<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1996 or
/ / Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition 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 Identification No.)
incorporation or organization)
9775 Businesspark Avenue, San Diego, CA 92131
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(Address of principal executive offices) (Zip Code)
(619) 566-0426
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(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
On October 18, 1996, 16,140,081 shares of Registrant's Common Stock were
outstanding.
Page 1 of 20
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ADVANCED MEDICAL, INC. AND SUBSIDIARIES
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INDEX
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements:
Page
----
Condensed consolidated balance sheets at
December 31, 1995 and September 30, 1996 . . . . . . . . . . . 3
Condensed consolidated statements of operations for the
three and nine months ended September 30, 1995 and 1996. . . . 4
Condensed consolidated statements of cash flows for the
nine months ended September 30, 1995 and 1996. . . . . . . . . 5
Condensed consolidated statement of changes in
stockholders' equity for the period from
December 31, 1995 to September 30, 1996. . . . . . . . . . . . 6
Notes to the condensed consolidated financial statements . . . 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . 17
Not
Item 2 - Changes in Securities . . . . . . . . . . . . . . . . .applicable
Item 3 - Defaults Upon Senior Securities . . . . . . . . . . . . 17
Not
Item 4 - Submission of Matters to a Vote of Security Holders . .applicable
Not
Item 5 - Other Information . . . . . . . . . . . . . . . . . . .applicable
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . 18
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<PAGE>
FORM 10 -- Q
PART I -- ITEM 1
FINANCIAL INFORMATION
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 1,862 $ 2,971
Restricted cash and investment securities. . . . . . . . . . . . . . 2,218 2,289
Securities available for sale. . . . . . . . . . . . . . . . . . . . 6,975 3,592
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . 27,023 24,783
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,829 20,339
Prepaid expenses and other current assets. . . . . . . . . . . . . . 3,651 5,090
-------- --------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 57,558 59,064
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 12,500
Net investment in sales-type and direct financing leases . . . . . . . 15,179 13,559
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 12,653 14,212
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . 11,834 10,634
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . 47,406 50,053
-------- --------
$169,630 $160,022
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt. . . . . . . . . . . . . . . . . . $ 322 $ 149
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 7,881 8,465
Accrued expenses and other current liabilities . . . . . . . . . . . 17,417 15,134
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . 25,620 23,748
-------- --------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,789 95,441
Other non-current liabilities. . . . . . . . . . . . . . . . . . . . . 6,972 2,454
-------- --------
93,761 97,895
-------- --------
Minority interests in consolidated subsidiaries. . . . . . . . . . . . 11,500 --
-------- --------
Contingent liabilities (Note 5)
Mandatorily redeemable equity securities . . . . . . . . . . . . . . . 7,217 7,704
-------- --------
Non-redeemable preferred stock, common stock and other stockholders'
equity:
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 -- 16,214 shares and 16,223 shares at December 31, 1995
and September 30, 1996, respectively. . . . . . . . . . . . . . . . 162 162
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . 62,965 61,495
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (34,468) (31,680)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (734) (734)
Unrealized holding gains from securities available for sale, net of tax 3,577 1,223
Other equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 209
-------- --------
Total non-redeemable preferred stock, common stock and other
stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 31,532 30,675
-------- --------
$169,630 $160,022
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,036 $ 27,679 $ 83,012 $ 81,770
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . 13,181 15,080 46,595 44,731
--------- --------- --------- ---------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . 11,855 12,599 36,417 37,039
--------- --------- --------- ---------
Selling and marketing expenses . . . . . . . . . . . . . . . . . 4,051 4,305 12,965 13,167
General and administrative expenses. . . . . . . . . . . . . . . 2,496 2,908 7,697 8,453
Research and development expenses. . . . . . . . . . . . . . . . 1,612 1,984 5,603 5,773
--------- --------- --------- ---------
Total operating expenses . . . . . . . . . . . . . . . . . . . 8,159 9,197 26,265 27,393
--------- --------- --------- ---------
Income from operations . . . . . . . . . . . . . . . . . . . . 3,696 3,402 10,152 9,646
--------- --------- --------- ---------
Other income (expense):
Interest income. . . . . . . . . . . . . . . . . . . . . . . . 625 898 1,814 2,812
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (2,088) (2,308) (6,184) (6,707)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 534 (51) 381 255
--------- --------- --------- ---------
(929) (1,461) (3,989) (3,640)
--------- --------- --------- ---------
Income before income taxes and extraordinary item. . . . . . . . 2,767 1,941 6,163 6,006
Provision for income taxes . . . . . . . . . . . . . . . . . . . 361 1,162 696 3,218
--------- --------- --------- ---------
Income before extraordinary item . . . . . . . . . . . . . . . . 2,406 779 5,467 2,788
Extraordinary item - gain on early retirement
of debt, net of taxes. . . . . . . . . . . . . . . . . . . . . . -- -- 15,177 --
--------- --------- --------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,406 779 20,644 2,788
Dividends and accretion on mandatorily redeemable preferred
stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 162 487 487
--------- --------- --------- ---------
Net income applicable to common stock. . . . . . . . . . . . . . $ 2,244 $ 617 $ 20,157 $ 2,301
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per common share assuming no dilution:
Income before extraordinary item . . . . . . . . . . . . . . . $ .14 $ .04 $ .32 $ .14
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . -- -- .98 --
--------- --------- --------- ---------
Net income per common share assuming no dilution. . . . . . $ .14 $ .04 $ 1.30 $ .14
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per common share assuming full dilution:
Income before extraordinary item . . . . . . . . . . . . . . . $ .07 $ .02 $ .17 $ .08
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . -- -- .47 --
--------- --------- --------- ---------
Net income per common share assuming full dilution. . . . . $ .07 $ .02 $ .64 $ .08
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding
assuming no dilution. . . . . . . . . . . . . . . . . . . . 16,451 16,494 15,500 16,453
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding
assuming full dilution. . . . . . . . . . . . . . . . . . . 33,119 42,602 32,257 42,600
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1996
------ ------
<S> <C> <C>
Net cash provided by operating activities. . . . . . . . . . . . . . . . . $ 15,556 $ 7,979
--------- --------
Cash flows from investing activities:
Net (increase) decrease in restricted cash and investments . . . . . . . (470) 12,429
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (4,629) (4,013)
Payment for product distribution rights. . . . . . . . . . . . . . . . . (3,391) (1,503)
Proceeds from sale of investments. . . . . . . . . . . . . . . . . . . . 859 1,145
Proceeds from disposal of property . . . . . . . . . . . . . . . . . . . 29 101
Purchase of European distribution rights . . . . . . . . . . . . . . . . -- (11,053)
--------- --------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . (7,602) (2,894)
--------- --------
Cash flows from financing activities:
Net borrowings (repayments) under credit facilities. . . . . . . . . . . (6,351) 8,801
Principal payments on other long-term debt . . . . . . . . . . . . . . . (1,038) (322)
Purchase of IMED common stock warrants . . . . . . . . . . . . . . . . . -- (12,500)
Offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (481) --
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . -- 17
--------- --------
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . (7,870) (4,004)
--------- --------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . (71) 28
--------- --------
Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . 13 1,109
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 1,340 1,862
--------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 1,353 $ 2,971
--------- --------
--------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-5-
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAINS
FROM
CAPITAL IN SECURITIES
COMMON STOCK EXCESS OF ACCUMULATED TREASURY STOCK 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, 1995 16,214 $ 162 $ 62,965 $(34,468) 83 $ (734) $ 3,577 $ 30 $ 31,532
Issuance of common stock 9 17 17
Dividends on mandatorily
redeemable preferred stock (487) (487)
Decrease in unrealized gain on
securities available for sale,
net of tax (2,354) (2,354)
Repurchase of stock warrants (1,000) (1,000)
Other equity transactions 179 179
Net income for the period 2,788 2,788
-------- --------- -------- -------- -------- -------- -------- -------- --------
Balance at
September 30, 1996 16,223 $ 162 $ 61,495 $(31,680) 83 $ (734) $ 1,223 $ 209 $ 30,675
-------- --------- -------- -------- -------- -------- -------- -------- --------
-------- --------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-6-
<PAGE>
ADVANCED MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1 -- BUSINESS AND STATEMENT OF ACCOUNTING POLICY
BUSINESS:
Advanced Medical, Inc. ("Advanced Medical"), operating through its major
operating subsidiary, IMED Corporation ("IMED"), is a leading developer and
manufacturer of infusion products and related technologies for the health care
industry (Advanced Medical and its subsidiaries are collectively referred to
herein as "the Company").
