-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TFRTvMKkHPf2cbz5k2mirxgL7VyHX7M83hoEpSu434o557EfZ22tSkunhPR6tlnU KJIHH0EX8B+wV1RxtsMIRw== 0000950135-98-006054.txt : 19981125 0000950135-98-006054.hdr.sgml : 19981125 ACCESSION NUMBER: 0000950135-98-006054 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980910 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOSTON SCIENTIFIC CORP CENTRAL INDEX KEY: 0000885725 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 042695240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-11083 FILM NUMBER: 98758503 BUSINESS ADDRESS: STREET 1: ONE BOSTON SCIENTIFIC PL CITY: NATICK STATE: MA ZIP: 01760-1537 BUSINESS PHONE: 5086508000 8-K/A 1 BOSTON SCIENTIFIC CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------- Date of report (Date of earliest event reported): SEPTEMBER 10, 1998 BOSTON SCIENTIFIC CORPORATION -------------------------------------------------- (Exact name of registrant as specified in charter) DELAWARE 1-11083 04-2695240 - --------------- ------------ ------------------- (State or other (Commission (IRS employer jurisdiction of file number) identification no.) incorporation) ONE BOSTON SCIENTIFIC PLACE, NATICK, MASSACHUSETTS 01760-1537 - -------------------------------------------------- ------------------- Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (508) 650-8000 2 This Current Report on Form 8-K/A amends and supplements the Current Report on Form 8-K filed by Boston Scientific Corporation on September 25, 1998 (the "Initial Form 8-K") to include financial statements and pro forma financial information permitted pursuant to Item 7 of Form 8-K to be excluded from the Initial Form 8-K and filed by amendment to the Initial Form 8-K not later than 60 days after the date the Initial Form 8-K was required to be filed. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On September 10, 1998, Boston Scientific Corporation (the "Company") announced that it had completed its acquisition of Schneider Worldwide, formerly a member of the Medical Technology Group of Pfizer Inc., for $2.1 billion in cash. The purchase price was funded by the issuance of commercial paper. The commercial paper issued will not be and has not been registered under the Securities Act of 1933. Purchasers of the commercial paper may not reoffer or resell it in the United States absent registration or an applicable exemption from registration requirements. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED Schneider Worldwide (A Business of Pfizer Inc.) Combined Financial Statements for the Years Ended December 31, 1997, 1996 and 1995 and Independent Auditor's Report. Schneider Worldwide (A Business of Pfizer Inc.) Unaudited Combined Financial Statements for the Nine Months Ended September 10, 1998 and September 14, 1997. (b) UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS Unaudited Pro Forma Combined Condensed Statements of Operations of the Company and Schneider Worldwide for the year ended December 31, 1997 and the nine months ended September 30, 1998. 3 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) COMBINED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND INDEPENDENT AUDITORS' REPORT 4 INDEPENDENT AUDITORS' REPORT The Board of Directors Pfizer Inc. We have audited the accompanying combined balance sheets of Schneider Worldwide, a Business of Pfizer Inc. ("the Company") as of December 31, 1997 and 1996, and the combined statements of income and cash flows for each of the years in the three-year period ended December 31, 1997. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects the financial position of Schneider Worldwide, a Business of Pfizer Inc., as of December 31, 1997 and 1996 and the results of its operations and its cash flow for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP May 22, 1998 5 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) COMBINED BALANCE SHEET (DOLLARS IN THOUSANDS)
December 31, ----------------------- 1997 1996 --------- --------- ASSETS Current assets: Cash $ 33,940 $ 40,399 Accounts receivable, less allowance for doubtful accounts: 1997- $1,217; 1996- $1,229 71,715 66,571 Due from parent and affiliates 220,371 197,921 Inventories 45,823 28,871 Deferred taxes 22,151 23,986 Prepaid expenses and other assets 2,849 2,640 --------- --------- Total current assets 396,849 360,388 Property, plant and equipment, less accumulated depreciation 101,484 113,030 Goodwill and other intangible assets, net 340,897 365,943 Other assets 4,494 4,375 --------- --------- Total assets $ 843,724 $ 843,736 ========= ========= LIABILITIES AND BUSINESS UNIT EQUITY Current liabilities: Accounts payable $ 23,678 $ 29,871 Short-term borrowings 30 231 Due to parent and affiliates 57,650 68,638 Income taxes payable 12,850 28,968 Deferred taxes 25,283 20,340 Accrued compensation and related items 20,664 19,304 Other current liabilities 13,521 20,357 --------- --------- Total current liabilities 153,676 187,709 Long-term debt 498 928 Capital lease obligations 3,620 4,140 Deferred taxes 36,424 38,772 Other noncurrent liabilities 37 41 --------- --------- Total liabilities 194,255 231,590 Business unit equity 668,199 603,958 Currency translation adjustment (18,730) 8,188 --------- --------- Total business unit equity 649,469 612,146 --------- --------- Total liabilities and business unit equity $ 843,724 $ 843,736 ========= =========
See accompanying notes to combined financial statements. 6 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) COMBINED STATEMENT OF INCOME (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- Net sales $ 330,848 $ 342,919 $ 305,320 Costs and expenses Cost of sales 89,813 96,172 87,498 Selling, informational and administrative expenses 106,073 102,358 91,877 Research and development expenses 33,966 31,310 21,785 Corporate and division overhead costs 10,571 9,089 8,032 Other (income)/deductions--net 15,160 29,963 (43,052) --------- --------- --------- Income before provision for taxes on income 75,265 74,027 139,180 Provision for taxes on income 23,085 29,152 45,801 --------- --------- --------- Net income $ 52,180 $ 44,875 $ 93,379 ========= ========= =========
