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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: SEPTEMBER 30, 1994 Commission File Number: 1-8147
MEDIQ INCORPORATED
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 51-0219413
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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ONE MEDIQ PLAZA, PENNSAUKEN, NEW JERSEY 08110
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (609) 665-9300
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, PAR VALUE $1.00 AMERICAN STOCK EXCHANGE
SERIES A PREFERRED STOCK, PAR VALUE $.50 AMERICAN STOCK EXCHANGE
7.25% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006 AMERICAN STOCK EXCHANGE
7.5% EXCHANGEABLE SUBORDINATED DEBENTURES DUE 2003 AMERICAN STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days. Yes __X__ No _____
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of December 23, 1994:
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Common Stock $45,000,000
Series A Preferred Stock $ 3,300,000
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
The number of shares outstanding of each of the registrant's classes of stock as
of December 23, 1994:
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CLASS
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Common Stock 17,744,464 Shares
Series A Preferred Stock 6,403,339 Shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held in March 1995 are incorporated by reference into Part III. The Index to
Exhibits begins on page 44.
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PART I
ITEM 1. BUSINESS
GENERAL
MEDIQ Incorporated (the 'Company') offers essential healthcare services in
a cost effective manner to a variety of healthcare providers facing increasing
pressure to reduce costs and allocate capital expenditures efficiently while
striving to offer high quality care. Through its principal business, MEDIQ/PRN,
the Company responds to the needs of healthcare providers confronting these
conflicting pressures.
On September 30, 1994, the Company acquired the critical care and life
support rental equipment of Kinetic Concepts, Inc. ('KCI'), a competitor of
MEDIQ/PRN, for a purchase price of approximately $88 million, including
transaction costs and the assumption of certain capital lease obligations.
The acquisition substantially increased MEDIQ/PRN's rental inventory and
solidified the Company's position as the leader in the critical care
equipment rental business.
While focusing its attention on the continued growth of MEDIQ/PRN, the
Company continues to pursue the objectives which have guided its recent
development. Since 1990, the Company has been implementing a strategic plan to
reduce debt at the parent company level, deleverage primarily through
divestitures, clarify corporate identity, enhance shareholder value and increase
market liquidity. In addition to the expansion of the Company's equipment rental
business through the acquisition described above, the Company's efforts have
resulted in the following developments:
* January 1991 -- Sale of an optical frame business for $6.7 million.
* June 1991 -- Sale of a financial services organization for $62.2 million.
* August 1991 -- Public offering for NutraMax Products, Inc.
* February 1992 -- Public offering for PCI Services, Inc.
* April 1992 -- Sale of a sub-acute care service manager for $5.4 million.
* May 1992 -- MEDIQ/PRN acquisition of ATI Medical, Inc. for $23.9 million in
cash and the assumption of debt.
* June 1992 -- Sale of an institutional pharmaceutical supplier for $8.8
million.
* July 1992 -- MEDIQ/PRN debt refinancing with the issuance of $100 million of
11.125% Senior Secured Notes due 1999.
* November 1992 -- Sale of a durable medical equipment business for $5.7
million.
* August 1993 -- Tax-free shareholder distribution of Mental Health Management,
Inc.
* August 1994 -- Merger of MEDIQ Equipment and Maintenance Services, Inc. with
MMI Medical, Inc.
* September 1994 -- Sale of management contract for kidney stone treatment
center for $7 million, including $3 million of contingent consideration.
The Company is continually striving to maximize shareholder value and as a
result may divest subsidiaries or assets in the future. The Company uses various
means to enhance and realize value including investing in internal growth,
acquiring related businesses, offering shares of its businesses to the public
and divesting businesses and business units.
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MEDIQ/PRN
The Company believes that MEDIQ/PRN is the leading supplier of life support
and critical care medical equipment on a rental basis in the United States,
servicing hospitals, home healthcare providers, nursing homes and alternate
care facilities, including sub-acute facilities. MEDIQ/PRN significantly
expanded its business on September 30, 1994 with the acquisition of the
critical care and life support rental equipment inventory of KCI. MEDIQ/PRN's
revenues are expected to increase in fiscal 1995 with the addition of
approximately $45 million of incremental rental revenues as a result of the
acquisition. MEDIQ/PRN has incorporated the additional equipment into its
national distribution system with the addition of six branch offices and
moderate increases in personnel, which, together with anticipated rental
price increases, are expected to result in increased revenues and enhanced
operating margins. The Company believes that the acquisition will enable
MEDIQ/PRN to expand its market share in servicing acute care hospitals and
the growing sub-acute, nursing home and home healthcare provider markets.
MEDIQ/PRN rents medical equipment, including adult and infant ventilators,
adult, infant, neonatal and fetal monitors, infusion and suction pumps,
incubators, infant warmers, pulse oximeters, sequential compression devices and
other movable critical care equipment for use in respiratory care, intensive
care, labor and delivery, pediatric, neonatal intensive care and other
departments of acute care general hospitals and for use in alternate care
facilities and by home healthcare providers. MEDIQ/PRN delivers patient-ready
equipment to any part of the United States, typically within two hours of a
request, 24 hours a day, 365 days a year, through a nationwide network of 85
branch offices.
MEDIQ/PRN provides essential cost-effective services to its customers. In
order to maximize operating efficiency, hospitals often elect to rent medical
equipment rather than incur the capital costs required for equipment purchases.
In addition, renting patient-ready equipment provides a vital adjunct for a
hospital to meet periods of increased patient census without investing capital
in stand-by equipment.
MEDIQ/PRN also provides a Comprehensive Asset Management Program (CAMP),
which enables the customer to outsource any element of its equipment management
needs, including equipment inventory, personnel, maintenance, documentation and
tracking. MEDIQ/PRN can also own all or part of the customer's equipment,
eliminating the customer's burdens of ownership, under-utilization and seasonal
usage. MEDIQ/PRN's customers also benefit from use of CAMP through reduction
of biomedical staff, equipment maintenance expenses and the elimination or
reduction of capital expenditures for equipment.
As healthcare costs have steadily increased and coverage provided by
employers and state and Federal governments has decreased, health insurers and
managed care providers are encouraging patients to use home healthcare providers
and alternate care facilities to meet their medical needs. The Company believes
that alternate care and home healthcare providers also benefit from renting
rather than investing capital in equipment. As a result, the Company believes
that the market for medical equipment rentals to these healthcare providers is
growing, and MEDIQ/PRN is actively servicing this market. The Company believes
that MEDIQ/PRN is the leading provider of critical care medical equipment
rentals to home healthcare providers and alternate care facilities.
Revenues from MEDIQ/PRN represented 45%, 44% and 31% of MEDIQ's
consolidated revenues from continuing operations for 1994, 1993 and 1992,
respectively. As a result of the expansion of MEDIQ/PRN's business through the
acquisition described above, revenues from MEDIQ/PRN in fiscal 1995 are
anticipated to represent a significantly larger percentage of the Company's
consolidated revenues.
OTHER OPERATING SUBSIDIARIES
The Company's Diagnostic Imaging Services Group, consisting of MEDIQ Mobile
X-Ray Services, Inc., MEDIQ Imaging Services, Inc. and MEDIQ Diagnostic Centers,
provides comprehensive diagnostic imaging service programs to meet the
increasing demands of nursing homes, physicians, group practices, clinics and
hospitals for cost-effective and convenient access to diagnostic services.
These businesses have expanded in recent years through internal growth and
acquisitions, and continue to pursue additional opportunities to broaden
geographic and market coverage, customer base and range of services.
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MEDIQ Mobile X-Ray Services, Inc. ('Mobile X-Ray') provides X-ray and EKG
services primarily to patients in nursing homes, principally in the New England
and Mid-Atlantic states. Most nursing homes do not maintain diagnostic imaging
capabilities on-site, choosing instead to allocate resources to their primary
care activities. Mobile X-Ray provides nursing home customers with trained
technologists and equipment on call. This service also provides an alternative
to transporting patients to hospitals or radiologists' offices, which would
result in transportation and other costs and could involve health risks related
to the movement of the patient. The convenience and cost-effectiveness of
Mobile X-Ray's services provide an important alternative for a growing elderly
population. Mobile X-Ray's services are billed to third party payors.
MEDIQ Imaging Services, Inc. ('MEDIQ Imaging') provides mobile and fixed
site ultrasound and nuclear imaging services to hospitals, cardiologists,
urologists, obstetricians/gynecologists and internists in 22 states. These
imaging technologies offer accurate and non-invasive diagnostic procedures and
are cost-effective alternatives to exploratory surgery. MEDIQ Imaging provides
a convenient alternative to the expense and risks of transporting patients to a
hospital. For many physicians and smaller hospitals in rural settings, the cost
of maintaining imaging equipment and recruiting, training and maintaining
qualified imaging technologists is prohibitive. Through a network of registered
technologists, MEDIQ Imaging provides services on a prescheduled daily basis,
as needed, in the convenient and familiar surroundings of the healthcare
provider's own location. MEDIQ Imaging is a cost-effective alternative to a
healthcare provider maintaining its own imaging capabilities. MEDIQ Imaging
services are billed to third party payors or hospitals under fee-for-service
arrangements.
MEDIQ Diagnostic Centers ('MDC') provides management and other
administrative support services to four freestanding diagnostic imaging
centers, all of which provide magnetic resonance imaging services and two of
which provide CT scanning, ultrasound, radiography, fluoroscopy and nuclear
medicine.
Revenues from Mobile X-Ray, MEDIQ Imaging and MDC aggregated 29%, 26% and
23% of MEDIQ's consolidated revenues from continuing operations for 1994, 1993
and 1992, respectively.
Medifac, Inc. ('Medifac') provides integrated healthcare facility
programming, planning and development services, including project management,
financing, facility master planning, design, architecture, interior design,
construction supervision and total project management. Medifac's projects
include hospitals, medical office buildings, multi-modality imaging centers and
ambulatory service centers.
MEDIQ Management Services, Inc. ('MEDIQ Management') provides a variety of
specialized consulting services to healthcare facilities dealing with
development of new services, financial feasibility analysis, strategic planning,
preparation of certificate of need applications, facility master planning and
analysis of reimbursement issues. MEDIQ Management also manages imaging centers.
In September 1994, MEDIQ Management sold its rights under a management contract
for a kidney stone treatment center to a regional hospital for $7 million,
including $3 million which is contingent upon future earnings. In addition,
MEDIQ Management continues to provide certain management services to the
center.
Health Examinetics, Inc. ('Health Examinetics') contracts with
corporations, third-party insurance carriers, unions and governments to provide
to their clients, members and employees, computerized health testing programs in
self-contained mobile units operating throughout the United States. Health
testing, quality control, patient scheduling and data processing are performed
daily in the mobile medical units and at operational headquarters.
HealthQuest, Inc. ('HealthQuest'), which was created in November 1993 by
the merger of OmniMed Corp. and the Company's MEDIQ Review Services, Inc.
subsidiary, is a national managed care company providing case management and
utilization review programs to health, auto and workers' compensation
insurance companies, third party administrators, self insured businesses,
unions and governments.
<PAGE>
EQUITY INVESTMENTS
PCI Services, Inc. ('PCI') (NASDAQ:PCIS) is a leading provider of
integrated pharmaceutical packaging services, including blister packaging,
bottle filling, pouch filling, strip packaging, capsule filling, the design and
production of folding cartons and thermoformed components, and the printing of
inserts. At December 20, 1994, the Company owned 2,875,000 shares of PCI common
stock, or approximately 47% of the outstanding shares, having an approximate
market value of $19.4 million. PCI's stock traded during fiscal 1994 in the
range of $6.25 to $12.75 per share.
NutraMax Products, Inc. ('NutraMax') (NASDAQ:NMPC) is a leading private
label health and personal care products company, marketing products in the
feminine needs, cough/cold, baby care, ophthalmics and personal care categories.
At December 20, 1994, the Company owned 4,037,258 shares of NutraMax common
stock, or approximately 47% of the outstanding shares, having an approximate
market value of $37.3 million. NutraMax's stock traded during fiscal 1994 in the
range of $7.875 to $16.125 per share. The Company's ownership interest in
NutraMax may decrease in the future in the event that certain of the Company's
outstanding debentures are exchanged into shares of NutraMax common stock owned
by the Company. Assuming the Company does not elect to pay cash, the effect of
the exchange of all of such debentures would decrease the Company's ownership of
NutraMax to approximately 21%.
MMI Medical, Inc. ('MMI') (NASDAQ:MMIM) is the leading independent provider
of cost-effective specialized services to hospital radiology departments and
other healthcare providers. Innoserv, MMI's principal subsidiary, represents the
combination of the Company's MEDIQ Equipment and Maintenance Services, Inc.
subsidiary and MMI's R Squared Scan Systems subsidiary which merged in August
1994. Innoserv provides repair and maintenance service programs for diagnostic
imaging equipment, including CT scanners, MRI systems, cardiac catherization
labs and general X-ray equipment. Innoserv also offers multivendor asset
management programs which provide comprehensive on-site management for the
maintenance and repair of all diagnostic imaging equipment. As a result of
the merger, the Company received approximately 2,000,000 shares of MMI common
stock, or approximately 40% of the outstanding shares, having an approximate
market value of $7.9 million at December 20, 1994. It is anticipated that the
MMI shares will be distributed to the Company's shareholders. The Company also
received warrants to purchase at $6.25 per share an additional 325,000 shares
of MMI common stock. MMI's stock traded in the range of $3.75 to $4.875 per
share from the date of the merger through September 30, 1994.
DISCONTINUED OPERATIONS
Discontinued operations represent the operations of Mental Health
Management, Inc. ('MHM'), a provider of behavioral health services. The common
stock of MHM was distributed in August 1993 to the Company's shareholders in a
tax-free distribution.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information about the Company's revenues, operating income and other
financial data by segment for each of the three years ended September 30, 1994
is included in Part II, Item 8, and in Note R to the Company's Consolidated
Financial Statements, included elsewhere herein.
GOVERNMENT REGULATION
The Company's businesses are subject to Federal, state and local
regulations relating to the operation of such businesses. The Company is unable
to predict whether, or to what extent, new legislation or regulations affecting
its businesses will be enacted and, if enacted, what impact they will have on
the Company. The following is a summary of some of the significant regulations
currently affecting the operations of MEDIQ/PRN and the Company's other
businesses.
<PAGE>
Compliance with FDA Regulations -- The FDA regulates companies which
manufacture, prepare, propagate, compound or process medical devices. The FDA
currently does not regulate MEDIQ/PRN as a device manufacturer. Device
manufacturers must comply with registration and labeling regulations, submit
premarket notifications or obtain premarketing approvals, comply with medical
device reporting, tracking and post-market surveillance regulations and with
device good manufacturing practices ('GMPs'), and are subject to FDA inspection.
The GMP regulations specify the minimum standards for the manufacture, packing,
storage, and installation of medical devices, and impose certain record keeping
requirements. It is the FDA's current policy that companies which service,
repair, or recondition medical devices as a service to the owners of the devices
are not device manufacturers. However, any company which services, repairs or
reconditions medical devices could be subject to regulatory action by the FDA if
its activities cause the devices to become adulterated or mislabeled. In
addition, no assurance can be given that in the future the FDA will not regulate
as device manufacturers companies such as MEDIQ/PRN, which acquire ownership of
devices, recondition or rebuild such devices and rent them to customers or which
service, repair or recondition devices owned by others. The Company is unable to
predict the cost of compliance with any such regulation. MEDIQ/PRN is required
to comply with certain other device tracking and reporting regulations
administered by the FDA.
Reimbursement of Healthcare Costs -- Substantially all of the revenues
generated by Mobile X-Ray and MEDIQ Imaging are received from reimbursement by
third party payors or governmental programs, such as Medicare and Medicaid,
which subjects these businesses to rules and regulations governing participation
in such programs (See Item 3. Legal Proceedings). The Medicare and Medicaid
anti-fraud and abuse rules prohibit individuals or entities participating in
the Medicare or Medicaid programs from knowingly or willfully offering, paying,
soliciting, or receiving remuneration in order to induce referrals for services
reimbursed under those programs. Any relationship that satisfies the terms of
'safe harbor' regulations is considered permitted, but failure to satisfy the
safe harbor conditions does not necessarily mean the relationship is prohibited.
Since these businesses have not entered into any financial arrangement with
referral sources with the intent to induce referrals through providing
remuneration for referrals, the Company does not believe that it is operating
in violation of the laws and regulations governing referrals.
Regulation of Nuclear Imaging Services -- MEDIQ Imaging's nuclear imaging
services involve the use of radio-pharmaceuticals. The transportation, handling,
use and disposition of radio-pharmaceuticals are subject to Federal and/or
state regulation. MEDIQ Imaging disposes of all of its radio-pharmaceuticals at
approved treatment, storage and disposal facilities. MEDIQ Imaging currently has
all necessary licenses to engage in these activities in the states in which it
currently conducts its businesses.
EMPLOYEES
The Company's wholly-owned businesses have approximately 1,700 employees.
The Company believes relations with employees are satisfactory.
ITEM 2. PROPERTIES
The Company owns a one-story building in Pennsauken, New Jersey, which
houses the Company's corporate headquarters and a portion of its operating
activities, including MEDIQ/PRN's corporate and administrative headquarters. The
Company also owns and leases office and warehouse space in various locations
throughout the United States for regional operations. The properties owned and
leased by the Company are adequate for the Company's operations.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Mobile X-Ray and one of its subsidiaries have been notified that certain
prior billing practices under the Medicare program are under investigation by
the United States Attorney for the Middle District of Pennsylvania (the 'U.S.
Attorney'). An officer of Mobile X-Ray has been notified that he is a target of
the investigation. The billing practices under investigation, which ceased in
February 1993, related to services performed prior to mid-1992. The Company and
Mobile X-Ray have been cooperating in the investigation. The Company and its
counsel believe that the billing practices subject to the investigation did not
constitute a criminal violation of any statute or regulation. The Company
believes that a likely resolution of this matter would involve prior year rate
adjustments and a payment by Mobile X-Ray and/or its subsidiary. Mobile X-Ray
and its subsidiary have also been advised that such resolution would not impair
their ability to continue participation in the Medicare program. The Company has
been advised that the U.S. Attorney does not contemplate any action against the
parent company, MEDIQ Incorporated, or any of its other subsidiaries, or their
officers, directors or employees. While it is expected that this matter will not
have a material adverse affect on the Company, there can be no assurances to
that effect.
In addition, the Company has pending several legal claims incurred in
the normal course of business, which in the opinion of management, will not
have a material effect on the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock and its Series A Preferred Stock, which is
convertible into Common Stock, are listed on the American Stock Exchange. The
following table sets forth the high and low closing prices for the Company's
Common and Preferred Stocks on the American Stock Exchange for the past two
fiscal years.
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COMMON STOCK PREFERRED STOCK
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FISCAL YEAR ENDED SEPTEMBER 30, HIGH LOW HIGH LOW
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1994:
First Quarter $ 4.688 $ 3.938 $ 4.500 $ 3.875
Second Quarter 4.500 3.625 4.313 3.875
Third Quarter 4.000 3.375 4.000 3.000
Fourth Quarter 4.250 3.500 4.125 3.500
1993:
First Quarter $ 6.875 $ 4.625 $ 6.625 $ 4.500
Second Quarter 6.875 5.250 6.750 5.375
Third Quarter 5.500 4.063 5.000 4.500
Fourth Quarter 5.125 3.875 5.250 4.063
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As of December 1994, there were approximately 2,000 holders of record of
the Company's Common Stock and approximately 350 holders of record of the
Company's Preferred Stock. Since a portion of the Company's Common Stock and
Preferred Stock is held in 'street' or nominee name, the Company is unable to
determine the exact number of beneficial holders.
It is the policy of the Company to pay cash dividends on a quarterly
basis, dependent upon the earnings, capital requirements, operating and
financial condition of the Company, compliance with debt agreements, and
other factors deemed relevant by the Board of Directors. The Company paid
cash dividends of $.03 per share on its Common Stock and $.018 per share on
its Preferred Stock for the first, second and third quarters of 1994
and quarterly in 1993. In August 1993, the Company distributed to the
holders of Common and Preferred Stock all of the outstanding shares of
common stock of MHM in a tax-free distribution. As of September 30, 1994,
the terms of one of the Company's loan agreements did not permit the
payment of dividends or the purchase of the Company's stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below has been derived
from the audited financial statements of the Company. This data is qualified in
its entirety by reference to, and should be read in conjunction with the
Company's Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere
herein.
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YEAR ENDED SEPTEMBER 30,
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1994 1993 1992 1991 1990
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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SUMMARY INCOME STATEMENT DATA:
Revenues $ 168,081 $ 174,834 $ 182,147 $ 166,583 $ 163,236
Operating income 1,925 15,466 14,460 5,434 10,757
Interest expense (24,627) (23,347) (20,995) (22,069) (21,912)
Equity in earnings of unconsolidated
affiliates 4,308 4,343 4,776 3,623 2,995
Other(1) 7,031 5,528 7,751 8,235 4,793
Income (loss) from continuing operations before
income tax benefit (11,363) 1,990 5,992 (4,777) (3,367)
Income (loss) from continuing operations (7,318) 3,614 6,579 (1,657) 439
PER SHARE DATA:
Income (loss) from continuing operations $ (.30) $ .15 $ .27 $ (.07) $ .02
Weighted average shares outstanding 24,405 24,366 24,007 23,808 23,885
Cash dividends per common share $ .09 $ .12 $ .06 $ .03 $ .12
Cash dividends per preferred share $ .05 $ .07 $ .03 $ .02 $ .07
SEPTEMBER 30,
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1994(2)(3) 1993(4) 1992 1991 1990
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(IN THOUSANDS)
SUMMARY BALANCE SHEET DATA:
Current assets $ 60,939 $ 73,159 $ 80,969 $ 96,400 $ 124,494
Investments in unconsolidated affiliates 47,730 34,693 26,830 11,359 19,935
Property, plant and equipment 173,379 155,083 139,366 86,300 93,767
Total assets 426,393 351,261 348,835 313,576 361,728
Current liabilities 75,581 57,515 57,819 59,702 60,193
Senior debt -- recourse 166,779 120,162 132,496 89,123 139,188
Senior debt -- nonrecourse 27,297 25,382 17,636 16,962 18,967
Subordinated debt 103,388 86,229 63,539 63,539 63,556
Stockholders' equity 36,280 44,574 58,748 74,799 71,073
</TABLE>
See Notes to Selected Consolidated Financial Data on next page.
<PAGE>
Notes To Selected Consolidated Financial Data
(1) Gains (losses) on issuances of stock by unconsolidated affiliates were
($.7) million, $3.5 million, $14.5 million and $3.6 million in 1994, 1993,
1992, 1991, respectively. Net gains (losses) from the sale of assets were
$4.8 million, ($.3) million, $3.0 million, $3.1 million and $3.1 million in
1994, 1993, 1992, 1991 and 1990, respectively. In 1992, the Company
recorded a loss reserve of $10.6 million for an investment in a real estate
limited partnership.
(2) On September 30, 1994, the Company acquired the critical care and life
support rental equipment inventory of KCI. The purchase price, which was
primarily financed with long-term debt, approximated $88 million, including
transaction costs and the assumption of certain capital lease obligations.
(3) On August 2, 1994, the Company merged MEMS with MMI. The Company received
approximately 2,000,000 shares of MMI's common stock representing
approximately a 40% equity interest in MMI. No gain or loss resulted
from this transaction. The Company accounts for its investment in MMI
under the equity method of accounting.
(4) In May 1992, MEDIQ/PRN acquired ATI for $23.9 million in cash and the
assumption of debt. The acquisition resulted in the expansion of MEDIQ/PRN's
medical equipment inventory and an increase in long-term debt. In July 1992,
MEDIQ/PRN refinanced its outstanding debt by issuing $100 million of 11.125%
Senior Secured Notes due 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Since 1990, the Company has been implementing a strategic plan to reduce
debt at the parent company level, deleverage primarily through divestitures,
clarify corporate focus, enhance shareholder value, and increase market
liquidity. In implementing the plan, the Company has sold a number of
subsidiaries, completed public stock offerings and a tax-free stock
distribution, as well as other transactions.
The Company's principal business is MEDIQ/PRN, the leading supplier of life
support and critical care medical equipment on a rental basis in the United
States. On September 30, 1994, the Company acquired the critical care and life
support rental equipment inventory of Kinetic Concepts, Inc. ('KCI'), a
competitor of MEDIQ/PRN, for a purchase price of approximately $88 million,
including transaction costs and the assumption of certain capital lease
obligations.
The Company's other operating subsidiaries include the Diagnostic Imaging
Services Group, which consists of MEDIQ Mobile X-Ray Services, Inc. ('Mobile
X-Ray'), a provider of portable X-ray and EKG services, MEDIQ Imaging Services,
Inc. ('MEDIQ Imaging'), a provider of diagnostic imaging services in mobile
and fixed sites and MEDIQ Diagnostic Centers, Inc. ('MDC'), a provider of
management and other administrative support services to diagnostic imaging
centers; Medifac, Inc. ('Medifac'), a provider of healthcare facility planning,
architectural and development services; MEDIQ Management Services, Inc. ('MEDIQ
Management'), a provider of healthcare management and consulting services,
Health Examinetics, Inc. ('Health Examinetics'), a provider of mobile health
testing services; and HealthQuest, Inc. ('HealthQuest'), a provider of case
management and utilization review services.
The Company has significant equity investments in PCI Services, Inc.
('PCI') and NutraMax Products, Inc. ('NutraMax'). The Company owns 2,875,000
shares of the common stock of PCI, or approximately 47% of the outstanding
shares. PCI is a leading provider of integrated packaging services to
pharmaceutical manufacturers. The Company owns 4,037,258 shares of the common
stock of NutraMax, or approximately 47% of the outstanding shares. NutraMax is a
leading private label health and personal care products company. The Company's
ownership interest in NutraMax may decrease in the future in the event that
certain of the Company's outstanding debentures are exchanged into shares of
NutraMax common stock owned by the Company. Assuming the Company does not
elect to pay cash, the effect of the exchange of all of such debentures would
decrease the Company's ownership of NutraMax to approximately 21%. The Company's
investments in PCI and NutraMax are accounted for under the equity method of
accounting.
<PAGE>
In August 1994, the Company merged its MEDIQ Equipment and Maintenance
Services, Inc. ('MEMS') subsidiary with MMI Medical, Inc. ('MMI'), and the
Company received approximately 2,000,000 shares of MMI common stock, or
approximately 40% of the outstanding shares, and warrants to purchase at
$6.25 per share an additional 325,000 shares of MMI common stock. MMI is
the leading independent provider of cost-effective specialized services to
hospital radiology departments and other healthcare providers. It is
anticipated that MMI shares will be distributed to the Company's
shareholders. The results of operations of MEMS were included in the
Company's consolidated results of operations through the date of its merger
with MMI. Since the merger, the Company's investment in MMI is accounted
for under the equity method of accounting.
RESULTS OF OPERATIONS
Fiscal Year 1994 Compared with Fiscal Year 1993
Revenues were $168.1 million, as compared to $174.8 million in the prior
year, a decrease of $6.7 million, or 4%. MEDIQ/PRN's revenues decreased 2%,
to $74.9 million, as compared to revenues of $76.5 million in the prior year.
Revenues from MEDIQ/PRN were adversely affected by lower average rental
prices in response to competitive pressures. This situation was mitigated
by MEDIQ/PRN's growth in the sub-acute, nursing home and home healthcare
markets. MEDIQ/PRN's revenues are expected to increase in fiscal 1995 with
the addition of approximately $45 million of incremental rental revenues
as a result of the acquisition of the critical care and life support rental
equipment of KCI on September 30, 1994. MEDIQ/PRN has incorporated the
additional equipment into its national distribution system with the addition
of six branch offices and moderate increases in personnel, which, together
with anticipated rental price increases, are expected to result in increased
revenues and enhanced operating margins.
Revenues from the Diagnostic Imaging Services Group increased 7%, to
$48.5 million, as compared to 1993 revenues of $45.4 million. This increase
was principally attributable to additional revenues as a result of increased
market penetration and geographic expansion primarily through acquisitions,
partially offset by decreased third party reimbursement rates. Changes in
reimbursement rates are not expected to be significant for 1995.
Revenues from MEMS through the date of its merger with MMI were $15.7
million, as compared to $16.9 million in the prior fiscal year.
Revenues from the Company's other operating subsidiaries were $26.6
million, as compared to $33.3 million in the prior year. This decrease reflects
the sale of certain operations in 1993, which had revenues of $5.4 million in
1993. Medifac had revenues of $10.8 million, as compared to $13.0 million in the
prior year. The remaining revenues from other operating subsidiaries were
generated by MEDIQ Management, Health Examinetics and HealthQuest. The aggregate
revenues from these businesses were $15.8 million, as compared to $15.2 million
in 1993.
Operating income was $1.9 million, as compared to $15.5 million in 1993, a
decrease of $13.6 million. MEDIQ/PRN's operating income decreased 61%,
to $5.1 million, as compared to $13.1 million in 1993. This decrease resulted
from reductions in average rental prices due to competition and higher
administrative and operating expenses. MEDIQ/PRN's operating income was also
adversely affected by higher depreciation and amortization expense related to
increases in rental equipment inventory. MEDIQ/PRN expects enhanced operating
margins in 1995 as a result of the acquisition of rental equipment from KCI and
anticipated rental price increases.
The operating loss from the Diagnostic Imaging Services Group was $.6
million, as compared to operating income of $6.9 million in 1993. The
decrease of $7.5 million was primarily attributable to reimbursement
rate reductions and an increase in the reserve for prior year rate
adjustments. Operating income from MEDIQ Imaging was also adversely
affected by lower operating margins associated with geographic expansion.
<PAGE>
MEMS had an operating loss of $.5 million through the date of its merger
with MMI, as compared to $1.3 million in 1993. The improvement was a result of
increased revenues associated with new programs and services.
The Company's other operating activities had operating income of $1.4
million, as compared to $.9 million in 1993.
Interest expense increased 5%, to $24.6 million, from $23.3 million in
1993, which resulted from increased debt at the subsidiary level, principally
MEDIQ/PRN and the Diagnostic Imaging Services Group.
The Company's equity in the earnings of its unconsolidated affiliates was
$4.3 million in fiscal 1994, which was comparable to the prior year.
Equity participation in 1994 represented a loss of $.8 million as a result
of PCI's purchase of its stock in August 1994, and income of $.1 million
related to the issuance of stock by NutraMax. Equity participation in 1993
represented income of $3.5 million as a result of issuances of stock by PCI and
NutraMax.
Interest income was $1.4 million in 1994 and $1.1 million in 1993 and was
primarily related to the MHM note receivable.
Other income was $6.3 million in 1994, as compared to $.9 million in 1993.
In September 1994, MEDIQ Management sold its rights under a management contract
for a kidney stone treatment center to a regional hospital for $4 million in
cash and $3 million contingent upon future earnings, resulting in a gain of $4
million. The Company also recognized $1.4 million of income from dividends and
the sale of other assets in 1994.
The income tax benefit from continuing operations was $4.0 million, as
compared to $1.6 million in the prior year. The Company's effective tax rates
were disproportionate compared to the statutory rates as a result of goodwill
amortization, non-recognition for state income tax purposes of certain
operating losses and permanent differences related to the disposition of
assets.