STATEMENT OF ACCOUNTING POLICY:
The accompanying financial statements have been prepared by the Company without
audit 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, although the Company believes that the disclosures herein are
adequate to make the information not misleading.
In the opinion of the Company, the accompanying financial statements contain all
adjustments, consisting of normal recurring adjustments, necessary for a fair
statement of the Company's financial position as of September 30, 1996, and the
results of its operations and its cash flows for the nine months ended September
30, 1995 and 1996.
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.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform to the
classifications used in 1996.
NET INCOME PER COMMON SHARE:
Net income per common share assuming no dilution is computed using the weighted
average number of common and common stock equivalent shares outstanding during
the period. If dilutive, net income per common share assuming full dilution is
computed using the weighted average number of common and common stock equivalent
shares outstanding during the period plus the shares that would be outstanding
assuming conversion of the $6,000 secured promissory note ("$6,000 Note") issued
to Decisions Incorporated, a corporation affiliated with Jeffry M. Picower,
Chairman and CEO of the Company ("Decisions"), during January 1994, conversion
of the $6,500 secured promissory note ("$6,500 Note") issued to Decisions during
August 1994, and conversion of the $25,000 secured promissory note ("$25,000
Note") (collectively, "the Notes") issued to Decisions during December 1995.
Assuming conversion of the Notes, interest expense (net of taxes) on the
convertible debt has been added to the net income applicable to common stock in
the amount of $152 and $417 for the three months ended September 30, 1995 and
1996, respectively, and $451 and $1,241 for the nine months ended September 30,
1995 and 1996, respectively. Common stock equivalent shares are excluded from
the computation in periods in which they have an anti-dilutive effect.
-7-
<PAGE>
NOTE 2 -- INVENTORIES
Inventories comprise the following: DECEMBER 31, SEPTEMBER 30,
1995 1996
---------- ----------
Raw materials . . . . . . . . . . . . $ 6,946 $ 6,922
Work-in-process . . . . . . . . . . . 1,686 4,112
Finished goods. . . . . . . . . . . . 7,197 9,305
-------- --------
$ 15,829 $ 20,339
-------- --------
-------- --------
NOTE 3 -- INTANGIBLE ASSETS
Pursuant to the exclusive distribution agreement with Debiotech SA ("Debiotech")
("the Agreement"), IMED paid Debiotech $1,500 during the nine months ended
September 30, 1996 upon the attainment of certain milestones. The additional
payment has been classified as an intangible asset with previous payments made
under the Agreement, and is being amortized on a straight-line basis over the
15-year term of the Agreement.
NOTE 4 -- PURCHASE OF IMED COMMON STOCK WARRANT
On June 28, 1996, Advanced Medical purchased General Electric Capital
Corporation's ("GECC") warrant to acquire common shares equal to 10% of IMED's
common stock, on a fully diluted basis, for $12,500. The proceeds from the
$25,000 Note were used to make this acquisition. The IMED common stock warrant
held by GECC had been valued at $11,500 and included in minority interest in
consolidated subsidiaries in the condensed consolidated balance sheet at
December 31, 1995. The purchase of the warrant has been treated as an equity
transaction. Accordingly, the $1,000 difference between the carrying value of
the minority interest and the purchase price was charged directly to
stockholders' equity.
NOTE 5 -- 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 affect on consolidated financial position,
results of operations or cash flows.
NOTE 6 -- MANDATORILY REDEEMABLE EQUITY SECURITIES
As of September 30, 1996, dividends in arrears on the $.01 par value mandatorily
redeemable preferred stock ("10% Preferred Stock") and the $.01 par value
mandatorily redeemable convertible preferred stock ("Convertible Preferred
Stock") were approximately $1,155 and $1,119, respectively. Additionally, the
Company did not declare the March 28, 1994 redemption of its 10% Preferred Stock
(redemption price of approximately $3,300).
On June 18, 1996, the Company and its directors entered into a Stipulation and
Agreement of Compromise and Settlement (the "Stipulation") with respect to the
settlement of an action based upon the Company's failure to redeem its
outstanding shares of 10% Preferred Stock and certain loans of Decisions to the
Company. Pursuant to the Stipulation, the Company agreed to (i) redeem its
outstanding 10% Preferred
-8-
<PAGE>
Stock, plus accrued and unpaid dividends, less $1.50 per share as fees to
counsel for plaintiff, (ii) the payment of $500 in attorneys fees and (iii)
amend its by-laws to add a provision concerning material transactions between
the Company and any control person. The proposed settlement, per the
Stipulation, was approved by the court and will be paid on or after December 16,
1996, upon the surrender of the certificates representing the shares of 10%
Preferred Stock.
NOTE 7 -- SALE OF MARKETABLE SECURITIES
Other income for the three and nine months ended September 30, 1995 and for the
three and nine months ended September 30, 1996 includes gains on the sale of
marketable securities of $546 and $116, respectively.
NOTE 8 -- SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Income taxes paid during the nine months ended September 30, 1995 and 1996
totaled $1,412 and $3,300, respectively. Interest paid during the nine months
ended September 30, 1995 and 1996 totaled $5,267 and $5,803, respectively.
Depreciation and amortization expense for the nine months ended September 30,
1995 and 1996 totaled $6,070 and $6,362, respectively, which amounts included
debt issue cost amortization of $407 and $347, respectively.
NOTE 9 -- PURCHASE OF EUROPEAN DISTRIBUTION RIGHTS
On June 27, 1996, IMED entered into an agreement, which closed in August 1996,
with its European marketing and distribution partner, Pharmacia & Upjohn, Inc.
("Pharmacia"), to reacquire for approximately $11,000 the European Distribution
Rights to its IMED line of intravenous infusion pumps and related disposable
administration sets and certain related assets. The purchase price was financed
using IMED's existing credit facility.
NOTE 10 -- MERGER
On August 23, 1996, IMED entered into a tentative agreement for the
acquisition of IVAC Holdings, Inc. (IVAC) and a plan of merger of IVAC and
IMED in a cash transaction valued at approximately $400,000. The proposed
transaction received regulatory approval in October 1996 and is subject to
certain other closing conditions including the completion of the financing
necessary to consummate the merger.
-9-
<PAGE>
PART I -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
Advanced Medical is a holding company for IMED, Fidata Corporation ("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
expenses 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.
IMED sells and services infusion products primarily in the United States,
Western Europe, Canada, Australia, Latin America and the Middle East. IMED
generates revenues from the sale and/or lease of infusion instruments and sales
of associated proprietary disposable administration sets. Prior to 1993,
disposable administration sets used with IMED's piston cassette pumps had
generated a majority of IMED's overall sales of disposables and total revenues.