See accompanying notes to combined financial statements. 7 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) COMBINED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 --------- --------- --------- OPERATING ACTIVITIES Net income $ 52,180 $ 44,875 $ 93,379 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangibles 26,295 25,521 20,416 Write-off acquired research and development in process -- 17,500 -- Loss on disposals of property, plant and equipment (14) 134 -- Deferred taxes 7,232 (1,147) 3,060 Other 450 319 -- Changes in assets and liabilities: Accounts receivable (8,590) (1,489) (11,770) Inventories (20,136) 1,384 2,567 Prepaid and other assets (560) (360) (1,755) Accounts payable and accrued liabilities (24,184) 6,394 29,712 Other noncurrent liabilities (4) 8 9 Due from/to parent and affiliates (28,817) (45,224) (108,712) --------- --------- --------- Net cash provided by operating activities 3,852 47,915 26,906 --------- --------- --------- INVESTING ACTIVITIES Purchases of property, plant and equipment (8,080) (13,802) (10,132) Proceeds from sales of property, plant and equipment 167 652 -- --------- --------- --------- Net cash used in investing activities (7,913) (13,150) (10,132) --------- --------- --------- FINANCING ACTIVITIES Proceeds from borrowings 277 -- Repayments of borrowings (357) (50) (120) Dividends to parent company -- (19,905) (1,985) Other (520) (183) (520) --------- --------- --------- Net cash used in financing activities (877) (19,861) (2,625) --------- --------- --------- Effect of exchange rate changes on cash (1,521) (2,204) (1,294) --------- --------- --------- Net increase/(decrease) in cash (6,459) 12,700 12,855 Cash at beginning of year 40,399 27,699 14,844 --------- --------- --------- Cash at end of year $ 33,940 $ 40,399 $ 27,699 ========= ========= =========
See accompanying notes to combined financial statements. 8 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND BUSINESS DESCRIPTION ORGANIZATION Schneider Worldwide is a business unit within the Medical Technology Group ("MTG") of Pfizer Inc. ("Pfizer"). Schneider Worldwide is comprised of the following wholly-owned subsidiaries of Pfizer -- Schneider (Europe) GmbH; Schneider (USA) Inc.; Schneider NAMIC U.S.A. Corporation; Corvita Corporation; Schneider Belgium N.V. and Schneider Holland B.V. In addition, Schneider Worldwide includes certain net assets used exclusively in its business at Howmedica France S.C.A.; Howmedica GmbH; Pfizer Canada Inc.; Pfizer Seiyaku Kabushiki Kaisha (Japan); Pfizer Laboratories (Proprietary) Limited (South Africa); Pfizer Pty. Ltd. (Australia); Nilo Holding S.A. and AMS Medinvent S.A. (collectively, the "Asset Selling Corporations" and together with the wholly-owned subsidiaries, "Schneider"). BUSINESS DESCRIPTION Schneider manufactures, markets, sells and distributes diagnostic and therapeutic products for use in interventional cardiology and radiology. Schneider has a global direct sales and distribution presence with primary markets and manufacturing operations in the United States and Europe. The raw materials for its products are readily available and Schneider is not dependent on a single supplier or only a few suppliers for its raw materials. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying combined financial statements present the financial position, results of operations and cash flows for Schneider as if it were a separate legal entity. All significant intercompany transactions and balances have been eliminated. Operations outside of the U.S. are included on a fiscal year basis ending November 30. The combined financial statements include the accounts specifically attributed to Schneider, including allocations of certain assets, liabilities and expenses relating to shared services and administrative functions incurred at the corporate and business segment operating levels of Pfizer. Cash from Schneider's domestic operations is not included in cash in the accompanying combined balance sheet at December 31, 1997 and 1996 since this cash is included in Pfizer's centralized cash management system. Accordingly, Schneider's cash at December 31, 1997 and 1996 may not be representative of an independent company. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and accompanying notes. Actual results could differ from those estimates. Significant accounting estimates used include depreciation, amortization and estimates used in allocating certain assets, liabilities and the costs of shared services and administrative functions. Management believes that it exercised reasonableness in deriving these amounts. Schneider is subject to risks and uncertainties that may cause actual results to differ from estimated results, such as changes in the healthcare environment, competition, foreign exchange and legislation. 9 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DUE FROM/TO PARENT AND AFFILIATES - Due from/to parent and affiliates reflects balances and transactions among Schneider, Pfizer and other Pfizer entities. Schneider participates in Pfizer's centralized cash management system and, as such, its cash funding requirements are met by and generally all excess cash from Schneider's domestic operations is transferred to Pfizer. INVENTORIES - Inventories are valued at the lower of cost or market, with cost determined for finished goods and work-in-process at average actual cost and raw materials and supplies at average or latest actual cost. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is carried at cost less accumulated depreciation. Major improvements are capitalized while maintenance and repairs are expensed when incurred. Depreciation is computed generally on a straight-line basis over the following estimated useful lives: Buildings 33 1/3 years Machinery and equipment 8 - 12 years Furniture, fixtures and other 3 - 12 years GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill represents the excess of purchase price over fair value of the net tangible and identified intangible assets acquired in purchase transactions. Goodwill is being amortized on a straight-line basis over 40 years. Other intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense of goodwill and other intangible assets is included in "Other (income)/ deductions--net" in the accompanying combined statement of income. The carrying values of goodwill and other intangible assets are reviewed for impairment whenever events or changes in business conditions indicate they may not be recoverable. Schneider considers assets to be impaired and writes them down to fair value if expected associated cash flows are less than their carrying amounts. FOREIGN CURRENCY TRANSLATION - The financial statements of operations outside of the U.S. are maintained in their local currency. Schneider translates assets and liabilities to their U.S. dollar equivalents at rates in effect at the balance sheet date. Income and expense items are translated into their U.S. dollar equivalents at average rates of exchange for the period. Translation gains and losses are accumulated in a separate component of business unit equity. Gains and losses on foreign currency transactions which were not material are included in earnings. FINANCIAL INSTRUMENTS - The carrying values of Schneider's financial instruments approximate their estimated fair values. At December 31, 1997 and 1996, the cost of each type of financial instrument, primarily accounts receivable, an affiliate note and other due from/to parent and affiliates and accounts payable, approximates fair value because of the short maturity period of these instruments. ADVERTISING EXPENSE - Advertising costs are expensed as incurred. Advertising expenses were $10.9, $8.9 and $8.0 million for 1997, 1996 and 1995, respectively. 