<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 8-K
CURRENT REPORT
FILED PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
OCTOBER 17, 1996 (OCTOBER 16, 1996)
(DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED))
ADVANCED MEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3492624
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION)
</TABLE>
33-26398
(COMMISSION FILE NUMBER)
9775 BUSINESSPARK AVENUE
SAN DIEGO, CA 92131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS)
(619) 566-0426
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS
Filed herewith are pro forma financial statements reflecting the historical
consolidated financial statements of IMED Corporation ("IMED"), a wholly-owned
subsidiary of Advanced Medical, Inc. ("Advanced Medical" or the "Registrant")
and IVAC Holdings, Inc. ("IVAC Holdings" or after the Merger (as defined below)
the "Company", or collectively with its subsidiaries other than River Medical,
Inc. ("River"), the operations of which were discontinued in June 1996 (the
"River Divestiture"), "IVAC"). The financial data with respect to IMED and its
subsidiaries does not include the separate financial data of the Registrant. Pro
forma data of the Registrant (including IMED and its subsidiaries) and IVAC
Holdings will be filed in a subsequent filing on Form 8-K.
The pro forma financial statements have been prepared in connection with the
Agreement and Plan of Merger dated as of August 23, 1996 (the "Merger
Agreement"), by and among IMED, IMED Merger Sub, Inc., a wholly owned subsidiary
of IMED ("Merger Sub"), IVAC Holdings, IVAC Medical Systems, Inc. ("IVAC Medical
Systems"), a wholly-owned subsidiary of IVAC Holdings, and certain stockholders
of IVAC Holdings ("Participating Stockholders"). Pursuant to the Merger
Agreement and in connection with a series of mergers and asset transfers, the
operations of IMED and IVAC Medical Systems will be transferred to IVAC Holdings
and IVAC Holdings will become an indirect, wholly-owned subsidiary of the
Registrant (collectively, the "Merger"), subject to certain closing conditions
including, among other things, the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In connection
with the Merger, the parties will (i) pay the cash portion of the merger
consideration under the Merger Agreement, (ii) refinance (the "Refinancing")
IMED's and IVAC's existing bank indebtedness, including IMED's existing credit
agreement with General Electric Capital Corporation, as amended (the "IMED
Existing Credit Facility"), (iii) seek to repurchase all of IVAC Medical
Systems' outstanding 9 1/4% Senior Notes due 2002 (the "Existing Senior Notes")
via a tender offer to purchase such for cash and a related consent solicitation
(the "Debt Tender Offer and Consent Solicitation") to modify certain terms of
the indenture governing the Existing Senior Notes, (iv) repay the 13.2% Junior
Subordinated Notes due 2006 of IVAC Holdings (the "Junior Notes Repayment"), and
(v) pay other fees and expenses in connection with these transactions, using (a)
the net proceeds of a capital contribution ("Capital Contribution") of
approximately $22.0 million from the Registrant to IMED, (b) the net proceeds of
an offering ("Offering") to be made by IMED of certain notes (the "Notes")
pursuant to an offering memorandum (the "Offering Memorandum"), and (c) expected
borrowings of $265.0 million under a new credit facility (the "New Credit
Facility") consisting of a term loan facility and a revolving credit facility.
Adjustments to the pro forma financial statements include giving effect to the
Merger, the Offering, the Capital Contribution, the Refinancing, the Debt Tender
Offer and Consent Solicitation and the Junior Notes Repayment (collectively, the
"Transactions"), payment of related transaction fees and expenses and the River
Divestiture.
In addition, following the closing of the Merger (the "Merger Closing") and
of the other Transactions described above, it is anticipated that the Registrant
will initiate actions to redeem its 15% Subordinated Debentures due 1999 at the
redemption price provided for in the indenture governing the 15% Subordinated
Debentures (110% of principal amount plus applicable accrued interest).
Any securities to be offered as contemplated above will not be and have not
been registered under the United States Securities Act of 1933, as amended, and
may not be offered or sold in the United States absent registration or
applicable exemption from the registration requirements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not Applicable
(b) Not Applicable
(c) Exhibits.