During the nine months ended September 30, 1995 and 1996, however, approximately
97% and 99%, respectively, of IMED's revenues from the sale or lease of infusion
instruments were attributable to IMED's Gemini series of large volume
peristaltic infusion pumps, reflecting the trend in the health care industry
away from older piston cassette technology toward the peristaltic technology
incorporated in the Gemini series. IMED expects that the shift away from piston
cassette technology toward peristaltic technology will continue. IMED
discontinued manufacturing piston cassette pumps in the first quarter of 1995.
IMED's infusion systems are priced at the high end of the industry price range
and compete on the basis of technological sophistication, quality, safety and
flexibility in application.
Approximately 68.9% and 71.9% of IMED's net sales during the nine months ended
September 30, 1995 and 1996, respectively, were attributable to sales of
proprietary disposable administration sets. Prior to the third quarter of 1992,
a majority of IMED's net sales attributable to disposable administration sets
were generated by sales of administration sets used with IMED's piston cassette
pumps. During the nine months ended September 30, 1995 and 1996, however,
approximately 77.3% and 82.5%, respectively, of IMED's administration set net
sales were attributable to sales of administration sets used with IMED's Gemini
series pumps, reflecting the industry shift away from piston cassette technology
toward peristaltic technology and IMED's growing installed base of peristaltic
pumps.
In recent years, IMED's results of operations have been affected by the cost
containment pressures applicable to health care providers. In particular, in
order to reduce costs, certain hospitals adopted a new protocol increasing
the maximum time between disposable administration set changes from every 24
hours to as much as every 72 hours. Notwithstanding this change in protocol,
unit sales volume of IMED's disposable administration sets have increased in
every period since January 1, 1993, primarily as a result of IMED's growing
installed base of infusion instruments. IMED's profitability is also
affected by the increasing use of Group Purchasing Organizations ("GPO"'s)
which are better able to negotiate favorable pricing from providers of
infusion products such as IMED, and which police compliance with exclusive
buying arrangements for their group members. These buying arrangements, in
certain situations, also may result in the GPO requiring removal of IMED's
existing infusion pumps. IMED expects that such GPOs will become
increasingly common and may have an adverse effect on IMED's profitability in
the future. Finally, the enactment of national health care reform or other
legislation affecting payment mechanisms and health care delivery would
affect IMED's future results of operations. Although the final form of any
such legislation is not known, it is likely that any such legislation may
impose limits on the number and type of medical procedures which may be
performed and may restrict a provider's ability to select specific devices or
products for use in administering care which, in turn, could adversely impact
demand and/or pricing for IMED's products. It is impossible to predict the
extent to which IMED may be affected by any such change in legislation.
-10-
<PAGE>
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 to in this report.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, selected financial
information expressed as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . 52.6 54.5 56.1 54.7
------ ------ ------ ------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 47.4 45.5 43.9 45.3
Selling and marketing. . . . . . . . . . . . . . . . . . . . 16.2 15.5 15.6 16.1
General and administrative . . . . . . . . . . . . . . . . . 10.0 10.5 9.3 10.3
Research and development . . . . . . . . . . . . . . . . . . 6.4 7.2 6.8 7.1
------ ------ ------ ------
Income from operations . . . . . . . . . . . . . . . . . . . 14.8 12.3 12.2 11.8
Interest expense . . . . . . . . . . . . . . . . . . . . . . (8.3) (8.3) (7.4) (8.2)
Interest income. . . . . . . . . . . . . . . . . . . . . . . 2.5 3.2 2.2 3.4
Other income (expense), net. . . . . . . . . . . . . . . . . 2.1 (0.2) 0.4 0.3
Provision for income taxes . . . . . . . . . . . . . . . . . 1.5 4.2 0.8 3.9
------ ------ ------ ------
Income before extraordinary item . . . . . . . . . . . . . . 9.6% 2.8% 6.6% 3.4%
------ ------ ------ ------
------ ------ ------ ------
The following table sets forth IMED sales by major product group for the periods
presented:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1995 1996 1995 1996
------ ------ ------ ------
Piston cassette disposables. . . . . . . . . . . . . . . . . $ 3.8 $ 3.2 $ 13.0 $ 10.3
Peristaltic disposables. . . . . . . . . . . . . . . . . . . 14.9 16.5 44.2 48.5
Piston cassette pumps. . . . . . . . . . . . . . . . . . . . 0.1 -- 0.5 0.1
Peristaltic pumps. . . . . . . . . . . . . . . . . . . . . . 4.2 5.8 18.0 15.8
ReadyMED . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.5 2.0 1.8
Other (1). . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 1.7 5.3 5.3
------ ------ ------ ------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25.0 $ 27.7 $ 83.0 $ 81.8
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- --------------------
(1) Consists primarily of operating lease income relating to pumps, service
fees, license fees revenue and accessory sales.
-11-
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
SALES. Sales increased $2.7 million, or 10.8%, from $25.0 million for the
three months ended September 30, 1995 to $27.7 million for the three months
ended September 30, 1996. United States sales, which were 79.1% of sales for
the quarter ended September 30, 1996, increased $2.1 million, or 10.6%, from
$19.8 million for the three months ended September 30, 1995 to $21.9 million for
the three months ended September 30, 1996. Within the United States infusion
therapy business, sales increased for the three months ended September 30, 1996
as compared to the three months ended September 30, 1995, primarily due to an
increase in the volume of both instrument unit and disposable case shipments,
offset in part by declines in average selling prices of instruments and
disposable administration sets. Sales to customers located outside of the
United States increased $0.6 million, or 11.5%, from $5.2 million for the three
months ended September 30, 1995 to $5.8 million for the three months ended
September 30, 1996, primarily as a result of increased unit volume of disposable
administration sets from IMED's growing installed base in Canada, Australia,
Latin America and the Far East. The growth in sales to customers located
outside the United States was partly offset by a decrease in the volume of
disposable administration sets in Western Europe for the three months ended
September 30, 1996. During this period, Pharmacia & Upjohn reduced their orders
from IMED and shipped existing inventory in anticipation of the IMED acquisition
of the European Distribution Rights for IMED products from Pharmacia & Upjohn.
GROSS MARGIN. Gross margin increased $0.7 million, from $11.9 million for the
three months ended September 30, 1995 to $12.6 million for the three months
ended September 30, 1996, due primarily to the increase in sales discussed
above. Gross margin as a percentage of sales decreased from 47.4% for the three
months ended September 30, 1995 to 45.5% for the three months ended September
30, 1996, primarily as a result of the decline in the average selling prices of
instruments and disposable administration sets discussed above. The decline in
gross margin as a percentage of sales was partly offset by reductions in the
manufacturing costs of disposable administration sets, primarily due to (i)
negotiated price reductions from suppliers and (ii) the favorable effects of
increased manufacturing volume.