10 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) CONCENTRATION OF CREDIT RISK - Schneider does not have significant concentrations of credit risk from its customers. Periodically, Schneider reviews the credit quality of its customers' financial condition. In general, there is no requirement for collateral from customers. INCOME TAXES - As an operating unit of Pfizer, Schneider does not file separate U. S. Federal or certain foreign tax returns but rather is included as part of the various returns filed by Pfizer or its subsidiaries. For reporting purposes, Schneider's tax provision is computed as if it were a separate company. For jurisdictions that Schneider is included in Pfizer's or its subsidiaries' tax returns, allocated domestic income taxes are settled with Pfizer on a current basis. Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws. No provision is made for taxes on overseas retained earnings that are deemed to be permanently reinvested. 3. CORPORATE AND DIVISION OVERHEAD COSTS Pfizer allocates certain corporate service and employee benefit expenses (based on actual costs incurred) to Schneider on the basis of number of personnel, occupied office space and third party sales. Pfizer does not allocate various other corporate overhead expenses to its operating divisions. However, for purposes of the accompanying combined financial statements, an allocation of such expenses has been included in the accompanying combined statement of income and is summarized as follows:
Years Ended December 31, ----------------------------------- 1997 1996 1995 ------- ------- ------- Pfizer corporate overhead costs $ 4,924 $ 5,763 $ 5,322 MTG division overhead costs 5,647 3,326 2,710 ------- ------- ------- $10,571 $ 9,089 $ 8,032 ======= ======= =======
Pfizer corporate overhead costs represent a portion of corporate functions such as personnel, legal, accounting, treasury and information systems which are primarily allocated based on sales of Schneider compared to total Pfizer revenues. MTG division overhead costs represent personnel, quality control, regulatory compliance, finance and business development which are primarily allocated based on sales to third party customers of Schneider compared to total MTG sales. Management believes that all allocations are made on a reasonable basis; however, these costs are not necessarily representative of the costs that would have been or will be incurred by Schneider as an independent company. 4. PATENT SETTLEMENT AGREEMENT During 1995, Schneider received $51,726 net of expenses related to the completion of all appeals in a patent infringement case with Scimed Life Systems Inc., which is included in "Other (income)/deductions--net" in the accompanying combined statement of income for the year ended December 31, 1995. 11 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 5. INVENTORY
1997 1996 -------- -------- Finished goods $ 30,284 $ 14,239 Work-in-process 14,311 13,005 Raw materials 9,487 7,290 -------- -------- 54,082 34,534 Less: allowance for obsolescence (8,259) (5,663) -------- -------- $ 45,823 $ 28,871 ======== ========
6. ACQUISITIONS On June 30, 1996, Pfizer acquired all of the outstanding capital stock of the Corvita Corporation ("Corvita") for approximately $75 million in cash and contributed the net assets of Corvita to Schneider. In addition, Pfizer loaned Schneider approximately $13 million which was primarily used to purchase the remaining Corvita subsidiary interests that were not previously acquired. Corvita develops, manufactures and markets self-expanding endovascular stent grafts and synthetic vascular grafts used in the treatment of severely diseased arteries. In connection with this acquisition, in-process research and development of $17.5 million was written off and is included in "Other (income)/deductions--net" in the accompanying combined statement of income for the year ended December 31, 1996. The purchase price exceeded the fair value of the net assets acquired by approximately $58 million. On March 17, 1995, Pfizer acquired NAMIC U.S.A. Corporation ("NAMIC") for 8.8 million shares of Pfizer common stock valued at approximately $170.5 million and contributed the net assets of NAMIC to Schneider. NAMIC is a leader in fluid management, custom kits and accessories. The purchase price exceeded the fair value of the net assets acquired by approximately $122 million. The acquisitions were recorded under the purchase method of accounting. The financial statements of Schneider include the operating results of these acquired businesses subsequent to their respective dates of acquisition. If the 1996 acquisition had occurred on January 1, the results of operations would not have been materially different than the reported amounts. 7. PROPERTY, PLANT AND EQUIPMENT
1997 1996 --------- --------- Land and buildings $ 68,575 $ 71,688 Machinery and equipment 52,405 47,226 Furniture, fixtures and other 30,988 36,619 Construction in progress 1,889 5,186 --------- --------- 153,857 160,719 Less: Accumulated depreciation (52,373) (47,689) --------- --------- Net property, plant and equipment $ 101,484 $ 113,030 ========= =========
Depreciation expense totaled $11,855, $12,173 and $10,166 for the years ended December 31, 1997, 1996 and 1995, respectively. 12 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 8. GOODWILL AND OTHER INTANGIBLE ASSETS
1997 1996 --------- --------- Goodwill $ 325,385 $ 337,386 Patents 80,751 80,751 Trademarks 352 1,232 Other 212 5,521 --------- --------- 406,700 424,890 Less: Accumulated amortization (65,803) (58,947) --------- --------- Net goodwill and other intangible assets $ 340,897 $ 365,943 ========= =========
Amortization expense totaled $14,440, $13,348 and $10,250 for the years ended December 31, 1997, 1996 and 1995, respectively, which is included in "Other (income)/deductions--net" in the accompanying combined statement of income. 9. INCOME TAXES The components of the income tax provision (benefit) are:
1997 1996 1995 -------- -------- -------- United States: Taxes currently payable: Federal $ 5,260 $ 1,995 $ 14,776 State and local 328 1,281 1,846 Deferred income taxes 899 (5,495) (2,239) -------- -------- -------- Total U.S. tax provision (benefit) 6,487 (2,219) 14,383 -------- -------- -------- International: Taxes currently payable 13,067 30,160 24,218 Deferred income taxes 3,531 1,211 7,200 -------- -------- -------- Total International tax provision 16,598 31,371 31,418 -------- -------- -------- Total provision for taxes on income $ 23,085 $ 29,152 $ 45,801 ======== ======== ========
Reconciliations of the U.S. income tax rate to Schneider's effective rate is as follows:
1997 1996 1995 ---- ---- ---- Federal statutory income tax rate 35.0% 35.0% 35.0% Effect of foreign operations (8.1)% (7.8)% (4.5)% Nondeductible permanent items 3.2% 2.2% 1.4% Write-off acquired research and development in process -- 9.4% -- Other 0.6% 0.6% 1.0% ---- ---- ---- Effective income tax rate 30.7% 39.4% 32.9% ==== ==== ====