Fiscal Year 1993 Compared with Fiscal Year 1992
Revenues were $174.8 million, as compared to $182.1 million in the prior
year, a decrease of $7.3 million, or 4%. Excluding revenues from operations
sold, revenues increased $23.7 million primarily attributable to MEDIQ/PRN and
the Diagnostic Imaging Services Group. MEDIQ/PRN's revenues increased 34%, to
$76.5 million, as compared to revenues of $56.9 million in the prior year, as a
result of greater volume from the expansion of its geographic market, medical
equipment inventory and customer base principally attributable to the
acquisition of ATI Medical, Inc. ('ATI') in May 1992 and an $8.0 million
increase in revenues in 1993 from alternate care and home healthcare
customers.
Revenues from the Diagnostic Imaging Services Group increased 9%, to $45.4
million, compared to 1992 revenues of $41.7 million, principally attributable
to an increase in revenues at MEDIQ Imaging of $2.4 million as a result of an
expanded customer base through acquisitions. In addition, Mobile X-Ray's
revenues increased by $1.9 million primarily from an increase in volume
with existing nursing homes, partially offset by a 5% reduction in revenues
from decreased third party reimbursement rates, particularly Medicare.
Revenues from MEMS increased to $16.9 million, as compared to $15.4 million
in the prior year, as a result of the expansion of its range of services.
Revenues from the Company's other operating activities were $33.3 million,
as compared to $65.4 million in the prior year. This decrease primarily reflects
divestitures in 1993 and 1992. Revenues from divested operations were $5.4
million in 1993, as compared to $36.4 million in the prior year. Medifac had
revenues of $13.0 million, as compared to $13.4 million in the prior year. The
remaining revenues from other operating activities were generated by MEDIQ
Management, Health Examinetics and MEDIQ Review (now part of HealthQuest),
aggregating $15.2 million in 1993, as compared to $15.6 million in 1992.
<PAGE>
Operating income was $15.5 million, as compared to $14.5 million in 1992,
an increase of $1.0 million, or 7%. The improvement in operating income was
primarily attributable to MEDIQ/PRN, with operating income of $13.1 million, an
increase of 6% over 1992, principally related to the acquisition of ATI.
Operating income from the Diagnostic Imaging Services Group was $6.9
million, as compared to $9.6 million in 1992. The decrease of $2.7 million, or
28%, was primarily attributable to Mobile X-Ray which had a decrease in
operating income of $2.8 million in 1993, as a result of higher bad debt
expense and salary expense, and reductions in reimbursement rates, partially
offset by increased volume through geographic expansion. Operating income from
MEDIQ Imaging increased $.7 million as a result of increased volume and
geographic expansion, partially offset by reductions in reimbursement rates.
MDC had operating income of $.4 million, as compared to $1.0 million in 1992,
which was attributable to the sale of an imaging center in 1992.
MEMS' operating loss decreased to $1.3 million from $1.5 million. Divested
operations had operating losses of $.9 million in 1993, as compared to $2.2
million in 1992. The Company's other operating activities had operating income
of $.9 million in 1993, which was comparable to the prior year.
Interest expense increased 11%, to $23.3 million, from $21.0 million in
1992. Increased debt at the subsidiary level, particularly MEDIQ/PRN, resulted
in higher interest expense, which was partially offset by interest savings at
the parent company level.
The Company's equity in the earnings of its unconsolidated affiliates was
$4.3 million, as compared to $4.8 million in 1992. This decrease was primarily
attributable to a decrease in the Company's ownership percentage of PCI.
Equity participation income from issuances of stock by PCI and NutraMax
was $3.5 million in 1993, as compared to $14.5 million in the prior year.
Fiscal 1992 income was attributable to the initial public offering of PCI.
Other income was $.9 million in 1993, as compared to a net expense of $7.3
million in 1992. Fiscal 1992 included a charge of $10.6 million related to the
establishment of a reserve for the Company's investment in a real estate
limited partnership, partially offset by a net pretax gain of $3.0 million on
the disposition of businesses.
Interest income was $1.1 million in 1993 and $.6 million in 1992 and was
primarily related to the investment of proceeds from the sale of assets.
The income tax benefit from continuing operations was $1.6 million, as
compared to $.6 million in the prior year. The Company's effective tax rates
were disproportionate compared to the statutory rates as a result of the
recognition of alternative minimum tax credits and equity in the earnings of
unconsolidated affiliates, offset by goodwill amortization and the
non-recognition for state income tax purposes of certain operating losses.
Discontinued operations, which consisted principally of MHM, had revenues
of $46.6 million in 1993, which was comparable to the prior year. Net income
from discontinued operations was $.6 million, as compared to a net loss of
$14.5 million. In 1992, the Company determined that the value of goodwill
related to MHM was impaired, other than temporarily. Accordingly, the carrying
value of such goodwill was reduced to its estimated fair value resulting in
a net charge of $15.3 million.
In 1993, the Company repaid approximately $15.9 million of corporate debt
with proceeds from the disposition of operations and the Company's debenture
offering in July 1993. As a result of such repayments, the Company incurred
prepayment premiums of $1.5 million, or $1.0 million net of taxes. In 1992,
the Company incurred prepayment premiums of $10.1 million, or $6.7 million
net of taxes, principally related to MEDIQ/PRN debt refinancing.
NEW ACCOUNTING STANDARDS
Effective October 1, 1993, the Company adopted on a prospective basis
the provisions of Statement of Financial Accounting Standards ('SFAS')
No. 109, 'Accounting for Income Taxes', which supersedes SFAS No. 96.
The Company adopted SFAS No. 96 in fiscal 1990. The effect of the adoption
of SFAS No. 109 upon the provision for income taxes was not significant for
the fiscal year ended September 30, 1994.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $14.4 million for 1994, as
compared to $22.8 million for the prior year. The decrease was principally a
result of lower operating income from MEDIQ/PRN and the Diagnostic Imaging
Services Group. Cash and cash equivalents totalled $3.2 million as of September
30, 1994.
Net cash used in investing activities was $73.6 million for 1994, which
included acquisitions of $73.3 million, principally for the acquisition of the
rental medical equipment inventory of KCI and expenditures for property, plant
and equipment of $9.1 million, partially offset by proceeds from the sale of
assets of $8.8 million. Other acquisitions included the purchase of several
regional businesses by MEDIQ Imaging.
The Company anticipates capital expenditures of approximately
$10.0 million during fiscal 1995, primarily for rental equipment.
The Company expects to fund a portion of the rental equipment
expenditures with cash from operations and to finance the balance.
Net cash provided by financing activities was $44.3 million for 1994,
which included borrowings of $71.3 million, of which $61.6 million was for
the acquisition of equipment from KCI. Financing activities also included
repayments of debt of $24.7 million and cash dividends of $2.7 million.
In connection with the acquisition of equipment from KCI, the Company
obtained a $43.0 million term loan and issued $10.0 million of senior
subordinated notes (including warrants) to finance a portion of the purchase
price. In addition, KCI provided financing for the acquisition aggregating
$17.1 million (net of related discounts). Borrowings under the Company's
lines of credit and cash proceeds from the sale of assets were utilized to
fund the balance of the purchase price.
The $43.0 million term loan is payable in seventy-two equal monthly
payments of approximately $600,000 commencing January 1, 1995. Interest
at prime plus 2% or, at the Company's option, a rate equal to the adjusted
Eurodollar rate plus 4.25%. The $10.0 million of senior subordinated notes
include warrants which allow the holders to purchase an aggregate of 10%
of the common stock of MEDIQ/PRN for a nominal amount. Interest on the
notes of 10% is payable semi-annually on April 1 and October 1. Annual
principal payments on the notes of $1.0 million commence April 1, 2000,
with the remaining principal balance payable on October 1, 2004.
Financing provided by KCI in the amount of $17.1 million is comprised of
$8.6 million of subordinated notes and two term loans aggregating $8.5 million.
The subordinated notes are due in September 1999 and bear interest at 10%
commencing April 1, 1996. The first term loan in the amount of $3.0 million is
payable in ten equal monthly installments with interest at 8%, commencing
December 31, 1994. The second term loan of $5.5 million is non-interest
bearing and payable over ten equal monthly installments commencing
December 31, 1994.
In September 1994, in connection with the acquisition of equipment from
KCI, MEDIQ/PRN amended the indenture relating to its outstanding $100 million of
11.125% senior secured notes to provide for an increase in the interest rate on
the notes to 12.125% commencing September 30, 1995 under certain circumstances.
The notes, which are not guaranteed by the Company, are not redeemable prior
to July 1997. MEDIQ/PRN is required to offer to repay a portion of the
principal amount of the notes under certain circumstances (as defined in
the indenture). At September 30, 1994, MEDIQ/PRN was not required to offer to
repay any portion of the notes. Interest is payable on the notes semi-annually
on January 1 and July 1. Although MEDIQ/PRN is highly leveraged, it anticipates
that excess cash flow will be sufficient to repay the notes when due. If
MEDIQ/PRN does not generate funds from operations sufficient to repay the
notes upon maturity in 1999, MEDIQ/PRN would attempt to refinance such
indebtedness.
<PAGE>
The Company's 7.25% convertible subordinated debentures due 2006 require
annual sinking fund payments equal to 10% of the principal commencing in
June 1997. The Company is also required to offer to repurchase a portion of
the debentures if stockholders' equity is $40 million or less at the end
of two consecutive fiscal quarters. For the quarters ended June 30, 1994
and September 30, 1994, the Company's stockholders' equity was less than
$40 million. The requirement to repurchase debentures at December 31, 1994
and the potential requirement to repurchase debentures at June 30, 1995 (if
stockholders' equity continues to be less than $40 million) were satisfied
through the Company's previous acquisition of $23.3 million principal
amount of debentures. If stockholders' equity continues to be less than
$40 million, the Company may be required to repurchase approximately $10.5
million of debentures on December 31, 1995 and $11.25 million of
debentures semi-annually thereafter until all debentures are repurchased
or stockholders' equity is more than $40 million.
Certain of the Company's loan agreements require the maintenance of
specified financial ratios and impose financial and dividend limitations. As of
September 30, 1994, the terms of one of the Company's loan agreements did not
permit the payment of dividends or the purchase of the Company's stock.
As of September 30, 1994, the Company had lines of credit aggregating $18
million, of which $15.9 million was available based on eligible accounts
receivable, and $10.1 million was outstanding bearing interest at prime
(7.75% at September 30, 1994) to prime plus 1.75%.
As a result of the acquisition of equipment from KCI, the Company had a
working capital deficit of $14.6 million at September 30, 1994. Current
assets associated with the acquisition were $4.8 million and current
liabilities were $23.3 million, including current maturities of long-term
debt of $16.3 million. Repayment of such debt commences as of December 31,
1994 and is anticipated to be funded by cash flows from the operations of
MEDIQ/PRN which are anticipated to be significantly higher in fiscal 1995
as a result of the increase in revenues and operating margins arising from
the acquisition.
The Company expects that its primary sources of liquidity for operating
activities will be generated through internal cash flows from consolidated
subsidiaries and proceeds from the sale of assets. The Company's ability
to obtain cash from MEDIQ/PRN is limited by provisions in certain of
MEDIQ/PRN's debt agreements. For 1994 and 1993, such provisions did not
permit MEDIQ/PRN to pay any dividends to the Company. As a result of
increased revenues and operating income related to the acquisition of
equipment from KCI, it is anticipated that the Company will be able to
obtain a portion of its cash requirements from MEDIQ/PRN. Accordingly,
the Company believes that sufficient funds will be available from operating
cash flows and the sale of assets to meet the Company's anticipated
corporate and subsidiary operating and capital requirements. The Company
is continuing its program to maximize shareholder value and as a result
may divest certain subsidiaries or assets in the future. Proceeds from
any such divestitures will be used to reduce debt and/or for general
corporate purposes.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report 20
Consolidated Statements of Operations -- Three Years Ended September 30, 1994 21
Consolidated Balance Sheets -- September 30, 1994 and 1993 22
Consolidated Statements of Stockholders' Equity -- Three Years Ended
September 30, 1994 23
Consolidated Statements of Cash Flows -- Three Years Ended September 30, 1994 24
Notes to Consolidated Financial Statements 25-44
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
MEDIQ Incorporated
Pennsauken, New Jersey
We have audited the accompanying consolidated balance sheets of MEDIQ
Incorporated and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1994. Our audits also
include the financial statement schedules listed in the index at Item 14. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of MEDIQ Incorporated and
subsidiaries as of September 30, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note K to the consolidated financial statements, two of
the Company's subsidiaries have been notified that certain prior billing
practices under the Medicare program are under investigation by the United
States Attorney for the Middle District of Pennsylvania. Although the Company
has increased its reserve for prior year rate adjustments as a result of the
investigation, the ultimate outcome of the investigation cannot presently be
determined. Accordingly, no provision for any other loss that may result upon
resolution of this matter has been made in the accompanying consolidated
financial statements.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 29, 1994
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues $ 168,081 $ 174,834 $ 182,147
Costs and Expenses:
Operating 87,290 88,158 101,532
Selling and administrative 50,781 46,231 46,323
Depreciation and amortization 28,085 24,979 19,832
--------- --------- ---------
166,156 159,368 167,687
--------- --------- ---------
Operating Income 1,925 15,466 14,460
Other (Charges) Credits:
Interest expense (24,627) (23,347) (20,995)
Equity in earnings of unconsolidated affiliates 4,308 4,343 4,776
Equity participation (662) 3,519 14,503
Interest income 1,418 1,077 586
Other 6,275 932 (7,338)
--------- --------- ---------
Income (Loss) from Continuing Operations before Income Tax Benefit and
Extraordinary Charge (11,363) 1,990 5,992
Income Tax Benefit (4,045) (1,624) (587)
--------- --------- ---------
Income (Loss) from Continuing Operations before Discontinued Operations and
Extraordinary Charge (7,318) 3,614 6,579
Discontinued Operations:
Income (Loss) from operations (net of income taxes of $761,000 in 1993 and
$(6,552,000) in 1992) -- 1,102 (14,450)
Gain (Loss) on disposal -- (467) --
--------- --------- ---------
-- 635 (14,450)
--------- --------- ---------
Income (Loss) before Extraordinary Charge (7,318) 4,249 (7,871)
Extraordinary Charge, Early Retirement of Debt (net of income tax benefit of
$509,000 in 1993 and $3,413,000 in 1992) -- (953) (6,682)
--------- --------- ---------
Net Income (Loss) $ (7,318) $ 3,296 $ (14,553)
--------- --------- ---------
--------- --------- ---------
Earnings Per Share:
Income (Loss) from:
Continuing Operations $ (.30) $ .15 $ .27
Discontinued Operations -- .03 (.60)
--------- --------- ---------
Income (Loss) before Extraordinary Charge (.30) .18 (.33)
Extraordinary Charge -- (.04) (.28)
--------- --------- ---------
Net Income (Loss) $ (.30) $ .14 $ (.61)
--------- --------- ---------
--------- --------- ---------
Weighted Average Shares Outstanding 24,405 24,366 24,007
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,232 $ 18,123
Accounts receivable (net of allowance of $7,862,000 in 1994 and $7,259,000 in 1993) 36,304 37,152
Inventories 5,995 9,086
Deferred taxes 4,864 --
Prepaid income taxes -- 3,495
Other current assets 10,544 5,303
----------- -----------
Total Current Assets 60,939 73,159
Investments in unconsolidated affiliates 47,730 34,693
Note receivable from MHM 11,500 11,500
Property, plant and equipment 173,379 155,083
Goodwill 85,191 36,865
Net investment in leases 27,875 16,156
Other assets 19,779 23,805
----------- -----------
Total Assets $ 426,393 $ 351,261
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to financial institutions $ 10,060 $ 1,434
Accounts payable 8,451 8,757
Accrued expenses 28,054 22,326
Other current liabilities 1,703 2,781
Current portion of long term debt 27,313 22,217
----------- -----------
Total Current Liabilities 75,581 57,515
Senior debt -- recourse 166,779 120,162
Senior debt -- nonrecourse 27,297 25,382
Subordinated debt 103,388 86,229
Deferred income taxes 10,487 9,225
Other liabilities 6,581 8,174
Commitments and contingencies -- --
Stockholders' Equity:
Preferred stock ($.50 par value: Authorized 20,000,000 shares; issued Series A:
6,816,000 in 1994 and 6,838,000 in 1993) 3,408 3,419
Common stock ($1 par value: Authorized 40,000,000 shares; issued 19,064,000 in 1994
and 19,042,000 in 1993) 19,064 19,042
Capital in excess of par value 22,357 23,349
Retained earnings (accumulated deficit) (1,120) 8,281
Treasury stock, at cost (preferred shares: 377,000 in 1994 and 377,000 in 1993; common
shares: 1,335,000 in 1994 and 1,638,000 in 1993) (7,429) (9,517)
----------- -----------
Total Stockholders' Equity 36,280 44,574
----------- -----------
Total Liabilities and Stockholders' Equity $ 426,393 $ 351,261
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RETAINED
------------------------ -------------------- CAPITAL IN EARNINGS
SHARES SHARES EXCESS OF (ACCUMULATED TREASURY
ISSUED AMOUNT ISSUED AMOUNT PAR VALUE DEFICIT) STOCK
----------- ----------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 1, 1991 7,480 $ 3,740 18,325 $ 18,325 $ 24,004 $ 38,840 $ (10,110)
Net loss (14,553)
Dividends (1,151)
Conversion of preferred stock to common
stock (206) (103) 205 205 (102)
Stock options exercised (115) 246
Purchase of treasury stock (759)
Issuance of stock 75 75 206
----------- ----------- --------- --------- ----------- ----------- ---------
Balance September 30, 1992 7,274 3,637 18,605 18,605 23,993 23,136 (10,623)
Net income 3,296
Dividends (2,541)
Conversion of preferred stock to common
stock (436) (218) 437 437 (219)
Stock options exercised (425) 1,106
Distribution of MHM (15,610)
----------- ----------- --------- --------- ----------- ----------- ---------
Balance September 30, 1993 6,838 3,419 19,042 19,042 23,349 8,281 (9,517)
Net loss (7,318)
Dividends (2,083)
Issuance of stock (600) 1,309
Conversion of preferred stock to common
stock (22) (11) 22 22 (11)
Stock options exercised (381) 779
----------- ----------- --------- --------- ----------- ----------- ---------
Balance September 30, 1994 6,816 $ 3,408 19,064 $ 19,064 $ 22,357 $ (1,120) $ (7,429)
----------- ----------- --------- --------- ----------- ----------- ---------
----------- ----------- --------- --------- ----------- ----------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1994 1993 1992
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,318) $ 3,296 $ (14,553)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 28,085 24,979 19,832
Provision for doubtful accounts 5,735 5,990 4,489
Provision for deferred income taxes (benefit) (4,086) 1,013 3,810
Undistributed earnings from unconsolidated affiliates (4,308) (4,343) (4,776)
Reserve on investment in real estate limited partnership -- -- 10,589
Equity participation 662 (3,519) (14,503)
(Gain) loss on sale of subsidiaries and assets (4,969) 1,462 (3,058)
Discontinued operations -- 288 16,407
Increase (decrease), net of effects from acquisitions and dispositions:
Accounts receivable (93) 2,748 (3,570)
Inventories 822 731 1,487
Accounts payable (1,351) (2,047) (6,440)
Accrued expenses 5,031 (5,926) (4,219)
Other current assets and liabilities (3,814) (1,826) (3,489)
--------- --------- ----------
Net cash provided by operating activities 14,396 22,846 2,006
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of subsidiaries and assets 8,805 9,148 16,475
Net cash provided by unconsolidated affiliates -- -- 23,283
Purchase of property, plant and equipment (9,141) (18,208) (10,382)
Acquisitions (73,343) (1,414) (21,358)
Other 111 (3,810) (1,083)
--------- --------- ----------
Net cash provided by (used in) investing activities (73,568) (14,284) 6,935
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 71,313 34,649 123,781
Debt repayments (24,708) (30,852) (130,380)
Dividends (2,722) (1,903) (1,151)
Proceeds from exercise of options 398 642 --
--------- --------- ----------
Net cash provided by (used in) financing activities 44,281 2,536 (7,750)
--------- --------- ----------
Increase (decrease) in cash and cash equivalents (14,891) 11,098 1,191
Cash and cash equivalents
Beginning balance 18,123 7,025 5,834
--------- --------- ----------
Ending balance $ 3,232 $ 18,123 $ 7,025
--------- --------- ----------
--------- --------- ----------
Supplemental disclosure of cash flow information:
Interest paid $ 23,988 $ 23,753 $ 17,794
--------- --------- ----------
--------- --------- ----------
Income taxes paid (refunded) $ (2,858) $ (1,008) $ 3,940
--------- --------- ----------
--------- --------- ----------
Supplemental disclosure of non-cash investing and financing activities:
Equipment financed with long-term debt and capital leases $ 10,967 $ 20,732 $ 17,530
--------- --------- ----------
--------- --------- ----------
Portion of acquisitions financed by sellers $ 19,384 -- --
--------- --------- ----------
--------- --------- ----------
Liabilities assumed in connection with acquisitions $ 7,739 -- $ 36,065
--------- --------- ----------
--------- --------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -- The consolidated financial statements
include the accounts of MEDIQ Incorporated and its subsidiaries (the 'Company').
Investments in companies owned 20% to 50% are accounted for under the equity
method of accounting. All other investments are stated at the lower of cost or
net realizable value. In consolidation all significant intercompany
transactions and balances have been eliminated.
Cash and cash equivalents -- Cash and cash equivalents include all
unrestricted liquid investments purchased with maturities of three months or
less.
Inventories -- Inventories, which consist primarily of repair parts for
rental equipment and finished goods held for sale, are stated at the lower
of cost (first-in, first-out method) or market.
Property, plant and equipment -- Rental equipment, machinery and equipment,
buildings and improvements, and land are recorded at cost. Capital leases are
recorded at the lower of fair market value or the present value of future lease
payments. The Company provides straight-line depreciation and amortization over
the estimated useful lives (rental equipment and machinery and equipment
- -- 3 to 10 years; and buildings and improvements -- 10 to 40 years).
Goodwill -- The cost of acquired businesses in excess of net assets is
amortized on a straight-line basis over periods of 20 to 40 years. Accumulated
amortization was $13.1 million and $11.2 million as of September 30, 1994 and
1993, respectively.
Net investment in leases -- Net investment in leases represents the
aggregate future minimum lease payments to be received under sales-type
leases, plus the estimated unguaranteed residual value of the leased property,
less unearned income. Unearned income represents the sum of the aggregate
future minimum lease payments and the estimated residual value less the
cost of the property. Income from sales-type leases is recognized at a
constant periodic rate of return on the net investment over the lease
term (See Note G).
Carrying value of long-term assets -- The Company evaluates the carrying
value of long-term assets, including rental equipment, goodwill and other
intangible assets, based upon current and anticipated undiscounted cash
flows, and recognizes an impairment when it is probable that such estimated
cash flows will be less than the carrying value of the asset. Measurement
of the amount of impairment, if any, is based upon the difference between
carrying value and fair value.
Revenue recognition policy -- The Company recognizes revenue for each of
its operating segments as follows:
MEDIQ/PRN -- Revenue is recognized in accordance with the terms
of the related rental agreement and the usage of the related rental
equipment.
Diagnostic Imaging Services Group -- Revenue is recognized as
services are performed. Net patient service revenue is reported at
estimated net realizable amounts from patients and third party
payors for services rendered.
MEDIQ Equipment and Maintenance Services -- Revenue is recognized
ratably over the term of the related contract.
Other Operating Activities -- Revenues are recognized as services are
rendered or as income is earned.
Income taxes -- Effective October 1, 1993, the Company adopted on a
prospective basis the provisions of Statement of Financial Accounting Standards
('SFAS') No. 109, 'Accounting for Income Taxes', which supersedes SFAS No. 96.
The Company adopted SFAS No. 96 in fiscal 1990. The effect of the adoption of
SFAS No. 109 was not significant for the fiscal year ended September 30, 1994.
The Company files a consolidated federal tax return with its 80% or more
owned subsidiaries and, accordingly, any dividends from included companies
are not taxable to the Company.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Subsidiary and unconsolidated affiliate stock transactions -- Gains
(losses) resulting from the issuance or repurchase of stock by subsidiaries
and unconsolidated affiliates are recognized by the Company as equity
participation in the Consolidated Statements of Operations.
Earnings (loss) per share -- Primary net earnings (loss) per share are
computed by dividing net earnings (loss) by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents include shares issuable upon conversion of the
Company's convertible preferred stock and exercise of outstanding stock options.
Reclassification of accounts -- Certain reclassifications have been made to
conform prior years' balances to the current year presentation.
NOTE B -- ACQUISITIONS
On September 30, 1994, the Company acquired the critical care and life
support rental equipment inventory of Kinetic Concepts, Inc. ('KCI'), a
principal competitor of MEDIQ/PRN. The purchase price was approximately
$88 million, including transaction costs and the assumption of certain
capitalized lease obligations (See Note J). The purchase price was allocated
to assets acquired and liabilities assumed based on preliminary fair values
at the date of the acquisition. The excess of the purchase price over
preliminary fair values of the net assets acquired of $44.2 million was
recorded as goodwill and will be amortized over twenty years.
The following unaudited pro forma financial information includes the
operating results associated with the assets acquired from KCI as if the
acquisition had occurred at the beginning of fiscal 1993. Pro forma adjustments
include reductions in operating and administrative expenses, interest expense
and adjustments to depreciation and amortization expense. The pro forma
information is presented for comparative purposes only and does not necessarily
reflect the results of operations of the Company had the acquisition been
made at the beginning of fiscal 1993.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Revenues $ 226,698 $ 230,824
Income (loss) before extraordinary change $ (1,665) $ 9,231
Net income (loss) $ (1,665) $ 8,278
Earnings (loss) per share $ (.07) $ .34
</TABLE>
In May 1992, MEDIQ/PRN acquired ATI Medical, Inc. ('ATI'), one of its major
competitors, for $23.9 million in cash including related expenses. The
operations of ATI are included in the Consolidated Statements of Operations from
the date of the acquisition. The acquisition was accounted for by the purchase
method of accounting and, accordingly, the purchase price was allocated to
assets acquired and liabilities assumed based on their estimated fair value at
the date of the acquisition. The excess of the purchase price over the estimated
fair values of the net assets acquired of $21.3 million was recorded as goodwill
and is amortized over twenty years.
NOTE C -- SALE OF ASSETS
Since 1990, the Company has been implementing a strategic plan to reduce debt
at the parent company level, deleverage primarily through divestitures, clarify
corporate identity, enhance shareholder value and increase market liquidity.
In addition to the acquisitions discussed in Note B, the Company's efforts have
resulted in the developments discussed below. The Company is also considering
the sale and/or spin-off of additional businesses, however, the Company has not
made a decision to sell or spin-off any specific subsidiary.
MEDIQ Management Services, Inc. -- On September 30, 1994, the Company sold
its rights under a management contract related to a kidney stone treatment
center for $4 million in cash and $3 million contingent upon future results
of operations. The sale resulted in a $4 million pretax gain which is included
in 'other charges/credits' in the Consolidated Statements of Operations.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C -- SALE OF ASSETS--(CONTINUED)
MEDIQ Equipment and Maintenance Services, Inc. -- In August 1994, the
Company merged its MEDIQ Equipment and Maintenance Services, Inc. ('MEMS')
subsidiary with MMI Medical, Inc. ('MMI'), and the Company received
approximately 2,000,000 shares of MMI common stock, or approximately 40% of
the outstanding shares, and warrants to purchase at $6.25 per share an
additional 325,000 shares of MMI common stock. No gain or loss resulted
from the merger. It is anticipated that the Company will distribute shares
of MMI common stock to MEDIQ shareholders.
New West Eyeworks, Inc. -- In December 1993, the Company exercised warrants
to purchase 229,518 shares of common stock of New West Eyeworks, Inc. ('New
West') in connection with New West's initial public offering. The warrants were
issued to the Company in 1988 together with $5.1 million of New West preferred
stock as partial consideration for the sale of a business. In connection with
the offering, the Company received $1.9 million, representing a partial
redemption of the preferred shares, net proceeds from the sale of 82,500 shares
of common stock and partial payment of accumulated preferred stock dividends and
accrued interest. The Company received an additional 57,143 shares of New West
common stock in payment of the balance of accumulated dividends and interest.
The Company recorded income of $1.2 million in 1994 related to the sale of New
West common stock and the payment of dividends and interest, which is included
in 'other charges/credits' in the Consolidated Statements of Operations.
PCI of Virginia, Inc. -- The Company sold PCI of Virginia, Inc.
('PCI/Virginia') to PCI Services, Inc. ('PCI'), effective January 1, 1993, for
aggregate consideration of $2.3 million which approximated the Company's
investment.
Harrisburg Healthcare, Inc. -- In November 1992, the Company sold certain
assets representing the durable medical equipment and respiratory therapy
business, for a sale price of approximately $5.7 million in cash. The assets of
this division were written-down to net realizable value, resulting in a pretax
loss of approximately $4.0 million in fiscal 1992 which is included in 'other
charges/credits' in the Consolidated Statements of Operations.
Suburban Medical Services, Inc. -- In July 1992, the Company sold its
institutional pharmacy supply operation for a sale price of $8.8 million in
cash, resulting in a pretax gain of $3.0 million. This gain is included in
'other charges/credits' in the Consolidated Statements of Operations.
MEDIQ Care, Inc. -- In April 1992, the Company sold MEDIQ Care, a manager
of sub-acute services to hospitals, for a sale price of $5.4 million, resulting
in a pretax gain of approximately $4.0 million. This gain is included in 'other
charges/credits' in the Consolidated Statements of Operations.
NOTE D -- REAL ESTATE PARTNERSHIP
The Company has a limited partnership interest in a real estate
partnership relating to the construction of luxury life care condominium units
in Marin County, California. The Company invested approximately $10.6 million,
representing the Company's maximum required investment in the partnership.
Proceeds from the current and anticipated future sales may not be sufficient
to provide the necessary funds to complete the project and provide a return
to the partners. As a result, the Company established a reserve of $10.6
million in 1992 for its investment. This reserve is included in 'other
charges/credits' in the Consolidated Statements of Operations. The Company
has no further obligation related to its partnership interest.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E -- DISCONTINUED OPERATIONS
In August 1993, the Company completed the tax-free distribution to the
Company's shareholders of the stock of MHM, a provider of behavioral healthcare
services. The distribution was accounted for as a dividend with a resultant
reduction in consolidated stockholders' equity of $15.6 million, representing
the Company's equity investment in MHM. In 1992, the Company determined that
the value of goodwill related to MHM was impaired, other than temporarily.
Accordingly, the carrying value of such goodwill was reduced to its estimated
fair value resulting in a net charge of $15.3 million, which was included in
discontinued operations. Revenues from MHM were $46.7 million and $46.4
million in 1993 and 1992, respectively.
In connection with the distribution, the Company obtained a five-year
note receivable from MHM for the balance of unpaid management fees and
intercompany interest in the amount of $11.5 million. The note bears
interest at a rate of prime (7.75% at September 30, 1994) plus 1.5%, with
monthly interest payments for two years beginning October 1, 1993 and
monthly principal and interest payments for the following three years,
based on a fifteen year amortization period, with the balance due on
August 31, 1998.