Exhibit 99 Pro Forma Financial Statements
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
ADVANCED MEDICAL, INC.
(Registrant)
Date: October 16, 1996 By: /s/ JOSEPH W. KUHN
-----------------------------------------
Joseph W. Kuhn
PRESIDENT
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT MATERIAL TO BE FILED
NUMBER AS EXHIBITS PAGE NUMBER
- ------------ ------------------------------------------------------------------------------------------ ---------------
<S> <C> <C>
Exhibit 99 Pro Forma Financial Statements............................................................
</TABLE>
<PAGE>
EXHIBIT 99
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following Pro Forma Condensed Consolidated Balance Sheet at June 30,
1996 reflects the historical consolidated balance sheets of IMED and IVAC
Holdings, adjusted to give effect to the Transactions (assuming that all
Existing Senior Notes are tendered in the Debt Tender Offer and Consent
Solicitation), as if such transactions had occurred at June 30, 1996. The IVAC
Holdings historical balance sheet at June 30, 1996 includes adjustments required
to record the River Divestiture, including the write-down of River's assets to
their estimated fair value and the accrual of discontinuation costs of $7.8
million.
At the date of closing, the Company will account for the Merger as a
purchase and all required purchase accounting adjustments to record assets and
liabilities at their estimated fair values will be made based on the actual
purchase price and actual levels of the IVAC Holdings assets acquired and
liabilities assumed. The purchase price of the Merger is subject to adjustment
based on certain factors such as the total IVAC Holdings cash and debt balances
at the Merger Closing. Any adjustment to the purchase price will affect the
amount allocated to intangible assets and will affect the amortization of
intangibles in subsequent periods.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The following Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and six months ended June 30, 1995 are based on
the respective historical consolidated statements of operations of IMED and IVAC
Holdings, adjusted to give effect to the Transactions and the River Divestiture,
as if such transactions had occurred on January 1, 1995.
The following Pro Forma Condensed Consolidated Statement of Operations for
the six months ended June 30, 1996 is based on the historical unaudited results
of operations of IMED and IVAC Holdings, adjusted to give effect to the
Transactions and the River Divestiture, as if such transactions had occurred on
January 1, 1996.
The Pro Forma Condensed Consolidated Statements of Operations reflect
certain cost savings that management has identified related to elimination of
duplicative costs for functional areas and facilities. However, the Pro Forma
Condensed Consolidated Statements of Operations do not reflect certain
additional cost savings and synergies that management has identified related to
areas such as vendor consolidation and research and development costs (other
than in connection with facilities consolidations).
The unaudited pro forma financial statements are based on assumptions the
Company believes are reasonable, including those related to cost savings arising
from the Company's integration plans, and which the Company believes are both
factually supportable and directly attributable to the Merger.
The following pro forma financial data are not necessarily indicative of the
Company's results of operations that might have occurred had such transactions
been completed at the beginning of the periods specified, and do not purport to
represent what the Company's consolidated results of operations might be for any
future period.