13 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of Schneider's assets and liabilities. Deferred tax assets and liabilities are comprised of the following:
1997 1996 ------------------ ------------------ Assets Liabilities Assets Liabilities ------- ------- ------- ------- Prepaid/deferred items $ 5,975 $36,382 $ 5,898 $34,615 Note receivable -- 15,072 -- 15,250 Inventories 17,701 3,437 14,264 1,622 Employee benefits 799 3 1,009 -- Property, plant and equipment 2,976 13,171 2,736 13,059 State and local taxes 1,262 -- 2,234 -- Tax carryforwards -- 460 -- 460 Other 2,528 2,272 6,880 3,141 ------- ------- ------- ------- Total deferred taxes $31,241 $70,797 $33,021 $68,147 ------- ------- ------- ------- Net deferred tax liability $39,556 $35,126 ======= =======
The deferred tax assets and liabilities at December 31, 1997 and 1996 are disclosed separately on the accompanying combined balance sheet. 10. PENSION AND POSTRETIREMENT BENEFITS Schneider participates in Pfizer's pension plans for employees. Plan benefits depend on years of service and employee final average earnings. Participants vest in their benefits after as few as five years of service. Pfizer has not made a contribution to their U.S. Plan during 1997, 1996 or 1995 since that Plan is overfunded. For the years ended December 31, 1997, 1996 and 1995, a pension cost of $155, $332 and $1,236, respectively, was allocated to Schneider. Pfizer does not fund other postretirement plans, but contributes to the plans as benefits are paid. As of December 31, 1997 and 1996, the postretirement benefit obligation related to Schneider was $1,827 and $1,686, respectively, and is included in "Accrued compensation and related items" in the accompanying combined balance sheet. 14 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 11. BUSINESS UNIT EQUITY The changes in business unit equity during the years ended December 31, 1995, 1996 and 1997 were as follows:
Business Unit Equity Exclusive of Accumulated Translation Translation Business Unit Adjustment Adjustment Equity --------- --------- --------- Balance at January 1, 1995 $ 235,910 $ 19,637 $ 255,547 Net income 93,379 -- 93,379 Dividend to parent company (1,985) -- (1,985) Translation adjustment -- 18,101 18,101 Contributed net assets of NAMIC 170,527 -- 170,527 Net activity with Pfizer 6,824 -- 6,824 --------- --------- --------- Balance at December 31, 1995 504,655 37,738 542,393 Net income 44,875 -- 44,875 Dividend to parent company (19,905) -- (19,905) Translation adjustment -- (29,550) (29,550) Contributed net assets of Corvita 75,123 -- 75,123 Net activity with Pfizer (790) -- (790) --------- --------- --------- Balance at December 31, 1996 603,958 8,188 612,146 Net income 52,180 -- 52,180 Translation adjustment -- (26,918) (26,918) Net activity with Pfizer 12,061 -- 12,061 --------- --------- --------- Balance at December 31, 1997 $ 668,199 $ (18,730) $ 649,469 ========= ========= =========
12. STOCK OPTION AWARDS Stock options are granted to Schneider employees under the Pfizer Inc. Stock and Incentive Plan. Options are exercisable after five years or less, subject to continuous employment and certain other conditions and expire 10 years after the grant date. Once exercisable, the employee can purchase shares of Pfizer common stock at the market price on the date the option was granted. The weighted- average fair value per stock option granted was $16.77, $10.90 and $6.46 for the options granted in 1997, 1996 and 1995, respectively. The fair values were estimated using the Black-Scholes option pricing model, modified for dividends and using the following assumptions:
1997 1996 1995 ---- ---- ---- Expected dividend yield 1.76% 1.97% 2.85% Risk-free interest rate 6.23% 6.38% 6.26% Expected stock price volatility 25.56% 25.45% 26.00% Expected term until exercise (years) 5.50 5.25 5.25
15 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) Compensation expense was not recognized for the issuance of employee stock options. If Pfizer had recorded compensation expense for option grants, Schneider's pro forma net income for 1997, 1996 and 1995 reflecting the compensation cost for the fair value of stock options awarded to Schneider employees in 1997, 1996 and 1995 would have been as follows:
Year Ended December 31, ----------------------------------------- 1997 1996 1995 ------- ------- ------- Net income: As reported $52,180 $44,875 $93,379 Pro forma $49,689 $43,589 $93,199
In 1997, 231,700 options were granted to Schneider employees with a weighted average exercise price of $55.04; in 1996, 489,572 options were granted with a weighted average exercise price of $37.25 and in 1995, 227,600 options were granted with a weighted average exercise price of $24.50. Information regarding outstanding options and exercisability for Schneider employees is not available. In the opinion of Pfizer management, this information is not significant to the presentation of the financial statements. 13. CONTINGENT LIABILITIES AND COMMITMENTS On April 8, 1998, Schneider (USA) Inc. filed a suit against Boston Scientific Corporation ("BSC") for a declaratory judgment that Schneider is not infringing any valid claim of BSC's self-expanding stent patent. BSC subsequently filed a counterclaim in the same suit for patent infringement. The suit was filed in the U.S. District and the counterclaim seeks monetary damages, declaratory judgment that Schneider infringed BSC's patent and injunctive relief. Schneider denies the allegations in the counterclaim and believes it has a meritorious defense against the claim of patent infringement. However, there can be no assurance that Schneider will prevail in this case. C.R. Bard, Inc. ("Bard") is in a dispute with Schneider over royalties due to Bard under an agreement with Schneider. Schneider believes the royalties it has paid to Bard are in compliance with the terms of their agreement. While it is not possible to predict the outcome of patent or other legal actions brought against Schneider, Schneider believes the liability, if any, resulting from all pending lawsuits and claims, individually or in the aggregate, other than those specifically identified above, would not have a material adverse effect on its results of operations, cash flows or financial position. 16 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) Schneider leases facilities under capital leases and vehicles and office equipment under various noncancelable operating leases. Net assets held under capital lease are included in property, plant and equipment and were $1,755 and $1,963 at December 31, 1997 and 1996, respectively. The current obligation under capital leases was $520 at December 31, 1997 and 1996 and is included in "Other current liabilities" in the accompanying combined balance sheet. Total rent expense under operating leases was approximately $3,524, $3,703 and $2,677 for the years ended December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, future minimum lease payments in years ending December 31 are:
Operating Capital Leases Leases ------- ------- 1998 $ 1,122 $ 1,340 1999 955 1,340 2000 693 1,140 2001 591 1,140 2002 428 1,140 Later years -- 3,780 ------- ------- Total minimum lease payments $ 3,789 9,880 ======= Less amounts representing interest (5,740) ------- Net present value of minimum lease payments $ 4,140 =======
****** 17 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) COMBINED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 10, 1998 AND SEPTEMBER 14, 1997 18 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) TABLE OF CONTENTS - ------------------------------------------------------------------------------- PAGE COMBINED FINANCIAL STATEMENTS Combined Balance Sheet as of September 10, 1998, September 14, 1997 and December 31, 1997 1 Combined Statement of Income for the three months and nine months ended September 10, 1998 and September 14, 1997 2 Combined Statement of Cash Flows for the nine months ended September 10, 1998 and September 14, 1997 3 Notes to Combined Financial Statements 4-6 19 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) COMBINED BALANCE SHEET (DOLLARS IN THOUSANDS)
September 10,* September 14,* December 31,** 1998 1997 1997 ------------- -------------- -------------- ASSETS Current assets: Cash $ 49,999 $ 31,297 $ 33,940 Accounts receivable, less allowance for doubtful accounts: 9/98 - $1,932; 9/97 - $1,192; 12/97- $1,217 65,993 67,449 71,715 Due from parent and affiliates 3,291 204,575 220,371 Inventories 47,223 41,347 45,823 Deferred taxes 26,185 28,129 22,151 Prepaid expenses and other assets 1,944 2,576 2,849 --------- --------- --------- Total current assets 194,635 375,373 396,849 Property, plant and equipment, less accumulated depreciation 97,480 100,454 101,484 Goodwill and other intangible assets, net 330,031 340,039 340,897 Other assets 4,592 4,990 4,494 --------- --------- --------- Total assets $ 626,738 $ 820,856 $ 843,724 ========= ========= ========= LIABILITIES AND BUSINESS UNIT EQUITY Current liabilities: Accounts payable $ 7,137 $ 17,130 $ 23,678 Short-term borrowings 351 579 30 Due to parent and affiliates 43,763 69,663 57,650 Income taxes payable 13,302 40,055 12,850 Deferred taxes 26,365 -- 25,283 Accrued compensation and related items 14,818 16,026 20,664 Other current liabilities 9,807 12,548 13,521 --------- --------- --------- Total current liabilities 115,543 156,001 153,676 Long-term debt 501 466 498 Capital lease obligations 3,620 4,140 3,620 Deferred taxes 28,772 36,627 36,424 Other noncurrent liabilities -- 45 37 --------- --------- --------- Total liabilities 148,436 197,279 194,255 Business unit equity 504,108 654,710 668,199 Accumulated other comprehensive expense (25,806) (31,133) (18,730) --------- --------- --------- Total business unit equity 478,302 623,577 649,469 --------- --------- --------- Total liabilities and business unit equity $ 626,738 $ 820,856 $ 843,724 ========= ========= =========
* unaudited ** derived from audited financial statements See accompanying notes to combined financial statements. 1 20 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) COMBINED STATEMENT OF INCOME (DOLLARS IN THOUSANDS) (unaudited)
For the Three Months Ended For the Nine Months Ended -------------------------- -------------------------- September 10, September 14, September 10, September 14, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net sales $94,207 $81,842 $260,147 $232,219 Costs and expenses: Cost of sales 27,129 21,436 71,827 62,597 Selling, informational and administrative expenses 31,106 26,352 84,810 78,944 Research and development expenses 10,120 8,210 23,583 23,226 Corporate and division overhead costs 3,992 2,155 11,113 6,689 Other deductions--net 4,237 4,249 10,912 12,259 ------- ------- -------- -------- Income before provision for taxes on income 17,623 19,440 57,902 48,504 Provision for taxes on income 6,329 5,038 19,257 15,860 ------- ------- -------- -------- Net income $11,294 $14,402 $ 38,645 $ 32,644 ======= ======= ======== ========
See accompanying notes to combined financial statements. 2 21 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) COMBINED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS) (unaudited)
For the Nine Months Ended --------------------------- September 10, September 14, 1998 1997 ------------ ------------ OPERATING ACTIVITIES Net income $ 38,645 $ 32,644 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangibles 18,881 18,899 Deferred taxes (5,413) (5,833) Other 806 812 Changes in assets and liabilities: Accounts receivable 4,712 (3,334) Inventories (2,506) (14,980) Prepaid and other assets (3,348) (6,101) Accounts payable and accrued liabilities (24,719) (17,131) Other noncurrent liabilities 715 (1,528) Due from/to parent and affiliates 227,146 (2,640) --------- -------- Net cash provided by operating activities 254,919 808 --------- -------- INVESTING ACTIVITIES Purchases of property, plant and equipment (5,939) (8,064) --------- -------- Net cash used in investing activities (5,939) (8,064) --------- -------- FINANCING ACTIVITIES Dividends to parent (232,762) (462) --------- -------- Net cash used in financing activities (232,762) (462) --------- -------- Effect of exchange rate changes on cash (159) (1,384) --------- -------- Net increase/(decrease) in cash 16,059 (9,102) Cash at beginning of year 33,940 40,399 --------- -------- Cash at end of year $ 49,999 $ 31,297 ========= ========
See accompanying notes to combined financial statements. 3 22 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (unaudited) 1. ORGANIZATION AND BUSINESS DESCRIPTION ORGANIZATION Schneider Worldwide is a business unit within the Medical Technology Group ("MTG") of Pfizer Inc. ("Pfizer"). Schneider Worldwide is comprised of the following wholly-owned subsidiaries of Pfizer -- Schneider (Europe) GmbH; Schneider (USA) Inc.; Schneider NAMIC U.S.A. Corporation; Corvita Corporation; Schneider Belgium N.V. and Schneider Holland B.V. In addition, Schneider Worldwide includes certain net assets used exclusively in its business at Howmedica France S.C.A.; Howmedica GmbH; Pfizer Canada Inc.; Pfizer Seiyaku Kabushiki Kaisha (Japan); Pfizer Laboratories (Proprietary) Limited (South Africa); Pfizer Pty. Ltd. (Australia); Nilo Holding S.A. and AMS Medinvent S.A. (collectively, the "Asset Selling Corporations" and together with the wholly-owned subsidiaries, "Schneider"). BUSINESS DESCRIPTION Schneider manufactures, markets, sells and distributes diagnostic and therapeutic products for use in interventional cardiology and radiology. Schneider has a global direct sales and distribution presence with primary markets and manufacturing operations in the United States and Europe. The raw materials for its products are readily available and Schneider is not dependent on a single supplier or only a few suppliers for its raw materials. 