NOTE F -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Rental equipment $ 211,373 $ 161,707
Machinery and equipment 41,125 41,369
Building and improvements 18,937 31,296
Land 2,200 2,200
----------- -----------
273,635 236,572
Less accumulated depreciation and amortization 100,256 81,489
----------- -----------
$ 173,379 $ 155,083
----------- -----------
----------- -----------
</TABLE>
Depreciation and amortization expense related to property, plant and
equipment was $24.8 million, $22.2 million and $17.9 million in 1994, 1993 and
1992, respectively.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE G -- NET INVESTMENT IN LEASES
The Company, as lessor, leases two medical office buildings, which
were financed with non-recourse debt (See Note J), for terms of 20 and
22 years. The components of the investment in these leases were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Minimum rentals receivable $ 57,322 $ 32,888
Estimated unguaranteed residual values of leased property 800 800
Less: unearned income (29,578) (17,140)
--------- ---------
Net investment in leases $ 28,544 $ 16,548
--------- ---------
--------- ---------
</TABLE>
Annual minimum aggregate lease payments to be received are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30 (IN THOUSANDS)
- ------------------------
<S> <C>
1995 $ 3,250
1996 3,250
1997 3,250
1998 3,250
1999 3,250
Thereafter 41,072
-------------
$ 57,322
-------------
-------------
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H -- ACCRUED EXPENSES
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Interest $ 4,830 $ 5,159
Payroll and related taxes 3,432 4,129
Insurance 4,077 3,594
Other 15,715 9,444
----------- -----------
$ 28,054 $ 22,326
----------- -----------
----------- -----------
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I -- NOTES PAYABLE TO FINANCIAL INSTITUTIONS
At September 30, 1994, the Company had $10.1 million outstanding under
lines of credit aggregating $18 million. The lines bear interest at the prime
rate (7.75% at September 30, 1994) to prime plus 1.75% and are secured
primarily by certain accounts receivable. The amount of available credit
fluctuates based upon the amount of eligible accounts receivable. Based upon
management's analysis of accounts receivable, approximately $5.8 million
of credit was available at September 30, 1994. The average amount
outstanding under lines of credit in 1994 was $5.2 million and the
weighted average interest rate computed on the monthly outstanding balance
was 8.2%.
NOTE J -- LONG-TERM DEBT
Senior recourse debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Corporate debt:
Revolving credit facility $ 11,147 $ --
Term loans payable in varying installments through 2005 at rates from prime
(7.75% at September 30, 1994) to 12% 1,862 4,208
Mortgage payable in installments through 1998 at a fixed rate of 10.25% 3,917 4,917
Subsidiary debt:
11.125% senior secured notes due 1999 100,000 100,000
Term loan payable monthly through 2000 at prime plus 2% 43,000 --
Term loans payable in varying installments through 1999 at rates from prime
plus 1% to 13% 13,562 6,470
Capital lease obligations payable in varying installments through 1999 at
fixed rates from 8% to 16% 19,699 14,371
----------- -----------
193,187 129,966
Less current portion 26,408 9,804
----------- -----------
$ 166,779 $ 120,162
----------- -----------
----------- -----------
</TABLE>
Senior nonrecourse debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Subsidiary debt:
Mortgages payable monthly through 2010 at fixed rates of 8.8%
and 10.25% $ 27,369 $ 24,901
10.125% term loan payable monthly through 1997 833 1,084
----------- -----------
28,202 25,985
Less current portion 905 603
----------- -----------
$ 27,297 $ 25,382
----------- -----------
----------- -----------
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J -- LONG-TERM DEBT--(CONTINUED)
Subordinated debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Corporate debt:
7.5% exchangeable subordinated debentures due 2003 $ 34,500 $ 34,500
7.25% convertible subordinated debentures due 2006 51,729 51,729
6% convertible subordinated debentures due 1994 -- 11,810
Subsidiary debt:
10% subordinated notes due 2004 8,547 --
10% subordinated notes due 1999 8,612 --
----------- -----------
103,388 98,039
Less current portion -- 11,810
----------- -----------
$ 103,388 $ 86,229
----------- -----------
----------- -----------
</TABLE>
On September 30, 1994, in connection with the acquisition of the rental
equipment inventory of KCI, the Company obtained financing consisting of: a
$43.0 million term loan, $8.5 million of senior subordinated notes, $8.6
million of subordinated notes payable to KCI and two term loans aggregating
$8.5 million payable to KCI. The $43.0 million term loan is payable in
seventy-two equal monthly payments of approximately $600,000 commencing
January 1, 1995. Interest on the term loan is payable monthly at the prime
rate plus 2%, or at the Company's option, a rate equal to the adjusted
Eurodollar rate plus 4.25%. The term loan is collateralized by all of the
acquired equipment. The $8.5 million of senior subordinated notes, which have
a face value of $10 million, include warrants which allow the holders to
purchase, in the aggregate, up to 10% of the common stock of MEDIQ/PRN for
a nominal amount. Interest on the notes of 10% is payable semi-annually on
April 1 and October 1. Annual principal payments on the notes of $1.0 million
commence April 1, 2000, with the remaining principal balance payable on
October 1, 2004. The $8.6 million of subordinated notes payable to KCI
mature on September 30, 1999 and bear interest at 10%, commencing April 1,
1996. The first term loan, in the principal amount of $3.0 million, is
payable to KCI in ten equal monthly installments with interest at 8%,
commencing December 31, 1994. The second term loan, in the principal
amount of $5.5 million, is non-interest bearing and payable to KCI
over ten equal monthly installments commencing December 31, 1994.
The subordinated notes payable to KCI and certain of the term notes
are carried net of related discounts. The MHM note receivable is
pledged as collateral for the Company's obligations to KCI.
In October 1993, the Company entered into an agreement with a commercial
bank for a $7.5 million revolving credit facility, which was increased to
$13.4 million in August 1994. This credit facility bears interest at prime
plus 1% and expires October 1995, at which time the Company may convert
the outstanding balance to a term note payable over thirty-six months. At
September 30, 1994, the Company had $11.1 million outstanding and $2.1
million of letters of credit under this facility. This facility is secured
by a portion of the shares of common stock of NutraMax and PCI owned
by the Company.
In September 1994, in connection with the acquisition of equipment from
KCI, MEDIQ/PRN amended the indenture related to its outstanding $100 million
of 11.125% senior secured notes to provide for an increase in the interest
rate on the notes to 12.125% commencing after September 1995 under certain
circumstances. Interest on the notes is payable semi-annually on January 1
and July 1. The notes, which are collateralized by certain of MEDIQ/PRN's
assets, are redeemable at the option of MEDIQ/PRN in whole or in part on or
after July 1, 1997 at specified redemption prices, plus accrued interest.
MEDIQ/PRN is obligated to make offers to purchase the senior secured notes
under certain circumstances. At September 30, 1994, MEDIQ/PRN was not
required to offer to repay any portion of the senior secured notes. The
Company's ability to obtain cash from MEDIQ/PRN is limited by provisions
in certain of MEDIQ/PRN's debt agreements. For 1994 and 1993, such
provisions did not permit MEDIQ/PRN to pay any dividends to the Company.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J -- LONG-TERM DEBT--(CONTINUED)
Nonrecourse debt is collateralized by the leased property and an assignment
of the rental payments thereunder. In the event of default by the lessee, the
lender's recourse against the Company is limited solely to the collateral
covered by the assigned leases. Lease receivables and equipment securing
non-recourse debt amounted to $30.5 million as of September 30, 1994.
The 7.5% debentures are exchangeable for an aggregate of 2,255,000
shares of NutraMax common stock owned by the Company, or an equivalent of
$15.30 per share, and are redeemable in whole or in part at the option of
the Company after July 1996. Interest is payable semi-annually on January 15
and July 15.
The 7.25% debentures are convertible at any time prior to maturity into
shares of the common stock of the Company at $7.50 per share. Interest is
payable semi-annually on June 1 and December 1. Annual sinking fund payments
equal to 10% of the principal commence in June 1997. The Company is also
required to offer to repurchase a portion of the debentures if stockholders'
equity is $40 million or less at the end of two consecutive fiscal quarters.
For the quarters ended June 30, 1994 and September 30, 1994, the Company's
stockholders' equity was less than $40 million. The requirement to
repurchase debentures at December 31, 1994 and the potential requirement to
repurchase debentures at June 30, 1995 (if stockholders' equity continues
to be less than $40 million) were satisfied through the Company's
previous acquisition of $23.3 million principal amount of debentures. If
stockholders' equity continues to be less than $40 million, the Company may
be required to repurchase approximately $10.5 million of debentures on
December 31, 1995 and $11.25 million of debentures semi-annually
thereafter until all debentures are repurchased or stockholders' equity is
more than $40 million.
The Company incurred prepayment premiums in connection with
repayments of debt resulting in an extraordinary charge of $1.5 million,
or $1.0 million net of taxes, in 1993 and $10.1 million, or $6.7
million net of taxes, in 1992.
Certain of the Company's loan agreements require the maintenance of
specified financial ratios and impose financial limitations. At September 30,
1994, the Company either complied with or obtained the necessary waivers from
its lenders regarding these ratios and limitations. As of September 30, 1994,
the terms of one of the Company's loan agreements did not permit the payment
of dividends or the purchase of the Company's stock. Restricted net assets of
consolidated subsidiaries aggregated approximately $30.0 million at
September 30, 1994.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, RECOURSE NON-RECOURSE SUBORDINATED TOTAL
- ----------------------------------------------- ----------- ------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995 $ 26,408 $ 905 $ -- $ 27,313
1996 17,199 998 -- 18,197
1997 15,994 1,013 5,173 22,180
1998 14,420 840 5,173 20,433
1999 108,424 925 5,173 114,522
Thereafter 10,742 23,521 87,869 122,132
----------- ------------- ------------ -----------
$ 193,187 $ 28,202 $ 103,388 $ 324,777
----------- ------------- ------------ -----------
----------- ------------- ------------ -----------
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE K -- COMMITMENTS AND CONTINGENCIES
Leases -- The Company leases certain equipment, automobiles and office
space. The future minimum lease payments under noncancelable operating leases
and capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- ----------------------------------------------------------------------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C>
1995 $ 9,716 $ 6,090
1996 5,271 4,037
1997 4,356 2,572
1998 2,614 1,299
1999 and thereafter 1,339 1,417
--------- ---------
Total minimum lease payments $ 23,296 $ 15,415
---------
---------
Amount representing interest 3,597
---------
Present value of minimum lease payments $ 19,699
---------
---------
</TABLE>
Total rent expense under operating leases was $7.9 million, $8.2 million
and $7.3 million in 1994, 1993 and 1992, respectively. The leases, which
are for terms of up to 10 years, contain options to renew for additional
periods.
At September 30, 1994, rental equipment and machinery and equipment
included assets under capitalized lease obligations of $37.0 million, less
accumulated amortization of $16.5 million.
Purchase Commitments -- MEDIQ/PRN has agreed to purchase from one of its
vendors certain rental equipment parts and supplies, and to obtain certain
remanufacturing services from the vendor in the aggregate amount of
approximately $5.7 million through 1997.
Legal Proceedings -- MEDIQ Mobile X-Ray Services, Inc. ('Mobile X-Ray')
and one of its subsidiaries have been notified that certain prior billing
practices under the Medicare program are under investigation by the United
States Attorney for the Middle District of Pennsylvania. The billing
practices under investigation, which ceased in February 1993, were related
to services performed prior to mid-1992. The Company believes that a likely
resolution of this matter would involve prior year rate adjustments and a
payment by Mobile X-Ray and/or its subsidiary. Accordingly, the Company
has increased its reserve for prior year rate adjustments in respect of
this matter. Mobile X-Ray and its subsidiary have also been advised that
such resolution would not impair their ability to continue participation
in the Medicare program. While it is expected that this matter will not
have a material adverse affect on the Company, there can be no assurances
to that effect.
In addition, the Company has pending several legal claims incurred in the
normal course of business, which in the opinion of management, will not have a
material adverse effect on the Company's consolidated financial statements.
NOTE L -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of financial instruments is provided in accordance
with the requirements of SFAS No. 107, 'Disclosures About Fair Value of
Financial Instruments'. The estimated fair value amounts have been determined by
the Company using available market information and appropriate methodologies.
However, considerable judgement is necessarily required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, accounts receivable and accounts
payable -- The carrying amounts of these items are an estimate of their
fair values at September 30, 1994.
Note receivable from MHM -- The carrying amount of the Company's note
receivable from MHM of $11.5 million is a reasonable estimate of its fair
value since the receivable earns interest based upon the prime rate.
Long-term investments -- The Company had long-term investments in
common stock with an aggregate carrying amount of $1.0 million and a fair
value of $1.5 million, which is based on quoted market
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE L -- FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
prices. In addition, it was not practicable to estimate the fair value of
an investment in preferred stock which is carried at cost of approximately
$4.0 million as a result of the absence of quoted market prices and the
excessive cost involved in determining such fair value.
Long-term debt (excluding capital lease obligations) -- The fair value
of the Company's publicly traded debt is based on quoted market prices.
Interest rates that are currently available to the Company for issuance of
debt with similar terms and remaining maturities are used to estimate fair
value for debt issues for which quoted market prices are not available. The
carrying amount and estimated fair value of long-term debt are $305.1
million and $278.6 million, respectively.
The fair value estimates presented herein are based on information
available to management as of September 30, 1994, and have not been
comprehensively revalued for purposes of these financial statements since that
date. Current estimates of fair value may differ significantly from the amounts
presented herein.
NOTE M -- COMMON AND PREFERRED STOCK
Series A preferred stock is convertible on a one-for-one basis into shares
of common stock, votes generally with the common stock as a single class, and in
all such votes, has ten votes per share. The preferred stock participates in
cash dividends at a rate equal to 60% of the amount paid on the common stock and
has a $.50 per share preference in the event of dissolution or liquidation.
Cash dividends of $.03 per share on the common stock and $.018 per share on
the preferred stock were paid for the first, second and third quarters of 1994
and quarterly in 1993.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N -- INCOME TAXES
Income tax benefit consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ -- $ (2,836) $ (4,896)
State 41 199 499
--------- --------- ---------
41 (2,637) (4,397)
--------- --------- ---------
Deferred:
Federal (4,685) (370) 4,280
State 599 1,383 (470)
--------- --------- ---------
(4,086) 1,013 3,810
--------- --------- ---------
Total income tax benefit $ (4,045) $ (1,624) $ (587)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The differences between the Company's income tax benefit and the
income tax expense (benefit) computed using the U.S. federal income tax
rate were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal tax $ (3,863) $ 677 $ 2,037
State income taxes, net of federal income tax benefit 422 1,044 717
Goodwill amortization 582 508 606
Effects of dispositions of subsidiaries (1,174) 6 (2,651)
Utilization of alternative minimum tax credits -- (2,858) --
Undistributed earnings of unconsolidated affiliates -- (1,182) (1,377)
Other items -- net (12) 181 81
--------- --------- ---------
Income tax benefit $ (4,045) $ (1,624) $ (587)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
--------------
LIABILITIES (IN THOUSANDS)
<S> <C>
Depreciation $ 29,559
Intangible assets 9,800
Accrued expenses 570
Prepaid expenses 564
Other 4,649
-------------
Gross deferred tax liabilities 45,142
ASSETS
Net operating and capital losses 23,250
Accrued expenses and reserves 8,129
Intangible assets 3,917
Other 7,248
-------------
Gross deferred tax assets 42,544
Valuation allowance (3,025)
-------------
39,519
-------------
Net deferred tax liability $ 5,623
-------------
-------------
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE N -- INCOME TAXES--(CONTINUED)
Under the provisions of SFAS No. 96, the deferred tax expense for 1993 of
$1.0 million resulted principally from depreciation and amortization of $2.9
million, allowance for doubtful accounts of $1.5 million, accrued expenses
of $1.9 million, differences between book and tax gains and losses of $1.6
million and equity participation of $1.2 million, partially offset by net
operating loss carryforwards of $5.8 million and the reduction of alternative
minimum tax accrual of $2.9 million. The deferred tax expense for 1992 of
$3.8 million resulted principally from depreciation and amortization of $1.8
million and equity participation of $4.9 million, partially offset by
differences between book and tax gains and losses of $3.0 million.
Deferred taxes of $1.5 million and $.3 million were recorded in 1994
and 1993, respectively, for the undistributed earnings of unconsolidated
affiliates.
At September 30, 1994, for income tax purposes, the Company had
alternative minimum tax credit carryforwards of approximately $5.0 million,
net operating loss carryforwards of $37.6 million expiring through 2009, and
capital loss carryforwards of $21.0 million expiring in 1998. State net
operating loss carryforwards were $50.4 million, expiring through 2009. The
Company also had a carryforward of Investment Tax Credit and Rehabilitation
Tax Credit of $.5 million expiring through 2003.
NOTE O -- RELATED PARTY TRANSACTIONS
In 1994, the Company paid legal fees of approximately $250,000 to
a law firm of which the Company's Chairman of the Board of
Directors is a partner.
The Company derived revenues of $327,000, $225,000 and $200,000 in
1994, 1993 and 1992, respectively, pursuant to agreements to provide
financial management, legal and risk management services to PCI, NutraMax
and MHM.
Effective October 1, 1991, PCI transferred by dividend all of the capital
stock of PCI/Virginia to the Company at net book value, or approximately $2.0
million. In January 1993, the Company sold PCI/Virginia to PCI for aggregate
consideration of $2.3 million which approximated the Company's investment. In
addition, the Company assigned to PCI a purchase option to acquire the real
estate leased by PCI/Virginia, in consideration for which PCI reimbursed the
Company for a $1.0 million deposit.
NOTE P -- STOCK OPTIONS
Under the Company's stock option plans, options may be granted to officers
and key employees of the Company and its subsidiaries. No option may be granted
for a term in excess of ten years from the date of grant. As of September 30,
1994, all incentive and non-qualified stock options were exercisable under the
plan. The exercise prices of outstanding options represented the fair market
value at dates of grant. The Company's Board of Directors has reserved a
sufficient number of shares for the exercise of outstanding stock options.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE P -- STOCK OPTIONS--(CONTINUED)
In August 1993, the Company's Board of Directors reduced the exercise
prices of certain outstanding stock options in connection with the distribution
of MHM. A summary of the Company's stock option plan activity for common and
preferred shares for the three years ended September 30, 1994 follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at October 1, 1991 2,262 $2.45 to $7.50
Exercised (35) $3.13 to $4.00
Terminated (318) $3.13 to $7.50
-------
Outstanding at September 30, 1992 1,909 $2.45 to $5.16
Exercised (172) $3.13 to $5.16
Terminated (32) $2.45 to $4.09
-------
Outstanding at September 30, 1993 1,705 $2.73 to $4.51
Exercised (114) $3.06
Terminated (149) $2.73 to $4.51
-------
Outstanding at September 30, 1994 1,442 $2.73 to $4.51
-------
-------
</TABLE>
NOTE Q -- PENSION PLAN
The Company maintains a noncontributory pension plan which provides
retirement benefits to substantially all employees. Employees generally are
eligible to participate in the plan after one year of service and become fully
vested after five years of service. The plan provides defined benefits based on
years of credited service and compensation. The Company makes contributions that
are sufficient to fully fund its actuarially determined cost, generally equal to
the minimum amounts required by ERISA. Assets of the plan consist primarily of
stocks, bonds and annuities.
Net periodic pension expense is comprised the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 1,193 $ 1,220 $ 1,190
Interest cost on projected benefit obligation 894 836 720
Actual return on plan assets (436) (713) (598)
Net amortization and deferrals (331) 45 5
--------- --------- ---------
Net periodic pension expense $ 1,320 $ 1,388 $ 1,317
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE Q -- PENSION PLAN--(CONTINUED)
The following table presents the funded status of the Company's pension
plan and the amounts reflected in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (9,532) $ (10,188)
---------- ----------
---------- ----------
Accumulated benefit obligation $ (10,502) $ (12,098)
---------- ----------
---------- ----------
Projected benefit obligation $ (12,261) $ (13,002)
Plan assets at fair value 10,095 10,238
---------- ----------
Projected benefit obligation in excess of plan assets (2,166) (2,764)
Unrecognized net (gain) loss (1,054) 810
Balance of unrecorded transition obligation 701 755
Adjustment to recognize minimum required liability -- (660)
---------- ----------
Accrued pension liability $ (2,519) $ (1,859)
---------- ----------
---------- ----------
</TABLE>
The actuarial assumptions used in determining net periodic pension costs
were:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Discount rate 8% 7% 8%
Expected long-term return on plan assets 8% 8% 8%
Weighted average rate of increase in compensation levels 4.5% 4.5% 5.5%
</TABLE>
NOTE R -- BUSINESS SEGMENT DATA
The table below sets forth, for the three years ended September 30, 1994,
an analysis of the Company's operations by business segment.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
MEDIQ/PRN $ 74,944 $ 76,527 $ 56,898
Diagnostic Imaging Services Group 48,481 45,368 41,746
MEDIQ Equipment and Maintenance Services 15,665 16,875 15,430
Other operating subsidiaries 26,591 33,356 65,408
----------- ----------- -----------
165,681 172,126 179,482
Other 4,723 5,590 5,247
Intersegment eliminations (2,323) (2,882) (2,582)
----------- ----------- -----------
Consolidated revenues $ 168,081 $ 174,834 $ 182,147
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE R -- BUSINESS SEGMENT DATA--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating income (loss):
MEDIQ/PRN $ 5,103 $ 13,163 $ 12,432
Diagnostic Imaging Services Group (587) 6,881 9,553
MEDIQ Equipment and Maintenance Services (488) (1,280) (1,459)
Other operating subsidiaries 1,358 910 968
--------- --------- ---------
5,386 19,674 21,494
Other (principally corporate overhead) (3,716) (4,360) (6,849)
Intersegment eliminations 255 152 (185)
--------- --------- ---------
Consolidated operating income $ 1,925 $ 15,466 $ 14,460
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Identifiable assets:
MEDIQ/PRN $ 245,194 $ 163,548 $ 159,883
Diagnostic Imaging Services Group 48,491 40,177 54,399
MEDIQ Equipment and Maintenance Services -- 14,166 12,367
Other operating subsidiaries 16,477 17,284 22,023
----------- ----------- -----------
310,162 235,175 248,672
Other 118,933(1) 119,584 89,231
Discontinued operations -- -- 15,416
Intersegment eliminations (2,702) (3,498) (4,484)
----------- ----------- -----------
Consolidated assets $ 426,393 $ 351,261 $ 348,835
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------
(1) The significant components of other identifiable assets in fiscal 1994 were
investments in unconsolidated affiliates -- $47.7 million; net investment
in lease -- $28.5 million; property, plant and equipment -- $13.1 million;
note receivable from MHM -- $11.5 million; and long-term investments --
$5.0 million.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE R -- BUSINESS SEGMENT DATA--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital expenditures:
MEDIQ/PRN $ 13,211 $ 21,935 $ 17,490
Diagnostic Imaging Services Group 2,921 2,643 2,773
MEDIQ Equipment and Maintenance Services 108 2,891 1,750
Other operating subsidiaries 912 702 2,010
--------- --------- ---------
17,152 28,171 24,023
Other 2,956 10,769 3,889
--------- --------- ---------
Total capital expenditures $ 20,108 $ 38,940 $ 27,912
--------- --------- ---------
--------- --------- ---------
Depreciation and amortization expense:
MEDIQ/PRN $ 20,316 $ 17,377 $ 11,242
Diagnostic Imaging Services Group 4,020 3,097 2,910
MEDIQ Equipment and Maintenance Services 1,248 1,224 736
Other operating subsidiaries 1,408 1,771 2,743
--------- --------- ---------
26,992 23,469 17,631
Other 1,093 1,510 2,201
--------- --------- ---------
Total depreciation and amortization expense $ 28,085 $ 24,979 $ 19,832
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE S -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data (in thousands except per share data) for
1994 and 1993 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 40,473 $ 44,974 $ 43,043 $ 39,591
Operating income (loss) 1,270 5,068 743 (5,156)
Net income (loss) (1,262) 174 (2,849) (3,381)
Net income (loss) per share (.05) .01 (.12) (.14)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Revenues $ 46,107 $ 45,590 $ 42,902 $ 40,235
Operating income 5,172 5,477 4,524 293
Income from continuing operations 1,712 779 968 155
Income (loss) from discontinued operations 247 442 149 (203)
Extraordinary charge, early retirement of debt (45) (293) (615) --
Net income (loss) 1,914 928 502 (48)
Earnings per share:
Income from continuing operations .07 .03 .04 .01
Income (loss) from discontinued operations .01 .02 .01 (.01)
Extraordinary charge, early retirement of debt -- (.01) (.03) --
Net income .08 .04 .02 --
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE T -- INVESTMENTS IN UNCONSOLIDATED AFFILATES
As of September 30, 1994, the Company's investments in unconsolidated
affiliates consisted of NutraMax Products, Inc., PCI Services, Inc. and
MMI Medical, Inc. The following summary presents the Company's approximate
ownership interest, carrying value and market value as of September 30.
<TABLE>
<CAPTION>
1994 1993
------------------------------------- -------------------------------------
OWNERSHIP CARRYING MARKET OWNERSHIP CARRYING MARKET
INTEREST VALUE VALUE INTEREST VALUE VALUE
--------------- --------- --------- --------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PCI 47% $ 21,861 $18,688 42% $ 20,357 $ 27,312
NutraMax 47% 16,477 41,887 48% 14,336 60,559
MMI 40% 9,392 8,584 -- -- --
--------- --------- --------- ---------
$ 47,730 $69,159 $ 34,693 $ 87,871
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The Company's ownership interest in NutraMax may decrease in the future in
the event that certain of the Company's outstanding debentures are exchanged
into shares of NutraMax common stock owned by the Company. Assuming the
Company does not elect to pay cash, the effect of the exchange of all of such
debentures would decrease the Company's ownership interest of NutraMax to
approximately 21%.
Gains (losses) on issuances of stock by unconsolidated affiliates
were ($.7) million, $3.5 million and $14.5 million in 1994, 1993 and
1992, respectively. The gain in 1992 resulted from PCI's initial public
offering. Undistributed earnings from unconsolidated affiliates were $13.3
million as of September 30, 1994.
Summarized consolidated financial information for NutraMax and PCI is
presented below. MMI's results from the date of the merger to September 30,
1994 were not significant to the Company.
NutraMax Products, Inc. -- Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
OCT. 1, OCT. 2,
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Total current assets $ 21,467 $ 12,897
Property and equipment, net 22,499 9,748
Goodwill, net 14,541 8,790
Other assets 1,943 1,772
--------- ---------
$ 60,450 $ 33,207
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Total current liabilities $ 8,295 $ 3,194
Long term debt, less current maturities 16,183 --
Deferred income taxes and other liabilities 1,215 60
Stockholders' equity 34,757 29,953
--------- ---------
$ 60,450 $ 33,207
--------- ---------
--------- ---------
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE T -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES--(CONTINUED)
NutraMax Products, Inc. -- Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
OCT. 1, OCT. 2, SEPT. 30,
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales $ 55,958 $ 31,144 $ 25,151
Cost of sales 38,752 19,598 13,908
--------- --------- ---------
Gross profit 17,206 11,546 11,243
Operating expenses 9,281 5,928 5,715
--------- --------- ---------
Operating income 7,925 5,618 5,528
Other credits (charges) (833) 251 338
--------- --------- ---------
Income before income tax expense 7,092 5,869 5,866
Income tax expense 2,832 2,350 2,397
--------- --------- ---------
Net income $ 4,260 $ 3,519 $ 3,469
--------- --------- ---------
--------- --------- ---------
</TABLE>
PCI Services, Inc. -- Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Total current assets $ 28,301 $ 28,878
Property, plant and equipment, net 44,145 40,900
Goodwill, net 9,857 9,589
Other assets 1,124 755
--------- ---------
$ 83,427 $ 80,122
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Total current liabilities $ 17,706 $ 16,061
Long-term debt, less current maturities 14,760 11,577
Deferred income taxes and other liabilities 3,617 4,130
Stockholders' equity 47,344 48,354
--------- ---------
$ 83,427 $ 80,122
--------- ---------
--------- ---------
</TABLE>
PCI Services, Inc. -- Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1994 1993 1992
----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenue $ 121,177 $ 111,272 $ 75,430
Cost of goods sold 96,092 86,932 58,097
----------- ----------- ---------
Gross profit 25,085 24,340 17,333
Operating expenses 17,561 15,344 8,903
----------- ----------- ---------
Income before income tax expense 7,524 8,996 8,430
Income tax expense 2,168 2,841 3,114
----------- ----------- ---------
Net income $ 5,356 $ 6,155 $ 5,316
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
The information required to be included herein has been incorporated by
reference to the Company's proxy statement relating to the Annual Meeting
of Stockholders expected to be held in early 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this portion of Item 14 is submitted as a separate section
of this report.
(a)(2) FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedule III -- Condensed Financial Information of Registrant
Schedule VIII -- Valuation and Qualifying Accounts and Reserves
Other Schedules are omitted because of the absence of conditions under which
they are required.
(a)(3) EXHIBITS
The exhibits are listed in the Index to Exhibits appearing below.
(b) REPORTS ON FORM 8-K:
A current report on Form 8-K was filed on September 1, 1994 to report,
pursuant to Item 5 of the Form, the execution of the acquisition
agreement between the Company and Kinetics Concepts, Inc. The Company's
news release, dated August 23, 1994, was filed as an exhibit to the
Current Report.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION INCORPORATION REFERENCE
- ---------- ----------------------------------------------- --------------------------------------------
<S> <C> <C>
2.1 Agreement of Merger and Plan of Exhibit 2 to Current Report on Form 8-K filed
Reorganization among MMI Medical, Inc., June 9, 1994.
MMI Acquisition Subsidiary, Inc., MEDIQ
and MEDIQ Equipment and Maintenance Services,
Inc., dated May 18, 1994.
2.2 Asset Purchase Agreement dated August 23, 1994 by Exhibit 2.1 to Current Report on Form 8-K filed
and among Kinetic Concepts, Inc., KCI Therapeutic October 14, 1994.
Services, Inc., MEDIQ, PRN Holdings, Inc. and
MEDIQ/PRN Life Support Service-I, Inc.
2.3 Amendment No. 1 to Asset Purchase Agreement dated Exhibit 2.2 to Current Report on Form 8-K filed
September 30, 1994 by and among Kinetic Concepts, October 14, 1994.
Inc., KCI Therapeutic Services, Inc., MEDIQ, PRN
Holdings, Inc., and MEDIQ/PRN Life Support
Services-I, Inc.
3.1 Certificate of Incorporation. Exhibit 3.1 to Annual Report on Form 10-K filed
on December 30, 1985.
3.2 Amendment to Certificate of Incorporation Exhibit 3.2 to Annual Report on Form 10-K
for fiscal 1993.
3.3 By-Laws. Exhibit 3.2 to S-1 Registration Statement No.
2-75550 originally filed on December 30, 1981.
4.1 Indenture dated as of June 1, 1986 between Exhibit 4.1 to S-2 Registration Statement No.
MEDIQ and Mellon Bank N.A. for 7.25% 33-5089 originally filed on May 2, 1986, as
Convertible Subordinated Debentures due 2006. amended.
4.2 7.25% Convertible Subordinated Debenture due Exhibit 4.2 to S-2 Registration Statement No.
2006. 33-5089 originally filed on May 2, 1986, as
amended.