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IVAC TRANSACTIONS COMPANY
IMED HOLDINGS COMBINED ADJUSTMENTS PRO FORMA
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 271 $ 7,657 $ 7,928 $ 258,000(A) $ 1,915
120,500(B)
(232,750)(C)
(165,763)(D)
22,000(E)
(8,000)(F)
Receivables, net....................................... 23,863 54,483 78,346 78,346
Inventory.............................................. 17,964 38,456 56,420 10,000(C) 66,420
Prepaid expenses and other current assets.............. 3,542 2,311 5,853 2,700(G) 8,553
--------- --------- ----------- -----------
Total current assets................................. 45,640 102,907 148,547 155,234
Net investment in sales type and direct financing leases
and long-term contract receivables..................... 14,055 18,427 32,482 32,482
Property, plant and equipment, net....................... 13,116 45,931 59,047 59,047
Other non-current assets................................. 5,457 500 5,957 7,000(A) 31,700
4,500(B)
15,000(C)
(757)(D)
Intangible assets........................................ 45,494 22,518 68,012 260,476(C) 328,488
--------- --------- ----------- -----------
Total assets......................................... $ 123,762 $ 190,283 $ 314,045 $ 606,951
--------- --------- ----------- -----------
--------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable....................................... $ 7,416 $ 16,474 $ 23,890 $ 23,890
Accrued expenses and other liabilities................. 12,208 50,277 62,485 $ (11,000)(C) 70,435
1,050(D)
8,000(F)
(6,000)(H)
Short-term debt and current portion of long-term
debt................................................. 149 17,500 17,649 (11,200)(A) 13,849
15,000(D)
--------- --------- ----------- -----------
Total current liabilities............................ 19,773 84,251 104,024 108,174
Long-term debt........................................... 9,091 141,765 150,856 (253,800)(A) 384,693(I)
(125,000)(B)
(4,750)(C)
149,713(D)
Other non-current liabilities............................ 5,761 1,243 7,004 7,004
--------- --------- ----------- -----------
Total liabilities.................................... 34,625 227,259 261,884 499,871
Common stock and capital in excess of par................ 77,058 33,844 110,902 33,844(C) 99,058
(22,000)(E)
Retained earnings/(accumulated deficit).................. 11,867 (71,505) (59,638) (71,505)(C) 7,810
757(D)
6,000(H)
(2,700)(G)
Cumulative translation adjustment and other.............. 212 685 897 685(C) 212
--------- --------- ----------- -----------
Total stockholder's equity (deficit)................. 89,137 (36,976) 52,161 107,080
--------- --------- ----------- -----------
Total liabilities and stockholder's equity........... $ 123,762 $ 190,283 $ 314,045 $ 606,951
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Balance Sheet.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(A) Reflects receipt of gross proceeds of $265,000 from the initial borrowing
under the New Credit Facility, net of issuance costs of $7,000 which have
been included in other non-current assets.
New Credit Facility consists of the following:
<TABLE>
<S> <C>
Term loan facilities.............................................. $ 265,000
Revolving credit facility......................................... --
---------
Total New Credit Facility..................................... 265,000
Current portion................................................... 11,200
---------
Long-term......................................................... $ 253,800
---------
---------
</TABLE>
(B) Reflects receipt of gross proceeds of $125,000 from the issuance of the
Notes, net of $3,750 of selling commissions and $750 of offering expenses
which have been reflected as debt issuance costs and included in other
non-current assets.
(C) Reflects the allocation of the total Merger cost:
<TABLE>
<S> <C>
Cash Merger Consideration......................................... $ 226,250
Estimated transaction fees in addition to debt issuance costs..... 6,500
---------
Total cash payments in connection with Merger................... 232,750
---------
Elimination of book value of net assets acquired:
Common stock and capital in excess of par......................... (33,844)
Accumulated deficit............................................... 71,505
Cumulative translation adjustment and other....................... (685)
---------
Net stockholders' deficit....................................... 36,976
---------
Excess of cost over book value................................ $ 269,726
---------
---------
Allocation of excess cost over book value:
Amount assigned to inventory...................................... $ 10,000
Deferred tax assets............................................... 15,000
Severance, bonus and restructuring related to IVAC personnel and
facilities (see Note (G) below for IMED restructuring
charges)........................................................ (11,000)
Premium payable in connection with the Debt Tender Offer
and Consent Solicitation........................................ (4,750)
Amount assigned to intangible assets.............................. 260,476
---------
Total......................................................... $ 269,726
---------
---------
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(D) Reflects the retirement of the following long-term and current debt
obligations and related accrued interest:
<TABLE>
<CAPTION>
ACCRUED
DEBT INTEREST TOTAL
<S> <C> <C> <C>
Current debt:
IVAC existing bank credit facility.......................... $ 15,000 $ 206 $ 15,206
---------- --------- ----------
Long term debt:
Existing Senior Notes (including redemption premium and
consent fees of $4,750)................................... 104,750 771 105,521
Junior Subordinated Notes of IVAC Holdings.................. 36,203 -- 36,203
IMED Existing Credit Facility (1)........................... 8,760 73 8,833
---------- --------- ----------
Total long-term debt.................................... 149,713 844 150,557
---------- --------- ----------
Total current and long-term debt........................ $ 164,713 $ 1,050 $ 165,763
---------- --------- ----------
---------- --------- ----------
</TABLE>
- ------------------------
(1) The Pro Forma Condensed Consolidated Balance Sheet also includes the
write-off of related unamortized debt issuance costs of $757.