SELLING AND MARKETING. As a percentage of sales, selling and marketing
expenses decreased from 16.2% for the three months ended September 30, 1995 to
15.5% for the three months ended September 30, 1996, primarily as a result of
the increase in sales discussed above. Selling and marketing expenses increased
from $4.1 million for the three months ended September 30, 1995 to $4.3 million
for the three months ended September 30, 1996, primarily due to the recognition
of selling and marketing expenses of IMED, Ltd. in the month of September 1996,
as a result of IMED's acquisition of the European Distribution Rights for IMED
products from Pharmacia & Upjohn. Pharmacia & Upjohn had previously been
responsible for all sales and marketing in Western Europe.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased from
$2.5 million for the three months ended September 30, 1995 to $2.9 million for
the three months ended September 30, 1996, primarily due to the recognition of
general and administrative expenses by IMED, Ltd. in the month of September 1996
- -- see "Selling and Marketing," above, and the recognition of legal fees
associated with the Stipulation and Agreement of Compromise and Settlement
related to the 10% Preferred Stock -- see Part I - Item 1, Note 6. As a
percentage of sales, general and administrative expenses increased from 10.0%
for the three months ended September 30, 1995 to 10.5% for the three months
ended September 30, 1996, primarily as a result of the increase in general and
administrative expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$1.6 million for the three months ended September 30, 1995 to $2.0 million for
the three months ended September 30, 1996, primarily as a result of the timing
of certain expenses associated with the development of a new modular infusion
pump system. Research and development expenses for the year ending December 31,
1996 is expected to be
-12-
<PAGE>
comparable to research and development expenses for the year ended December 31,
1995. As a percentage of sales, research and development expenses increased
from 6.4% for the three months ended September 30, 1995 to 7.2% for the three
months ended September 30, 1996, primarily as a result of the increase in
research and development expenses.
INCOME FROM OPERATIONS. For the reasons discussed above, as a percentage of
sales, income from operations decreased from 14.8%, or $3.7 million, for the
three months ended September 30, 1995 to 12.3%, or $3.4 million, for the three
months ended September 30, 1996.
INTEREST EXPENSE. Interest expense increased from $2.1 million for the three
months ended September 30, 1995 to $2.3 million for the three months ended
September 30, 1996, primarily as a result of higher average borrowings.
INTEREST INCOME. Interest income increased from $0.6 million for the three
months ended September 30, 1995 to $0.9 million for the three months ended
September 30, 1996, primarily due to interest earned on restricted cash in the
three months ended September 30, 1996.
NET INCOME. Income before extraordinary item decreased $1.6 million, from $2.4
million for the three months ended September 30, 1995 to $0.8 million for the
three months ended September 30, 1996, for the reasons discussed above and an
increase in the effective income tax rate. The effective income tax rate
increased from the three months ended September 30, 1995 to the three months
ended September 30, 1996, as the Company has utilized all of its available tax
loss carryforwards.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
SALES. Sales decreased $1.2 million, or 1.5%, from $83.0 million for the nine
months ended September 30, 1995 to $81.8 million for the nine months ended
September 30, 1996. United States sales, which were 79.0% of sales for the nine
months ended September 30, 1996, decreased $3.0 million, or 4.4%, from $67.6
million for the nine months ended September 30, 1995 to $64.6 million for the
nine months ended September 30, 1996. Within the United States infusion therapy
business, sales decreased for the nine months ended September 30, 1996 as
compared to the nine months ended September 30, 1995, primarily due to (i) a
decrease in the volume of instrument shipments, primarily attributable to
several large transactions during the nine months ended September 30, 1995 and
(ii) a decline in the average selling price of IMED's instruments and disposable
administration sets, offset in part by an increase in unit volume of disposable
administration set sales. Sales to customers located outside of the United
States increased $1.8 million, or 11.7%, from $15.4 million for the nine months
ended September 30, 1995 to $17.2 million for the nine months ended September
30, 1996, primarily as a result of increased unit volume of disposable
administration sets from IMED's growing installed base in Canada, Australia,
Latin America and the Far East.
GROSS MARGIN. Gross margin increased $0.6 million, from $36.4 million for the
nine months ended September 30, 1995 to $37.0 million for the nine months ended
September 30, 1996, due primarily to the decrease in cost of sales discussed
below. Despite the decline in average selling prices of instruments and
disposable administration sets discussed above, gross margin as a percentage of
sales increased from 43.9% for the nine months ended September 30, 1995 to 45.3%
for the nine months ended September 30, 1996, primarily as a result of
reductions in the manufacturing cost of disposable administration sets caused by
(i) increased outsourcing of molded parts and components; (ii) negotiated price
reductions from suppliers; and (iii) the favorable effects of increased
manufacturing volume. Gross margin also increased for the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995 as a
result of lower unit cost for inventory at December 31, 1995 that were sold
during the nine months ended September
-13-
<PAGE>
30, 1996 compared to the unit cost for inventory at December 31, 1994 that were
sold during the nine months ended September 30, 1995.
SELLING AND MARKETING. As a percentage of net sales, selling and marketing
expenses increased from 15.6% for the nine months ended September 30, 1995 to
16.1% for the nine months ended September 30, 1996, primarily as a result of the
decrease in sales discussed above. Selling and marketing expenses increased
from $13.0 for the nine months ended September 30, 1995 to $13.2 for the nine
months ended September 30, 1996, primarily due to the recognition of selling and
marketing expenses by IMED Ltd. in the month of September 1996, as a result of
IMED's acquisition of the European Distribution Rights for IMED products from
Pharmacia & Upjohn. Pharmacia & Upjohn had previously been responsible for all
sales and marketing in the European territory.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased from
$7.7 million for the nine months ended September 30, 1995 to $8.5 million for
the nine months ended September 30, 1996, primarily as a result of recruitment
and relocation expenses of development personnel and expenses related to
investments in information technology. General and administrative expenses also
increased for the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995, due to the recognition of general and
administrative expenses by IMED Ltd. in the month of September 1996 -- see
"Selling and Marketing," above. As a percentage of sales, general and
administrative expenses increased from 9.3% for the nine months ended September
30, 1995 to 10.3% for the nine months ended September 30, 1996, primarily as a
result of the increase in general and administrative expenses and the decrease
in sales discussed above.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$5.6 million for the nine months ended September 30, 1995, to $5.8 million for
the nine months ended September 30, 1996, primarily as a result of the timing of
certain expenses associated with the development of a new modular infusion pump
system. Research and development expenses for the year ending December 31, 1996
is expected to be comparable to research and development expenses for the year
ended December 31, 1995. As a percentage of net sales, research and development
expenses increased from 6.8% for the nine months ended September 30, 1995 to
7.1% for the nine months ended September 30, 1996 primarily as a result of the
decrease in sales discussed above.
INCOME FROM OPERATIONS. For the reasons discussed above, as a percentage of
sales, income from operations decreased from 12.2%, or $10.2 million, for the
nine months ended September 30, 1995 to 11.8%, or $9.6 million, for the nine
months ended September 30, 1996.
INTEREST EXPENSE. Interest expense increased from $6.2 million for the nine
months ended September 30, 1995 to $6.7 million for the nine months ended
September 30, 1996, primarily as a result of higher average borrowings.
INTEREST INCOME. Interest income increased from $1.8 million for the nine
months ended September 30, 1995 to $2.8 million for the nine months ended
September 30, 1996, primarily due to interest earned on restricted cash in the
nine months ended September 30, 1996.
NET INCOME. Income before extraordinary item decreased $2.7 million, from $5.5
million for the nine months ended September 30, 1995 to $2.8 million for the
nine months ended September 30, 1996, for the reasons discussed above and an
increase in the effective income tax rate. The effective income tax rate
increased from the nine months ended September 30, 1995 to the nine months ended
September 30, 1996 as the Company has utilized all of its available tax loss
carryforwards.
-14-
<PAGE>
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 General Electric Capital Corporation ("GECC")
("Amended Loan Agreement") permits IMED to transfer to Advanced Medical up to
$9.25 million annually to fund Advanced Medical's cash requirements for
operating and interest expenses.