4.3 Certificate of Designation for Series A Exhibit 4.4 to S-2 Registration Statement No.
Preferred Stock of MEDIQ. 33-5089 originally filed on May 2, 1986, as
amended.
4.4 Agreement with the American Stock Exchange, Exhibit 4.5 to S-2 Registration Statement No.
Inc. 33-5089 originally filed on May 2, 1986, as
amended.
4.5 Indenture, dated as of July 1, 1993 between Exhibit 4.1 to S-2 Registration Statement No.
MEDIQ and First Fidelity Bank, N.A. for 7.5% 33-61724 originally filed April 28, 1993, as
Exchangeable Subordinated Debentures due 2003 amended.
4.6 7.5% Exchangeable Subordinated Debentures due Exhibit 4.2 to S-2 Registration Statement No.
2003 33-61724 originally filed April 28, 1993, as
amended.
4.7(a) Warrant Agreement, dated as of May 29, 1992 Exhibit 4.5 to the Form S-1 Registration
among MEDIQ, MEDIQ/PRN Life Support Services, Statement of MEDIQ/PRN Life Support
Inc. and Internationale Nederlanden Bank, N.V., Services, Inc. (File No. 33-47787)
New York Branch
4.7(b) Warrant issued to Internationale Nederlanden Exhibit 4.6 to the Form S-1 Registration
(US) Finance Corporation Statement of MEDIQ/PRN Life Support
Services, Inc. (File No. 33-47787)
4.8(a) Indenture, dated as of July 6, 1992, between Exhibit 4.1 to the Form 10-K Annual
MEDIQ/PRN and United Jersey Bank, as trustee. Report of MEDIQ/PRN Life Support Services,
Inc. for fiscal 1992.
4.8(b) Supplemental Indenture, dated as of September Filed herewith.
30, 1994, between MEDIQ/PRN and United
Jersey Bank, as Trustee filed herewith.
4.9(a) Revolving Credit Loan Agreement, dated as of Exhibit 10.12 of the Annual Report
October 14, 1993, between MEDIQ, MEDIQ Report on Form 10-K for fiscal 1993.
Investment Services, Inc. and United Jersey
Bank/South, N.A.
4.9(b) Amendment No. 1 to Revolving Credit Loan Agreement Filed herewith.
between MEDIQ, MEDIQ Investment Services, Inc. and
United Jersey Bank, N.A., dated August 9, 1994.
4.9(c) Amendment No. 2 to Revolving Credit Loan Agreement Filed herewith.
between MEDIQ, MEDIQ Investment Services, Inc. and
United Jersey Bank, N.A., dated September 29,
1994.
4.9(d) Second Amended and Restated Revolving Credit Note, Filed herewith.
dated September 29, 1994, in the principal amount
of $13,400,000.
4.10(a) Promissory Note dated September 30, 1994 in the Exhibit 4.1 to Current Report on Form 8-K
principal amount of $2,000,000 payable by PRN filed on October 14, 1994.
Holdings, Inc. to the order of KCI Therapeutic
Services, Inc.
4.10(b) Promissory Note dated September 30, 1994 in the Exhibit 4.2 to Current Report on Form 8-K
principal amount of $3,000,000 payable by PRN filed on October 14, 1994.
Holdings, Inc. to the order of KCI Therapeutic
Services, Inc.
4.10(c) Promissory Note dated September 30, 1994 in the Exhibit 4.3 to Current Report on Form 8-K
principal amount of $5,000,000 payable by PRN filed on October 14, 1994.
Holdings, Inc. to the order of KCI Therapeutic
Services, Inc.
4.10(d) Promissory Note dated September 30, 1994 in the Exhibit 4.4 to Current Report on Form 8-K
principal amount of $2,956,957 payable by filed on October 14, 1994.
MEDIQ/PRN Life Support Services-I, Inc. to the
order of KCI Therapeutic Services, Inc.
4.10(e) Promissory Note dated September 30, 1994 in the Exhibit 4.5 to Current Report on Form 8-K
principal amount of $5,835,707 payable by filed on October 14, 1994.
MEDIQ/PRN Life Support Services, Inc. to the
order of KCI Therapeutic Services, Inc.
4.10(f) Negative Covenants Agreement dated September 30, Exhibit 4.6 to Current Report on Form 8-K
1994 by and among Kinetic Concepts, Inc., KCI filed on October 14, 1994.
Therapeutic Services, Inc., MEDIQ, PRN Holdings,
Inc. and MEDIQ/PRN Life Support Services-I, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4.10(g) Guaranty Agreement dated September 30, 1994 made Exhibit 4.7 to Current Report on Form 8-K
by PRN Holdings, Inc. in favor of KCI Therapeutic filed on October 14, 1994.
Services, Inc.
4.10(h) Guaranty Agreement dated September 30, 1994 made Exhibit 4.8 to Current Report on Form 8-K
by MEDIQ Incorporated in favor of KCI Therapeutic filed on October 14, 1994.
Services, Inc.
4.11 Loan and Security Agreement by and between Exhibit 4.9 to Current Report on Form 8-K
Congress Financial Corporation and MEDIQ/PRN Life filed on October 14, 1994.
Support Services-I, Inc. dated September 30, 1994.
4.12(a) PRN Holdings, Inc. Note Agreement, dated as of Exhibit 4.10 to Current Report on Form 8-K
September 30, 1994 RE: $10,000,000 Senior filed on October 14, 1994.
Subordinated Notes due October 1, 2004 and
Warrants to Purchase Common Stock.
4.12(b) Form of Warrant to Purchase Shares of Common Stock Exhibit 4.11 to Current Report on Form 8-K
of PRN Holdings, Inc. filed on October 14, 1994.
10.1 1981 Stock Option Plan, as Amended and Exhibit 10.2(a) to S-1 Registration Statement
Restated. No. 33-5089 originally filed on December 30,
1981.
10.2 Stock Option Certificate, as Amended and Exhibit 10.2(b) to S-1 Registration Statement
Restated. No. 33-5089 originally filed on December 30,
1981.
10.3 Description of Incentive Bonus Plan for Exhibit 10.3 to Annual Report on Form 10-K
Employees. filed on December 27, 1982.
10.4(a) Memorandum of Installment Sale Agreement Exhibit 10.5(a) to Annual Report on Form 10-K
between MEDIQ and the New Jersey Economic filed on December 27, 1982.
Development Authority dated April 23, 1979.
10.4(b) Collateral Assignment of Installment Sale Exhibit 10.5(b) to Annual Report on Form 10-K
Agreement between MEDIQ and the New Jersey filed on December 27, 1982.
Economic Development Authority dated April 23,
1979.
10.4(c) Loan Agreement, dated April 23, 1979, between Exhibit 10.5(c) to S-1 Registration Statement
R.H. Realty Management, Inc. and Girard Bank. No. 2-88029 originally filed on December 14,
1983, as amended.
10.4(d) Amendment, dated November 10, 1981, to Exhibit 10.5(d) to Annual Report on Form 10-K
Installment Sale Agreement between MEDIQ and filed on December 27, 1982.
the New Jersey Economic Development Authority.
10.4(e) Second Assignment of Installment Sale Agreement Exhibit 10.5(e) to Annual Report on Form 10-K
between MEDIQ and the New Jersey Economic filed on December 27, 1982.
Development Authority dated November 10, 1981.
10.4(f) Second Amendment, dated December 28, 1982, to Exhibit 10.5(g) to Annual Report on Form 10-K
Installment Sale Agreement between MEDIQ and filed on December 27, 1982.
the New Jersey Economic Development Authority.
10.4(g) Third Assignment of Installment Sale Agreement Exhibit 10.5(h) to Annual Report on Form 10-K
between MEDIQ and the New Jersey Economic filed on December 27, 1982.
Development Authority dated December 28, 1982.
10.4(h) Bond Purchase Agreement, dated December 28, Exhibit 10.5(i) to S-1 Registration Statement
1982, between MEDIQ, Fidelity Bank, and the New No. 2-88029 originally filed on December 14,
Jersey Economic Development Authority. 1983, as amended.
10.4(i) Amendment, dated May 27, 1988 to Bond Purchase Exhibit 10.5(k) to Annual Report on Form 10-K
Agreement, dated December 28, 1982 between filed on December 29, 1988.
MEDIQ, Fidelity Bank and the New Jersey
Economic Development Authority.
10.5 Employees' Savings Plan, as amended. Exhibit 10.6 to Annual Report on Form 10-K
filed on December 29, 1988.
10.6 MEDIQ Executive Security Plan. Exhibit 10.23 to Form 8 filed on January 21,
1986.
10.7 1987 Stock Option Plan. Exhibit 10.26 to Annual Report on Form 10-K
filed on December 29, 1987.
10.8 Employment contract with Michael F. Sandler. Exhibit 10.28 to Annual Report on Form 10-K
filed on December 29, 1988.
10.9 Registration Rights Agreement, dated July 1, Annual Report on Form 10-K of
1991 between MEDIQ Incorporated and NutraMax NutraMax Products, Inc. for the
Products, Inc. year ended September 30, 1991.
10.10 Form of Amendment to Registration Rights Exhibit 10.12 of S-2 Registration
Agreement, dated July 1, 1991 among MEDIQ, Statement No. 33-61724
MEDIQ Investment Services, Inc. and NutraMax originally filed April 28, 1993, as amended.
Products, Inc.
10.11 Asset Sale Agreement by and between MEDIQ Filed herewith
Management Services, Inc. and Zurbrugg
Memorial Hospital, dated as of September
30, 1994.
11 Statement re computation of per share earnings. Filed herewith
21 Subsidiaries of the Registrant. Filed herewith
23 Consent of Deloitte & Touche LLP Filed herewith
27 Financial Data Schedule Filed herewith
99.1 Financial Statements of NutraMax Products, Inc. Items 8 and 14 of the Annual Report
(approx. 47% owned by MEDIQ as of September 30, on Form 10-K of NutraMax Products, Inc.
1994). for the fiscal year ended
September 30, 1993 (File No. 0-18671).
99.2 Financial Statements of PCI Services, Inc. Items 8 and 14 of the Annual Report on
(approx. 47% owned by MEDIQ as of September Form 10-K of PCI Services,
30, 1994). Inc. for the fiscal year ended September 30,
1993 (File No. 0-19795).
</TABLE>
(d) FINANCIAL STATEMENTS OF UNCONSOLIDATED AFFILIATES:
The financial statements of NutraMax Products, Inc. and PCI Services, Inc.,
unconsolidated affiliates of the Company, which are required to be filed
pursuant to Item 14(d) of Form 10-K are filed herein through incorporation by
reference under Rule 12b-23, promulgated under the Securities
Exchange Act of 1934, as amended (the 'Act'), to the Annual Report on Form 10-K
of each of such companies filed under the Act, which are included as exhibits to
this Annual Report on Form 10-K pursuant to Rule 12b-23(c), and such exhibits
are incorporated by reference into this Annual Report on Form 10-K under Rule
12b-32, promulgated under the Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
Dated: January 6, 1995 MEDIQ Incorporated
By: /s/ BERNARD J. KORMAN
Bernard J. Korman
President and Chief Executive Officer
By: /s/ MICHAEL F. SANDLER
Michael F. Sandler
Senior Vice President -- Finance, Treasurer and
Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------ -----------------------
<S> <C> <C>
/s/ BERNARD J. KORMAN President and Chief Executive Officer and January 6, 1995
Bernard J. Korman Director
/s/ LIONEL H. FELZER Director January 6, 1995
Lionel H. Felzer
/s/ BESSIE G. ROTKO Director January 6, 1995
Bessie G. Rotko
/s/ MICHAEL J. ROTKO Chairman of the Board January 6, 1995
Michael J. Rotko and Director
/s/ MICHAEL F. SANDLER Director January 6, 1995
Michael F. Sandler
Jacob Shipon Vice Chairman of the Board
and Director
/s/ MARK LEVITAN Director January 6, 1995
Mark Levitan
/s/ H. SCOTT MILLER Director January 6, 1995
H. Scott Miller
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE III
CONDENSED STATEMENTS OF OPERATIONS
(REGISTRANT -- ONLY)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1994 1993 1992
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Management fees $ 6,770 $ 9,454 $ 13,238
Other 1,917 3,664 3,288
--------- --------- ----------
8,687 13,118 16,526
Other (income) and expenses:
General and administrative 7,114 8,385 9,749
Depreciation and amortization 903 1,634 2,344
Interest expense 7,518 7,635 10,177
Interest income (4,621) (4,134) (9,077)
(Earnings) losses from unconsolidated subsidiaries and affiliates,
net of taxes 6,811 (1,195) (321)
Other -- net (1,660) (3,268) (7,632)
--------- --------- ----------
16,065 9,057 5,240
--------- --------- ----------
Income (Loss) from Continuing Operations before Income Taxes
and Extraordinary Charge (7,378) 4,061 11,286
Income Tax Expense (Benefit) (60) (553) 2,117
--------- --------- ----------
Income from Continuing Operations before Extraordinary Charge (7,318) 4,614 9,169
Discontinued Operations (1) -- (365) (17,040)
--------- --------- ----------
Income (Loss) before Extraordinary Charge (7,318) 4,249 (7,871)
Extraordinary Charge, Early Retirement of Debt -- (953) (6,682)
--------- --------- ----------
Net Income (Loss) $ (7,318) $ 3,296 $ (14,553)
--------- --------- ----------
--------- --------- ----------
Earnings Per Share:
Income (Loss) from:
Continuing Operations $ (.30) $ .19 $ .38
Discontinued Operations (1) -- (.01) (.71)
--------- --------- ----------
Income (Loss) before Extraordinary Charge (.30) .18 (.33)
Extraordinary Charge -- (.04) (.28)
--------- --------- ----------
Net Income (Loss) $ (.30) $ .14 $ (.61)
--------- --------- ----------
--------- --------- ----------
</TABLE>
- ------------------
(1) Loss from discontinued operations does not agree to the consolidated
statements of operations because the respective management fees
and intercompany interest of discontinued operations have not been
eliminated.
See Notes to Schedule III
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE III
CONDENSED BALANCE SHEETS
(REGISTRANT -- ONLY)
YEARS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 166 $ 12,293
Accounts receivable 303 1,131
Deferred taxes 867 --
Prepaid income taxes -- 3,578
Other current assets 2,527 2,324
----------- -----------
Total Current Assets 3,863 19,326
Investments in unconsolidated subsidiaries and affiliates 100,416 74,483
Advances to unconsolidated subsidiaries 8,526 25,228
Property, plant and equipment -- net 11,177 11,635
Note receivable -- MHM 11,500 11,500
Deferred income taxes 12,165 8,240
Goodwill 656 8,310
Other assets 10,118 12,657
----------- -----------
Total Assets $ 158,421 $ 171,379
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to financial institutions $ 1,000 $ --
Accounts payable 513 1,601
Accrued expenses 12,608 13,630
Other current liabilities 723 1,290
Current portion of long-debt 1,277 13,781
----------- -----------
Total Current Liabilities 16,121 30,302
Senior debt -- recourse 15,649 7,154
Subordinated debt 86,229 86,229
Other liabilities 4,142 3,120
Stockholders' Equity:
Preferred stock 3,408 3,419
Common stock 19,064 19,042
Additional paid-in capital 22,357 23,349
Retained earnings (accumulated deficit) (1,120) 8,281
Treasury stock (7,429) (9,517)
----------- -----------
Total Stockholders' Equity 36,280 44,574
----------- -----------
Total Liabilities and Stockholders' Equity $ 158,421 $ 171,379
----------- -----------
----------- -----------
</TABLE>
See Notes to Schedule III
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE III
CONDENSED STATEMENTS OF CASH FLOWS
(REGISTRANT -- ONLY)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1994 1993 1992
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,318) $ 3,296 $ (14,553)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities 10,681 (19,419) 14,348
--------- --------- ----------
Net cash provided by (used in) operating activities 3,363 (16,123) (205)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of subsidiaries and assets 1,672 8,667 14,338
Net cash provided by (used in) unconsolidated affiliates and
subsidiaries (11,557) 9,529 23,401
Purchase of property, plant and equipment (135) (2,421) (87)
Other (138) (3,099) 1,701
--------- --------- ----------
Net cash provided by (used in) investing activities (10,158) 12,676 39,353
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings 10,634 34,646 9,848
Debt repayments (13,642) (19,623) (46,139)
Dividends (2,722) (1,903) (1,151)
Proceeds from exercise of stock options 398 642 --
--------- --------- ----------
Net cash provided by (used in) financing activities (5,332) 13,762 (37,442)
Increase (decrease) in cash (12,127) 10,315 1,706
Cash
Beginning balance 12,293 1,978 272
--------- --------- ----------
Ending balance $ 166 $ 12,293 $ 1,978
--------- --------- ----------
--------- --------- ----------
Supplemental disclosure of cash flow information:
Interest paid $ 7,841 $ 8,218 $ 9,651
--------- --------- ----------
--------- --------- ----------
Income taxes paid (refunded) $ (2,801) $ (1,727) $ 3,783
--------- --------- ----------
--------- --------- ----------
</TABLE>
See Notes to Schedule III
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE III
NOTES TO CONDENSED FINANCIAL STATEMENTS
(REGISTRANT -- ONLY)
NOTE A -- DEBT
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Senior recourse debt:
Revolving credit facility $ 11,147 $ --
Term loans payable in varying installments through 2005 at rates
ranging from prime (7.75% at September 30, 1994) to 12% 1,862 4,208
Mortgage payable in installments through 1998 at a
fixed rate of 10.25% 3,917 4,917
Subordinated Debt:
7.5% exchangeable subordinated debentures due 2003 34,500 34,500
7.25% convertible subordinated debentures due 2006 51,729 51,729
6% convertible subordinated debentures due 1994 -- 11,810
--------- ---------
103,155 107,164
Current portion (1,277) (13,781)
--------- ---------
$ 101,878 $ 93,383
--------- ---------
--------- ---------
</TABLE>
Maturities of long term debt at September 30, 1993 are as follows:
<TABLE>
<S> <C>
1995 $ 1,277
1996 4,716
1997 9,889
1998 9,805
1999 5,173
Thereafter 72,295
-----------
$103,155
-----------
-----------
</TABLE>
Certain of the Registrant's loan agreements require the maintenance of
specified financial ratios and impose financial limitations. At September 30,
1994, the Registrant either complied with or obtained the necessary waivers
from its lenders regarding these ratios and limitations. As of September 30,
1994, the terms of one of the Registrant's loan agreements did not permit the
Registrant to pay dividends or purchase shares of its stock.
NOTE B -- DIVIDENDS FROM UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
There were no cash dividends received by the Registrant from
unconsolidated subsidiaries and affiliates for the fiscal years ended
September 30, 1994 and 1993.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
COL. A. COL. B. COL. C. COL. D. COL. E.
- --------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER (2) END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS PERIOD
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994:
Allowance for doubtful accounts $ 7,259 $ 5,735 $ 76 $ 5,208(3) $ 7,862
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
YEAR ENDED SEPTEMBER 30, 1993:
Allowance for doubtful accounts $ 8,766 $ 5,990 $ 724 $ 8,221 $ 7,259
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
YEAR ENDED SEPTEMBER 30, 1992:
Allowance for doubtful accounts $ 7,576 $ 4,489 $ 3,249 $ 6,548 $ 8,766
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
</TABLE>
- ------------------
(1) Primarily represents allowances for doubtful accounts related to
acquisitions.
(2) Represents accounts directly written-off net of recoveries.
(3) Includes reduction in allowance related to the merger of MEDIQ Equipment
& Maintenance Services, Inc.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
EDGAR
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- -----------
4.8(b) Supplemental Indenture 54
4.9(b) Amendment No. 1 to Revolving Credit Loan and Pledge and Security Agreement 56
4.9(c) Amendment No. 2 to Revolving Credit Loan and Pledge and Security Agreement 67
4.9(d) Form of Second Amended and Restated Revolving Credit Note 79
10.11 Asset Sale Agreement 82
11 Statement re: Computation of per share earnings 96
21 Subsidiaries of the Registrant 97
23 Consent of Deloitte & Touche, LLP independent auditors 98
27 Financial Data Schedules 99
99.1 Nutramax Products, Inc. 10-K 100
99.2 PCI Services, Inc. 10-K 128
</TABLE>
<PAGE>
SUPPLEMENTAL INDENTURE, dated as of September 30, 1994 between MEDIQ/PRN
Life Support Services, Inc., a Delaware corporation (the 'Company'), and United
Jersey Bank, as Trustee (the 'Trustee') under an Indenture dated as of July 6,
1992 (the 'Original Indenture').
WITNESSETH:
WHEREAS, the Company has heretofore executed and delivered to the Trustee
the Original Indenture providing for the issuance of the Company's 11 1/8%
Senior Secured Notes Due 1999 (the 'Senior Secured Notes'); and
WHEREAS, Section 9.01 of the Original Indenture authorizes the Company and
the Trustee, without the consent of the Noteholders, to amend the Original
Indenture, the Security Documents or the Senior Secured Notes and to execute a
Supplemental Indenture in connection therewith, to make any change that does not
adversely affect the rights of any Noteholder under the Original Indenture; and
WHEREAS, all acts and proceedings required by law and by the Original
Indenture to constitute this Supplemental Indenture a valid and binding
agreement for the uses and purposes herein set forth, in accordance with its
terms, have been done and taken, and the execution and delivery of this
Supplemental Indenture have been in all respects duly authorized by the Company.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the Company
covenants and agrees with the Trustee, for the equal and proportionate benefit
of all present and future Noteholders, as follows:
1. Article 4 of the Original Indenture is hereby amended by the
inclusion of the following new Section following Section 4.01:
Section 4.01.1. Collateral Enhancement
If the right, title and interest of MEDIQ/PRN Life Support Services-I,
Inc., a Delaware corporation, ('PRN-I') in its Medical Equipment, except
for Excluded Equipment (as hereinafter defined), have not become
Collateral for the Senior Secured Notes under the terms of the Security
Documents (the 'Collateral Enhancement') prior to September 30, 1995
(the 'Rate Increase Effective Date'), the Company agrees to pay to the
holders of the Senior Secured Notes additional interest at the rate of
1% per annum (the 'Rate Increase'), from the Rate Increase Effective
Date to but not including the Rate Increase Termination Date payable at
the same time and in the same manner as provided for interest payments
on the Senior Secured Notes in the Original Indenture. The Rate Increase
will continue in effect only until the Collateral Enhancement has been
effected by the Company (the 'Rate Increase Termination Date'), as
evidenced by the execution of such documents as the Company and the
Trustee deem reasonably necessary. For the purposes of this paragraph,
Excluded Equipment is defined as any Medical Equipment acquired by
PRN-I, acquired after the effective date of this Supplemental Indenture,
which is subject to Capitalized Lease Obligations or other indebtedness
incurred in connection with the purchase of assets. The Rate Increase
shall constitute interest for all purposes of the Original Indenture
including Section 6.01(a)(i) thereof. Notwithstanding the foregoing and
the provisions of Section 6.01 of the Original Indenture, the failure of
the Company to effect the Collateral Enhancement shall not constitute a
Default or Event of Default under Section 6.01 of the Original
Indenture.
2. Except as hereby expressly amended, the Original Indenture and the
Senior Secured Notes issued thereunder are in all respects ratified and
confirmed and all the terms, conditions and provisions thereof shall remain
in full force and effect.
<PAGE>
3. This Supplemental Indenture shall form a part of the Original
Indenture for all purposes, and every Note heretofore or hereafter
authenticated and delivered shall be bound hereby.
4. This Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original, and all of such counterparts shall together constitute one and
the same instrument. All capitalized terms used and not otherwise defined
herein shall have the meanings given them in the Original Indenture, the
Senior Secured Notes or the Security Documents as applicable.
5. This Supplemental Indenture shall be construed in accordance with
and governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, and their respective seals to be hereunto affixed
and attested, all as of the day and year first above written.
<TABLE>
<S> <C>
[Corporate Seal] MEDIQ/PRN Life Support Services, Inc.
By: Michael F. Sandler
Michael F. Sandler, Vice President
Attest: Steven J. Feder
Steven J. Feder, Asst. Secretary
[Corporate Seal] United Jersey Bank, as Trustee
By: J.C. LUDES
J.C. Ludes, Vice President
Attest: John P. Workstus
John P. Workstus, Assistant Secretary
</TABLE>
<PAGE>
AMENDMENT NO. 1 TO
REVOLVING CREDIT LOAN AGREEMENT AND
PLEDGE AND SECURITY AGREEMENT
Amendment No. 1 (the 'Amendment') to a certain Revolving Credit Loan
Agreement and Pledge and Security Agreement, each dated as of October 14, 1993,
between UNITED JERSEY BANK (successor in interest to United Jersey Bank/South,
N.A.) (the 'Bank') and MEDIQ INCORPORATED, a Delaware corporation ('Mediq'), and
MEDIQ INVESTMENT SERVICES, INC., a Delaware corporation ('Investment',
collectively with Mediq, the 'Borrowers').
WHEREAS, the Bank and the Borrowers made, executed and delivered a
Revolving Credit Loan Agreement, dated October 14, 1993 (the 'Original Loan
Agreement'), and in connection therewith the Borrowers executed and delivered a
Revolving Credit Note in the principal amount of $7,500,000, dated as of October
14, 1993, to the Bank (the 'Original Note'); and
WHEREAS, as security for (a) the punctual performance in full by the
Borrowers of their obligations under the Loan Documents (as such term is defined
in the Original Loan Agreement), (b) the punctual payment in full of all amounts
owing or to be owing under any Loan Document, (c) the punctual payment of any
other amounts which at any time may be due and payable from either Borrower to
the Bank, and (d) the punctual payment in full by each Borrower of their
respective obligations under a certain Pledge and Security Agreement, dated as
of October 14, 1993, between the Borrowers and the Bank (the 'Original Pledge
Agreement'), in each case whether presently existing or hereafter arising
(collectively, the 'Secured Obligations'), Investment granted a security
interest to the Bank in the Stock (as such term is defined in the Original
Pledge Agreement), pursuant to the terms and provisions of the Original Pledge
Agreement; and
WHEREAS, the Borrowers have requested that the Bank amend the terms and
provisions of the Original Loan Agreement and the Original Pledge Agreement to
(a) increase the Revolving Credit Loan Limit (as such term is defined in the
Original Loan Agreement) from $7,500,000 to $8,400,000, and (b) permit
Investment to pledge to the Bank, as collateral for the Secured Obligations,
shares of the common stock issued by PCI Services, Inc., a Delaware corporation
('PCI'), which are owned by Investment, and the Bank is willing to consent to
such amendments upon the terms and conditions set forth herein and in a certain
Amended and Restated Revolving Credit Note, in the principal amount of
$8,400,000 from the Borrowers to the Bank, substantially in the form of Annex I
attached hereto (the 'Restated Note').
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and each intending to be legally bound hereby, the parties hereto hereby agree
as follows:
1. Except as expressly defined herein, all terms used herein shall
have the meanings ascribed to them in the Original Loan Agreement. This
Amendment is intended to amend the Original Loan Agreement and the Original
Pledge Agreement and the Original Loan Agreement and the Original Pledge
Agreement shall be so amended from and as of the date hereof.
2. The Original Loan Agreement shall be amended so that all references
to (a) 'Agreement' contained therein shall mean the Original Loan
Agreement, as amended herein, and as further amended, supplemented or
modified from time to time, (b) 'Revolving Credit Note' contained therein
shall mean the Restated Note, as further amended, supplemented or modified
from time to time, (c) 'Pledge Agreement' contained therein shall mean the
Original Pledge Agreement, as amended herein, and as further amended,
supplemented or modified from time to time, and (d) 'Letter Agreement'
contained therein shall mean 'Letter Agreements' (as such term is defined
in subparagraph 5(a) of the Original Loan Agreement, as amended herein).
3. Subparagraph 2(a) of the Original Loan Agreement is hereby amended
to read in its entirety as follows:
(a) In reliance on the representations, warranties and covenants
contained in, and upon the terms and conditions of, this Agreement, the
Bank agrees to make loans (herein called the
<PAGE>
'Revolving Credit Loans') to the Borrowers, at such time or times on or
before October 14, 1995 (the 'Termination Date') and in such amount as
to each borrowing as the Borrowers shall request, subject to the
limitations set forth in subparagraphs 2(f) and 2(i) hereof, up to and
not exceeding at any one time an aggregate outstanding principal amount
equal to Eight Million Four Hundred Thousand Dollars ($8,400,000) (the
'Revolving Credit Loan Limit').
4. The reference to '$2,500,000' contained in subparagraph 2(f) of the
Original Loan Agreement is hereby changed to '$3,400,000.'
5. Subparagraph 2(i) of the Original Loan Agreement is hereby amended
to read in its entirety as follows:
'(i) Subject to the provisions of this paragraph 2, the Borrowers
may make borrowings under the Revolving Credit Loan for working capital
purposes (the 'Working Capital Advances'), at such time or times, and in
such amount as to each borrowing, as the Borrowers may request pursuant
to subparagraph 2(k) below, so long as (i) the amount of each such
Working Capital Advance, when added to the amount of all Revolving
Credit Loans then outstanding (which includes the aggregate principal
amount of all Working Capital Advances then outstanding, the face amount
of all Letters of Credit then outstanding pursuant to the provisions of
subparagraph 2(f), and the amount of all unreimbursed Draws pursuant to
subparagraph 2(h)) does not exceed the Revolving Credit Loan Limit, (ii)
the amount of each such Working Capital Advance, when added to the
amount of all Working Capital Advances then outstanding hereunder, does
not exceed $7,500,000 (the 'Working Capital Advance Sublimit'), and
(iii) the purpose of each such Working Capital Advance is to provide
working capital to a Borrower. In addition, the Bank will have no
obligation to make advances of the Revolving Credit Loan unless, on the
date of the advance, the conditions precedent set forth in paragraph 6
below shall have been satisfied'
6. Subparagraph 2(m) of the Original Loan Agreement is hereby amended
to read in its entirety as follows:
'(m) In the event that at any time (i) the amount outstanding under
the Revolving Credit Loan exceeds the Revolving Credit Loan Limit or
(ii) the aggregate outstanding principal balance of the Working Capital
Advances then outstanding hereunder exceeds the Working Capital Advance
Sublimit, the Borrowers shall be jointly and severally required to pay
to the Bank immediately an amount thereof such that the outstanding
balance of the Revolving Credit Loan shall not exceed the Revolving
Credit Loan Limit and the aggregate outstanding principal balance of the
Working Capital Advances then outstanding hereunder shall not exceed the
Working Capital Advance Sublimit. Failure to make such payment shall
constitute an Event of Default under this Agreement.'
7. Paragraph 5 of the Original Loan Agreement is hereby amended to
read in its entirety as follows:
'5. Security. (a) As security for all of the Obligations of the
Borrowers to the Bank, including without limitation all amounts owed by
the Borrowers to the Bank under this Agreement, the Revolving Credit
Note or the Term Note, Investment is providing to the Bank an
unconditional pledge of (i) 1,782,356 shares (the 'NutraMax Shares') of
the common stock of NutraMax and (ii) and 250,000 shares (the 'PCI
Shares' together, with the NutraMax Shares, the 'Shares') of the common
stock of PCI Services, Inc., a Delaware corporation ('PCI'), and the
Borrower shall hereafter provide such other shares of the common stock
of NutraMax and/or PCI as is required to be pledged pursuant to
subparagraph 5(b) below (collectively with the Shares, the 'Pledged
Stock') pursuant to a Pledge and Security Agreement substantially in the
form of Annex IV hereto (the 'Pledge Agreement'). In connection
therewith, the Borrowers shall also cause to be delivered to the Bank a
certain Letter Agreement between NutraMax and the Bank, and a certain
Letter
<PAGE>
Agreement between PCI and the Bank, each substantially in the form of
Annex V hereto (the 'Letter Agreements').