(E) Reflects the Capital Contribution from Advanced Medical.
(F) Reflects $8,000 payment to Eli Lilly and Company which is anticipated to be
made by IVAC Holdings prior to the consummation of the Merger and will be
paid from existing cash balances and/or with borrowings under IVAC's
existing revolving credit facility.
(G) Reflects tax benefit at an estimated statutory rate of 40% related to IMED
restructuring costs of $6,000 and $757 write-off of unamortized debt
issuance costs related to IMED's Existing Credit Facility.
(H) Reflects $6,000 non-recurring restructuring charge related to the closure of
certain IMED facilities and severance payments.
(I) Excludes approximately $11,000 principal amount of additional indebtedness
incurred pursuant to IMED's Existing Credit Facility after June 30, 1996 in
connection with IMED's repurchase of certain European distribution rights.
All amounts outstanding under IMED's Existing Credit Facility will be paid
in connection with the Transactions.
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RIVER
IVAC DIVESTITURE TRANSACTIONS COMPANY
IMED HOLDINGS COMBINED ADJUSTMENTS (A) ADJUSTMENTS PRO FORMA
Net sales............................... $ 112,551 $240,971 $353,522 $ (794 ) $ 352,728
Cost of sales........................... 63,270 157,869 221,139 (5,357 ) $(6,600 (B) 209,182
--------- ----------- ----------- -----------
Gross margin............................ 49,281 83,102 132,383 143,546
--------- ----------- ----------- -----------
Selling and marketing................... 16,567 43,994 60,561 (3,006 ) (2,850 (B) 54,705
General and administrative.............. 8,893 28,381 37,274 (3,478 ) 8,683 (C) 41,579
(900 (B)
Research and development................ 7,386 12,083 19,469 (790 ) (250 (B) 18,429
Purchased research and development...... -- 22,883 22,883 (12,755 ) 10,128
Restructuring........................... -- 5,944 5,944 (103 ) 5,841
Other operating expense, net............ -- 1,497 1,497 1,497
--------- ----------- ----------- -----------
Total operating expenses.............. 32,846 114,782 147,628 132,179
--------- ----------- ----------- -----------
Income (loss) from operations......... 16,435 (31,680) (15,245) 11,367
--------- ----------- ----------- -----------
Other income (expense):
Interest income (G)................... 2,361 3,506 5,867 5,867
Interest expense...................... (2,052) (27,969) (30,021) 163 (36,902 (D) (43,020 )
23,740 (E)
Other, net............................ (379) -- (379) (379 )
--------- ----------- ----------- -----------
(70) (24,463) (24,533) (37,532 )
--------- ----------- ----------- -----------
Income (loss) before income taxes....... 16,365 (56,143) (39,778) (26,165 )
Provision for (benefit from) income
taxes................................. 8,099 (378) 7,721 3,831 (7,952 (F) 3,600
--------- ----------- ----------- --------------- -------------- -----------
Net income (loss)....................... $ 8,266 $ (55,765) $ (47,499) $ 21,027 $(3,293 ) $ (29,765 )
--------- ----------- ----------- --------------- -------------- -----------
--------- ----------- ----------- --------------- -------------- -----------
OTHER DATA:
Income (loss) from operations......... $ 16,435 $ (31,680) $ (15,245) $ 24,695 $ 1,917 $ 11,367
Depreciation and amortization......... 6,542 20,950 27,492 (1,199 ) 7,883 34,176
Inventory purchase accounting
adjustment.......................... -- 14,774 14,774 14,774
Restructuring......................... -- 5,944 5,944 (103 ) 5,841
Purchased research and development.... -- 22,883 22,883 (12,755 ) 10,128
Lease/contract interest income........ 2,361 3,013 5,374 5,374
--------- ----------- ----------- --------------- -------------- -----------
Adjusted EBITDA....................... $ 25,338 $ 35,884 $ 61,222 $ 10,638 $9,800 $ 81,660
--------- ----------- ----------- --------------- -------------- -----------
--------- ----------- ----------- --------------- -------------- -----------
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Statements of
Operations and Other Data.