In 1996, IMED's cash flow from operations was $15.6 million and net borrowings
under the credit facility were $8.8 million which was used for (i) advances of
$7.4 million to Advanced Medical, as permitted under the Amended Loan Agreement,
(ii) payments of $1.5 million for the Debiotech Agreement, (iii) capital
expenditures of $4.0 million and (iv) purchase of European Distribution Rights
from Pharmacia & Upjohn of $11.1 million. In addition to IMED's cash flow from
operations, IMED has readily available financial resources under a $35.0 million
revolving credit facility. As of September 30, 1996, IMED had $13.8 million
available for use under its 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 considers it important for Advanced
Medical to maintain financial resources to take advantage of growth and
investment opportunities. Accordingly, in December 1995, the Company borrowed
$25.0 million from Decisions Incorporated ("Decisions") (the "$25 Million
Note"). On June 28, 1996, Advanced Medical purchased GECC's warrant to acquire
common shares equal to 10% of IMED's common stock, on a fully diluted basis, for
$12.5 million. The proceeds from the $25 Million Note were used to make this
acquisition. As of September 30, 1996, $12.5 million remain from the proceeds
of the $25 Million Note and are available to satisfy growth and investment
opportunities, with some restrictions. The remaining proceeds are classified as
restricted cash (non-current) in the condensed consolidated balance sheet.
The Company considers its investment in the common stock of Alteon, Inc.
("Alteon") to be a significant source of capital and liquidity. Under the 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 September 30, 1996, the Company owned approximately 423,000
shares of Alteon common stock which were registered under the Securities Act on
October 1, 1993, and had an aggregate market value of approximately $3.6 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.
The Company had working capital of $31.9 million as of December 31, 1995
compared with working capital of $35.3 million as of September 30, 1996. The
increase in working capital resulted primarily from an increase in inventory
levels and a reduction in taxes payable due to tax payments. The increase in
working capital resulting from these items was partly offset by the decrease in
the market value of Advanced Medical's investment in Alteon common stock and the
reduction in receivables due to the collection of year-end receivables.
The Company did not pay the March 28, 1994 mandatory redemption of all
outstanding shares of $.01 par value mandatorily redeemable preferred stock
("10% Preferred Stock") and has not declared and paid dividends since March
1993. As of September 30, 1996, there were 329,853 shares of 10% Preferred
Stock currently outstanding with a liquidation preference of $10 per share and
accrued and unpaid dividends were
-15-
<PAGE>
approximately $1.2 million. In addition to the 10% Preferred Stock, as of
September 30, 1996, 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 $1.1 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 Million Note. (See Part I,
Item 1, Note 6.)
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 but is unable to
predict the effect, if any, from health care reform and increased competitive
pressures.
RECENT ACCOUNTING STANDARDS
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 pro forma 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.
-16-
<PAGE>
PART II
OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company was 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 the 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. Subsequent thereto, the plaintiff
replaced its counsel. On September 18, 1996, counsel for the plaintiff moved to
withdraw the pending complaint with leave to file an amended complaint, which
motion was granted. The Company believes it has sufficient defenses to all
potential claims by the plaintiff.
See Item 3. of the Company's December 31, 1995 Form 10-K and Item 3. of the
September 30, 1996 Form 10-Q, below.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(b) ARREARAGES IN THE PAYMENT OF PREFERRED STOCK DIVIDENDS
The Company did not pay the March 28, 1994 mandatory redemption of all
outstanding shares of $.01 par value mandatorily redeemable preferred stock
("10% Preferred Stock") and has not declared and paid dividends since March
1993. As of September 30, 1996, there were 329,853 shares of 10% Preferred
Stock currently outstanding with a liquidation preference of $10 per share and
accrued and unpaid dividends were approximately $1,155,000. In addition to the
10% Preferred Stock, as of September 30, 1996, 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
$1,119,000.
On June 18, 1996, the Company and its directors entered into a Stipulation and
Agreement of Compromise and Settlement (the "Stipulation") with respect to the
settlement of an action based upon the Company's failure to redeem its
outstanding shares of 10% Preferred Stock and certain loans of Decisions to the
Company. Pursuant to the Stipulation, the Company agreed to (i) redeem its
outstanding 10% Preferred Stock, plus accrued and unpaid dividends, less $1.50
per share as fees to counsel for plaintiff, (ii) the payment of $500,000 in
attorneys fees and (iii) amend its by-laws to add a provision concerning
material transactions between the Company and any control person. The proposed
settlement, per the Stipulation, was approved by the court and will be paid on
or after December 16, 1996, upon the surrender of the certificates representing
the shares of 10% Preferred Stock.
-17-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.4 -- The Agreement and Plan of Merger dated August 23, 1996 by and among
IMED Corporation, IMED Merger Sub, Inc., IVAC Holdings, Inc., IVAC
Medical Systems, Inc. and the Participating Shareholders.
(Incorporated by reference to Exhibit 2 to the Company's August 26,
1996 report on Form 8-K.)
4.15 -- Notice of Pendency of Class Action, Class Determination, Settlement of
Class and Derivative Action, Settlement Hearing and Right to Appear to
all holders of the Company's 10% Cumulative Preferred Stock and common
stock as of March 20, 1996 (and their successors in interest) and all
current shareholders of the Company. (Incorporated by reference to
Exhibit 4.15 to the Company's report on Form 10-Q for the quarter
ended June 30, 1996.)
10.27 -- Memorandum of Understanding dated March 19, 1996, by and between the
Company and plaintiff class represented by Richard C. Goodwin, with
respect to the settlement of a class action lawsuit. (Incorporated by
reference to Exhibit 10.27 to the Company's report on Form 10-Q for
the quarter ended March 31, 1996.)
10.28 -- Asset Transfer Agreement dated June 26, 1996 by and between the
Company and Pharmacia & Upjohn Limited with respect to the acquisition
of certain European assets. (Incorporated by reference to Exhibit
10.28 to the Company's report on Form 10-Q for the quarter ended June
30, 1996.)
10.29 -- Assignment Agreement dated June 26, 1996 by and between the Company
and Pharmacia, AB with respect to the acquisition of European
distribution rights. (Incorporated by reference to Exhibit 10.29 to
the Company's report on Form 10-Q for the quarter ended June 30,
1996.)
10.30 -- Letter Agreement by and between Advanced Medical and Jeffry M.
Picower. (Incorporated by reference to Exhibit 10 to the Company's
August 26, 1996 report on Form 8-K.)
11.1 -- Computation of Net Income per share for the three and six month
periods ended June 30, 1995 and 1996.
99.5 -- Pro forma financial statements as of June 30, 1995, December 31, 1995
and June 30, 1996 of IMED Corporation and IVAC Holdings, Inc. The
financial data did not include the separate financial data of the
Registrant. Pro forma data of the registrant and IVAC Holdings will
be provided in a subsequent filing on Form 8-K. (Incorporated by
reference to Exhibit 99 to the Company's October 17, 1996 report on
Form 8-K.)
99.6 -- Pro forma financial statements as of September 30, 1995, December 31,
1995, and September 30, 1996 of IMED Corporation and IVAC Holdings,
Inc. The financial data did not include the separate financial data
of the Registrant. Pro forma data of the registrant and IVAC Holdings
will be provided in a subsequent filing on Form 8-K.
-----------------------------------------
(b) Reports on Form 8-K
A Report on Form 8-K was filed on August 26, 1996. The Agreement and Plan of
Merger dated August 23, 1996, by and among IMED Corporation, IMED Merger Sub,
Inc., IVAC Holdings, Inc., IVAC Medical Systems, Inc. and the Participating
Stockholders, was reported. Also reported was a letter agreement by and between
Advanced Medical and Jeffry M. Picower.
