beginning of year . . . . . . . . . . . . . . . . . . . . (68,896) (67,599) (61,922)
-------- -------- --------
Accumulated deficit at end of year . . . . . . . . . . . . . . . . . . . . . . .$ (67,599) $ (61,922) $ (34,468)
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
61
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF ADVANCED MEDICAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Net cash used in operating activities. . . . . . . . . . . . . . . . . . . . . . $(10,469) $ (7,143) $ (6,743)
-------- -------- --------
Cash flows from investing activities:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,196)
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Dividends on IMED redeemable preferred stock . . . . . . . . . . . . . . . . . 2,273 6,680
Proceeds from sale of IMED redeemable preferred stock. . . . . . . . . . . . . 884
Net increase in restricted cash. . . . . . . . . . . . . . . . . . . . . . . . (25,000)
Proceeds from sale of investments. . . . . . . . . . . . . . . . . . . . . . . 20,027 3,768 859
-------- -------- --------
Net cash (used in) provided by investing activities. . . . . . . . . . . . . . . 18,031 6,041 (16,577)
-------- -------- --------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt . . . . . . . . . . . . . . . . . 300 12,500 25,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (544)
Principal payments under long-term debt. . . . . . . . . . . . . . . . . . . . (1,423) (9,300)
Intercompany borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,746) (1,978)
Offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (488)
Redemption/purchase of preferred stock . . . . . . . . . . . . . . . . . . . . (3,816) (686)
-------- -------- --------
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . (8,229) 536 24 512
-------- -------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . (667) (566) 1,192
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . 1,432 765 199
-------- -------- --------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . $ 765 $ 199 $ 1,391
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
62
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF ADVANCED MEDICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
NOTE 1 -- STATEMENT OF ACCOUNTING POLICY:
The accompanying condensed financial statements have been prepared by Advanced
Medical pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations. It is therefore suggested that these condensed financial statements
be read in conjunction with the Consolidated Financial Statements and notes
thereto.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform to the
classifications used in 1995.
NOTE 2 -- SECURITIES AVAILABLE FOR SALE:
The market value at December 31, 1995 is based on the quoted market price and is
considered to represent fair value as determined under SFAS 115. The fair value
may not represent actual value of the Alteon common stock that could have been
realized as of December 31, 1995 or that will be realized in the future.
See Note 5 to the Consolidated Financial Statements.
NOTE 3 -- INVESTMENTS IN AND NET ADVANCES FROM SUBSIDIARIES:
Advanced Medical accounts for its investments in subsidiaries using the equity
method. Under the equity method, investments are carried at cost, adjusted for
Advanced Medical's proportionate share of their undistributed earnings or
losses. Investments in preferred stock are stated at cost.
Investments in and net advances to/(from) subsidiaries comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
IMED redeemable preferred stock. . . . . . . . . . . . $ 13,000 $ 12,116
IMED common ownership interest and advances. . . . . . 50,483 62,181
Other subsidiaries . . . . . . . . . . . . . . . . . . 255 1,235
--------- ---------
$ 63,738 $ 75,532
--------- ---------
--------- ---------
</TABLE>
The IMED preferred stock held by Advanced Medical is entitled to receive 12%
cumulative dividends on its stated value and is redeemable at Advanced Medical's
option, after January 1, 2000, plus all accrued and unpaid dividends. As
allowable under the Amended Loan Agreement, IMED made payments to Advanced
Medical in the amount of $2,273 and $7,564 during 1994 and 1995, respectively.
Of the amount paid in 1995, $884 was for the redemption of the preferred stock.
63
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF ADVANCED MEDICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
NOTE 4 -- PATENTS:
Advanced Medical acquired patents for $10,000 on April 2, 1990. These patents
are licensed to IMED for a royalty of $1,100 per annum.
NOTE 5 -- LONG-TERM DEBT:
The terms and maturities of Advanced Medical's long-term debt are described in
Note 6 to the Consolidated Financial Statements.
NOTE 6 -- MANDATORILY REDEEMABLE EQUITY SECURITIES:
Advanced Medical's mandatorily redeemable equity securities are described in
Note 9 to the Consolidated Financial Statements.
NOTE 7 -- LITIGATION AND CONTINGENCIES:
Litigation and contingencies are described in Note 8 to the Consolidated
Financial Statements.
64
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
---------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Deducted from receivables...............
Allowance for doubtful accounts:
Year ended December 31, 1993........ $ 945 $(141) $ 804
Year ended December 31, 1994........ 804 $ 100 (49) 855
Year ended December 31, 1995........ 855 100 (80) 875
</TABLE>
- --------------------------------
(1) Represents accounts written-off as uncollectible, net of collections on
accounts previously written-off.
65
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NO. NO.
- ------- ----
11.1 -- Computation of Net (Loss) Income per share for the three years
ended December 31, 1995.