(b) So long as the Revolving Credit Loan or the Term Loan, if
applicable, shall remain outstanding or this Agreement shall remain
in effect, within one (1) Business Day after the last trading day of
each calendar month, the Pledged Stock shall be valued by the Bank
and the Borrowers (the 'Pledged Stock Value') based on the last
trading price of the Pledged Stock quoted in the Nasdaq National
Market System (or any other national securities exchange or
automated quotation system of a national securities association if,
pursuant to the terms of the Letter Agreements, the Pledged Stock is
on such exchange or system) on the last trading day of such calendar
month (the 'Valuation Date'). In the event that the Revolving Credit
Loan Limit is greater than forty-seven (47%) percent of the Pledged
Stock Value, the Borrowers, within three (3) business days after the
Valuation Date, shall either:
(i) elect to effect a permanent reduction in the Revolving
Credit Loan Limit in such amount as is necessary to ensure that
it is not greater than forty-seven (47%) percent of the Pledged
Stock Value by the delivery of a written notice to the Bank in
the form of Schedule A attached hereto, and pay to the Bank an
amount thereof such that the outstanding balance of the
Revolving Credit Loan does not exceed the revised Revolving
Credit Loan Limit, or
(ii) provide the Bank with a pledge of such number of
additional shares of the capital stock of NutraMax and/or PCI,
upon terms and conditions satisfactory to the Bank in its sole
discretion, as is necessary so that the Revolving Credit Loan
Limit is not greater than forty-seven percent (47%) of the
Pledged Stock Value. (Any additional shares of the capital
stock of NutraMax or PCI pledged by the Borrowers to the Bank
pursuant to the provisions of this subparagraph 5(b)(ii) shall
be deemed to be Pledged Stock for purposes of this Agreement).
Failure of the Borrowers to comply with the requirements set
forth in subparagraph 5(b)(i) or subparagraph 5(b)(ii) above
shall constitute an immediate Event of Default without
additional notice or grace period. No failure of the Bank to
exercise, or timely exercise, the rights and procedures
described in this subparagraph 5(b) shall operate as a waiver
thereof or operate to preclude any such future exercise.
(c) In the event that the Revolving Credit Loan Limit is less
than forty-seven percent (47%) of the Pledged Stock Value on any
Valuation Date (based on the valuation required under subparagraph
5(b) above), the Borrowers, within three (3) Business Days of the
Valuation Date, may request that the Bank return to the Borrowers
such number of shares of the Pledged Stock as is necessary so that
the Revolving Credit Loan Limit is not less than forty-seven percent
(47%) of the Pledged Stock Value. The Borrowers' right to make such
a request for the return of Pledged Stock shall be limited to three
(3) requests per calendar year. The Bank shall not be required to
return Pledged Stock under this subparagraph 5(c) until such steps
have been taken as the Bank has determined are necessary to ensure
the Bank's continued position as the holder of a perfected lien in
the Pledged Stock retained by the Bank.'
8. Subparagraph 9(a) of the Original Loan Agreement shall be amended to
read in its entirety as follows:
'(a) Structure; Etc. (i) Dissolve, or merge or consolidate with or
into any other corporation or business entity; sell, lease or otherwise
dispose of substantially all of its assets; or consent to, or approve of,
(A) the dissolution of NutraMax or PCI, (B) the sale of all or
substantially all of the assets of NutraMax or PCI, or (C) the lease or
encumbrance of substantially all the assets of NutraMax or PCI for less
than adequate consideration;
(ii) Sell, transfer, or otherwise dispose of any of the capital
stock of Investment; or
<PAGE>
(iii) Alter or amend Investment's capital structure; or issue,
purchase, redeem or retire any shares of Investment's capital stock.'
9. Subparagraph 9(f) of the Original Loan Agreement shall be amended to
read in its entirety as follows:
'(f) Stock of NutraMax and PCI. Sell, register, or pledge or cause, or
permit any of its Subsidiaries to sell, register or pledge, any of the
capital stock of NutraMax or PCI unless pursuant to the terms of (i) the
Pledge Agreement, (ii) a certain employee stock ownership plan implemented
by NutraMax on behalf of its employees in effect as of April 28, 1988, for
a ten year period, (iii) a certain employee stock ownership plan
implemented by PCI on behalf of its employees in effect as of September 21,
1991, or (iv) the 7 1/2% Indenture.'
10. Subparagraphs 10(d) through 10(i) of the Original Loan Agreement shall
be amended to read in their entireties as follows:
'(d) Any material representation, statement or warranty made by
NutraMax or PCI in the Letter Agreements shall prove to have been incorrect
in any material respect when made; or
(e) NutraMax or PCI shall default in the performance or observance of
any term, covenant or agreement contained in the Letter Agreements; or
(f) A receiver shall be appointed with respect to any Borrower,
NutraMax or PCI, or any of their respective assets, and such action shall
not be discharged or stayed within thirty (30) days; or
(g) An attachment, garnishment, levy or involuntary lien shall be
made, issued or filed against any of the assets of any Borrower, NutraMax
or PCI in the aggregate amount of $500,000, $250,000 and $250,000,
respectively, and such action shall not be discharged or stayed within
thirty (30) days;
(h) Either Borrower, NutraMax or PCI shall (i) apply for, consent to
or permit the appointment of a trustee or liquidator of either Borrower,
NutraMax or PCI, or of all or a substantial part of any such entity's
assets, (ii) be unable, or admit in writing its inability, to pay debts as
they mature, (iii) make a general assignment for the benefit of creditors,
(iv) be adjudicated a bankrupt or insolvent, or (v) file a voluntary
petition in bankruptcy or a petition or an answer seeking reorganization or
an arrangement with creditors or to take advantage of any insolvency law,
or an answer admitting the material allegations of a petition filed against
it in any such proceeding; or
(i) A judgment or judgments for the payment of money in excess of the
sum of (i) $500,000 in the aggregate shall be rendered against any
Borrower, (ii) $250,000 in the aggregate shall be rendered against
NutraMax, or (iii) $250,000 in the aggregate shall be rendered against PCI,
which shall remain unsatisfied and in effect for any period of thirty (30)
consecutive days without a stay of execution; or.'
11. Subparagraph 10(r) of the Original Loan Agreement shall be amended to
read in its entirety as follows:
'(r) A material change shall occur in the business, financial
condition, assets or affairs or either Borrower, NutraMax and/or PCI which
in the Bank's reasonable opinion materially increases its risk hereunder.'
12. The Original Pledge Agreement shall be amended so that all references
to (a) 'Loan Agreement' contained therein shall mean the Original Loan
Agreement, as amended herein, and as further amended, supplemented or modified
from time to time, (b) 'Revolving Credit Note' contained therein shall mean the
Restated Note, as further amended, supplemented or modified from time to time,
and (c) 'Issuer' contained therein shall mean the Issuers (as such term is
defined in subparagraph 2(a) of the Original Pledge Agreement, as amended
herein).
<PAGE>
13. Paragraph 2 of the Original Pledge Agreement shall be amended to read
in its entirety as follows:
'2. Pledge of Stock. (a) As security for (i) the punctual performance
in full by the Borrowers, NutraMax Products, Inc., a Delaware corporation
('NutraMax'), and PCI Services, Inc., a Delaware corporation ('PCI',
together with NutraMax, the 'Issuers') of their respective obligations
under the Loan Documents, (ii) the punctual payment in full of all amounts
owing or to be owing under any Loan Document, (iii) the punctual payment of
any other amounts which at any time may be due and payable from either
Borrower to the Bank, and (iv) the punctual performance in full by the
Borrowers of their respective obligations under this Agreement, in each
case whether presently or hereafter arising (collectively, the
'Obligations'), the Pledgor hereby delivers, pledges and grants to the Bank
a security interest in all of the Pledgor's right, title and interest in
and to (A) 1,782,356 shares (the 'NutraMax Shares') of the Common Stock of
NutraMax and (B) 250,000 shares (the 'PCI Shares', together with the
NutraMax Shares, the 'Shares'), and such other shares of Common Stock of
the Issuers as is hereinafter required to be pledged by the Borrowers to
the Bank pursuant to subparagraph 5(b) of the Loan Agreement (collectively,
the 'Pledged Stock'), and all certificates, options, rights or other
distributions issued as an addition to, in substitution or exchange for, or
on account of, any share of the Pledged Stock, and all proceeds of all the
foregoing, now or hereafter owned or acquired by the Pledgor (the 'Stock').
(b) The Shares of the Pledged Stock issued by NutraMax are recorded
in the stock ledger of NutraMax in the name of the Pledgor, and are
represented by two (2) stock certificates (the 'NutraMax Share
Certificates') bearing Certificate Nos. NMP5424 and NMP6027, issued to
the Pledgor. The NutraMax Share Certificates accompanied by stock powers
duly executed in blank have heretofore been delivered to the Bank to be
held by the Bank as provided in this Agreement.
(c) The Shares of the Pledged Stock issued by PCI are recorded in
the stock ledger of PCI in the name of the Pledgor, and are represented
by a single stock certificate (the 'PCI Share Certificate' together,
with the NutraMax Share Certificate, the 'Share Certificates') of PCI
bearing Certificate No. ____, issued to the Pledgor. The PCI Share
Certificate, accompanied by a stock power duly executed in blank has
heretofore been delivered to the Bank to be held by the Bank as provided
in this Agreement.
(d) The Bank accepts the deposit and pledge of the Stock made by
the Pledgor hereunder, acknowledges the receipt of the Share
Certificates and their accompanying stock powers, and agrees to hold the
Stock in accordance with the terms and provisions of this Agreement.'
14. Subparagraph 3(g) of the Original Pledge Agreement shall be amended to
read in its entirety as follows:
'(g) NutraMax's currently outstanding capital stock consists of
8,438,948 shares of common stock, par value $.001 per share. The Pledgor
owns 47.8% of the currently outstanding shares of NutraMax's common stock.
At no time since the date of the consummation of NutraMax's public
offering, and the exercise of the underwriter's overallotment in connection
therewith, has the Pledgor owned more than 50% of the outstanding shares of
NutraMax's common stock.'
15. Paragraph 3 of the Original Pledge Agreement shall be further amended
to add the following subparagraphs:
'(k) PCI's currently outstanding capital stock consists of 6,841,250
shares of common stock, par value $.001 per share. The Pledgor owns 42% of
the currently outstanding shares of PCI's common stock. At no time since
February 28, 1992 has the Pledgor owned more than 50% of the outstanding
shares of PCI's common stock.
<PAGE>
(l) PCI's common stock is quoted on the Nasdaq National Market System
under the symbol 'PCIS.'
(m) The transfer agent for PCI's Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.'
16. Subparagraph 3(j) of the Original Pledge Agreement is hereby amended to
read in its entirety as follows:
'(j) The transfer agent for NutraMax's common stock is Midlantic
National Bank, Corporate Trust Department, 499 Thornall Street, Edison, New
Jersey 08818.'
17. Subparagraph 4(d) of the Original Pledge Agreement shall be amended to
read in its entirety as follows:
'(d) Neither Borrower will consent to, or approve of, the dissolution
or liquidation of any Issuer; the sale of all or substantially all the
assets of any Issuer; or the lease or encumbrance of substantially all of
the assets of any Issuer for less than adequate consideration.'
18. Subparagraph 4(g) of the Original Pledge Agreement shall be amended so
that all references to 'the Issuer' contained therein shall be deemed to be
references to 'NutraMax'.
19. Simultaneously with the execution and delivery of this Amendment by the
Borrowers, Investment is delivering to the Bank 250,000 shares of PCI's common
stock, par value $.001 per share (the 'PCI Shares') to be held by the Bank as
Pledged Stock pursuant to the terms and provisions of the Original Loan
Agreement, as amended herein, and the Original Pledge Agreement, as amended
herein, as security for all Obligations arising under the Original Loan
Agreement, as amended herein, the Restated Note, and the Term Note, if
applicable. The Borrowers hereby, jointly and severally, represent, covenant and
warrant to the Bank as follows:
(a) Upon the PCI Registration Statement (as such term is defined
hereinafter) being declared effective by the SEC (as such term is defined
hereinafter), the PCI Shares will be freely transferrable by the Bank
pursuant to the terms and provisions of the Original Pledge Agreement, as
amended herein, following the occurrence of an Event of Default without
further registration with, or further approval by, or notice to, any
federal or state governmental authority.
(b) PCI is a corporation duly incorporated, in good standing and
validly existing under the laws of the State of Delaware, and is duly
qualified as a foreign corporation in all jurisdictions wherein the
character of the property owned or leased or the nature of the business
transacted by it makes qualification as a foreign corporation necessary.
PCI has the necessary corporate power to execute, deliver and perform the
Letter Agreement to be delivered by it to the Bank pursuant to subparagraph
23(g) hereof.
(c) The execution, delivery and performance by PCI of the PCI Letter
Agreement have been duly authorized by all necessary action and will not
violate any provision of law or of its Certificate of Incorporation or
By-laws or other constituent document, or result in the breach of, or
constitute a default under, or result in the creation of any lien, charge
or incumbrance upon any of its property or assets (other than as expressly
provided in the PCI Letter Agreement) pursuant to, any indenture, agreement
or instrument to which it is a party or by which it or any of its property
may be bound or affected. The PCI Letter Agreement has been duly executed
and delivered by PCI and constitutes the legal, valid and binding
obligation of PCI, enforceable in accordance with its terms.
(d) No approval or consent by, or notice to or filing with, any third
party, including without limitation any governmental or regulatory
authority, is required for the authorization, or in connection with the
execution, delivery and performance, of the PCI Letter Agreement, other
than the filing of the PCI Registration Statement with the SEC.
<PAGE>
(e) PCI has all governmental consents, licenses and approvals required
for the conduct of its business as presently conducted and the execution,
delivery and performance of the PCI Letter Agreement.
(f) All of the PCI Shares are eligible for registration with the SEC
on Form S-3.
20. The Borrowers acknowledge that, as of the date hereof, the principal
amount outstanding under the Original Note is $______, that such amount is owing
to the Bank without any claim, defense or set-off, and that such amount shall be
treated as having been advanced to each of the Borrowers (who shall be jointly
and severally liable for the repayment thereof to the Bank). This Amendment does
not constitute the extinguishment of any debt evidenced by the Original Note and
the Borrowers confirm their full liability with respect thereto.
21. Pursuant to the terms of paragraph 6 of the Original Loan Agreement, as
amended herein, the Borrowers have provided to the Bank, as security for all
Obligations arising under the Original Loan Agreement, the Original Note, the
Term Note, if applicable, and each other Loan Document, an unconditional pledge
of the Pledged Stock, including without limitation the PCI Shares, pursuant to
the terms and provisions of the Original Pledge Agreement, as amended herein.
The Borrower hereby ratifies and confirms without condition the pledge of the
Pledged Stock, including without limitation the PCI Shares, granted to the Bank
under and pursuant to the Original Loan Agreement, as amended herein, including
without limitation those liens and security interests granted under the Original
Pledge Agreement, as amended herein; and further ratifies and confirms, without
condition, that (a) such liens and security interests shall secure all amounts
due or to become due under the Original Loan Agreement, as amended herein, the
Restated Note, the Term Note, if applicable, the LC Agreement, and any LC
Application, including without limitation, any amounts paid by the Bank on
account of any draft issued under, or purporting to have been issued under, the
LC Agreement, any LC Application or any Letter of Credit, and (b) the perfected
status and priority of such liens and security interests shall not be affected
in any way by the amendments to the Original Loan Agreement and the Original
Pledge Agreement set forth herein or the execution and delivery by the Borrowers
of the Restated Note.
22. All representations, warranties and covenants of the Borrowers
contained in the Original Loan Agreement or the Original Pledge Agreement, are
hereby ratified and confirmed without condition as if made anew upon the
execution of this Amendment and are hereby incorporated by reference. All
representations, warranties and covenants of the Borrowers, whether hereunder,
or contained in the Original Loan Agreement or the Original Pledge Agreement,
shall remain in full force and effect until all amounts due under the Original
Loan Agreement and the Original Pledge Agreement, each as amended herein, the
Restated Note, the Term Note, if applicable, the LC Agreement, and any LC
Application are satisfied in full. The Borrowers represent and warrant that
there has been no material changes or modifications to the provisions of the
Certificate of Incorporation or By-Laws of each Borrower which were previously
delivered to the Bank in connection with the Original Loan Agreement.
23. As a condition precedent to the effectiveness of this Amendment
(excluding paragraphs 3, 4 and 5 hereof), simultaneously with the execution and
delivery of this Amendment, the Borrowers shall deliver to the Bank the
following:
(a) A certificate of the Secretary or an Assistant Secretary of each
Borrower certifying the names of the officers of such Borrower authorized
to execute this Amendment, the Restated Note, and any other document
hereunder;
(b) Certified copies of resolutions of the directors of each Borrower
authorizing the execution, delivery and performance of this Amendment, the
Restated Note, and any other document hereunder, which resolutions shall be
in form and substance satisfactory to the Bank in its sole discretion;
(c) The fully executed Restated Note;
(d) The PCI Shares and stock powers executed in blank (in form
satisfactory to the Bank);
<PAGE>
(e) A favorable opinion of Alan Einhorn, general counsel to the
Borrowers, addressed to the Bank, in substantially the form of Annex II
hereto, and as to such other matters as the Bank may reasonably request;
(f) An acknowledgment executed by an authorized officer of NutraMax,
substantially in the form of Annex III attached hereto, and otherwise in
form and substance satisfactory to the Bank in its sole discretion, that
the amendments to the Original Loan Agreement and the Original Pledge
Agreement effectuated by this Amendment do not affect, in any way, the
obligations of NutraMax set forth in that certain Letter Agreement dated as
of October 14, 1993 between the Bank and NutraMax;
(g) A Letter Agreement, substantially in the form of Annex IV attached
hereto, and otherwise in form and substance satisfactory to the Bank in its
sole discretion, executed by PCI (the 'PCI Letter Agreement');
(h) Certified copies of resolutions of the Board of Directors of PCI
authorizing the execution, delivery and performance of the PCI Letter
Agreement, which resolutions shall be in form and substance satisfactory to
the Bank in its sole discretion;
(i) A certificate of the Secretary or an Assistant Secretary of PCI,
certifying the names of the officers of PCI authorized to execute the PCI
Letter Agreement and any other document required to be delivered by PCI
thereunder;
(j) Evidence satisfactory to the Bank, in its reasonable discretion,
that the value of the Pledged Stock, including without limitation the PCI
Shares, based on the last trade price of the Pledged Stock quoted on the
Nasdaq National Market System on the last Business Day immediately
preceding the date hereof, is not less than $17,872,500;
(k) Evidence of all other actions necessary or, in the opinion of the
Bank, desirable to create, perfect and protect the security interests and
liens intended to be created by the Original Pledge Agreement, as amended
herein;
(l) The following supporting documents: (i) a copy of the Certificate
of Incorporation of PCI certified by the Secretary of State of its state of
incorporation; (ii) a certificate of such Secretary of State as to the good
standing of PCI; and (iii) a certificate of the Secretary or an Assistant
Secretary of PCI, dated the date hereof, and certifying (X) that attached
thereto is a true and complete copy of the By-laws of PCI, as in effect on
the date of such certification, and (Y) that the Certificate of
Incorporation of PCI has not been amended since the date of the last
amendment thereto indicated on the certificate of the Secretary of State
furnished pursuant to clause (i) of this subparagraph (l);
(m) Good standing certificates for Borrowers and NutraMax;
(n) A Form U-1, completed and executed by the Borrowers, setting forth
in detail the purpose of the Revolving Credit Loan, as amended herein; and
(o) Evidence satisfactory to the Bank in its sole discretion that a
Notice, in the form of Annex V attached hereto has been executed by the
Borrowers and delivered to the Trustee named in each of the 7 1/4%
Indenture and the 7 1/2% Indenture;
24. As a condition precedent to the effectiveness of paragraphs 3, 4 and 5
of this Amendment, the Borrowers shall, in addition to the items specified in
paragraph 23 hereof, also deliver to the Bank the following:
(a) Evidence satisfactory to the Bank in its sole discretion that the
PCI Registration Statement has been declared effective by the SEC; and
(b) A favorable opinion of Alan Einhorn, general counsel to the
Borrowers, addressed to the Bank, in substantially the form of Annex VI
hereto, and as to such other matters as the Bank may reasonably request.
<PAGE>
25. (a) Notwithstanding the failure of the Borrowers to fulfill the
conditions precedent listed in paragraph 24 hereof, the Bank and the Borrowers
agree that, upon the filing by PCI of a Registration Statement (the 'PCI
Registration Statement') on Form S-3 with the United States Securities and
Exchange Commission (the 'SEC') covering the PCI Shares and correctly describing
the Original Loan Agreement, as amended herein, and the transactions
contemplated therein, the Revolving Credit Loan Limit shall be temporarily
increased, for a period of ninety (90) days from the date of filing of the PCI
Registration Statement with the SEC, to SEVEN MILLION SIX HUNDRED EIGHTY-FIVE
THOUSAND DOLLARS ($7,685,000). All terms and provisions of the Original Loan
Agreement, as amended herein (other than the amendments described in paragraphs
3, 5 and 6 hereof), including without limitation the requirement contained in
subparagraph 5(b)(ii) thereof that the Revolving Credit Loan Limit not exceed
forty-seven percent (47%) of the Pledged Stock Value, shall be considered to be
in full force and effect during such ninety (90) day period.
(b) The terms and provisions of the PCI Registration Statement shall
be satisfactory to the Bank and the Bank's legal counsel, and the Borrower
shall deliver a copy of the PCI Registration Statement, and any amendments
to the PCI Registration Statement, to the Bank and the Bank's legal counsel
at least five (5) business days prior to the date on which it is
anticipated that such material will be filed with the SEC.
(c) If the PCI Registration Statement has not been declared effective
by the SEC within ninety (90) days of the date of its filing with the SEC,
this Amendment shall terminate and the Revolving Credit Loan Limit shall be
automatically reduced to SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($7,500,000) on such ninetieth (90th) day and the Borrowers, on such date,
shall be required to pay to the Bank immediately an amount such that the
outstanding balance of the Revolving Credit Loan does not exceed the
reduced Revolving Credit Loan Limit. Failure to make such payment shall
constitute an immediate Event of Default under the Original Loan Agreement,
as amended herein.
26. Except as modified by the terms hereof, all terms, provisions and
conditions of the Original Loan Agreement and the Original Pledge Agreement, and
all documents duly executed and delivered in connection therewith, are in full
force and effect, and are hereby incorporated by reference as if set forth
herein. This Amendment, the Original Loan Agreement, the Original Pledge
Agreement, and the Restated Note shall be deemed as complementing and not
restricting the Bank's rights hereunder or thereunder. If there is any conflict
or discrepancy to the provisions of this Amendment in any provision of the
Original Loan Agreement, the Original Pledge Agreement, or the Restated Note,
the terms and provisions of this Amendment shall control and prevail.
27. Each Borrower hereby acknowledges and agrees that a default by the
Borrowers in the performance or observance of any term, covenant or agreement
contained in this Amendment, including without limitation the failure to deliver
any item required by paragraphs 23 or 24 hereof shall constitute an immediate
Event of Default under the Original Loan Agreement, as amended herein, subject
to no notice or grace period.
28. Each Borrower hereby represents, warrants and certifies to Bank that no
Default or Event of Default has occurred and is presently existing under the
Loan Documents.
29. This Amendment (a) shall be construed and enforced in accordance with
the laws of the State of New Jersey; (b) shall inure to the benefit of, and be
binding upon, the parties hereto and their respective successors and assigns;
(c) may be executed in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument; and (d) may only be amended or modified pursuant to a writing signed
by the parties hereto.
<TABLE>
<S> <C>
30. EACH BORROWER HEREBY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO A JURY TRIAL IN CONNECTION
WITH ANY LITIGATION COMMENCED BY OR AGAINST THE BANK WITH RESPECT TO THE RIGHTS AND OBLIGATIONS OF THE Initials
PARTIES HERETO.
</TABLE>
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed and delivered by their respective officers thereunto duly authorized,
as of the ___ day of July, 1994.
<TABLE>
<S> <C>
UNITED JERSEY BANK (SUCCESSOR IN
INTEREST TO UNITED JERSEY
BANK/SOUTH, N.A.
BY: ____________________________
Dante J. Bucci,
Vice President
ATTEST: MEDIQ INCORPORATED
BY:
NAME: NAME:
TITLE: TITLE:
[SEAL]
ATTEST: MEDIQ INVESTMENT SERVICES, INC.
BY:
NAME: NAME:
TITLE: TITLE:
[SEAL]
</TABLE>
<PAGE>
AMENDMENT NO. 2 TO
REVOLVING CREDIT LOAN AGREEMENT AND
PLEDGE AND SECURITY AGREEMENT
Amendment No. 2 (the 'Amendment') to a certain Revolving Credit Loan
Agreement and Pledge and Security Agreement, each dated as of October 14, 1993,
between UNITED JERSEY BANK, a state banking association (as successor in
interest to United Jersey Bank/South, N.A.) (the 'Bank') and MEDIQ INCORPORATED,
a Delaware corporation ('Mediq'), and MEDIQ INVESTMENT SERVICES, INC., a
Delaware corporation ('Investment', collectively with Mediq, the 'Borrowers').
WHEREAS, the Bank and the Borrowers made, executed and delivered a
Revolving Credit Loan Agreement, dated October 14, 1993, as amended by a certain
Amendment No. 1 to Revolving Credit Loan Agreement and Pledge and Security
Agreement, dated as of August 9, 1994, between the Borrowers and the Bank
(collectively, the 'Original Loan Agreement'), and in connection therewith the
Borrowers executed and delivered an Amended and Restated Revolving Credit Note
in the principal amount of $8,400,000, dated as of August 9, 1994, to the Bank
(the 'Original Note'); and
WHEREAS, as security for (a) the punctual performance in full by the
Borrowers of their obligations under the Loan Documents (as such term is defined
in the Original Loan Agreement), (b) the punctual payment in full of all amounts
owing or to be owing under any Loan Document, (c) the punctual payment of any
other amounts which at any time may be due and payable from either Borrower to
the Bank, and (d) the punctual payment in full by each Borrower of their
respective obligations under a certain Pledge and Security Agreement, dated as
of October 14, 1993, between the Borrowers and the Bank, as amended by a certain
Amendment No. 1 to Revolving Credit Loan Agreement and Pledge and Security
Agreement, dated as of August 9, 1994, between the Borrowers and the Bank
(collectively, the 'Original Pledge Agreement'), in each case whether presently
existing or hereafter arising (collectively, the 'Secured Obligations'),
Investment granted a security interest to the Bank in the Stock (as such term is
defined in the Original Pledge Agreement), pursuant to the terms and provisions
of the Original Pledge Agreement; and
WHEREAS, the Borrowers have requested that the Bank amend the terms and
provisions of the Original Loan Agreement and the Original Pledge Agreement to
increase the Revolving Credit Loan Limit (as such term is defined in the
Original Loan Agreement) from $8,400,000 to $13,400,000, and the Bank is willing
to consent to such amendment upon the terms and conditions set forth herein and
in a certain Second Amended and Restated Revolving Credit Note, in the principal
amount of $13,400,000 from the Borrowers to the Bank, substantially in the form
of Annex I attached hereto (the 'Restated Note').
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and each intending to be legally bound hereby, the parties hereto hereby agree
as follows:
1. Except as expressly defined herein, all terms used herein shall
have the meanings ascribed to them in the Original Loan Agreement. This
Amendment is intended to amend the Original Loan Agreement and the Original
Pledge Agreement and the Original Loan Agreement and the Original Pledge
Agreement shall be so amended from and as of the date hereof.
2. The Original Loan Agreement shall be amended so that all references
to (a) 'Agreement' contained therein shall mean the Original Loan
Agreement, as amended herein, and as further amended, supplemented or
modified from time to time, (b) 'Revolving Credit Note' contained therein
shall mean the Restated Note, as further amended, supplemented or modified
from time to time, and (c) 'Pledge Agreement' contained therein shall mean
the Original Pledge Agreement, as amended herein, and as further amended,
supplemented or modified from time to time.
3. The Original Loan Agreement shall be amended to delete the
definition of 'Consolidated Cash Flow.'
<PAGE>
4. The definition of 'Fixed Charge Coverage' contained in the Original
Loan Agreement shall be amended to read in its entirety as follows:
' 'Fixed Charge Coverage' means, as to the Borrowers, as of a
specified date, the ratio of:
(a) the difference between (i) the sum of (X) the Borrowers'
Consolidated Net Income, (Y) the aggregate amount of cash dividends
paid by any member of the MEDIQ PRN Group to the Borrowers, and (Z)
the Borrowers' consolidated deferred taxes, depreciation expense,
amortization expense, amounts charged to write-off of goodwill,
interest expense, and non-cash losses (but, in each case, only to
the extent included as a deduction in determining the Borrowers'
Consolidated Net Income), less (ii) the sum of the Borrowers'
consolidated non-cash income and the aggregate EBITDA of the MEDIQ
PRN Group, each computed for the twelve month period immediately
preceding the date of review; to
(b) the sum of (i) the Borrowers' current portion of long term
Indebtedness and capital lease obligations, determined on a
consolidated basis (excluding, to the extent otherwise included in
the Borrowers' then current portion of long term Indebtedness and
capital lease obligations, the current portion of long-term
Indebtedness and capital lease obligations owed by any of the MEDIQ
PRN Group), (ii) interest payments (excluding interest payments to
be made by any member of the MEDIQ PRN Group), and (iii) cash
dividends (excluding cash dividends to be paid by any member of the
MEDIQ PRN Group but excluding cash dividends paid to Mediq), each as
required to be paid by any Borrower or its Subsidiaries in the
subsequent four (4) full fiscal quarters immediately following the
date of review.
For purposes of this Agreement, the term 'EBITDA' of a Person
shall mean, for any fiscal period, the sum of (i) Net Income for
that period, plus (ii) any deferred taxes reflected in such Net
Income, plus (iii) interest expense for the period, plus (iv)
depreciation, amortization, and all other non-cash expenses for that
period, in each case determined in accordance with GAAP and, in the
case of items (ii), (iii), and (iv), only to the extent deducted in
the determination of such Net Income for that period.'
5. The Original Loan Agreement shall be amended to add the following
definition:
'MEDIQ PRN Group' shall mean PRN Holdings, Inc., MEDIQ/PRN Life
Support Services, Inc. and MEDIQ/PRN Life Support Services-I, Inc.
6. The definition of 'Minimum Tangible Capital Funds' contained in the
Original Loan Agreement shall be amended to read in its entirety as follows:
'Minimum Tangible Capital Funds' means, as to the Borrowers, on a
specified date, the sum of (i) the Borrowers' Consolidated Tangible Net
Worth as of that date, plus (ii) the then unpaid principal balance of
Subordinated Indebtedness, plus (iii) the then unpaid principal balance
(but not to exceed $10,000,000) of certain Senior Subordinated Notes due
October 1, 2004 issued by PRN Holdings, Inc. and payable to Massachusetts
Mutual Life Insurance Company and its affiliates, plus (iv) the then unpaid
principal balance (but not to exceed $10,000,000) of a certain promissory
note, in the original principal amount of $10,000,000, to be issued by PRN
Holdings, Inc. in favor of KCI Therapeutic Services, Inc. in connection
with the purchase of certain assets of KCI Therapeutic Services, Inc. by
members of the MEDIQ PRN Group (the 'KCI Transaction'), plus (v) the amount
of deferred charges treated as an intangible in accordance with GAAP and
actually deducted in determining the Borrowers' Consolidated Tangible Net
Worth as of that date (up to a maximum of $13,000,000).