A Report on Form 8-K was filed on October 17, 1996. The pro forma financial
statements of IMED Corporation and IVAC Holdings, Inc. were reported. The
financial data did not include the separate financial data of the Registrant.
Pro forma data of the Registrant and IVAC Holdings will be provided in a
subsequent filing on Form 8-K.
A Report on Form 8-K was filed on October 24, 1996. A press release dated
October 24, 1996 was reported.
-18-
<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.
ADVANCED MEDICAL, INC.
----------------------
(REGISTRANT)
Date: October 30, 1996 By: /s/ JOSEPH W. KUHN
------------------------------
Joseph W. Kuhn
PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
-19-
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit Page
No. No.
- ------- -----
11.1 -- Computation of Net Income per share for the three and nine month
periods ended September 30, 1995 and 1996.
99.6 -- Pro forma financial statements as of September 30, 1995, December 31,
1995 and September 30, 1996 of IMED Corporation and IVAC Holdings,
Inc. The financial data did not include the separate financial data of
the Registrant. Pro forma data of the registrant and IVAC Holdings
will be provided in a subsequent filing on Form 8-K.
-20-
<PAGE>
COMPUTATION OF NET INCOME PER SHARE EXHIBIT 11.1
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME PER COMMON SHARE ASSUMING NO DILUTION
Income before extraordinary item and dividends
on mandatorily redeemable preferred stock. . . . . . $ 2,406 $ 779 $ 5,467 $ 2,788
Dividends on mandatorily redeemable preferred stock. . (162) (162) (487) (487)
-------- --------- --------- ---------
Income before extraordinary item . . . . . . . . . . . 2,244 617 4,980 2,301
Extraordinary item - gain on early retirement of debt,
net of taxes . . . . . . . . . . . . . . . . . . . . -- -- 15,177 --
-------- --------- --------- ---------
Net income applicable to common stock. . . . . . . . . $ 2,244 $ 617 $ 20,157 $ 2,301
-------- --------- --------- ---------
-------- --------- --------- ---------
Weighted average common shares outstanding (1) . . . . 16,451 16,494 15,500 16,453
-------- --------- --------- ---------
-------- --------- --------- ---------
Income per common share assuming no dilution:
Income before extraordinary item . . . . . . . . . . . $ .14 $ .04 $ .32 $ .14
Extraordinary item . . . . . . . . . . . . . . . . . . -- -- .98 --
-------- --------- --------- ---------
Net income per common share assuming no dilution . . . $ .14 $ .04 $ 1.30 $ .14
-------- --------- --------- ---------
-------- --------- --------- ---------
INCOME PER COMMON SHARE ASSUMING FULL DILUTION
Income before extraordinary item and dividends on
mandatorily redeemable preferred stock . . . . . . . $ 2,406 $ 779 $ 5,467 $ 2,788
Dividends on mandatorily redeemable preferred stock. . (162) (162) (487) (487)
Add back interest expense, net of taxes, on convertible
promissory notes . . . . . . . . . . . . . . . . . . 152 417 451 1,241
-------- --------- --------- ---------
Income before extraordinary item . . . . . . . . . . . 2,396 1,034 5,431 3,542
Extraordinary item - gain on early retirement of debt,
net of taxes . . . . . . . . . . . . . . . . . . . . -- -- 15,177 --
-------- --------- --------- ---------
Net income applicable to common stock. . . . . . . . . $ 2,396 $ 1,034 $ 20,608 $ 3,542
-------- --------- --------- ---------
-------- --------- --------- ---------
Weighted average common shares outstanding prior
to conversion of convertible promissory notes (1). . 16,554 16,519 15,718 16,517
Add weighted average shares issued upon conversion
of convertible promissory notes. . . . . . . . . . . 16,565 26,083 16,539 26,083
-------- --------- --------- ---------
Weighted average common shares outstanding . . . . . . 33,119 42,602 32,257 42,600
-------- --------- --------- ---------
-------- --------- --------- ---------
Income per common share assuming full dilution:
Income before extraordinary item . . . . . . . . . . . $ .07 $ .02 $ .17 $ .08
Extraordinary item . . . . . . . . . . . . . . . . . . -- -- .47 --
-------- --------- --------- ---------
Net income per common share assuming full dilution . . $ .07 $ .02 $ .64 $ .08
-------- --------- --------- ---------
-------- --------- --------- ---------
</TABLE>
(1) INCLUDES THE COMMON STOCK EQUIVALENT OF DILUTIVE OPTIONS OUTSTANDING AT THE
END OF EACH PERIOD.
-21-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the Condensed
Consolidated Balance Sheet and Condensed Consolidated Statement of Operations
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,260
<SECURITIES> 3,592
<RECEIVABLES> 18,421
<ALLOWANCES> (935)
<INVENTORY> 20,339
<CURRENT-ASSETS> 59,064
<PP&E> 35,258
<DEPRECIATION> (21,046)
<TOTAL-ASSETS> 160,022
<CURRENT-LIABILITIES> 23,748
<BONDS> 95,441
7,704
0
<COMMON> 162
<OTHER-SE> 30,513
<TOTAL-LIABILITY-AND-EQUITY> 160,022
<SALES> 81,770
<TOTAL-REVENUES> 81,770
<CGS> 44,731
<TOTAL-COSTS> 44,731
<OTHER-EXPENSES> 27,318
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 6,707
<INCOME-PRETAX> 6,006
<INCOME-TAX> 3,218
<INCOME-CONTINUING> 2,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,301
<EPS-PRIMARY> .14
<EPS-DILUTED> .08
</TABLE>
<PAGE>
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
Improvement 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 $20.0 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 $227.0 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.
1
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following Pro Forma Condensed Consolidated Balance Sheet at
September 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 September 30,
1996. The IVAC Holdings historical balance sheet at September 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 $6.2 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 AND OTHER DATA
The following Pro Forma Condensed Consolidated Statements of Operations
and Other Data for the year ended December 31, 1995 and nine months ended
September 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
and Other Data for the nine months ended September 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 and Other
Data 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 and
Other Data 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. Such
unaudited pro forma financial data should be read in conjunction with the
Consolidated Financial Statements of IMED and IVAC Holdings and the
respective accompanying notes thereto included elsewhere in this Offering
Memorandum.
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.