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RIVER
IVAC DIVESTITURE TRANSACTIONS COMPANY
IMED HOLDINGS COMBINED ADJUSTMENTS(A) ADJUSTMENTS PRO FORMA
Net sales................................ $ 57,976 $ 118,791 $ 176,767 $ (300) $ 176,467
Cost of sales............................ 33,440 84,749 118,189 (2,077) $ (3,300)(B) 112,812
--------- --------- --------- -------------
Gross margin............................. 24,536 34,042 58,578 63,655
--------- --------- --------- -------------
Selling and marketing.................... 8,914 22,860 31,774 (1,394) (1,425)(B) 28,955
General and administrative............... 4,371 12,168 16,539 (1,521) 4,341(C) 18,909
(450)(B)
Research and development................. 3,991 7,250 11,241 (398) (125)(B) 10,718
Purchased research and development....... -- 19,883 19,883 (9,755) 10,128
--------- --------- --------- -------------
Total operating expenses............... 17,276 62,161 79,437 68,710
--------- --------- --------- -------------
Income (loss) from operations.......... 7,260 (28,119) (20,859) (5,055)
--------- --------- --------- -------------
Other income (expense):
Interest income (G).................... 1,158 1,609 2,767 2,767
Interest expense....................... (1,199) (13,197) (14,396) 66 (18,451)(D) (21,169)
11,612(E)
Other, net............................. (145) -- (145) (145)
--------- --------- --------- -------------
(186) (11,588) (11,774) (18,547)
--------- --------- --------- -------------
Income (loss) before income taxes........ 7,074 (39,707) (32,633) (23,602)
Provision for (benefit from) income 3,019 (2,821) 198 3,831 (3,029)(F) 1,000
taxes..................................
--------- --------- --------- --------------- ------------- -------------
Net income (loss)........................ $ 4,055 $ (36,886) $ (32,831) $ 11,080 $ (2,851) $ (24,602)
--------- --------- --------- --------------- ------------- -------------
--------- --------- --------- --------------- ------------- -------------
OTHER DATA:
Income (loss) from operations.......... $ 7,260 $ (28,119) $ (20,859) $ 14,845 $ 959 $ (5,055)
Depreciation and amortization.......... 3,191 9,900 13,091 (554) 3,941 16,478
Inventory purchase accounting -- 14,774 14,774 14,774
adjustment...........................
Purchased research and development..... -- 19,883 19,883 (9,755) 10,128
Lease/contract interest income......... 1,158 1,485 2,643 2,643
--------- --------- --------- --------------- ------------- -------------
Adjusted EBITDA........................ $ 11,609 $ 17,923 $ 29,532 $ 4,536 $ 4,900 $ 38,968
--------- --------- --------- --------------- ------------- -------------
--------- --------- --------- --------------- ------------- -------------
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Statements of
Operations and Other Data.