7. The definition of 'Senior Liabilities' contained in the Original Loan
Agreement shall be amended to read in its entirety as follows:
<PAGE>
'Senior Liabilities' means, as to the Borrowers, on a specified date,
the Borrowers' Consolidated Liabilities as of that date reduced by an
amount equal to the then unpaid principal of (i) Subordinated Indebtedness,
(ii) Nonrecourse Liabilities, (iii) (but not to exceed $10,000,000) of
certain Senior Subordinated Notes due October 1, 2004 issued by PRN
Holdings, Inc. and payable to Massachusetts Mutual Life Insurance Company
and its affiliates, and (iv) (but not to exceed $10,000,000) of a certain
promissory note, in the original principal amount of $10,000,000, to be
issued by PRN Holdings, Inc. in favor of KCI Therapeutic Services, Inc. in
connection with the KCI Transaction.
8. The definition of 'Subordinated Indebtedness' contained in the Original
Loan Agreement shall be amended to read in its entirety as follows:
'Subordinated Indebtedness' means, as to the Borrowers, the 7 1/4%
Debentures, the 7 1/2% Debentures, and such other Indebtedness incurred at
any time by the Borrowers, the repayment of which is subordinated in such
form and on such terms and conditions as are acceptable to the Bank in its
sole discretion, to the prior payment of the principal of, and interest on,
the Revolving Credit Note, the Term Note, if applicable, and the other
Obligations of the Borrowers to the Bank.
9. Subparagraph 2(a) of the Original Loan Agreement is hereby amended to
read in its entirety as follows:
'(a) In reliance on the representations, warranties and covenants
contained in, and upon the terms and conditions of, this Agreement, the
Bank agrees to make loans (herein called the 'Revolving Credit Loans') to
the Borrowers, at such time or times on or before October 14, 1995 (the
'Termination Date') and in such amount as to each borrowing as the
Borrowers shall request, subject to the limitations set forth in
subparagraphs 2(f), 2(i) and 8(l) hereof, up to and not exceeding at any
one time an aggregate outstanding principal amount equal to Thirteen
Million Four Hundred Thousand Dollars ($13,400,000) (the 'Revolving
Credit Loan Limit').'
10. Subparagraph 2(i) of the Original Loan Agreement is hereby amended to
read in its entirety as follows:
'(i) Subject to the provisions of this paragraph 2 and subparagraphs
5(c) and 8(l) hereof, the Borrowers may make borrowings under the Revolving
Credit Loan for working capital purposes (the 'Working Capital Advances'),
at such time or times, and in such amount as to each borrowing, as the
Borrowers may request pursuant to subparagraph 2(k) below, so long as (i)
the amount of each such Working Capital Advance, when added to the amount
of all Revolving Credit Loans then outstanding (which includes the
aggregate principal amount of all Working Capital Advances then
outstanding, the face amount of all Letters of Credit then outstanding
pursuant to the provisions of subparagraph 2(f), and the amount of all
unreimbursed Draws pursuant to subparagraph 2(h)) does not exceed the
Revolving Credit Loan Limit, and (ii) the purpose of each such Working
Capital Advance is to provide working capital to a Borrower. In addition,
the Bank will have no obligation to make advances of the Revolving Credit
Loan unless, on the date of the advance, the conditions precedent set forth
in paragraph 6 below shall have been satisfied.'
11. Subparagraph 2(m) of the Original Loan Agreement is hereby amended to
read in its entirety as follows:
'(m) In the event that at any time the amount outstanding under the
Revolving Credit Loan exceeds the Revolving Credit Loan Limit, the
Borrowers shall be jointly and severally required to pay to the Bank
immediately an amount thereof such that the outstanding balance of the
Revolving Credit Loan shall not exceed the Revolving Credit Loan Limit.
Failure to make such payment shall constitute an Event of Default under
this Agreement.'
<PAGE>
12. Paragraph 5 of the Original Loan Agreement is hereby amended to read in
its entirety as follows:
'5. Security. (a) As security for all of the Obligations of the
Borrowers to the Bank, including without limitation all amounts owed by the
Borrowers to the Bank under this Agreement, the Revolving Credit Note or
the Term Note, Investment is providing to the Bank an unconditional pledge
of (i) 1,782,356 shares (the 'NutraMax Shares') of the common stock of
NutraMax and (ii) and 1,550,000 shares (the 'PCI Shares' together, with the
NutraMax Shares, the 'Shares') of the common stock of PCI Services, Inc., a
Delaware corporation ('PCI'), and the Borrower shall hereafter provide such
other shares of the common stock of NutraMax and/or PCI as is required to
be pledged pursuant to subparagraph 5(c) below (collectively with the
Shares, the 'Pledged Stock') pursuant to a Pledge and Security Agreement
substantially in the form of Annex IV hereto (the 'Pledge Agreement'). In
connection therewith, the Borrowers shall also cause to be delivered to the
Bank a certain Letter Agreement between NutraMax and the Bank, and a
certain Letter Agreement between PCI and the Bank, each substantially in
the form of Annex V hereto (the 'Letter Agreements').
(b) So long as the Revolving Credit Loan or the Term Loan, if
applicable, shall remain outstanding or this Agreement shall remain in
effect, within one (1) Business Day after the last trading day of each
calendar month, the Pledged Stock shall be valued by the Bank and the
Borrowers (the 'Pledged Stock Value') based on the last trading price of
the Pledged Stock quoted in the Nasdaq National Market System (or any
other national securities exchange or automated quotation system of a
national securities association if, pursuant to the terms of the Letter
Agreements, the Pledged Stock is on such exchange or system) on the last
trading day of such calendar month (the 'Valuation Date'). Within three
Business Days after any Valuation Date, the Borrowers shall provide the
Bank with a written certification signed by the chief financial officer
of each Borrower as to the Pledged Stock Value on such Valuation Date,
which such certification shall be in form and substance satisfactory to
the Bank in its sole discretion.
(c) In the event that (i) the Revolving Credit Loan Limit is
greater than forty-seven (47%) percent of the Pledged Stock Value on any
Valuation Date or (ii) at any time (hereinafter referred to as the
'Trigger Date') the Pledged Stock Value, as determined by the Bank based
on the then trading price of the Pledged Stock quoted in the Nasdaq
National Market System (or any other national securities exchange or
automated quotation system of a national securities association if,
pursuant to the terms of the Letter Agreements, the Pledged Stock is on
such exchange or system), is less than seventy-five percent (75%) of the
Pledged Stock Value on the immediately preceding Valuation Date, the
Borrowers, within three (3) Business Days after such Valuation Date,
shall either:
(X) elect to effect a permanent reduction in the Revolving
Credit Loan Limit in such amount as is necessary to ensure that it
is not greater than forty-seven (47%) percent of the Pledged Stock
Value by the delivery of a written notice to the Bank in the form of
Schedule A attached hereto, and pay to the Bank an amount thereof
such that the outstanding balance of the Revolving Credit Loan does
not exceed the revised Revolving Credit Loan Limit, or
(Y) provide the Bank with a pledge of such number of additional
shares of the capital stock of NutraMax and/or PCI, upon terms and
conditions satisfactory to the Bank in its sole discretion, as is
necessary so that the Revolving Credit Loan Limit is not greater
than forty-seven percent (47%) of the Pledged Stock Value. (Any
additional shares of the capital stock of NutraMax or PCI pledged by
the Borrowers to the Bank pursuant to the provisions of this
subparagraph 5(c) shall be deemed to be Pledged Stock for purposes
of this Agreement).
Failure of the Borrowers to comply with the requirements set
forth in subparagraph 5(c) above shall constitute an immediate Event
of Default without additional notice or
<PAGE>
grace period. No failure of the Bank to exercise, or timely
exercise, the rights and procedures described in this subparagraph
5(c) shall operate as a waiver thereof or operate to preclude any
such future exercise.
(d) In the event that the Revolving Credit Loan Limit is less than
forty-seven percent (47%) of the Pledged Stock Value on any Valuation Date
(based on the valuation required under subparagraph 5(b) above), the
Borrowers, within three (3) Business Days of the Valuation Date, may
request that the Bank return to the Borrowers such number of shares of the
Pledged Stock as is necessary so that the Revolving Credit Loan Limit is
not less than forty-seven percent (47%) of the Pledged Stock Value. The
Borrowers' right to make such a request for the return of Pledged Stock
shall be limited to three (3) requests per calendar year. The Bank shall
not be required to return Pledged Stock under this subparagraph 5(d) until
such steps have been taken as the Bank has determined are necessary to
ensure the Bank's continued position as the holder of a perfected lien in
the Pledged Stock retained by the Bank.'
13. The Original Loan Agreement shall be amended to add a subparagraph 8(l)
thereto, which such subparagraph shall read in its entirety as follows:
'(l) Sales of Assets; Mandatory Prepayments.
(i) At any time the Revolving Credit Loan Commitment or the
outstanding principal balance of the Term Note, as applicable, is greater
than Eight Million Four Hundred Thousand Dollars ($8,400,000), the
Borrowers shall provide the Bank with forty-five (45) days' prior written
notice of the intended sale of any Qualified Asset. For purposes of this
Agreement, the term 'Qualified Asset' shall refer to (i) any asset or
assets (including without limitation any shares of stock) sold by any
Borrower or any Subsidiary in any one transaction if the Net Proceeds (as
hereinafter defined) received by the seller for such sale exceed $250,000,
or (ii) any assets (including without limitation any shares of stock) sold
during any consecutive six (6) month period by the Borrowers and the
Subsidiaries which are not described in clause (i) if the aggregate Net
Proceeds received by the seller for such assets exceeds $250,000.
(ii) For purposes of this subparagraph 8(l), the term 'Net Proceeds'
shall mean:
(A) with respect to any asset (including without limitation any
shares of stock) sold by any Borrower or any Subsidiary (other than a
member of the MEDIQ PRN Group), the gross sales price of the asset less
the sum of (X) all reasonable expenses normally incurred and in fact
contemporaneously paid by the seller in connection with the sale of the
asset, (Y) all sales and/or transfer taxes required to be paid by
applicable law by the seller in connection with the sale of the asset
and in fact actually paid by the seller contemporaneously therewith and
all income taxes reasonably determined by the seller to be directly
attributable to the sale and actually paid by the seller (provided that,
if the seller later discovers that it has overestimated its income tax
liability with respect to the sale, the Borrowers shall immediately pay
to the Bank an amount equal to fifty percent (50%) of such
overestimate), and (Z) all amounts required to be paid, and in fact
contemporaneously paid, by the seller to release any liens or security
interests encumbering the asset (but only to the extent such liens or
security interests were specifically granted in connection with
indebtedness used to fund the acquisition of, or any improvement to, the
asset); and
(B) with respect to any asset (including without limitation any
shares of stock) sold by any member of the MEDIQ PRN Group, the gross
sales price of the asset less the sum of (X) all reasonable expenses
normally incurred and in fact contemporaneously paid by the seller in
connection with the sale of the asset, (Y) all sales and/or transfer
taxes required to be paid by applicable law by the seller in connection
with the sale of the asset and in fact actually paid by the seller
contemporaneously therewith and all income taxes reasonably determined
by the seller to be directly attributable to the sale and actually paid
by the seller (provided that, if the seller later discovers that it has
overestimated its income tax liability with respect to the sale, the
Borrowers shall immediately pay to the Bank an amount equal to fifty
percent
<PAGE>
(50%) of such overestimate), and (Z) all amounts required to be (i)
paid, and in fact contemporaneously paid, by the seller to release any
liens or security interests encumbering the asset (but only to the
extent such liens or security interests were specifically granted in
connection with indebtedness used to fund the acquisition of, or any
improvement to, the asset) or (ii) applied by the seller for a specific
purpose pursuant to the terms and provisions of any agreement (AA) to
which the seller was a party as of September 27, 1994 or (BB) entered
into between the members of the MEDIQ PRN Group in connection with the
KCI Transaction.
(iii) Immediately upon the sale of any Qualified Asset, the Borrowers
shall provide the Bank with a written statement signed by the chief
financial officer of each Borrower, and otherwise in form and substance
satisfactory to the Bank in its sole discretion, certifying the Net
Proceeds to be received by the applicable Borrower or Subsidiary from the
sale of such Qualified Asset and detailing how such Net Proceeds were
computed.
(iv) If the Net Proceeds received by any Borrower or any Subsidiary
for the sale of any Qualified Asset, when added to the aggregate Net
Proceeds received for all Qualified Assets sold by the Borrowers and the
Subsidiaries on or after October 1, 1994 exceeds Five Million Dollars
($5,000,000) at any time, the Borrowers shall be required to make an
immediate prepayment in cash or immediately available funds (hereinafter
referred to as a 'Mandatory Prepayment') on the outstanding principal
balance of the Revolving Credit Note or the Term Note, as applicable. The
amount of any Mandatory Prepayment required to be made by the Borrowers
hereunder shall be equal to fifty percent (50%) of the aggregate Net
Proceeds of the Qualified Assets in excess of Five Million Dollars
($5,000,000). Notwithstanding anything to the contrary contained herein, if
the Revolving Credit Loan Commitment (as adjusted pursuant to this
subparagraph 8(l)) or the then outstanding principal balance of the Term
Note, as applicable, is less than or equal to Eight Million Four Hundred
Thousand Dollars ($8,400,000), no additional Mandatory Prepayments pursuant
to this subparagraph 8(l) shall be required. The failure by the Borrowers
to make any Mandatory Prepayment required hereunder shall constitute an
immediate Event of Default, subject to no notice or grace period.
(v) If the purchase price for any Qualified Asset is payable in cash
or cash equivalents on a deferred basis (including without limitation
pursuant to any promissory note, instrument, contract or other agreement),
the Borrowers shall be required to make the Mandatory Prepayment otherwise
required to be paid in connection with the sale of such Qualified Asset
hereunder immediately when and as the payments for the Qualified Asset are
received by the seller of the Qualified Asset. In addition, if the purchase
price for any Qualified Asset is paid in a form other than cash or cash
equivalents (by way of example, and not in limitation thereof, through the
delivery of shares of stock or other personal property), the Borrowers
shall be required to make the Mandatory Prepayment otherwise required to be
paid in connection with the sale of such Qualified Asset hereunder upon the
conversion of such property into cash or cash equivalents (including
without limitation upon any sale of the property or any financing of the
property pursuant to which loan proceeds are received in exchange for the
granting of a lien on the property).
(vi) Any Mandatory Prepayment made by the Borrowers hereunder shall be
applied first to accrued and unpaid interest and then to the principal
payments due under the Revolving Credit Note or the Term Note, as
applicable, in the inverse order of maturity. If a Mandatory Prepayment is
made by the Borrowers prior to the conversion of the Revolving Credit Note
to the Term Note, then the Revolving Credit Loan Commitment shall be
reduced on a dollar-for-dollar basis by the amount of the Mandatory
Prepayment received by the Bank. No portion of the Revolving Credit Note or
the Term Note, as applicable, which is repaid or prepaid as the result of a
Mandatory Prepayment by the Borrowers pursuant to this subparagraph 8(l)
may be reborrowed.'
14. Subparagraph 9(c) of the Original Loan Agreement shall be amended to
read in its entirety as follows:
<PAGE>
'Fixed Charge Coverage. Permit the Borrowers' Fixed Charge Coverage to
be less than (i) 1.15 to 1.00 as of the fiscal year of the Borrowers ending
September 30, 1995, and (ii) 1.25 to 1.00 as of the end of each fiscal year
of the Borrowers thereafter.'
15. Subparagraph 9(d) of the Original Loan Agreement shall be amended to
read in its entirety as follows:
'(d) Minimum Tangible Capital Funds. Permit the
Borrowers' Minimum Tangible Capital Funds to be less than:
(i) $77,000,000 as of the last day of the Borrowers' fiscal year
ending September 30, 1994 and the last day of each of the first three
fiscal quarters of the Borrowers fiscal year ending September 30, 1995;
(ii) $82,000,000 as of last day of the Borrowers' fiscal year ending
September 30, 1995 and the last day of each of the first three fiscal
quarters of the Borrowers' fiscal year ending September 30, 1996;
(iii) $92,000,000 as of last day of the Borrowers' fiscal year ending
September 30, 1996 and the last day of each fiscal quarter of the
Borrowers' thereafter.'
16. Subparagraph 9(e) of the Original Loan Agreement shall be amended to
read in its entirety as follows:
'Senior Liabilities to Minimum Tangible Capital Funds. Permit the ratio
of the Borrowers' Senior Liabilities to the Borrowers' Minimum Tangible
Capital Funds to exceed (i) 3.70 to 1.00 as of the last day of the
Borrowers' fiscal year ending September 30, 1994 and the last day of each
of the first three fiscal quarters of the Borrowers' fiscal year ending
September 30, 1995, (ii) 3.40 to 1.00 as of the last day of the Borrowers'
fiscal year ending September 30, 1995 and the last day of each of the first
three fiscal quarters of the Borrowers' fiscal year ending September 30,
1996, (iii) 3.20 to 1.00 as of the last day of the Borrowers' fiscal year
ending September 30, 1996 and the last day of each of the first three
fiscal quarters of the Borrowers' fiscal year ending September 30, 1997,
and (iv) 3.00 to 1.00 as of the last day of the Borrowers' fiscal year
ending September 30, 1997 and the last day of each fiscal quarter of the
Borrowers' ending thereafter.'
17. Subparagraph 9(f) of the Original Loan Agreement shall be amended to
read in its entirety as follows:
'(f) Stock of NutraMax and PCI. Sell, register, or pledge or cause, or
permit any of its Subsidiaries to sell, register or pledge, any of the
capital stock of NutraMax or PCI unless pursuant to the terms of (i) a
certain employee stock ownership plan implemented by NutraMax on behalf of
its employees in effect as of April 28, 1988, for a ten year period, (ii) a
certain employee stock ownership plan implemented by PCI on behalf of its
employees in effect as of September 21, 1991, or (iii) the 7 1/2%
Indenture.'
18. Simultaneously with the execution and delivery of this Amendment by the
Borrowers, the Borrowers shall pay to the Bank a non-refundable facility fee in
the amount of $50,000 (the 'Facility Fee'), with respect to the commitment by
the Bank to increase the Revolving Credit Loan Commitment hereunder. In
addition, upon the earlier to occur of (a) a reduction, pursuant to
subparagraphs 5(c) or 8(l) of the Original Loan Agreement, as amended herein, in
the Revolving Credit Loan Commitment to Eight Million Four Hundred Thousand
Dollars ($8,400,000), (b) the conversion of the Revolving Credit Note to the
Term Note, and (c) the payment in full of all of the Obligations owed by the
Borrowers to the Bank, the Borrowers hereby agree that they shall be jointly and
severally liable for the immediate payment to the Bank of a termination fee in
the amount of $25,000.
19. The Original Pledge Agreement shall be amended so that all references
to (a) 'Loan Agreement' contained therein shall mean the Original Loan
Agreement, as amended herein, and as further amended, supplemented or modified
from time to time, and (b) 'Revolving Credit Note' contained therein shall mean
the Restated Note, as further amended, supplemented or modified from time to
time.
<PAGE>
20. Paragraph 2 of the Original Pledge Agreement shall be amended to read
in its entirety as follows:
'2. Pledge of Stock. (a) As security for (i) the punctual performance
in full by the Borrowers, NutraMax Products, Inc., a Delaware corporation
('NutraMax'), and PCI Services, Inc., a Delaware corporation ('PCI',
together with NutraMax, the 'Issuers') of their respective obligations
under the Loan Documents, (ii) the punctual payment in full of all amounts
owing or to be owing under any Loan Document, (iii) the punctual payment of
any other amounts which at any time may be due and payable from either
Borrower to the Bank, and (iv) the punctual performance in full by the
Borrowers of their respective obligations under this Agreement, in each
case whether presently or hereafter arising (collectively, the
'Obligations'), the Pledgor hereby delivers, pledges and grants to the Bank
a security interest in all of the Pledgor's right, title and interest in
and to (A) 1,782,356 shares (the 'NutraMax Shares') of the Common Stock of
NutraMax and (B) 1,550,000 shares (the 'PCI Shares', together with the
NutraMax Shares, the 'Shares') of the common stock of PCI, and such other
shares of Common Stock of the Issuers as is hereinafter required to be
pledged by the Borrowers to the Bank pursuant to subparagraph 5(c) of the
Loan Agreement (collectively, the 'Pledged Stock'), and all certificates,
options, rights or other distributions issued as an addition to, in
substitution or exchange for, or on account of, any share of the Pledged
Stock, and all proceeds of all the foregoing, now or hereafter owned or
acquired by the Pledgor (the 'Stock').
(b) The Shares of the Pledged Stock issued by NutraMax are recorded
in the stock ledger of NutraMax in the name of the Pledgor, and are
represented by two (2) stock certificates (the 'NutraMax Share
Certificates') bearing Certificate Nos. NMP5424 and NMP6027, issued to
the Pledgor. The NutraMax Share Certificates accompanied by stock powers
duly executed in blank have heretofore been delivered to the Bank to be
held by the Bank as provided in this Agreement.
(c) The Shares of the Pledged Stock issued by PCI are recorded in
the stock ledger of PCI in the name of the Pledgor, and are represented
by two (2) stock certificates (the 'PCI Share Certificates' together,
with the NutraMax Share Certificates, the 'Share Certificates') of PCI
bearing Certificate Nos. P0394 and P0397, issued to the Pledgor. The PCI
Share Certificate, accompanied by stock powers duly executed in blank
have heretofore been delivered to the Bank to be held by the Bank as
provided in this Agreement.
(d) The Bank accepts the deposit and pledge of the Stock made by
the Pledgor hereunder, acknowledges the receipt of the Share
Certificates and their accompanying stock powers, and agrees to hold the
Stock in accordance with the terms and provisions of this Agreement.'
21. Simultaneously with the execution and delivery of this Amendment by the
Borrowers, Investment is delivering to the Bank 1,300,000 shares of PCI's common
stock, par value $.001 per share (the 'Additional PCI Shares') to be held by the
Bank as Pledged Stock pursuant to the terms and provisions of the Original Loan
Agreement, as amended herein, and the Original Pledge Agreement, as amended
herein, as security for all Obligations arising under the Original Loan
Agreement, as amended herein, the Restated Note, and the Term Note, if
applicable. The Borrowers hereby, jointly and severally, represent, covenant and
warrant to the Bank that the Additional PCI Shares are freely transferrable by
the Bank pursuant to the terms and provisions of the Original Pledge Agreement,
as amended herein, following the occurrence of an Event of Default without
further registration with, or further approval by, or notice to, any federal or
state governmental authority.
22. The Borrowers acknowledge that, as of September 27, 1994, the principal
amount outstanding under the Original Note is $1,597,222.40 and the aggregate
face amount of all outstanding Letters of Credit is $2,033,000.00, that such
amounts are owing to the Bank without any claim, defense or set-off, and that
such amounts shall be treated as having been advanced to each of the Borrowers
(who shall be jointly and severally liable for the repayment thereof to the
Bank). This Amendment does not
<PAGE>
constitute the extinguishment of any debt evidenced by the Original Note and the
Borrowers confirm their full liability with respect thereto.
23. Pursuant to the terms of paragraph 6 of the Original Loan Agreement, as
amended herein, the Borrowers have provided to the Bank, as security for all
Obligations arising under the Original Loan Agreement, the Original Note, the
Term Note, if applicable, and each other Loan Document, an unconditional pledge
of the Pledged Stock, including without limitation the Additional PCI Shares,
pursuant to the terms and provisions of the Original Pledge Agreement, as
amended herein. The Borrower hereby ratifies and confirms without condition the
pledge of the Pledged Stock, including without limitation the Additional PCI
Shares, granted to the Bank under and pursuant to the Original Loan Agreement,
as amended herein, including without limitation those liens and security
interests granted under the Original Pledge Agreement, as amended herein; and
further ratifies and confirms, without condition, that (a) such liens and
security interests shall secure all amounts due or to become due under the
Original Loan Agreement, as amended herein, the Restated Note, the Term Note, if
applicable, the LC Agreement, and any LC Application, including without
limitation, any amounts paid by the Bank on account of any draft issued under,
or purporting to have been issued under, the LC Agreement, any LC Application or
any Letter of Credit, and (b) the perfected status and priority of such liens
and security interests shall not be affected in any way by the amendments to the
Original Loan Agreement and the Original Pledge Agreement set forth herein or
the execution and delivery by the Borrowers of the Restated Note.
24. All representations, warranties and covenants of the Borrowers
contained in the Original Loan Agreement or the Original Pledge Agreement, are
hereby ratified and confirmed without condition as if made anew upon the
execution of this Amendment and are hereby incorporated by reference. All
representations, warranties and covenants of the Borrowers, whether hereunder,
or contained in the Original Loan Agreement or the Original Pledge Agreement,
shall remain in full force and effect until all amounts due under the Original
Loan Agreement and the Original Pledge Agreement, each as amended herein, the
Restated Note, the Term Note, if applicable, the LC Agreement, and any LC
Application are satisfied in full. The Borrowers represent and warrant that
there has been no changes or modifications to the provisions of the Certificate
of Incorporation or By-Laws of each Borrower which were previously delivered to
the Bank in connection with the Original Loan Agreement.
25. As a condition precedent to the effectiveness of this Amendment,
simultaneously with the execution and delivery of this Amendment, the Borrowers
shall deliver to the Bank the following:
(a) A certificate of the Secretary or an Assistant Secretary of each
Borrower certifying the names of the officers of such Borrower authorized
to execute this Amendment, the Restated Note, and any other document
hereunder;
(b) Certified copies of resolutions of the directors of each Borrower
authorizing the execution, delivery and performance of this Amendment, the
Restated Note, and any other document hereunder, which resolutions shall be
in form and substance satisfactory to the Bank in its sole discretion;
(c) The fully executed Restated Note;
(d) The Additional PCI Shares and stock powers executed in blank (in
form satisfactory to the Bank);
(e) A favorable opinion of Alan Einhorn, general counsel to the
Borrowers, addressed to the Bank, in substantially the form of Annex II
hereto, and as to such other matters as the Bank may reasonably request;
(f) An acknowledgment executed by an authorized officer of NutraMax,
substantially in the form of Annex III attached hereto, and otherwise in
form and substance satisfactory to the Bank in its sole discretion, that
the amendments to the Original Loan Agreement and the Original Pledge
Agreement effectuated by this Amendment do not affect, in any way, the
obligations of NutraMax
<PAGE>
set forth in that certain Letter Agreement dated as of October 14, 1993
between the Bank and NutraMax;
(g) An acknowledgment executed by an authorized officer of PCI,
substantially in the form of Annex IV attached hereto, and otherwise in
form and substance satisfactory to the Bank in its sole discretion, that
the amendments to the Original Loan Agreement and the Original Pledge
Agreement effectuated by this Amendment do not affect, in any way, the
obligations of PCI set forth in that certain Letter Agreement dated as of
August 9, 1994 between the Bank and PCI;
(h) Evidence satisfactory to the Bank, in its reasonable discretion,
that the value of the Pledged Stock, including without limitation the PCI
Shares, based on the last trade price of the Pledged Stock quoted on the
Nasdaq National Market System on the last Business Day immediately
preceding the date hereof, is not less than $28,510,640;
(i) Evidence of all other actions necessary or, in the opinion of the
Bank, desirable to create, perfect and protect the security interests and
liens intended to be created by the Original Pledge Agreement, as amended
herein;
(j) Good standing certificates for the Borrowers, PCI and NutraMax;
(k) A Form U-1, completed and executed by the Borrowers, setting forth
in detail the purpose of the Revolving Credit Loan, as amended herein;
(l) Payment in full of the Facility Fee; and
(m) Evidence satisfactory to the Bank in its sole discretion that a
Notice, in the form of Annex V attached hereto has been executed by the
Borrowers and delivered to the Trustee named in each of the 7 1/4%
Indenture and the 7 1/2% Indenture.
26. Except as modified by the terms hereof, all terms, provisions and
conditions of the Original Loan Agreement and the Original Pledge Agreement, and
all documents duly executed and delivered in connection therewith, are in full
force and effect, and are hereby incorporated by reference as if set forth
herein. This Amendment, the Original Loan Agreement, the Original Pledge
Agreement, and the Restated Note shall be deemed as complementing and not
restricting the Bank's rights hereunder or thereunder. If there is any conflict
or discrepancy to the provisions of this Amendment in any provision of the
Original Loan Agreement, the Original Pledge Agreement, or the Restated Note,
the terms and provisions of this Amendment shall control and prevail.
27. Each Borrower hereby acknowledges and agrees that a default by the
Borrowers in the performance or observance of any term, covenant or agreement
contained in this Amendment, including without limitation the failure to deliver
any item required by paragraph 25 hereof shall constitute an immediate Event of
Default under the Original Loan Agreement, as amended herein, subject to no
notice or grace period.
28. Each Borrower hereby represents, warrants and certifies to Bank that no
Default or Event of Default has occurred and is presently existing under the
Loan Documents.
29. This Amendment (a) shall be construed and enforced in accordance with
the laws of the State of New Jersey; (b) shall inure to the benefit of, and be
binding upon, the parties hereto and their respective successors and assigns;
(c) may be executed in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument; and (d) may only be amended or modified pursuant to a writing signed
by the parties hereto.
<TABLE>
<S> <C>
30. EACH BORROWER HEREBY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO A JURY TRIAL IN _____________
CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST THE BANK WITH RESPECT TO THE RIGHTS AND Initials
OBLIGATIONS OF THE PARTIES HERETO.
</TABLE>
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed and delivered by their respective officers thereunto duly authorized,
as of the __ day of September, 1994.
<TABLE>
<S> <C>
UNITED JERSEY BANK, A STATE BANKING
ASSOCIATION (SUCCESSOR IN INTEREST
TO UNITED JERSEY BANK/SOUTH, N.A.)
BY: Dante J. Bucci,
Vice President
ATTEST: MEDIQ INCORPORATED
BY:
NAME: NAME:
TITLE: TITLE:
[SEAL]
ATTEST: MEDIQ INVESTMENT SERVICES, INC.