2. BASIS OF PRESENTATION BASIS OF PRESENTATION The combined financial information presented herein is unaudited. Schneider is responsible for the unaudited financial statements included in this document. The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the financial position and operating results. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. The interim financial statements and notes thereto do not include all disclosures required by generally accepted accounting principles and should be read in conjunction with Schneider's annual audited financial statements for 1997. The accompanying combined financial statements present the financial position, results of operations and cash flows for Schneider as if it were a separate legal entity. All significant intercompany transactions and balances have been eliminated. Operating results for the nine months reflect domestic operations for the periods January 1, 1998 through September 10, 1998 and January 1, 1997 through September 14, 1997. International operations are for the periods December 1, 1997 through September 10, 1998 and December 1, 1996 through August 24, 1997. These financial statements do not include any income or expenses related to the divestiture of the Schneider Worldwide business, which was completed on September 10, 1998. The combined financial statements include the accounts specifically attributed to Schneider, including allocations of certain assets, liabilities and expenses relating to shared services and administrative functions incurred at the corporate and business segment operating levels of Pfizer. Cash from Schneider's domestic operations is not included in cash in the accompanying combined balance sheets at September 10, 1998 and September 14, 1997 since this cash is included in Pfizer's centralized cash management system. Accordingly, Schneider's cash at September 10, 1998 and September 14, 1997 may not be representative of an independent company. 4 23 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (unaudited) The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and accompanying notes. Actual results could differ from those estimates. Significant accounting estimates used include depreciation, amortization and estimates used in allocating certain assets, liabilities and the costs of shared services and administrative functions. Management believes that it exercised reasonableness in deriving these amounts. Schneider is subject to risks and uncertainties that may cause actual results to differ from estimated results, such as changes in the healthcare environment, competition, foreign exchange and legislation. 3. COMPREHENSIVE INCOME/(EXPENSE) Effective January 1, 1998, Schneider adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This Statement establishes standards for reporting and display of comprehensive income, which consists of all changes in equity from nonshareholder sources. Prior year financial statements have been conformed to the requirements of SFAS No. 130.
Three Months Ended Nine Months Ended ---------------------- --------------------- Sept. 10, Sept. 14, Sept.10, Sept. 14, 1998 1997 1998 1997 -------- --------- -------- -------- Net income $11,294 $ 14,402 $ 38,645 $ 32,644 Other comprehensive income(expense)- Currency translation adjustment 7,301 (19,853) (7,076) (39,321) ------- -------- -------- -------- Total comprehensive income/(expense) $18,595 $ (5,451) $ 31,569 $ (6,677) ======= ======== ======== ========
4. CORPORATE AND DIVISION OVERHEAD COSTS Pfizer allocates certain corporate service and employee benefit expenses (based on actual costs incurred) to Schneider on the basis of number of personnel, occupied office space and third party sales. Pfizer does not allocate various other corporate overhead expenses to its operating divisions. However, for purposes of the accompanying combined financial statements, an allocation of such expenses has been included in the accompanying combined statement of income and is summarized as follows:
Three Months Ended Nine Months Ended ---------------------- -------------------- Sept. 10, Sept. 14, Sept.10, Sept. 14, 1998 1997 1998 1997 --------- --------- -------- --------- Pfizer corporate overhead costs $2,022 $ 848 $ 5,291 $2,955 MTG division overhead costs 1,970 1,307 5,822 3,734 ------ ------- ------- ------ $3,992 $ 2,155 $11,113 $6,689 ====== ======= ======= ======
Pfizer corporate overhead costs represent a portion of corporate functions such as personnel, legal, accounting, treasury and information systems which are primarily allocated based on sales of Schneider compared to total Pfizer revenues. 5 24 SCHNEIDER WORLDWIDE (A BUSINESS OF PFIZER INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (unaudited) MTG division overhead costs represent personnel, quality control, regulatory compliance, finance and business development which are primarily allocated based on sales to third party customers of Schneider compared to total MTG sales. Management believes that all allocations are made on a reasonable basis; however, these costs are not necessarily representative of the costs that would have been or will be incurred by Schneider as an independent company. 5. INVENTORY
Sept. 10, Sept. 14, December 31, 1998 1997 1997* -------- -------- ----------- Finished goods $ 29,635 $ 29,919 $ 30,284 Work-in-process 13,168 9,942 14,311 Raw materials 11,223 9,633 9,487 -------- -------- -------- 54,026 49,494 54,082 Less: allowance for obsolescence (6,803) (8,147) (8,259) -------- -------- -------- $ 47,223 $ 41,347 $ 45,823 ======== ======== ========
* derived from audited financial statements ****** 6 25 BOSTON SCIENTIFIC CORPORATION AND SCHNEIDER WORLDWIDE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS On September 10, 1998, Boston Scientific Corporation (Boston Scientific or the Company) consummated its acquisition of Schneider Worldwide (Schneider), formerly a member of the Medical Technology Group of Pfizer Inc. (Pfizer), for $2.1 billion in cash (the Schneider Acquisition). The Schneider Acquisition was accounted for using the purchase method of accounting. The aggregate Schneider Acquisition purchase price has been allocated on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at date of acquisition, as valued by an independent appraiser using information and assumptions provided by management. The excess of purchase price over the fair value of net tangible assets acquired was allocated to specific intangible asset categories as follows (in thousands):
Excess of cost over net assets acquired $ 734,475 Purchased research and development 671,000 Core technology 420,960 Developed technology 126,940 Assembled workforce, customer lists, trademarks and patents 194,040 ---------- $2,147,415 ==========