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RIVER
IVAC DIVESTITURE TRANSACTIONS COMPANY
IMED HOLDINGS COMBINED ADJUSTMENTS(A) ADJUSTMENTS PRO FORMA
Net sales................................ $ 54,091 $ 112,762 $ 166,853 $ (373) $ 166,480
Cost of sales............................ 29,677 65,633 95,310 (2,787) $(3,300)(B) 89,223
--------- --------- --------- --------------
Gross margin............................. 24,414 47,129 71,543 77,257
--------- --------- --------- --------------
Selling and marketing.................... 8,862 19,668 28,530 (819 ) (1,425 (B) 26,286
General and administrative............... 4,589 12,060 16,649 (719 ) 4,341 (C) 19,821
(450 (B)
Research and development................. 3,789 4,913 8,702 (199 ) (125 (B) 8,378
Restructuring............................ -- 17,396 17,396 (17,396 ) --
--------- --------- --------- --------------
Total operating expenses............. 17,240 54,037 71,277 54,485
--------- --------- --------- --------------
Income (loss) from operations........ 7,174 (6,908) 266 22,772
--------- --------- --------- --------------
Other income (expense):
Interest income(G)..................... 1,217 1,465 2,682 2,682
Interest expense....................... (674) (9,279) (9,953) 121 (18,451 (D) (19,584 )
8,699 (E)
--------- --------- --------- --------------
543 (7,814) (7,271) (16,902 )
--------- --------- --------- --------------
Income (loss) before income taxes........ 7,717 (14,722) (7,005) 5,870
Provision for (benefit from) income
taxes.................................. 3,310 726 4,036 2,782 (5,018 (F) 1,800
--------- --------- --------- ------- ------------- --------------
Net income (loss)........................ $ 4,407 $ (15,448) $ (11,041) $ 18,886 $(3,775 ) $ 4,070
--------- --------- --------- ------- ------------- --------------
--------- --------- --------- ------- ------------- --------------
OTHER DATA:
Income (loss) from operations.......... $ 7,174 $ (6,908) $ 266 $ 21,547 $ 959 $ 22,772
Depreciation and amortization.......... 3,400 10,139 13,539 (748 ) 3,941 16,732
Restructuring.......................... -- 17,396 17,396 (17,396 ) --
Lease/contract interest income......... 1,217 1,224 2,441 2,441
--------- --------- --------- ------- ------------- --------------
Adjusted EBITDA........................ $ 11,791 $ 21,851 $ 33,642 $ 3,403 $4,900 $ 41,945
--------- --------- --------- ------- ------------- --------------
--------- --------- --------- ------- ------------- --------------
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Statements of
Operations and Other Data.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(A) In June 1996, IVAC decided to discontinue River's operations and to divest
River's assets. River's primary assets include patents, technologies, trade
secrets, inventories, and manufacturing equipment. As a result of the River
Divestiture, pro forma adjustments have been made to eliminate the
historical operating results of River and the related income tax impact to
IVAC Holdings.
(B) In connection with the Merger, management has performed a review of
operating activities of IVAC and IMED and identified duplicative costs that
will be eliminated in connection with the Merger. The most significant of
these eliminations will be achieved through head count reductions and
closure of redundant manufacturing and headquarters facilities.
Total cost savings resulting from head count reductions, assuming such
reductions had occurred at the beginning of each pro forma period, would
have been $3,000 for the year ended December 31, 1995 and $1,500 for the six
months ended June 30, 1995 and 1996, and have been allocated to operating
expenses as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1995 AND
DEC. 31, 1995 1996
<S> <C> <C>
Selling and marketing............................................... $ 2,600 $ 1,300
General and administrative.......................................... 400 200
------ ------
$ 3,000 $ 1,500
------ ------
------ ------
</TABLE>
Due to excess capacity at the manufacturing facilities of both IMED and
IVAC, management has decided to consolidate IMED's existing San Diego
manufacturing operations at IVAC's San Diego facility. Total cost savings
resulting from this facility consolidation, assuming such consolidation had
occurred at the beginning of each pro forma period, would have been $6,600
for the year ended December 31, 1995 and $3,300 for the six months ended
June 30, 1995 and 1996.