BY:
NAME: NAME:
TITLE: TITLE:
[SEAL]
</TABLE>
<PAGE>
ANNEX I
FORM OF SECOND AMENDED AND RESTATED REVOLVING CREDIT NOTE
$13,400,000.00 September 29, 1994
FOR VALUE RECEIVED, the undersigned, MEDIQ INCORPORATED, a Delaware
corporation, and MEDIQ INVESTMENT SERVICES, INC., a Delaware corporation
(collectively, the 'Borrowers'), hereby, jointly and severally, promise to pay
to the order of UNITED JERSEY BANK, a state banking association (as successor in
interest to United Jersey Bank/South, N.A.) (the 'Bank'), as hereinafter
provided, the principal sum of THIRTEEN MILLION FOUR HUNDRED THOUSAND DOLLARS
($13,400,000.00), or so much thereof as shall have been advanced pursuant to
Paragraph 2 of the Revolving Credit and Term Loan Agreement dated as of October
14, 1993, as amended by a certain Amendment No. 1 to Revolving Credit Loan
Agreement and Pledge and Security Agreement, dated as of August 9, 1994, between
the Borrowers and the Bank, and a certain Amendment No. 2 to Revolving Credit
Loan Agreement and Pledge and Security Agreement, dated as of the date hereof,
between the Borrowers and the Bank (collectively, the 'Loan Agreement'),
together with interest on the unpaid principal hereof from the date of this Note
until said principal shall be paid, at a floating rate per annum equal to one
(1) percentage point in excess of the Bank's Base Rate as from time to time in
effect. The term 'Base Rate' as utilized herein refers to the fluctuating rate
of interest determined by the Bank from time to time as a means of pricing some
loans to some of its customers and is neither tied to an external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by the Bank to any particular category or class of customers of
the Bank.
Both the principal of and interest on this Note are payable in lawful money
of the United States of America to the Bank at the Bank's principal offices in
Cherry Hill, New Jersey in same day funds.
Interest on the unpaid principal balance hereof shall be computed on the
basis of a 360 day year for the actual number of days elapsed and changes in the
interest rate will be effective concurrently with changes in the Base Rate.
All interest accruing on this Note in each calendar month shall be due and
payable on the first day of the following month, commencing on October 1, 1994,
and shall become immediately due and payable upon the principal hereof becoming
due and payable. The Borrowers shall, jointly and severally, repay the entire
unpaid principal amount of this Note on October 14, 1995.
In the event that any payment of interest or principal hereunder shall not
be received by the Bank on its due date, the Bank shall, in addition to and not
to the exclusion of its other rights under this Note or the Loan Agreement, be
entitled to, and the Borrowers shall, jointly and severally, pay to the Bank, a
late charge in an amount equal to the lesser of (a) five percent (5%) of the
overdue payment or (b) $1,000. Late charges assessed by the Bank are immediately
due and payable.
This Note may at the Borrowers' option be prepaid in whole or in part, at
any time and from time to time, without penalty or premium; provided, however,
such repayments shall be in amounts of $50,000 or more, and applied first to
accrued and unpaid interest and then to the outstanding principal balance of
this Note.
If the date of any payment required by this Note be Saturday, Sunday or a
bank holiday, such payment shall be payable on the first business day following
such date. Payments made pursuant to this Note shall be deemed made the banking
day payment is received by the Bank; payments received after 3:00 P.M. shall be
deemed made the next banking day.
This Note is the Revolving Credit Note referred to in, and is entitled to
the benefits of, the Loan Agreement. This Note has the benefit of the stock
pledge required under Paragraph 5 of the Loan Agreement.
<PAGE>
In case an Event of Default (as such term is defined in the Loan Agreement)
shall happen and be continuing, the holder of this Note may declare the entire
outstanding principal of this Note, and all accrued, unpaid interest thereon, to
be due and payable immediately, and upon any such declaration such principal and
interest shall become and be immediately due and payable without further action.
Upon and after the occurrence of such an Event of Default and during the
continuation thereof, the outstanding principal balance hereof shall bear
interest at a fluctuating rate per annum equal to three percent (3%) above the
interest rate then in effect hereunder (the 'Default Rate'). Such provision for
the payment of interest at the Default Rate shall be in addition to, and not in
limitation of, the Bank's other remedies provided hereunder or under the Loan
Agreement.
Should the indebtedness represented by this Note or any part thereof be
collected in any proceeding or placed in the hands of attorneys for collection,
the Borrowers, jointly and severally, agree to pay, in addition to the principal
and interest due and payable hereon, all costs of collecting this Note,
including reasonable attorneys' fees and expenses.
Each Borrower expressly waives presentment for payment, demand, notice of
dishonor, notice of protest, protest or any other notice whatsoever.
Each Borrower hereby irrevocably and unconditionally agrees that any suit,
action, or other legal proceeding arising out of or in connection with this Note
shall be brought in the courts of record of the State of New Jersey or the
courts of the United States located in said state, consents to the jurisdiction
of each such court in any such suit, action or proceeding, and waives any
objection to the venue of any such suit, action, or proceeding in any of such
courts.
<TABLE>
<S> <C>
EACH BORROWER HEREBY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO A JURY TRIAL IN ___________
CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST THE BANK WITH RESPECT TO THIS NOTE OR THE Initials
OBLIGATIONS OF THE BORROWERS HEREUNDER.
</TABLE>
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed,
sealed and delivered on the date first above written.
<TABLE>
<S> <C>
Attest: MEDIQ INCORPORATED
BY: BY:
, Secretary , President
[SEAL]
Attest: MEDIQ INVESTMENT SERVICES, INC.
BY: BY:
, Secretary , President
[SEAL]
</TABLE>
<PAGE>
ASSET SALE AGREEMENT
BY AND BETWEEN
MEDIQ MANAGEMENT SERVICES, INC., AS SELLER
AND
ZURBRUGG MEMORIAL HOSPITAL, AS BUYER
DATED AS OF: September 30, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PARAGRAPH
NO. TITLE PAGE
- ------------ --------------------------------------------------------------------------------------------- -----
1 Transfer of Assets........................................................................... 2
2 Purchase Price............................................................................... 2
3 Assumption of Obligations of Seller.......................................................... 5
4 Representations and Warranties of Seller..................................................... 5
5 Obligations and Covenants of Seller.......................................................... 8
6 Representations and Warranties of Buyer...................................................... 9
7 Conditions Precedent to Obligations of Buyer................................................. 10
8 Conditions Precedent to Obligations of Seller................................................ 13
9 Closing...................................................................................... 14
10 'AS IS' Purchase............................................................................. 15
11 Additional Covenants......................................................................... 16
12 Survival of Representations.................................................................. 19
13 Indemnification.............................................................................. 19
14 Termination.................................................................................. 23
14A Restrictive Covenant......................................................................... 24
15 General Provisions........................................................................... 25
</TABLE>
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
9(b)(iii) Seller Management Agreement
11(a) Prepaid Expenses
</TABLE>
<PAGE>
ASSET SALE AGREEMENT
THIS ASSET SALE AGREEMENT ('Agreement') is made and effective as of the
30th day of September, 1994 by and between MEDIQ Management Services, Inc., a
Delaware corporation ('Seller') and Zurbrugg Memorial Hospital, a New Jersey
non-profit corporation ('Buyer'), with reference to the following facts:
W I T N E S S E T H:
WHEREAS, Seller owns and operates a business in connection with the
management of a certain lithotripsy center (the 'Center') located in Marlton,
New Jersey; and
WHEREAS, by Agreement dated June 4, 1985 as amended by addendums dated 1986
and January 20, 1989 (the 'Management Agreement') by and between Seller and
Jersey Kidney Specialists, P.A. ('JKS') Seller agreed to provide certain
management services, a lithotripter (the 'Lithotripter') and other equipment,
leased space and leasehold improvements to JKS with respect to the operation of
the Center; and
WHEREAS, Buyer desires to purchase from Seller and Seller desires to sell
to Buyer all of Seller's right, title and interest with respect to the
Management Agreement on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, and the
representations, warranties and covenants herein contained, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
1. TRANSFER OF ASSETS
(a) Transferred Assets. At the Closing (as hereinafter defined in paragraph
9), for the consideration hereinafter provided, Seller shall sell, transfer,
convey and assign to Buyer, and Buyer shall purchase from Seller, all right,
title and interest of Seller with respect to the Management Agreement as of the
date of Closing (the 'Assets').
(b) Retained Assets. At the Closing, Seller shall retain all accounts
receivable with respect to the performance of services under the Management
Agreement through the Effective Date.
2. PURCHASE PRICE
(a) The purchase price (the 'Purchase Price') to be paid by Buyer to Seller
for the Assets shall be Seven million ($7,000,000) dollars.
(b) At the Closing:
(i) Buyer shall wire transfer immediately available funds to an
account designated by Seller in the amount of Four million ($4,000,000)
dollars; and
(ii) Buyer shall remit to Seller an amount equal to all sales tax, if
any, due and payable in connection with the transactions contemplated
herein.
(c) The balance of the Purchase Price shall be paid by Buyer to Seller as
follows:
(i) From the Annual Net Pre-Tax Earnings (as defined in subparagraph
2(c)(iv) below) derived from the operations of the Center subsequent to the
Effective Date, during each twelve-month period (each a 'Payout Year')
commencing on the day after the Effective Date (as defined in paragraph 9)
and each anniversary thereof: (A) Buyer shall retain the initial One
million ($1,000,000) dollars; (B) the next Five hundred thousand ($500,000)
dollars shall be paid by Buyer to Seller; and (C) all amounts in excess of
One million five hundred thousand ($1,500,000) dollars shall be divided
equally between Seller and Buyer. In no event, however,
<PAGE>
shall the aggregate amount paid by Buyer to Seller pursuant to this
subparagraph 2(c)(i) exceed Three million ($3,000,000) dollars (the
'Maximum Amount').
(ii) All amounts due from Buyer to Seller pursuant to this
subparagraph 2(c) shall be paid within sixty (60) days of the end of each
quarter of each Payout Year. In the event that a payment hereunder is not
made in a timely fashion and such breach continues for a period of twenty
(20) days or more after written notice from Seller, the balance due,
pursuant to this subparagraph 2(c), of the Maximum Amount shall immediately
become due and payable in full.
(iii) Buyer shall cause the business activities and operations of the
Center subsequent to the Effective Date to be accounted for separately from
any other business activities and operations of Buyer, its parent,
affiliates and subsidiaries.
(iv) Annual Net Pre-Tax Earnings shall be computed in accordance with
generally accepted accounting principles consistently applied.
Notwithstanding the foregoing, in the computation of Annual Net Pre-Tax
Earnings, for purposes of this paragraph 2, there shall be excluded from
consideration, either as income or expense: (A) depreciation; (B) any
management fees, allocation of administrative overhead or other similar or
dissimilar charges by Buyer or any subsidiary, or parent of Buyer or any
person or entity affiliated with Buyer, or any allocation with respect to
the operations of the Center of any sum for legal or accounting services,
other than, as to each of the foregoing, charges for such services actually
rendered; (C) amortization of goodwill arising out of the transactions
contemplated by this Agreement; (D) extraordinary or non-recurring items;
or (E) interest or other charge for the use of funds.
(v) The computation of Annual Net Pre-Tax Earnings shall be made by
Buyer, and certified by Buyer's regularly employed independent certified
public accountants.
A copy of the computation shall be delivered by Buyer to Seller within
sixty (60) days of the end of each quarter of each Payout Year together
with the amount, if any, then due from Buyer to Seller.
(vi) Any dispute between the parties regarding the computation of
Annual Net Pre-Tax Earnings shall be resolved by arbitration before a
single arbitrator selected in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. All expenses of the
arbitrator shall be shared equally by the parties.
3. ASSUMPTION OF OBLIGATIONS OF SELLER
Except as set forth in the Seller Management Agreement (as defined in
subparagraph 9(b)(iii)), Buyer shall not assume or become obligated with respect
to any obligation or liability of Seller (the 'Excluded Liabilities'),
including, without limiting the generality of the foregoing, the following:
obligations arising from the breach by Seller on or prior to the Effective Date
of any term, covenant or provision of any of contract or other obligations of
Seller now existing or which may hereafter exist by reason of, or in connection
with, any alleged misfeasance or malfeasance of Seller on or prior to the
Effective Date. The Excluded Liabilities shall remain the sole responsibility of
Seller.
4. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
(a) Organization of Seller. Seller is a corporation duly incorporated
and validly existing under the laws of the State of Delaware and is
authorized to exercise its corporate powers, rights and privileges in the
State of New Jersey and has full corporate power to carry on its business
as presently conducted and as will be conducted through the Closing and to
own or lease and operate its properties and assets now owned or leased and
operated by it.
(b) Authority. Seller has the full corporate power and authority to
execute, deliver and perform the obligations and covenants set forth in
this Agreement and to carry out the transactions contemplated hereby. The
execution and delivery of this Agreement by Seller and the
<PAGE>
consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Seller and no further corporate
action is necessary on the part of Seller to make this Agreement binding
upon Seller in accordance with its terms. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not violate or conflict with any provision of the
Certificate of Incorporation or Bylaws of Seller.
(c) Title to the Assets. Seller has title to the Assets free and clear
of all liens, encumbrances, covenants, conditions, restrictions, charges or
other rights, claims or interests of any third party whatsoever.
(d) Third Party Rights. Except for the consent of JKS pursuant to
paragraphs 10 and 11 of the Management Agreement, as of the Closing Seller
may transfer and assign to Buyer all of its right, title and interest in
and to the Assets, without obtaining the consent or approval of any other
person or party.
(e) Litigation. There are no actions, suits, claims or proceedings
pending, or to the current actual knowledge of Seller, threatened against
or affecting the Assets (including the Management Agreement) or
Lithotripter at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, agency or
instrumentality.
(f) Compliance with Laws. Seller has managed the Center in compliance
in all material respects with all applicable laws and regulations and the
Management Agreement.
(g) Employees. (i) Seller is not a party to any agreement with any
union, trade association or other employee organization with respect to the
employees of Seller located at the Center, (ii) there are currently no
union disputes, grievances, charges, complaints or proceedings involving
the employees of Seller located at the Center, (iii) no demand has been
made for recognition by a labor organization with respect to any employees
of Seller located at the Center, and (iv) no union organizing activities by
or with respect to any such employees are taking place.
(h) Brokers. Seller has not employed, contracted for the services of
or authorized any broker, finder or investment banker with respect to the
negotiations leading up to the execution of this Agreement or the
consummation of the transactions contemplated hereby, and Seller shall be
solely responsible for any fees or commissions payable to any such broker,
finder or investment banker by reason of the actions (or alleged actions)
of Seller.
(i) Condition of the Lithotripter. Seller has performed all necessary
routine maintenance on the Lithotripter. At the Closing the Lithotripter
will be in proper operating condition.
5. OBLIGATIONS AND COVENANTS OF SELLER
Seller hereby covenants and agrees as follows:
(a) Conduct of Business. From the date hereof to the Closing Date,
Seller agrees that, with respect to its management activities at the
Center, unless Buyer otherwise consents in writing Seller shall operate its
business with respect to the Center as presently operated and only in the
ordinary course, and, consistent with such operation, will comply in all
material respects with all applicable legal and contractual obligations;
provided, however, that Seller may terminate prior to the Closing Date any
contract that it does not consider material to the operations of the
Center, and any change in the management activities of Seller with respect
to the Center as a result of such termination shall not constitute a
violation of this paragraph 5(a).
(b) Access and Information. Subject to the provisions contained in
paragraph 11(c) hereof, Seller shall afford Buyer and the counsel,
accountants and other representatives of Buyer reasonable access,
throughout the period from the date hereof to the Closing, to the Assets
and Lithotripter and all the books, contracts, commitments, tax returns,
reports and records of Seller relating to the Assets. Such access shall be
afforded after no less than 24 hours prior notice, during normal business
hours and only in such manner so as not to disturb patient care or to
<PAGE>
interfere with the normal operations of the Center; provided, however,
that, notwithstanding the foregoing, without first obtaining the written
consent of Jo Surpin, neither Buyer nor its counsel, accountants or other
representatives shall tour or visit the Center or contact any of the
employees, personnel or medical staff of the Center or of Seller. Seller's
covenants under this paragraph 5(b) are made with the understanding that
Buyer shall use all such information in compliance with all laws.
(c) Consent of Others. As soon as reasonably practicable after the
date hereof, and in any event prior to the Closing, Seller shall use its
reasonable commercial efforts to obtain the consents required to be
obtained by Seller hereunder of all necessary persons and entities to the
consummation of the transactions contemplated hereunder, including, without
limitation, the third-party consents specified in paragraph 4(d). Seller
shall have no liability to Buyer if, after using its reasonable commercial
efforts, it is unable to obtain any of the consents referred to in the
first sentence of this paragraph.
6. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
(a) Organization. Buyer is a corporation duly incorporated, duly
organized and validly existing under the laws of, and is authorized to
exercise its corporate powers, rights and privileges in, the State of New
Jersey, and has full corporate power to carry on its business as
contemplated hereby.
(b) Authority. Buyer has the full corporate power and authority to
execute, deliver and perform the obligations and covenants set forth in
this Agreement and to carry out the transactions contemplated herein. The
execution, delivery and performance of this Agreement by Buyer and the
consummation of the transactions contemplated herein have been duly
authorized by the Board of Directors of Buyer, and no further corporate
action is necessary on the part of Buyer to make this Agreement binding
upon Buyer in accordance with its terms. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not (i) violate any law applicable to Buyer, or
(ii) violate or conflict with any provision of the Articles of
Incorporation or Bylaws of Buyer.
(c) Brokers. Buyer has not employed, contracted for the service of or
authorized any broker, finder or investment banker with respect to the
negotiations leading up to the execution of this Agreement or the
consummation of the transactions contemplated hereby, and Buyer shall be
solely responsible for any fees or commissions payable to any such broker,
finder or investment banker by reason of the actions (or alleged actions)
of Buyer.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
satisfaction or Buyer's waiver in writing, at or prior to the Closing, of each
of the following conditions:
(a) Accuracy of Warranties and Representations. Each of the
representations and warranties of Seller set forth in this Agreement and in
the Exhibits attached hereto shall be true and correct in all material
respects as of the date of this Agreement and at and as of the Closing Date
with the same force and effect as though such representations and
warranties had been made as of the Closing Date, except as to changes
occurring in the ordinary course of business of the Seller and/or Center
after the date of this Agreement and not materially adversely affecting the
Assets.
(b) Performance of Obligations. Seller shall have performed in all
material respects all agreements and covenants required by this Agreement
to be performed by it on or prior to the Closing.
(c) Third Party Consents. Seller shall have received all requisite
consents, approvals and authorizations of third parties as specified in
paragraph 4(d).
<PAGE>
(d) Instruments of Transfer. At the Closing, Seller shall have
delivered to Buyer such instruments of transfer, conveyance and assignment
as are reasonably requested by Buyer and reasonably satisfactory to counsel
for Buyer and Seller and which shall be effective to vest in Buyer title to
the Assets.
(e) Seller Management Agreement. At the Closing the parties shall have
entered into the Seller Management Agreement referenced in subparagraph
9(b)(iii).
(f) Officer's Certificate. Seller shall have delivered to Buyer a
certificate, dated as of the Closing, executed by its President or any Vice
President, on behalf of Seller (and not in such person's individual
capacity), stating that as of the Closing (i) Seller knows of no facts
except as specifically disclosed in writing in such certificate which would
cause Seller to be in breach of any of its representations and warranties
hereunder, and (ii) Seller has duly performed all obligations and covenants
to be performed by it hereunder.
(g) Certified Resolutions. Copies of the following shall have been
delivered to Buyer: (i) the resolutions of the Board of Directors of Seller
authorizing the execution of this Agreement and the performance of the
transactions contemplated herein which shall be certified as true, correct
and effective as of the Closing Date by the Secretary or Assistant
Secretary of Seller, and (ii) an incumbency certificate from Seller which
shall be certified as true, correct and effective as of the Closing Date by
the Secretary or Assistant Secretary of Seller.
(h) Condition of the Center and Lithotripter. At the Actual Closing
Date no casualty shall have occurred with respect to the Center or
Lithotripter such as would render the Center inoperable for a period in
excess of ninety (90) days.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
satisfaction or Seller's waiver in writing, at or prior to the Closing, of each
of the following conditions:
(a) Accuracy of Warranties and Representations. Each of the
representations and warranties of Buyer set forth in this Agreement shall
be true and correct in all material respects as of the date of this
Agreement and at and as of the Closing Date with the same force and effect
as though such representations and warranties had been made as of the
Closing Date.
(b) Performance of Obligations. Buyer shall have performed in all
material respects all agreements and covenants required by this Agreement
to be performed by it on or prior to the Closing.
(c) Payment of Purchase Price. Buyer shall have delivered, or caused
to be delivered, to Seller at the Closing (i) the immediately available
funds described in subparagraph 2(b)(i) and (ii) all other documents and
instruments to be delivered to Seller pursuant hereto.
(d) Seller Management Agreement. At the Closing, the parties shall
have entered into the Seller Management Agreement referenced in
subparagraph 9(b)(iii).
(e) Officer's Certificate. Buyer shall have delivered to Seller a
certificate, dated as of the Closing, executed by its President or any Vice
President, on behalf of Buyer (and not in such person's individual
capacity), stating that as of the Closing (i) Buyer knows of no facts
except as specifically disclosed in writing in such certificate which would
cause Buyer to be in breach of any of its representations and warranties
hereunder, and (ii) Buyer has duly performed all obligations and covenants
to be performed by it hereunder.
(f) Certified Resolutions. Copies of the following shall have been
delivered to Seller: (i) the resolutions of the Board of Directors of Buyer
authorizing the execution of this Agreement and the performance of the
transactions contemplated herein, which shall be certified as true, correct
and effective as of the Closing Date by the Secretary or Assistant
Secretary of Buyer, and (ii) an
<PAGE>
incumbency certificate of Buyer which shall be certified as true, correct
and effective as of the Closing Date by the Secretary or Assistant
Secretary of Buyer.
9. CLOSING
(a) The Closing shall take place on September 23, 1994, at a time and a
place mutually agreeable to the parties. The date on which the Closing actually
occurs shall be referred to herein as the 'Actual Closing Date'. Notwithstanding
anything to the contrary contained herein, the Closing shall be deemed effective
for all purposes as of the close of business on September 30, 1994 (the
'Effective Date').
(b) Deliveries at Closing. At the Closing, Buyer shall cause the portion of the
Purchase Price referred to in subparagraph 2(b)(i) to be wired to the account
designated by Seller and, upon oral confirmation from the sending bank that said
wire transfer has commenced, the parties shall take the actions set forth below:
(i) Seller. Seller shall deliver to Buyer the instruments of transfer,
conveyance and assignment as described in Paragraph 7(d) and the other
agreements, documents and instruments referred to in Paragraph 7.
(ii) Buyer. Buyer shall deliver to Seller the agreements,
certificates, documents and instruments referred to in Paragraph 8. Buyer
shall also deposit with Seller an amount equal to all sales tax owed by
Buyer in connection with the transactions contemplated herein.
(iii) Seller Management Agreement. The parties shall enter into the
management agreement ('Seller Management Agreement') attached hereto and
made a part hereof as Exhibit 9(b)(iii) whereby Seller shall manage the
operations of the Center for Buyer until such time as the payments made by
Buyer to Seller pursuant to subparagraph 2(c) above shall equal Three
million ($3,000,000) dollars.
10. 'AS IS' PURCHASE
Buyer acknowledges and agrees (and upon which Seller shall have materially
relied in selling the Assets at the Purchase Price and on the other terms and
conditions herein set forth) that prior to the execution of this Agreement Buyer
shall have inspected the Assets and Lithotripter and conducted its due diligence
regarding the transactions contemplated herein. Upon the Closing, Buyer shall
conclusively be deemed to have been satisfied with the results of said
inspection. Based on its inspection, Buyer is purchasing the Assets on an 'AS
IS' basis and in 'WITH ALL FAULTS' condition and Seller makes no warranty,
whether expressed or implied, regarding the Assets except as specifically set
forth in this Agreement.
11. ADDITIONAL COVENANTS
The following provisions shall apply, and the following actions shall be
taken, prior to or subsequent to the Closing:
(a) Prepaid Expenses. Exhibit 11(a) describes certain prepaid expenses
(including credits with Dornier Company) that Seller has incurred in
connection with the operation of the Center through August 31, 1994. Seller
hereby grants to Buyer the right to use said prepaid expenses in connection
with the operations of the Center subsequent to the Closing. Buyer agrees
that as said prepaid expenses are utilized by Buyer, or on behalf of Buyer,
it shall reimburse Seller an amount equal to the amount so utilized.
(b) Further Assurances. From time to time, at the request of either
party, whether on or after the Closing, without further consideration,
either party, at its expense and within a reasonable amount of time after
request hereunder is made, shall execute and deliver such further
instruments of assignment and transfer and take such other action as may be
reasonably required to more
<PAGE>
effectively assign and transfer the Assets to Buyer or the payment of the
Purchase Price to Seller or any amounts due from one party to the other
pursuant to the terms of this Agreement.
(c) Preservation of Records: Access by Seller. For the five-year
period commencing on the Closing Date, Buyer shall maintain at its expense
all records relating to the Center, the Management Agreement, the Assets
and the Lithotripter existing as of the Closing Date which are delivered to
Buyer by Seller. After the Closing, Buyer shall make such records available
for use by Seller as needed for any lawful purpose, and Buyer shall
instruct its appropriate employees to cooperate in providing access to such
records to Seller and its authorized representatives as contemplated
herein. Access to such records shall be during normal business hours, with
reasonable prior written notice to Buyer of the time when such access shall
be needed. Seller's employees, representatives and agents shall conduct
themselves in such a manner so that Buyer's normal business activities
shall not be unduly or unnecessarily disrupted. After the expiration of the
aforementioned five-year period, Buyer shall not, without ninety (90) days
prior written notification to Seller (the 'Destruction Notice') destroy any
such records. Within eighty (80) days of the receipt of the Destruction
Notice, Seller shall have the right, at its own expense, to require Buyer
to deliver any such records to Seller.
(d) Confidentiality. The parties hereto recognize and agree that all
information, instruments, documents and details concerning the business of
Buyer and Seller and the transactions contemplated herein are strictly
confidential, and Seller and Buyer expressly covenant and agree with each
other that they will not, nor will they allow any of their respective
officers, directors, employees or agents to, reproduce, distribute or
disclose any matters relating to the business of the other or to this
Agreement, its negotiation, terms, provisions or conditions, including
Purchase Price, except as may be reasonably necessary to effectuate the
transactions contemplated hereby and in a manner consistent with the
provisions of this Agreement; provided, however: (i) neither party shall be
prohibited from making any public announcement or other disclosure required
by Law of its sale or acquisition of the Assets, including such details as
to price, terms and the like as may be required, provided the other party
is notified prior to such announcement or disclosure and approves the form
and content of the same, which approval shall not be unreasonably withheld,
and (ii) either party shall be entitled to disclose any information which
is required or ordered by any court or other official authority. Each party
shall keep all information obtained from the other either before or after
the date of this Agreement confidential, and neither party shall reveal
such information to, nor produce copies of any written information for, any
person outside its management group or its professional advisors without
the prior written consent of the other party, unless such party is
compelled to disclose such information by judicial or administrative
process or by any other requirements of law. If the sale contemplated by
this Agreement should fail to close for any reason, each party shall return
to the other as soon as possible all originals and copies of written
information provided to such party by or on behalf of the other party and
none of such information shall be used by either party, or their employees,
agents or representatives in the business operations of any person.
Notwithstanding the foregoing, each party's obligations under this
Paragraph 11(d) shall not apply to any information or document which is or
becomes available to the public other than as a result of a disclosure by
the other party in violation of this Agreement or other obligation of
confidentiality under which such information may be held or becomes
available to the party on a non-confidential basis from a source other than
the other party or its officers, directors, employees or agents. The
parties' obligations under this Paragraph 11(c) shall survive the
termination of this Agreement.
12. SURVIVAL OF REPRESENTATIONS
Notwithstanding any investigation made by Seller or Buyer, subject to the
provisions of Paragraph 13(d), the representations, warranties, covenants,
agreements and indemnifications made by the parties shall survive the Closing
and shall be deemed to have been relied upon by Buyer and Seller.
<PAGE>
13. INDEMNIFICATION
(a) Indemnification of Buyer by Seller. Subject to the provisions of
paragraphs 12, 13(c) and 13(d), Seller shall indemnify and hold Buyer harmless
from and against all losses, liabilities, costs and expenses, including
reasonable attorneys' fees (including a reasonable estimate of the allocable
costs of in-house legal counsel and staff), actually incurred, paid or required
under penalty of law to be paid by Buyer, resulting from (i) any breach of any
representation, warranty, covenant or agreement made herein by Seller, (ii) any
obligation, liability or claim relating to the Excluded Liabilities or (iii) any
obligation, liability or claim relating to the Assets or Lithotripter or the
performance by Seller under the Management Agreement, to the extent such
obligation, liability or claim is based upon acts or omissions occurring on or
prior to the Effective Date.
(b) Indemnification of Seller by Buyer. Subject to the provisions of
paragraphs 12, 13(c) and 13(d) Buyer shall indemnify and hold Seller harmless
from and against all losses, liabilities, costs and expenses, including
reasonable attorneys' fees (including a reasonable estimate of the allocable
costs of in-house legal counsel and staff), actually incurred, paid or required
under penalty of law to be paid by Seller, resulting from (i) any breach of any
representation, warranty, covenant or agreement made herein by Buyer, or (ii)
any obligation, liability or claim relating to the Assets or Lithotripter or the
performance by Buyer under the Management Agreement, to the extent such
obligation, liability or claim is based upon acts or omissions occurring after
the Effective Date except for liabilities or claims arising in whole or in part
from any act or omission of Seller in the performance of Seller's obligations
under the Seller Management Agreement.
(c) Notification and Settlement of Claims. Notwithstanding the foregoing,
neither party shall be required to indemnify the other with respect to any claim
unless the party seeking indemnification (the 'Indemnitee') shall within 120
days from the date the Indemnitee received actual knowledge of the claim (or by
such earlier date after Indemnitee has received actual knowledge of the claim as
may be necessary to avoid material prejudice to the other party), notify the
other party (the 'Indemnitor') of such claim (the 'Indemnification Notice'),
shall provide the Indemnitor with a copy of such claim or other documents
received, and shall otherwise make available to the Indemnitor all relevant
information material to the defense of such claim and within the Indemnitee's
possession. If the Indemnitor notifies the Indemnitee in writing within ten (10)
days after an Indemnification Notice is given to the Indemnitor that the
Indemnitee is entitled to indemnification hereunder or defense with respect to
such claim (subject, however, to any reservation of rights Indemnitor may have),
then the Indemnitor shall have the right by notice given to the Indemnitee
within fifteen (15) days after the date of the Indemnification Notice to assume
and control the defense thereof, including the employment of counsel selected by
the Indemnitor, and the Indemnitor shall pay all expenses of such defense. The
Indemnitee shall have the right to employ separate counsel in any such
proceeding and to participate in (but not control) the defense of such claim,
but the fees and expenses of such counsel shall be borne by the Indemnitee
unless the employment thereof has been specifically authorized by the Indemnitor
in writing. If the Indemnitor shall have failed to assume the defense of any
claim in accordance with the provisions of this Paragraph 13(c), then the
Indemnitee shall have the absolute right to control the defense of such claim
and, if and when it is finally determined that Indemnitee is entitled to
indemnification from Indemnitor hereunder, the fees and expenses of Indemnitee's
counsel shall be borne by Indemnitor, but the Indemnitor shall be entitled, at
its own expense, to participate in (but not control) such defense. The
Indemnitor shall have the right to settle or compromise any such claim in its
sole and absolute discretion and without consultation with Indemnitee. The
Indemnitee shall not settle or compromise the claim without satisfying one of
the following conditions (otherwise Indemnitor shall be released from all
indemnification obligations hereunder to Indemnitee with respect to such claim):
(i) Indemnitee shall first obtain the written consent of the Indemnitor, (ii)
suit shall have been instituted against the Indemnitee and the Indemnitor shall
have failed after the lapse of a reasonable time (not to exceed 30 days) after
written notice to it of such suit, to take action to defend the same, or (iii)
Indemnitor shall have failed to notify Indemnitee in writing of its intention to
contest the claim within ninety (90) days after the Indemnification Notice is
given by Indemnitee to Indemnitor.