The Company recorded an adjustment to the Schneider Acquisition purchase price of approximately $179 million related primarily to an estimate of additional payments due to Pfizer as part of the purchase transaction and estimated costs to be incurred in integrating the separate operating businesses of Schneider with businesses of Boston Scientific. Certain severance and other exit costs of the acquired Schneider businesses that relate to events occurring as of the consummation date will be accounted for as additional costs of the acquisition at the time the formal plan of integration is completed. The Company expects integration related plans to be finalized no later than the third quarter of 1999. Further, the Company recorded a deferred tax liability of approximately $19 million representing the tax effect of timing differences recorded as part of the acquisition. During the third quarter of 1998, the Company recorded a $671 million ($524 million, net-of-tax) charge to account for purchased research and development acquired. The valuation of purchased research and development was based upon an analysis of those projects which had not reached technological feasibility and had no alternative use. The valuation considered expected future cash flows and was discounted for risks and uncertainties related to target markets and completion of products. The other intangible assets recorded in connection with the Schneider acquisition will be amortized over their estimated period of benefit. The Unaudited Condensed Consolidated Financial Statements included in the Company's report on Form 10-Q for the quarterly period ended September 30, 1998, include the combined results of Boston Scientific and Schneider for the period from the date of acquisition (September 10, 1998) to September 30, 1998 and the combined financial position at September 30, 1998. An Unaudited Pro Forma Combined Condensed Balance Sheet has not been presented since the acquisition is fully reflected in the Unaudited Condensed Consolidated Balance Sheet included in the Company's Form 10-Q for the quarter ended September 30, 1998. The Unaudited Pro Forma Combined Condensed Statements of Operations are based on the historical Consolidated Financial Statements of Boston Scientific and the historical Combined Financial Statements of Schneider under the assumptions and adjustments set forth in the accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of Operations. The Unaudited Pro Forma Combined Condensed 26 Statements of Operations assume that the Schneider Acquisition was consummated on January 1, 1997, and do not give effect to the purchased research and development charge recorded in connection with the Schneider Acquisition. The Unaudited Pro Forma Combined Condensed Statements of Operations may not be indicative of the results that actually would have occurred if the Schneider Acquisition had been in effect on the dates indicated or which may be obtained in the future. The Unaudited Pro Forma Combined Condensed Statements of Operations should be read in conjunction with the historical Consolidated Financial Statements of Boston Scientific and the historical Combined Financial Statements of Schneider and the notes accompanying both statements. 27
BOSTON SCIENTIFIC AND SCHNEIDER UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 1997 ----------------------------------------------------------------------- PRO FORMA PRO FORMA BOSTON SCIENTIFIC ADJUSTMENTS AND AND SCHNEIDER BOSTON SCIENTIFIC SCHNEIDER RECLASSIFICATIONS COMBINED ----------------- --------- ----------------- ------------------ Net sales $ 1,872,282 $ 330,848 $ 2,203,130 Cost of products sold 550,379 89,813 $ (2,125)(2) 638,067 ----------- --------- ----------- ----------- Gross profit 1,321,903 241,035 2,125 1,565,063 Selling, general and administrative expenses 655,776 116,644 772,420 Amortization expense 32,398 63,018 (3) 95,416 Royalties 22,177 2,125 (2) 24,302 Research and development expenses 167,194 33,966 201,160 Purchased research and development 29,475 29,475 Merger-related charges 145,891 145,891 ----------- --------- ----------- ----------- 1,052,911 150,610 65,143 1,268,664 ----------- --------- ----------- ----------- Operating income (loss) 268,992 90,425 (63,018) 296,399 Interest expense (14,285) (126,378)(5) (140,663) Other income (expense), net 3,961 (15,160) 14,440 (6) 3,241 ----------- --------- ----------- ----------- Income (loss) before income taxes and cumulative effect of change in accounting 258,668 75,265 (174,956) 158,977 Income tax provision (benefit) 98,254 23,085 (66,077)(7) 55,262 ----------- --------- ----------- ----------- Income (loss) before cumulative effect of change in accounting $ 160,414 $ 52,180 $ (108,879) $ 103,715 =========== ========= =========== =========== Income (loss) before cumulative effect of change in accounting per common share: Basic $ 0.82 $ 0.53 =========== =========== Assuming dilution $ 0.80 $ 0.52 =========== =========== Weighted average shares outstanding: Basic 194,573 194,573 Assuming dilution 199,888 199,888 =========== =========== See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of Operations.
28
BOSTON SCIENTIFIC AND SCHNEIDER UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) NINE MONTHS ENDED SEPTEMBER 30, 1998 ----------------------------------------------------------------------- PRO FORMA PRO FORMA BOSTON SCIENTIFIC ADJUSTMENTS AND AND SCHNEIDER BOSTON SCIENTIFIC SCHNEIDER RECLASSIFICATIONS COMBINED ----------------- --------- ----------------- ----------------- Net sales $ 1,551,126 $ 260,147 $ (10,914)(1) $ 1,800,359 Cost of products sold 491,641 71,827 (1,439)(2) 559,093 (2,936)(1) ----------- --------- --------- ----------- Gross profit 1,059,485 188,320 (6,539) 1,241,266 Selling, general and administrative expenses 523,932 95,923 (2,870)(1) 616,985 Amortization expense 26,829 44,111 (3) 70,940 Royalties 21,324 1,439 (2) 22,676 (87)(1) Research and development expenses 143,007 23,583 (960)(1) 165,630 Purchased research and development 681,952 (671,000)(4) 10,952 Merger-related charges (20,314) (20,314) Special charges 79,000 79,000 ----------- --------- --------- ----------- 1,455,730 119,506 (629,367) 945,869 ----------- --------- --------- ----------- Operating income (loss) (396,245) 68,814 622,828 295,397 Interest expense (29,947) (83,567)(5) (113,514) Other income (expense), net 2,180 (10,912) 10,148 (6) 1,416 ----------- --------- --------- ----------- Income (loss) before income taxes (424,012) 57,902 549,409 183,299 Income tax provision (benefit) (60,251) 19,257 100,977 (7) 59,983 ----------- --------- --------- ----------- Net income (loss) $ (363,761) $ 38,645 $ 448,432 $ 123,316 =========== ========= ========= =========== Net income (loss) per common share: Basic $ (1.87) $ 0.63 =========== =========== Assuming dilution $ (1.87) $ 0.62 =========== =========== Weighted average shares outstanding: Basic 195,044 195,044 =========== =========== Assuming dilution 195,044 199,819 =========== =========== See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of Operations.