In addition, as a result of the head count reductions described above,
management has decided to consolidate the headquarters of IMED with IVAC's
existing San Diego headquarters. Total cost savings resulting from this
consolidation, assuming such consolidation had occurred at the beginning of
each pro forma period, would have been $1,000 for the year ended December
31, 1995 and $500 for the six months ended June 30, 1995 and 1996 and have
been allocated to operating expenses as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1995 AND
DEC. 31, 1995 1996
<S> <C> <C>
Selling and marketing............................................... $ 250 $ 125
General and administrative.......................................... 500 250
Research and development............................................ 250 125
------ ------
$ 1,000 $ 500
------ ------
------ ------
</TABLE>
Management has identified additional costs savings related to volume
discounts expected to be received in connection with the consolidation of
suppliers and vendors, as well as planned cost savings related to the
consolidation of research and development programs. Estimated cost savings
related to these items are not deemed to qualify for pro forma adjustments
under Regulation S-X and, accordingly, have been excluded from such
adjustments.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER DATA (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(C) Reflects amortization of increased intangible assets (primarily goodwill)
using an estimated useful life of 30 years. No adjustment to cost of sales
has been made in the pro forma condensed consolidated statements of
operations related to the purchase accounting adjustment made to inventory
as it will result in a non-recurring increase to cost of sales when such
inventory is sold.
(D) Reflects interest expense related to the borrowings under the New Credit
Facility and the Notes:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DEC. 31, JUNE 30, 1995 AND
1995 1996
<S> <C> <C>
New Credit Facility (at an assumed weighted average
interest rate of 8.5%)............................................ $ 22,590 $ 11,295
Amortization of issuance costs...................................... 1,049 525
Notes (at an assumed interest rate of 10.25%)....................... 12,813 6,406
Amortization of issuance costs...................................... 450 225
------------ -------
$ 36,902 $ 18,451
------------ -------
------------ -------
</TABLE>
A 1/4% change in the actual interest rate applicable to the Notes would
change pro forma interest expense by $313 and $156 for the year ended
December 31, 1995 and for the six months ended June 30, 1995 and 1996,
respectively.
(E) Reflects elimination of interest expense, including amortization of debt
issuance costs in connection with the Refinancing, the Debt Tender Offer and
Consent Solicitation (assuming that all Existing Senior Notes are tendered
in the Debt Tender and Consent Solicitation) and the Junior Notes Repayment:
<TABLE>
<CAPTION>
YEAR
ENDED SIX MONTHS SIX MONTHS
DEC. 31, ENDED ENDED
1995 JUNE 30, 1995 JUNE 30, 1996
<S> <C> <C> <C>
IMED Existing Credit Facility................................. $ 1,897 $ 1,118 $ 631
IVAC existing credit facility (1)............................. 3,286 1,514 850
Existing Senior Notes......................................... 1,465 -- 4,976
Junior subordinated notes of IVAC Holdings.................... 3,961 1,980 2,242
Bridge notes of IVAC Medical Systems (2)...................... 13,131 7,000 --
------------ ------------- ------
$ 23,740 $ 11,612 $ 8,699
------------ ------------- ------
------------ ------------- ------
</TABLE>
----------------------------
(1) In addition to interest on the $15,000 of indebtedness outstanding at
June 30, 1996 under IVAC's existing revolving credit facility that will
be repaid in the Refinancing, the elimination of interest expense related
to IVAC includes interest on $14,000 of bank debt which was repaid with
the proceeds received from the issuance of the Existing Senior Notes by
IVAC Medical Systems during November 1995.
(2) Bridge notes of IVAC Medical Systems were repaid in full with the
proceeds from the issuance of the Existing Senior Notes in November 1995.
Accordingly, all interest expense and write-off and amortization of debt
issuance costs related to the bridge notes have been eliminated in the
Pro Forma Condensed Consolidated Statements of Operations and Other Data
for the year ended December 31, 1995 and the six months ended June 30,
1995.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER DATA (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Pro forma interest expense does not reflect interest savings attributable to
the repayment of approximately $25,000 principal amount of IVAC debt in
November 1995 with the proceeds of the sale of IVAC's San Diego
manufacturing and office facility. Assuming the sale had occured at January
1, 1995, interest expense would have been reduced by $3,159 and $1,303 for
the year ended December 31, 1995 and six months ended June 30, 1995,
respectively.
(F) Reflects adjustment to income tax expense related to the Transactions. The
pro forma income tax expense represents the expected taxes on the pro forma
pretax income (loss) which is primarily foreign taxes.
(G) Interest income consists of lease/contract interest income and interest
income on actual cash balances.