2
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
--------------------------------------------------------------------
IVAC TRANSACTIONS COMPANY
IMED HOLDINGS COMBINED ADJUSTMENTS PRO FORMA
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.............................. $ 851 $ 10,447 $ 11,298 $ 220,500(A) $ 1,101
168,250(B)
(230,750)(C)
(180,197)(D)
20,000(E)
(8,000)(F)
Receivables, net....................................... 24,714 52,469 77,183 77,183
Inventory.............................................. 20,339 39,646 59,985 10,000(C) 69,985
Prepaid expenses and other current assets.............. 3,246 2,490 5,736 8,000(C) 16,436
2,700(G)
--------- --------- --------- ---------
Total current assets.................................. 49,150 105,052 154,202 164,705
Net investment in sales type and direct financing
leases and long-term contract receivables.............. 13,559 18,232 31,791 31,791
Property, plant and equipment, net...................... 14,212 44,966 59,178 59,178
Other non-current assets................................ 5,072 1,626 6,698 6,500(A) 39,251
6,750(B)
20,000(C)
(697)(D)
Intangible assets....................................... 48,344 21,105 69,449 244,091(C) 313,540
--------- --------- --------- ---------
Total assets.......................................... $ 130,337 $ 190,981 $ 321,318 $ 608,465
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable....................................... $ 8,255 $ 13,703 $ 21,958 $ 21,958
Accrued expenses and other liabilities................. 13,043 49,643 62,686 $ (11,000)(C) 68,097
3,589(D)
8,000(F)
(6,000)(H)
Short-term debt and current portion of long-term
debt................................................... 149 17,534 17,683 (1,500)(A) 4,183
15,000(D)
--------- --------- --------- ---------
Total current liabilities............................. 21,447 80,880 102,327 94,238
Long-term debt.......................................... 19,865 142,955 162,820 (225,500)(A) 406,462
(175,000)(B)
(4,750)(C)
161,608(D)
Other non-current liabilities........................... 1,532 2,737 4,269 4,269
--------- --------- --------- ---------
Total liabilities..................................... 42,844 226,572 269,416 504,969
Common stock and capital in excess of par............... 77,058 33,855 110,913 33,855(C) 97,058
(20,000)(E)
Retained earnings/(accumulated deficit)................. 10,226 (70,166) (59,940) (70,166)(C) 6,229
697(D)
(2,700)(G)
6,000(H)
Cumulative translation adjustment and other............. 209 720 929 720(C) 209
--------- --------- --------- ---------
Total stockholder's equity (deficit).................. 87,493 (35,591) 51,902 103,496
--------- --------- --------- ---------
Total liabilities and stockholder's equity............ $ 130,337 $ 190,981 $ 321,318 $ 608,465
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Balance Sheet.
3
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(A) Reflects receipt of gross proceeds of $227,000 from the initial borrowing
under the New Credit Facility, net of issuance costs of $6,500 which have
been included in other non-current assets.
New Credit Facility consists of the following:
Term loan facilities.................................. $215,000
Revolving credit facility............................. 12,000
--------
Total New Credit Facility......................... 227,000
Current portion....................................... 1,500
--------
Long-term............................................. $225,500
--------
--------
(B) Reflects receipt of gross proceeds of $175,000 from the issuance of the
Notes, net of $5,250 of selling commissions and $1,500 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:
Cash Merger Consideration............................. $225,000
Estimated transaction fees in addition to
debt issuance costs................................. 5,750
--------
Total cash payments in connection with Merger....... 230,750
--------
Elimination of book value of net assets acquired:
Common stock and capital in excess of par............. (33,855)
Accumulated deficit................................... 70,166
Cumulative translation adjustment and other........... (720)
--------
Net stockholders' deficit........................... 35,591
--------
Excess of cost over book value.................... $266,341
--------
--------
Allocation of excess cost over book value:
Amount assigned to inventory.......................... $ 10,000
Deferred tax assets-current........................... 8,000
Deferred tax assets-non-current....................... 20,000
Severance, bonus and restructuring related to IVAC
personnel and facilities (see Note (H) 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.................. 244,091
--------
Total............................................... $ 266,341
--------
--------
4
<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:
ACCRUED
DEBT INTEREST TOTAL
Current debt:
IVAC existing credit facility............ $ 15,000 $ 165 $ 15,165
-------- ------- --------
Long term debt:
Existing Senior Notes (including
redemption premium and consent
fees of $4,750)........................ 104,750 3,248 107,998
Junior Subordinated Notes of IVAC
Holdings............................... 37,324 -- 37,324
IMED Existing Credit Facility (1)........ 19,534 176 19,710
-------- ------- --------
Total long-term debt.................. 161,608 3,424 165,032
-------- ------- --------
Total current and long-term debt...... $176,608 $ 3,589 $180,197
-------- ------- --------
-------- ------- --------
- ------------------------------
(1) The Pro Forma Condensed Consolidated Balance Sheet also includes the
write-off of related unamortized debt issuance costs of $697.
(E) Reflects the Capital Contribution from Advanced Medical.
(F) Reflects $8,000 payment to Eli Lilly and Company ("Lilly") 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 credit facility.
(G) Reflects tax benefit at an estimated statutory rate of 40% related to IMED
restructuring costs of $6,000 and $697 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.
5
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
RIVER
IVAC DIVESTITURE TRANSACTIONS COMPANY
IMED HOLDINGS COMBINED ADJUSTMENTS(A) ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
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) 8,136(C) 41,032
(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.............. 32,846 114,782 147,628 131,632
--------- ---------- --------- --------
Income (loss) from operations......... 16,435 (31,680) (15,245) 11,914
--------- ---------- --------- --------
Other income (expense):
Interest income (D)................... 2,361 3,506 5,867 5,867
Interest expense...................... (2,052) (27,969) (30,021) 163 (38,263)(E) (45,112)
23,009 (F)
Other, net............................ (379) -- (379) (379)
--------- ---------- --------- --------
(70) (24,463) (24,533) (39,624)
--------- ---------- --------- --------
Income (loss) before income taxes....... 16,365 (56,143) (39,778) (27,710)
Provision for (benefit from) income
taxes................................. 8,099 (378) 7,721 3,831 (7,952)(G) 3,600
--------- ---------- --------- ---------- --------- --------
Net income (loss)....................... $ 8,266 $ (55,765) $ (47,499) $ 21,027 $ (4,838) $(31,310)
--------- ---------- --------- ---------- --------- --------
--------- ---------- --------- ---------- --------- --------
OTHER DATA:
Income (loss) from operations......... $ 16,435 $ (31,680) $ (15,245) $ 24,695 $ 2,464 $ 11,914
Depreciation and amortization......... 6,542 20,950 27,492 (1,199) 7,336 33,629
Technology license fee to Advanced
Medical (H)......................... -- -- -- 1,100 1,100
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 $ 10,900 $ 82,760
--------- ---------- --------- ---------- --------- --------
--------- ---------- --------- ---------- --------- --------
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Statements of
Operations and Other Data.
6
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA.
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
-----------------------------------------------------------------------------------
RIVER
IVAC DIVESTITURE TRANSACTIONS COMPANY
IMED HOLDINGS COMBINED ADJUSTMENTS(A) ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . $ 83,012 $ 174,663 $ 257,675 $ (555) $ 257,120
Cost of sales. . . . . . . . . . . . . . . 46,633 118,255 164,888 (3,404) $ (4,950)(B) 156,534
---------- ---------- ---------- ----------
Gross margin . . . . . . . . . . . . . . . 36,379 56,408 92,787 100,586
---------- ---------- ---------- ----------
Selling and marketing. . . . . . . . . . . 12,965 32,470 45,435 (2,235) (2,137)(B) 41,063
General and administrative . . . . . . . . 6,502 18,529 25,031 (2,254) 6,102 (C) 28,204
(675)(B)
Research and development . . . . . . . . . 5,603 10,111 15,714 (642) (188)(B) 14,884
Purchased research and development . . . . -- 19,883 19,883 (9,755) 10,128
Restructuring. . . . . . . . . . . . . . . -- 4,460 4,460 (103) 4,357
---------- ---------- ---------- ----------
Total operating expenses . . . . . . . 25,070 85,453 110,523 98,636
---------- ---------- ---------- ----------
Income (loss) from operations. . . . . 11,309 (29,045) (17,736) 1,950
---------- ---------- ---------- ----------
Other income (expense):
Interest income (D). . . . . . . . . . 1,766 2,491 4,257 4,257
Interest expense . . . . . . . . . . . (1,647) (20,047) (21,694) 98 (28,697)(E) (33,304)
16,989 (F)
Other, net. . . . . . . . . . . . . . (307) -- (307) (307)
---------- ---------- ---------- ----------
(188) (17,556) (17,744) (29,354)
---------- ---------- ---------- ----------
Income (loss) before income taxes. . . . . 11,121 (46,601) (35,480) (27,404)
Provision for (benefit from) income
taxes. . . . . . . . . . . . . . . . . 5,076 (3,270) 1,806 3,831 (2,937)(G) 2,700
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss). . . . . . . . . . . . . $ 6,045 $ (43,331) $ (37,286) $ 14,105 $ (6,923) $ (30,104)
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
OTHER DATA:
Income (loss) from operations. . . . . $ 11,309 $ (29,045) $ (17,736) $ 17,838 $ 1,848 $ 1,950
Depreciation and amortization. . . . . 4,889 15,094 19,983 (867) 5,502 24,618
Technology license fee to Advanced
Medical(H) . . . . . . . . . . . . -- -- -- 825 825
Inventory purchase accounting
adjustment . . . . . . . . . . . . -- 14,774 14,774 14,774
Purchased research and development . . -- 19,883 19,883 (9,755) 10,128
Restructuring. . . . . . . . . . . . . -- 4,460 4,460 (103) 4,357
Lease/contract interest income . . . . 1,766 2,130 3,896 3,896
---------- ---------- ---------- ---------- ---------- ----------
Adjusted EBITDA. . . . . . . . . . . . $ 17,964 $ 27,296 $ 45,260 $ 7,113 $ 8,175 $ 60,548
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Statements of
Operations and Other Data.