21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Price Waterhouse LLP.
66
<PAGE>
Exhibit 11.1
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
COMPUTATION OF NET (LOSS) INCOME PER SHARE
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
PRIMARY NET (LOSS) INCOME PER SHARE 1993 1994 1995
- ----------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
(Loss) income before extraordinary item, cumulative
effect of change in accounting principle and dividends
and accretion on mandatorily redeemable preferred stock $ (2,688) $ 5,677 $ 12,277
Dividends and accretion on mandatorily redeemable
preferred stock (1,387) (874) (650)
--------- --------- ---------
(Loss) income before extraordinary item and cumulative
effect of change in accounting principle (4,075) 4,803 11,627
Extraordinary item - gain on early retirement of debt 15,177
Cumulative effect of change in accounting principle 3,985
--------- --------- ---------
Net (loss) income applicable to common stock $ (90) $ 4,803 $ 26,804
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding (2) 14,073 14,069 15,755
--------- --------- ---------
--------- --------- ---------
Primary net (loss) income per share:
(Loss) income before extraordinary item and cumulative
effect of change in accounting principle $ (.29) $ .34 $ .74
Extraordinary item - gain on early retirement of debt .96
Cumulative effect of change in accounting principle .28
--------- --------- ---------
Net (loss) income applicable to common stock $ (.01) $ .34 $ 1.70
--------- --------- ---------
--------- --------- ---------
FULLY DILUTED NET (LOSS) INCOME PER SHARE (1)
- ---------------------------------------------
Income before extraordinary item, cumulative effect
of change in accounting principle and dividends and
accretion on mandatorily redeemable preferred stock $ 5,677 $ 12,277
Dividends and accretion on mandatorily redeemable
preferred stock (874) (650)
Add back interest expense, net of tax, on convertible bonds 386 684
--------- ---------
Income before extraordinary item 5,189 12,311
Extraordinary item - gain on early retirement of debt 15,177
--------- ---------
Net income applicable to common stock $ 5,189 $ 27,488
--------- ---------
--------- ---------
Weighted average common shares outstanding
prior to conversion of convertible promissory notes (2) 14,069 15,907
Add weighted average shares issued upon conversion
of convertible promissory notes 10,030 17,276
--------- ---------
Weighted average common shares outstanding 24,099 33,183
--------- ---------
--------- ---------
Fully diluted net income per share:
Income before extraordinary item $ .22 $ .37
Extraordinary item - gain on early retirement of debt .46
--------- ---------
Net income applicable to common stock $ .22 $ .83
--------- ---------
--------- ---------
</TABLE>
(1) FULLY DILUTED (LOSS) PER SHARE IS NOT INCLUDED FOR FISCAL YEAR 1993 AS IT
IS ANTIDILUTIVE.
(2) INCLUDES THE COMMON STOCK EQUIVALENT OF DILUTIVE OPTIONS OUTSTANDING AT THE
END OF EACH PERIOD.
67
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES OF THE COMPANY
- --------------------------------------------------------------------------------
Except as otherwise indicated, each subsidiary was incorporated in the State of
Delaware.
Fidata Corporation
AM Development Limited
AM General Development Corp.
IMED Corporation
IMED Nominee, Inc.
IMED Pty. Ltd. (Australia)
IMED Canada Ltd. (Canada)
IMED Ltd. (United Kingdom)
IMED Medizintechnik GmbH (Germany)
IMED Ireland (Ireland)
IMED Holding Co. Ltd. (British Virgin Islands)
Fidata Trust Company New York (New York)
68
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-40568 and No. 33-40406) of Advanced Medical,
Inc. of our report dated March 19, 1996 appearing on page 25 of this Form 10-K.
PRICE WATERHOUSE LLP
San Diego, California
March 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,862
<SECURITIES> 6,975
<RECEIVABLES> 20,473
<ALLOWANCES> 875
<INVENTORY> 15,829
<CURRENT-ASSETS> 57,558
<PP&E> 30,708
<DEPRECIATION> 18,055
<TOTAL-ASSETS> 169,630
<CURRENT-LIABILITIES> 25,620
<BONDS> 38,076
7,217
0
<COMMON> 162
<OTHER-SE> 31,370
<TOTAL-LIABILITY-AND-EQUITY> 169,630
<SALES> 112,110
<TOTAL-REVENUES> 112,110
<CGS> 63,219
<TOTAL-COSTS> 34,614
<OTHER-EXPENSES> (313)
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 8,153
<INCOME-PRETAX> 9,403
<INCOME-TAX> (9,374)
<INCOME-CONTINUING> 27,454
<DISCONTINUED> 0
<EXTRAORDINARY> 15,177
<CHANGES> 0
<NET-INCOME> 27,454
<EPS-PRIMARY> 1.70
<EPS-DILUTED> .83
</TABLE>