29 BOSTON SCIENTIFIC AND SCHNEIDER NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS The Unaudited Pro Forma Combined Condensed Statements of Operations have been prepared to reflect the Schneider Acquisition accounted for under the purchase method of accounting and assumes that the Schneider Acquisition was consummated on January 1, 1997. The Unaudited Pro Forma Combined Condensed Statement of Operations for the nine months ended September 30, 1998 combines the results for the nine months ended September 30, 1998 for Boston Scientific (including the results of Schneider for the period from the date of acquisition to September 30, 1998) and Schneider for the nine months ended September 10, 1998. The Unaudited Pro Forma Combined Condensed Statements of Operations are based on the historical Consolidated Financial Statements of Boston Scientific and the historical Combined Financial Statements of Schneider. For purposes of the historical Combined Financial Statements of Schneider, Pfizer allocated certain corporate and division overhead costs to Schneider. These allocated costs totaled $10,571,000 and $11,113,000 for the year ended December 31, 1997 and for the nine months ended September 10, 1998, respectively. The excess of the Schneider Acquisition purchase price over the fair value of the net tangible assets acquired was allocated to specific intangible asset categories and is being amortized over the estimated periods of benefits associated with these specific intangible asset categories. The Unaudited Pro Forma Combined Condensed Statements of Operations exclude any benefits from synergies that may result from the Schneider Acquisition. During the third quarter of 1998, Boston Scientific charged to operations $79 million as management's estimate of net unrealizable assets related to business irregularities in the operations of its Japanese subsidiary. The Company believes the irregularities detected involve shipments of products that have been improperly recorded as sales to the subsidiary's dealer network in Japan. The Company is in the process of investigating further the irregularities identified. Based on information available at the present time, management does not believe that the effects of the irregularities on the historical Consolidated Financial Statements of Boston Scientific or the Unaudited Pro Forma Combined Condensed Statements of Operations are material to the reported results. Following is a description of pro forma adjustments reflected in the Unaudited Pro Forma Combined Condensed Statements of Operations: (1) Represents an adjustment to conform the reporting period of Schneider for the nine months ended September 10, 1998 to be consistent with the reporting period of Boston Scientific for the nine months ended September 30, 1998. (2) Represents the reclassification of Schneider's royalty expenses to conform with Boston Scientific's presentation. (3) Represents the amortization of the excess of the Schneider Acquisition purchase price over the fair value of net tangible assets acquired from Schneider by Boston Scientific. This amortization is based on the preliminary allocation to specific intangible asset categories of the excess of the purchase price over the fair value of net tangible assets using estimated periods of benefits associated with these specific intangible asset categories. The aggregate purchase price has been allocated on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at date of acquisition, as valued by an independent appraiser using information and assumptions provided by management. (4) Represents the elimination of the $671 million charge recorded by Boston Scientific in the nine months ended September 30, 1998 to account for purchased research and development acquired in the Schneider Acquisition. 30 (5) Represents the estimated increase in interest expense and amortization of financing fees resulting from the financing obtained by Boston Scientific in connection with the Schneider Acquisition. The estimated increase in interest expense and amortization of financing fees assumes the initial financing obtained in connection with the Schneider Acquisition remained outstanding during the periods presented. (6) Represents the elimination of amounts recorded by Schneider for amortization of intangible assets. (7) Represents the estimated tax effect of the Unaudited Pro Forma Combined Condensed Statements of Operations' pro forma adjustments based on rates applicable to those adjustments. 31 (c) EXHIBITS EXHIBIT NUMBER DESCRIPTION 10.1 Form of Second Amended and Restated Credit Agreement dated September 4, 1998 among the Company, The Several Lenders and certain other parties* 10.2 Form of Credit Agreement dated September 4, 1998 among the Company, The Several Lenders and certain other parties* 10.3 Form of Credit Agreement dated September 9, 1998 among the Company, The Several Lenders and Merrill Lynch Capital Corporation* 23.1 Consent of KPMG Peat Marwick LLP * Previously filed with the Initial 8-K 32 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: November 23, 1998 By: /s/ Lawrence C. Best ----------------------------------- Lawrence C. Best Senior Vice President - Finance and Administration and Chief Financial Officer EX-23.1 2 CONSENT OF KPMG PEAT MARWICK 1 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Pfizer Inc.: We consent to the incorporation by reference in the following registration statements: * File No. 33-57242 on Form S-8, * File No. 33-89772 on Form S-8, * File No. 33-93790 on Form S-8, * File No. 33-99766 on Form S-8, * File No. 33-80265 on Form S-8, * File No. 333-02256 on Form S-8, * File No. 333-25033 on Form S-8, * File No. 333-25037 on Form S-8, * File No. 333-37255 on Form S-3, * File No. 333-64877 on Form S-3, and * File No. 333-64991 on Form S-3 of Boston Scientific Corporation of our report dated May 22, 1998, with respect to the combined balance sheets of Schneider Worldwide, a Business of Pfizer Inc. as of December 31, 1997 and 1996, and the related combined statements of income and cash flows for each of the years in the three-year period ended December 31, 1997, which report appears in the Form 8-K/A of Boston Scientific Corporation dated November 23, 1998. /s/ KPMG Peat Marwick LLP New York, New York November 23, 1998 -----END PRIVACY-ENHANCED MESSAGE-----