7
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------------------------------------------------------
RIVER
IVAC DIVESTITURE TRANSACTIONS COMPANY
IMED HOLDINGS COMBINED ADJUSTMENTS(A) ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . $81,770 $170,155 $251,925 $ (373) $251,552
Cost of sales. . . . . . . . . . . . 44,757 98,836 143,593 (2,787) $ (4,950)(B) 135,856
------- -------- -------- --------
Gross margin . . . . . . . . . . . . 37,013 71,319 108,332 115,696
------- -------- -------- --------
Selling and marketing. . . . . . . . 13,167 28,872 42,039 (819) (2,137)(B) 39,083
General and administrative . . . . . 7,050 17,479 24,529 (719) 6,102 (C) 29,237
(675)(B)
Research and development . . . . . . 5,773 7,663 13,436 (199) (188)(B) 13,049
Restructuring. . . . . . . . . . . . 17,396 17,396 (17,396) --
------- -------- -------- --------
Total operating expenses. . . . . 25,990 71,410 97,400 81,369
------- -------- -------- --------
Income (loss) from operations . . 11,023 (91) 10,932 34,327
------- -------- -------- --------
Other income (expense):
Interest income(D). . . . . . . . 1,921 2,146 4,067 4,067
Interest expense. . . . . . . . . (1,119) (13,730) (14,849) 121 (28,776)(E) (30,433)
13,071 (F)
Other, net. . . . . . . . . . . . (49) -- (49) (49)
------- -------- -------- --------
753 (11,584) (10,831) (26,415)
------- -------- -------- --------
Income (loss) before income taxes. . 11,776 (11,675) 101 7,912
Provision for income taxes . . . . . 5,573 2,434 8,007 2,782 (8,589)(G) 2,200
------- -------- -------- ------- --------- --------
Net income (loss). . . . . . . . . . $6,203 $ (14,109) $ (7,906) $ 18,886 $ (5,268) $5,712
------- -------- -------- -------- --------- --------
------- -------- -------- -------- --------- --------
OTHER DATA:
Income (loss) from operations . . $ 11,023 $ (91) $ 10,932 $ 21,547 $ 1,848 $34,327
Depreciation and amortization . . 5,508 15,279 20,787 (748) 5,502 25,541
Technology license fee to Advance
Medical(H) . . . . . . . . . . -- -- -- 550 550
Restructuring . . . . . . . . . . -- 17,396 17,396 (17,396) --
Lease/contract interest income. . 1,921 1,812 3,733 3,733
------- -------- -------- -------- --------- --------
Adjusted EBITDA . . . . . . . . . $ 18,452 $ 34,396 $ 52,848 $ 3,403 $ 7,900 $64,151
------- -------- -------- ------- --------- --------
------- -------- -------- ------- --------- --------
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Statements of
Operations and Other Data.
8
<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 $2,250 for the
nine months ended September 30, 1995 and 1996, and have been allocated to
operating expenses as follows:
YEAR ENDED NINE MONTHS ENDED
DEC. 31, 1995 SEPTEMBER 30, 1995 AND 1996
Selling and marketing............. $2,600 $1,950
General and administrative........ 400 300
------ ------
$3,000 $2,250
------ ------
------ ------
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 $4,950 for the nine months ended
September 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 $750 for the nine months ended September 30, 1995 and 1996 and have
been allocated to operating expenses as follows:
YEAR ENDED NINE MONTHS ENDED
DEC. 31, 1995 SEPTEMBER 30, 1995 AND 1996
Selling and marketing............. $ 250 $187
General and administrative........ 500 375
Research and development.......... 250 188
------ -----
$1,000 $750
------ -----
------ -----
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.
9
<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 and Other Data 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) Interest income consists of lease/contract interest income and interest
income on actual cash balances.
(E) Reflects interest expense related to the borrowings under the New Credit
Facility and the Notes:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
DEC. 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
<S> <C> <C> <C>
New Credit Facility (at an assumed weighted
average interest rate of 8.7%)(1)........... $18,673 $14,005 $14,084
Amortization of issuance costs............... 976 732 732
Notes (at an assumed interest rate of
10.25%).................................... 17,938 13,453 13,453
Amortization of issuance costs............... 676 507 507
------- ------- -------
$38,263 $28,697 $28,776
------- ------- -------
------- ------- -------
</TABLE>
- -------------------
(1) For the year ended December 31, 1995, the nine months ended September 30,
1995 and eight months of the nine months ended September 30, 1996, excludes
interest expense related to $11,000 of borrowings under the New Credit
Facility used to repay borrowings under the Existing Credit Facility
incurred in connection with the repurchase of certain European distribution
rights on August 30, 1996.
A 1/4% change in the actual interest rate applicable to the Notes would
change pro forma interest expense by $438 and $328 for the year ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996, respectively.
(F) 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 NINE MONTHS ENDED NINE MONTHS ENDED
DEC. 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
<S> <C> <C> <C>
IMED Existing Credit Facility............... $ 1,166 $ 884 $ 1,055
IVAC existing credit facility (1)........... 3,286 2,231 1,188
Existing Senior Notes....................... 1,465 -- 7,465
Junior subordinated notes of IVAC Holdings.. 3,961 2,971 3,363
Bridge notes of IVAC Medical Systems (2).... 13,131 10,903 --
------- ------- -------
$23,009 $16,989 $13,071
------- ------- -------
------- ------- -------
</TABLE>
- -------------------
(1) In addition to interest on the $15,000 of indebtedness outstanding at
September 30, 1996 under IVAC's existing 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 nine months ended September 30,
1995.
10
<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
$1,923 for the year ended December 31, 1995 and nine months ended
September 30, 1995, respectively.
(G) 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.
(H) Prior to June 30, 1996, Advanced Medical licensed to IMED certain
technology rights for $1,100 per year. Because this license fee could not
be paid to Advanced Medical as a result of restrictions in the Existing
Credit Facility, IMED accrued a liability in respect of such license fee.
Effective June 30, 1996 Advanced Medical contributed the underlying
technology to IMED. This non-cash charge has been added to income from
operations in computing Adjusted EBITDA.
11