<PAGE>
PRO FORMA LIQUIDITY
Following consummation of the Transactions, the Company expects to meet its
liquidity needs and capital expenditures requirements with cash flow from
operations and borrowings under the New Credit Facility. Following consummation
of the Transactions, the Company's primary use of funds will be to fund capital
expenditures and strategic acquisitions, and to pay debt service on outstanding
indebtedness.
At June 30, 1996, on a pro forma basis, the Company's outstanding
indebtedness would have been approximately $398.5 million, including
approximately $265.0 million outstanding pursuant to the New Credit Facility and
$125.0 million outstanding pursuant to the Notes. Borrowings under the New
Credit Facility will bear interest at floating rates based, at the Company's
option, on the Eurodollar Rate or a prime rate.
In addition to the indebtedness incurred pursuant to the New Credit Facility
and the Notes, in connection with the Transactions, the Company will assume
IVAC's obligations to Siemens Infusion Systems Ltd. These obligations relate to
the payment of additional purchase consideration related to the acquisition of
the MiniMed product line (the predecessor product line to MedSystem III) and
provide for the payment of the greater of $3.0 million per year or 8% of the
prior year's product sales in 1997 through 1999.
Immediately following the Transactions, annual amortizations of the
Company's indebtedness are expected to be approximately $ million, $ million
and $ million for 1997, 1998 and 1999, respectively.
As described in the Notes to the Pro Forma Condensed Consolidated Balance
Sheet, the amount expected to be outstanding under the New Credit Facility
immediately following the Transactions will be approximately $11.0 million
higher than the amount set forth in the Pro Forma Condensed Consolidated Balance
Sheet as a result of borrowings by IMED after June 30, 1996 used to finance the
repurchase of European distribution rights. In addition, the Company expects
that during the first quarter following the closing of the Transactions, it will
incur approximately $12.0 million of additional indebtedness under the New
Credit Facility to pay restructuring costs related to the Transactions. On a pro
forma basis, after payment of the restructuring charges and the additional IMED
borrowings, the Company would have approximately $27.0 million of available
borrowing capacity under the $50.0 million revolving credit facility.
Although the Company is not a guarantor of Advanced Medical's 7 1/4%
Convertible Debentures due 2002 (the "Convertible Debentures"), Advanced Medical
has no significant operations other than the operations of IMED and, following
the Transactions, will continue to be dependent upon the Company to fund its
debt service requirements and other operating expenses. As of June 30, 1996, the
outstanding principal amount of the Convertible Debentures was $16.2 million.
The Convertible Debentures provide for semi-annual interest payments of
approximately $0.6 million and mature on January 15, 2002. The Indenture and the
New Credit Facility will permit the Company to fund interest payments on the
Convertible Debentures and to make limited distributions to Advanced Medical to
fund operating expenses and to pay income taxes; however, the Indenture and the
New Credit Facility will restrict distributions to Advanced Medical to fund the
repayment of the Convertible Notes at maturity.
In addition to routine capital expenditures that are expected to be
consistent with the combined historical capital expenditures of IMED and IVAC,
the Company expects to make a total of approximately $10.0 million of capital
and operating expenditures during 1997 and 1998 for the acquisition and
implementation of a new enterprise-wide information system. In addition, the
Company may incur additional capital expenditures with respect to leasehold
improvements in connection with the consolidation of the operations of IMED and
IVAC.
<PAGE>
The Company believes that it will generate sufficient cash flow from
operations to fund its operations, make planned capital expenditures and make
required payments of principal and interest under the New Credit Facility and
interest on the Notes; however, the Company may not generate sufficient cash
flow from operations to repay the Notes at maturity. Accordingly, the Company
may have to refinance the Notes at or prior to maturity or sell assets or raise
equity capital to repay the principal amount of the Notes. In addition, the
Company's ability to fund its operations, to make planned capital expenditures
and to make scheduled principal and interest payments will be dependent on the
Company's future operating performance, which is itself dependent on a number of
factors, many of which the Company cannot control, including prevailing economic
conditions, availability of other sources of liquidity, and financial, business,
regulatory and other factors affecting the Company's business and operations.