<PAGE>
(d) Certain Time Limitations. Seller shall not be liable for any breach of
any representation, warranty, covenant or agreement contained herein or made by
Seller under or in connection with this Agreement unless Buyer shall have given
written notice to Seller of the basis of its claim within two (2) years of the
Closing.
14. TERMINATION
Any party may at or prior to the time set for Closing terminate this
Agreement under the following circumstances:
(a) Termination Upon Certain Events. If at the time for Closing (i) a
bona fide action or proceeding shall be pending against any party wherein
an unfavorable judgment, decree or order would prevent or make unlawful the
carrying out of the transactions contemplated by this Agreement, or (ii)
any governmental agency shall have notified any party to this Agreement
that the consummation of the transactions contemplated by this Agreement
would constitute a violation of the laws of any jurisdiction and that it
has commenced or intends to commence proceedings to restrain the
consummation of the transactions contemplated hereunder, and such agency
has not withdrawn such notice prior to such termination; provided, however,
that, such party shall have a period of thirty (30) days from the entry of
any such judgment, decree or order or from the receipt of any such notice,
as the case may be, to eliminate such judgment, decree or order or cause
such notice to be withdrawn.
(b) Termination Based upon Conditions. If the conditions of this
Agreement to be complied with or performed by the other party at or before
the Closing shall not have been complied with or performed at the time
required for such compliance or performance and such noncompliance or
nonperformance shall not have been waived by the party giving notice of
termination.
14A. RESTRICTIVE COVENANT
(a) Restrictive Covenant. Seller agrees that, throughout the term of the
Seller Management Agreement as defined in subparagraph 9(b)(iii), and for a
period of one (1) year after the date of termination of the Seller Management
Agreement, neither Seller nor any parent or subsidiary of Seller, shall, within
the counties of Camden, Burlington, Cumberland, Salem or Gloucester in the State
of New Jersey or Philadelphia county in the Commonwealth of Pennsylvania, own,
manage or operate a lithotripsy center.
(b) Seller acknowledges that the restrictions contained in subparagraph
14A(a), in view of the nature of the business activities in which Buyer intends
to utilize the Assets, are reasonable and necessary in order to protect the
legitimate interests of Buyer, and that any violation thereof would result in
irreparable injuries to Buyer. Seller therefore acknowledges that, in the event
of a breach or threatened breach of the provisions of subparagraph 14A(a) by
Seller, Buyer shall be entitled to obtain from any court of competent
jurisdiction, preliminary and permanent injunctive relief restraining Seller
from any violation of the foregoing.
(c) Seller acknowledges that Buyer shall have the broadest possible
protection in the trade area set forth above consistent with public policy, and
it will not violate the intent of the parties if any court should determine
that, consistent with established precedent of the forum state, the public
policy of such state requires a more limited restriction in geographical area or
duration of the aforesaid covenant not to compete, contained in an appropriate
decree.
15. GENERAL PROVISIONS
(a) Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey as applied between residents
of that state entering into contracts to be performed wholly within the State of
New Jersey.
(b) Notices. All notices, requests, demands, waivers, consents and other
communications hereunder shall be in writing, shall be delivered in person, by
facsimile, by overnight air courier or by
<PAGE>
mail, and shall be deemed to have been duly given and to have become effective
(i) upon receipt if delivered in person or by facsimile, (ii) one business day
after having been delivered to an air courier for overnight delivery or (iii)
three business days after having been deposited in the mails as certified or
registered mail, return receipted requested, all fees prepaid, directed to the
parties at the following addresses (or at such other address as shall be given
in writing by a party hereto):
<TABLE>
<S> <C>
If to Seller: MEDIQ Management Services, Inc.
One MEDIQ Plaza
Pennsauken, NJ 08110
Attn: Jo Surpin
President
If to Buyer: Zurbrugg Memorial Hospital
218-A Sunset Road
Willingboro, New Jersey 08046
Attn: President
In each case with a copy to: Alan S. Einhorn, Esquire
MEDIQ Incorporated
One MEDIQ Plaza
Pennsauken, NJ 08110
and
Lee W. Doty, Esquire
Vice President and General Counsel
Graduate Health Systems
22nd and Chestnut Streets
Philadelphia, PA 19103
</TABLE>
(c) Successors and Assigns. The rights under this Agreement shall not be
assignable nor the duties delegable by any party without the written consent of
the other and nothing contained in this Agreement, express or implied, is
intended to confer upon any person or entity, other than the parties hereto and
their permitted successors-in-interest and permitted assignees, any rights or
remedies under or by reason of this Agreement unless so stated to the contrary.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Captions and Paragraph Headings. Captions and paragraph headings used
herein are for convenience only and are not a part of this Agreement and shall
not be used in construing it.
(f) Entirety of Agreement; Amendments. This Agreement (including the
Exhibits hereto) and the other documents and instruments specifically provided
for in this Agreement contain the entire understanding between the parties
concerning the subject matter of this Agreement and such other documents and
instruments and, except as expressly provided for herein, supersede all prior
understandings and agreements, whether oral or written, between them with
respect to the subject matter hereof and thereof. There are no representations,
warranties, agreements, arrangements or understandings, oral or written, between
the parties hereto relating to the subject matter of this Agreement and such
other documents and instruments which are not fully expressed herein or therein.
This Agreement may be amended or modified only by an agreement in writing signed
by all of the parties hereto.
(g) Expenses. Each party shall bear and pay its own costs and expenses
relating to the transactions contemplated by, or the performance of or
compliance with any condition or covenant set forth in, this Agreement.
(h) Construction. This Agreement and any documents or instruments delivered
pursuant hereto shall be construed without regard to the identity of the person
who drafted the various provisions of the
<PAGE>
same. Each and every provision of this Agreement and such other documents and
instruments shall be construed as though the parties participated equally in the
drafting of the same. Consequently, the parties acknowledge and agree that any
rule of construction that a document is to be construed against the drafting
party shall not be applicable either to this Agreement or such other documents
and instruments.
(i) Waiver. The failure of any party to insist, in any one or more
instances, on performance of any of the terms, covenants and conditions of this
Agreement shall not be construed as a waiver or relinquishment of any rights
granted hereunder or of the future performance of any such term, covenant or
condition, but the obligations of the parties with respect thereto shall
continue in full force and effect. No waiver of any provision or condition of
this Agreement by any party shall be valid unless in writing signed by such
party. A waiver by one party of the performance of any covenant, condition,
representation or warranty of the other party shall not invalidate this
Agreement, nor shall such waiver be construed as a waiver of any covenant,
condition, representation or warranty. A waiver by any party of the time for
performing any act shall not constitute a waiver of the time for performing any
other act or the time for performing an identical act required to be performed
at a later time. The exercise of any remedy provided in this Agreement shall
not, except as otherwise expressly provided for herein, constitute a waiver of
any other remedy provided by law or equity.
(j) Severability. The provisions of this Agreement are severable, and if
any one or more provisions may be determined to be judicially unenforceable, in
whole or in part, the remaining provisions and any partially unenforceable
provisions, to the extent enforceable, shall nevertheless be binding and
enforceable upon the parties hereto.
(k) Time of the Essence. Time is hereby expressly made of the essence with
respect to each and every term and provision of this Agreement. The parties
acknowledge that each will be relying upon the timely performance by the other
of its obligations hereunder as a material inducement to each party's execution
of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date
first above written.
<TABLE>
<S> <C>
MEDIQ Management Services, Inc.
By: /s/_______________________
Jo Surpin, President
Zurbrugg Memorial Hospital
By: /s/
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 11
MEDIQ INCORPORATED AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1994 1993 1992
--------- --------- ----------
<S> <C> <C> <C>
Computation of Primary Earnings Per Share:
Net Income (Loss) $ (7,318) $ 3,296 $ (14,553)
--------- --------- ----------
--------- --------- ----------
Weighted Average Number of Primary Shares:
Beginning Balance 24,034 23,766 23,724
Assumed Conversion of Options 371 600 283
--------- --------- ----------
Total 24,405 24,366 24,007
--------- --------- ----------
--------- --------- ----------
Primary Earnings (Loss) Per Share $ (.30) $ .14 $ (.61)
--------- --------- ----------
--------- --------- ----------
Computation of Fully Diluted Earnings Per Share:
Net Income (Loss) $ (7,318) $ 3,296 $ (14,553)
Interest and Amortization on Convertible Subordinated Debentures -- Net
of Tax 2,317 2,762 2,762
--------- --------- ----------
Total $ (5,001) $ 6,058 $ (11,791)
--------- --------- ----------
--------- --------- ----------
Weighted Average Number of Fully Diluted Shares:
Beginning Balance 24,034 23,766 23,724
Assumed Conversion of Options 371 631 315
Assumed Conversion of Debentures 6,897 6,380 6,380
--------- --------- ----------
Total 31,302 30,777 30,419
--------- --------- ----------
--------- --------- ----------
Fully Diluted Earnings (Loss) Per Share $ (.16) $ .20 $ (.39)
--------- --------- ----------
--------- --------- ----------
</TABLE>
<PAGE>
Set forth below is a list of MEDIQ's subsidiaries, as of December 10, 1994,
with their respective states of incorporation, names under which they do
business and the percentage of their voting securities owned by the Company as
of such date.
<TABLE>
<CAPTION>
STATE OF PERCENTAGE
NAME INCORPORATION OF OWNERSHIP
---- ------------ ---------------
<S> <C> <C>
Alpha Health Consultants, Inc.(1) DE 100
American Cardiovascular Imaging Labs, Inc.(2) PA 100
ATS Medical Services, Inc.(3) PA 100
Health Examinetics, Inc. DE 100
HealthQuest, Inc.(4) DE 67
Jersey Kidney Specialists, Inc.(5) NJ 100
KPA Design Group, Inc.(6) PA 100
MCHC, Inc. DE 100
MDTC Haddon, Inc.(7) DE 100
Medifac, Inc. DE 100
MEDIQ Diagnostic Centers Inc. DE 100
MEDIQ Diagnostic Centers-I Inc.(7) DE 100
MEDIQ Healthcare, Inc. DE 100
MEDIQ Imaging Services, Inc. DE 100
MEDIQ Investment Services, Inc. DE 100
MEDIQ Management Services, Inc. DE 100
MEDIQ Marin, Inc. DE 100
MEDIQ Mobile X-Ray Services, Inc. DE 100
MEDIQ/PRN Life Support Services, Inc.(8) DE 100
MEDIQ/PRN Life Support Services-I, Inc.(8) DE 100
MEDIQ Services, Inc. DE 100
PRN Holdings, Inc. DE 100
Southeastern Diagnostics, Inc.(2) DE 100
Thera-Kinetics Acquisition Corporation NJ 100
P.I. Corporation(4) DE 100
</TABLE>
- ------------------
(1) Subsidiary of MEDIQ Management Services, Inc.
(2) Subsidiary of MEDIQ Imaging Services, Inc.
(3) Subsidiary of MEDIQ Mobile X-Ray Services, Inc.
(4) Subsidiary of MEDIQ Investment Services, Inc.
(5) Subsidiary of MICD, Inc.
(6) Subsidiary of Medifac, Inc.
(7) Subsidiary of MEDIQ Diagnostic Centers Inc.
(8) Subsidiary of PRN Holdings, Inc.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference, in the Registration
Statements listed below of our report, dated December 29, 1994 appearing in this
Annual Report on Form 10-K of MEDIQ Incorporated and subsidiaries for the year
ended September 30, 1994.
Registration Statement No. 33-13122 on Form S-8
Registration Statement No. 33-11042 on Form S-8
Registration Statement No. 33-10208 on Form S-4
Registration Statement No. 33-09746 on Form S-4
Registration Statement No. 33-16802 on Form S-8
Registration Statement No. 33-5089 on Form S-2
Registration Statement No. 33-47416 on Form S-8
DELOITTE & TOUCHE
Philadelphia, Pennsylvania
January 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
MEDIQ INCORPORATED AND SUBSIDIARIES
Financial Data Schedule
(Unaudited)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 3,232
<SECURITIES> 0
<RECEIVABLES> 44,166
<ALLOWANCES> 7,862
<INVENTORY> 5,995
<CURRENT-ASSETS> 60,939
<PP&E> 273,635
<DEPRECIATION> 100,256
<TOTAL-ASSETS> 426,393
<CURRENT-LIABILITIES> 75,581
<BONDS> 297,464
<COMMON> 19,064
0
3,408
<OTHER-SE> 13,808
<TOTAL-LIABILITY-AND-EQUITY> 426,393
<SALES> 0
<TOTAL-REVENUES> 168,081
<CGS> 0
<TOTAL-COSTS> 166,156
<OTHER-EXPENSES> (11,339)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,627
<INCOME-PRETAX> (11,363)
<INCOME-TAX> (4,045)
<INCOME-CONTINUING> (7,318)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,318)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: OCTOBER 1, 1994 Commission File Number: 0-18671
NUTRAMAX PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 061200464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
9 BLACKBURN DRIVE, GLOUCESTER, MASSACHUSETTS 01930
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (508) 283-1800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
PAR VALUE
$.001 PER SHARE
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 _____
The aggregate market value of the registrant's voting stock held by
nonaffiliates (based upon the closing price of $9.00) on December 6, 1994 was
approximately $34,700,000. As of December 6, 1994, there were 8,519,832 shares
of Common Stock, par value $.001 per share, outstanding.
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1994 Annual Meeting of Stockholders are
incorporated by reference into Part III. The Index to Exhibits begins on page
25.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
NutraMax Products, Inc. (the 'Company') was incorporated on April 20, 1987
under the laws of the State of Delaware and is the successor by merger in July
1990 to Aid-Pack, Inc. ('Aid-Pack'), formerly a wholly-owned subsidiary of MEDIQ
Incorporated ('MEDIQ').
The Company is a private label health and personal care products company.
The Company's strategy is to offer a line of quality products equivalent to
national brands at lower cost to consumers while providing greater profit
potential to retailers than the national brands. National brands dominate health
and personal care product categories. However, in recent years private label
products have been capturing increasing market share by appealing to value
conscious consumers seeking lower cost products of comparable quality. The
Company received the 1993 Retail Excellence Award as the private label company
of the year, with the selection based on a survey conducted by a trade journal.
PRODUCTS
Feminine Needs -- The Company manufactures disposable douches for sale
under its value brands Sweet*n Fresh and Sweet Love and on a private label
basis. As a result of the growth of the Company's other product lines, sales of
douche products in fiscal 1994 were 25% of net sales, as compared to 56% in 1993
and 73% in 1992. The Company also markets private label feminine yeast infection
medication products containing the active ingredient clotrimazole.
Cough/Cold Products -- In December 1993, the Company acquired a leading
manufacturer and distributor of private label cough drops and throat lozenges,
which also manufactures cough drops on a contract basis. The acquisition enables
the Company to offer an extensive line of solid dosage cough/cold products,
including cough drops, throat lozenges, sugar-free products, vitamin C drops and
liquid center items. In fiscal 1994, sales of cough/cold products represented
33% of net sales.
Baby Care -- The Company manufactures disposable baby bottle liners on a
private label basis and under its value brand Fresh*n Easy. The Company
manufactures pediatric electrolyte oral maintenance solution, a product which is
used to replace minerals lost by children who suffer from diarrhea and vomiting,
for sale under its value brand NutraMax Baby Care Pediatric Electrolyte and on a
private label basis. During fiscal years 1994, 1993 and 1992, sales of baby care
products represented 21%, 28% and 18% of net sales, respectively.
Ophthalmics -- In June 1993, the Company acquired a manufacturer of private
label over-the-counter and prescription ophthalmic products for retail and
industrial customers, enabling the Company to offer a broad line of eye care
products, including over-the-counter contact lens solutions, artificial tears
and eye drops, as well as generic prescription eye care products. In fiscal
1994, sales of ophthalmic products represented 11% of net sales.
Personal Care -- The Company manufactures ready-to-use disposable enemas
for sale under its value brand Pure & Gentle, on a private label basis and for
the institutional market.
Other Products -- The Company's other products consist principally of a
patented line of sterile, prefilled, disposable dilution bottles used in
laboratory testing of water, waste water, foods, drug products, pharmaceuticals
and cosmetics.
NEW PRODUCT STRATEGY
The Company's growth strategy includes the acquisition and development of
new products, and the extension or modification of existing product lines to
correspond with national branded products and product variations. The Company
expects to add new product lines through internal development, acquisition and
joint venture or partnership agreements. The Company contemplates that product
line expansion will enable the Company to capitalize on its established
distribution channels and manufacturing and marketing expertise. New products
will most likely focus on consumer packaged
<PAGE>
goods, including health and personal care products. The Company has recently
expanded its product lines to include the following:
Adult Nutrition Products -- The Company has recently introduced a new line
of adult high calorie liquid nutrition products which will be sold under its
value brand NutraMax Plus High Calorie Liquid Nutrition and on a private label
basis. This product provides the Company entry into the growing adult nutrition
category. The products will be manufactured by a third party and marketed by the
Company through its distribution channels.
MARKETING AND DISTRIBUTION
The Company utilizes national brand marketing methods to meet the specific
needs of its customers. Such marketing methods include designing contemporary
packaging to improve point-of-purchase impact and increase consumer appeal. The
Company also uses price, display, packaging, bonus and multi-pack promotions to
increase sales and retailer support. Sales are made through the Company's sales
representatives and independent brokers.
CUSTOMERS
For fiscal year 1994, American Home Products, Inc. accounted for 17% of net
sales. For fiscal years 1993 and 1992, no individual customer represented in
excess of 10% of the Company's net sales. While the Company is continually
expanding its distribution and customer base, the loss of one or more of its
largest customers, if not replaced with other comparable business, could have a
material adverse effect on the Company's results of operations.
COMPETITION
The markets in which the Company competes are dominated by nationally
advertised brand name products marketed by established consumer packaged goods
companies, most of which have greater marketing, financial and human resources
than the Company. The Company also competes with several other private label
manufacturers and marketers. Competition for consumer health and personal care
products is based primarily on product reliability, price, customer service, and
the ability to provide tamper resistant/evident packaging. Growth in sales of
private label products is also dependent on increasing the amount of shelf space
available at retail stores in order to maximize brand awareness and consumer
trial. The Company continues to experience greater price competition in the
disposable douche product category. There can be no assurance that the Company
will not continue to experience price competition in the future and that such
price competition will not have a material adverse effect on the Company's
results of operations (see 'ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations').
GOVERNMENTAL REGULATION AND HEALTH ISSUES
The Company is registered with the Food & Drug Administration ('FDA') as a
manufacturer for certain of its products. The primary forms of governmental
regulation are the current 'good manufacturing practices' and 'good laboratory
practices' guidelines administered by the FDA, which set forth the protocols to
be followed in the manufacture, storage, packaging and distribution of medical
products for human use. Certain of the Company's ophthalmic products are subject
to additional FDA regulations relating to pre-market approval of products. The
Company is also subject to periodic inspections by the FDA. Promotional claims
made with respect to health and personal care products are also subject to
regulation by the FDA, and by the Federal Trade Commission.
The use of health and personal care products may result in allergic or
other adverse reactions in users. Since 1952, a number of studies have been
published in medical journals concerning the relationship of douching to the
incidence of pelvic inflammatory disease. These studies provide no conclusive
results on the issue of whether douching causes this disease. A 1990 study
showed an association between douching and the disease and concluded that
further studies were needed. A 1993 study stated that the results of the study
lend support to the hypothesis that douching can predispose a woman to pelvic
inflammatory disease. Although the Company believes its douche products are safe
when used in accordance with instructions accompanying the product package,
negative publicity
<PAGE>
resulting from such studies and any future studies may affect sales of douche
products. In such event there could be a material adverse impact on the
Company's results of operations.
EMPLOYEES
As of December 1, 1994, the Company had approximately 500 full-time
employees engaged in quality control, marketing and sales, general corporate and
administrative positions and manufacturing operations. The Company believes that
relations with its employees are satisfactory.
ITEM 2. PROPERTIES
The Company currently operates the following facilities (which are owned
unless otherwise indicated):
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION TYPE OF FACILITY SQUARE FEET
- --------------------------------- -------------------------------------------- ------------
<S> <C> <C>
Gloucester, Massachusetts(1) Corporate and Administrative Offices, 120,000
Manufacturing Facilities
Fairton, New Jersey Manufacturing 35,000
Brockton, Massachusetts Manufacturing 60,000
</TABLE>
- ------------------
(1) Consists of four facilities, of which three are leased.
The Company believes that its present facilities will be adequate for all
of its reasonably foreseeable manufacturing, warehousing and distribution
requirements, or that alternative facilities can be obtained at a reasonable
cost.
ITEM 3. LEGAL PROCEEDINGS
The Company, like other companies in the store brand industry, has been the
subject of claims and litigation brought by national brand name companies based
on packaging alleged to be similar to competing brand name products. The Company
is also subject to certain claims and informal complaints relating to its
products which are incidental and routine to its business and for which the
Company maintains insurance coverage. The Company knows of no litigation, either
pending or threatened, which is likely to have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET INFORMATION
The following table sets forth, for the periods indicated, the high and low
prices for the common stock as reported by NASDAQ. The Company's common stock is
traded on the NASDAQ National Market System under the symbol 'NMPC'.
<TABLE>
<CAPTION>
FISCAL 1994: HIGH LOW
- ---------------------------- --------- ---------
<S> <C> <C>
First Quarter $ 16.125 $ 10.500
Second Quarter 12.750 10.750
Third Quarter 11.625 7.875
Fourth Quarter 10.750 8.250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FISCAL 1993:
- ----------------------------
<S> <C> <C>
First Quarter $ 11.000 $ 7.750
Second Quarter 15.250 10.375
Third Quarter 16.625 13.500
Fourth Quarter 15.250 12.125
</TABLE>
COMMON STOCK HOLDERS
The Company believes there are approximately 4,000 holders of common stock,
including shares held in street name by brokers.
DIVIDENDS
The Company has never declared or paid any cash dividends. Pursuant to a
lending arrangement, there are restrictions on the amount of dividends which may
be paid, the most restrictive of which limits the payments of cash dividends to
approximately $3,000,000 as of October 1, 1994. The declaration of dividends by
the Company in the future will at all times be subject to the sole discretion of
the Company's Board of Directors, and will depend upon operating results,
capital requirements and financial position.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below has been derived
from the audited financial statements of the Company. This data is qualified in
its entirety by reference to, and should be read in conjunction with,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's Consolidated Financial Statements included
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
OCT. 1, OCT. 2, SEPT. 30, SEPT. 30, SEPT. 30,
1994 (1) 1993 (2) 1992 1991 1990
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 55,958 $ 31,144 $ 25,151 $ 20,115 $ 14,928
Cost of sales 38,752 19,598 13,908 11,330 10,309
--------- --------- --------- --------- ---------
Gross profit 17,206 11,546 11,243 8,785 4,619
Operating expenses:
Selling, general and administrative 9,281 5,928 5,715 4,639 3,178
Management fees -- MEDIQ (3) -- -- -- -- 570
--------- --------- --------- --------- ---------
Operating income 7,925 5,618 5,528 4,146 871
Other credits (charges):
Interest expense (3) (928) -- -- (650) (979)
Other 95 251 338 244 (12)
--------- --------- --------- --------- ---------
Income (loss) before income tax expense and cumulative
effect of change in accounting principle 7,092 5,869 5,866 3,740 (120)
Income tax expense 2,832 2,350 2,397 1,605 53
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of change in
accounting principle 4,260 3,519 3,469 2,135 (173)
Cumulative effect of change in accounting principle (4) -- -- -- -- (272)
--------- --------- --------- --------- ---------
Net income (loss) $ 4,260 $ 3,519 $ 3,469 $ 2,135 $ (445)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (loss) per share $ .50 $ .43 $ .43 $ .35 $ (.09)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding (5) (6) 8,480 8,235 8,090 6,143 4,991
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OCT. 1, OCT. 2, SEPT. 30, SEPT. 30, SEPT. 30,
1994 (1) 1993 (2) 1992 1991 1990
--------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital $ 13,172 $ 9,703 $ 10,235 $ 8,559 $ 1,240
Total assets 60,450 33,207 25,925 22,416 15,168
Long-term debt, less current maturities (6) 16,183 -- -- -- 6,764
Due to MEDIQ (3) (6) -- -- -- -- 652
Stockholders' equity (6) 34,757 29,953 22,549 19,026 5,204
</TABLE>
See Notes to Selected Consolidated Financial Data on next page.
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) In December 1993, the Company acquired a manufacturer and distributor of
private label cough/cold products for $13,500,000 which was financed with
proceeds from a revolving credit facility.
(2) In June 1993, the Company acquired a manufacturer of private label
over-the-counter and prescription ophthalmic products, for approximately
202,000 shares of the Company's common stock with a market value of
$2,846,000.
(3) Prior to the merger of the Company and Aid-Pack in July 1990, Aid-Pack
operated as a wholly-owned subsidiary of MEDIQ and incurred intercompany
charges from MEDIQ for management fees and interest. Interest charges from
MEDIQ were $56,000 and $400,000 for fiscal years 1991 and 1990,
respectively. As a result of the reorganization of the Company in connection
with the merger, certain relationships with MEDIQ were restructured.
(4) The Company adopted Statement of Financial Accounting Standards No. 96,
'Accounting for Income Taxes,' as of October 1, 1989. The cumulative effect
of adopting this change in accounting principle resulted in a charge to
income of $272,000 in fiscal 1990.
(5) Earnings (loss) per share computations are based upon the weighted average
number of shares outstanding, restated in fiscal 1991 and 1990 to reflect
the number of equivalent shares issued to MEDIQ in the merger and the 1 for
25 reverse stock split effected on June 19, 1991.
(6) In August 1991, the Company completed a public stock offering consisting of
2,150,000 shares of common stock at a price of $6 per share. Net proceeds
were used, in part, to retire outstanding obligations under a credit
facility and amounts due to MEDIQ.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto, contained elsewhere herein.
RESULTS OF OPERATIONS
The Consolidated Statements of Operations include the results of operations
of acquired companies from the dates acquired: Optopics Laboratories Corporation
('Optopics') (June 1993) and Powers Pharmaceutical Corporation ('Powers')
(December 1993). The following table sets forth, for all periods indicated, the
percentage relationship that items in the Consolidated Statements of Operations
bear to net sales.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
OCT. 1, OCT, 2, SEPT. 30,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net sales 100% 100% 100%
Cost of sales 69 63 55
----- ----------- -----------
Gross profit 31 37 45
Selling, general and administrative 17 19 23
----- ----------- -----------
Operating income 14 18 22
Other credits (charges) (1) 1 1
----- ----------- -----------
Income before income tax expense 13 19 23
Income tax expense 5 8 9
----- ----------- -----------
Net income 8% 11% 14%
----- ----------- -----------
----- ----------- -----------
</TABLE>
<PAGE>
Fiscal Year 1994 Compared to Fiscal Year 1993
Net sales for 1994 were $55,958,000, an increase of $24,814,000, or 80%,
over 1993 sales of $31,144,000. The increase in net sales was primarily
attributable to sales of cough/cold products which represented 33% of net sales
in 1994. The increase in net sales was also attributable to increased unit sales
of ophthalmic and baby care products, partially offset by a decrease in sales of
certain feminine hygiene products. Sales of certain feminine hygiene products
decreased as a result of lower average sale prices in response to continued
competitive pressure, while unit sales for the year stabilized. The timing,
frequency and nature of promotional activities in this category by brand
manufacturers and other private label companies continues to have the effect of
decreasing sale prices.
Gross profit for 1994 increased to $17,206,000, or 31% of net sales, as
compared to $11,546,000, or 37% in 1993. The decrease in the gross margin
reflected changes in product mix and the continuing impact of competitive
pricing pressure relating to certain of the Company's feminine hygiene products.
The Company also incurred an increase in manufacturing overhead expenses in
connection with anticipated higher sales of ophthalmic products.
Selling, general and administrative expenses for 1994 were $9,281,000, or
17% of net sales, as compared to $5,928,000, or 19% of net sales in 1993. Fiscal
1994 included ten months of Powers' operations which accounted for a significant
portion of the increase in selling, general and administrative expenses. As a
percentage of net sales, selling, general and administrative expenses decreased
as a result of the allocation of these costs over substantially higher net
sales.
Interest expense of $928,000 for 1994 was attributable to debt incurred in
connection with the acquisition of Powers. Other income for 1994 was $95,000, as
compared to $251,000 in 1993. The decrease was primarily attributable to lower
interest income as a result of the use of investments to fund, in part,
acquisitions.
Fiscal Year 1993 Compared to Fiscal Year 1992
Net sales were $31,144,000, an increase of $5,993,000, or 24%, over 1992
sales of $25,151,000. The increase was primarily attributable to higher unit
sales of pediatric electrolyte, which was introduced at the end of the second
quarter of 1992 and sales of ophthalmic products beginning in June 1993 with the
acquisition of Optopics. In addition, sales of disposable baby bottle liners
increased as a result of increased volume and disposable enema sales increased
as a result of a new national brand equivalent delivery system and expanded
customer base. Sales of disposable douche products decreased as a result of
lower average sale prices in response to competitive pressure, while unit growth
was marginal. The timing, frequency and nature of promotional activities in the
douche category by brand manufacturers and other private label companies has had
the effect of decreasing sale prices.
Gross profit was 37%, as compared to 45% in 1992. The decrease in the gross
margin resulted from lower average sale prices for douche products, lower
margins on ophthalmic products as compared to the Company's other products and
higher costs incurred in connection with enhanced quality control programs.
Selling, general and administrative expenses were $5,928,000, or 19% of net
sales, as compared to $5,715,000, or 23% of net sales in 1992. The decrease, as
a percentage of net sales, resulted from reductions in bonus expense,
miscellaneous corporate taxes and bad debt expense.
SEASONALITY
During the last four months of the calendar year retailers focus their
merchandising efforts on and devote more shelf space to seasonal and holiday
merchandise. As a result, sales of certain of the Company's products tend to be
weaker in the Company's first quarter (ending in December), and normally
strengthen in the second quarter as retailers replenish their shelves with
health and personal care products. Sales of pediatric electrolyte and cough/cold
products may help mitigate weaker sales in the Company's first quarter, as the
Company's customers purchase such products to stock inventories
<PAGE>
in anticipation of the winter months. Consequently, the results of any one
quarter may not necessarily be indicative of results of future quarters.
NEW ACCOUNTING STANDARDS
Effective October 3, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income
Taxes', which supersedes SFAS No. 96. The Company adopted SFAS No. 96 in fiscal
1990. The effect of the adoption of SFAS No. 109 upon the provision for income
taxes was not significant for the fiscal year ended October 1, 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of October 1, 1994, the Company's working capital increased to
$13,172,000, as compared to $9,703,000 on October 2, 1993. Net cash provided by
operating activities increased to $5,235,000 for 1994. This increase was
primarily attributable to improved operating results and changes in certain
current liabilities, partially offset by increases in inventories. The increase
in inventories reflects higher levels of raw materials and finished goods in
anticipation of higher net sales.
Net cash used in investing activities was $17,763,000 in 1994 which was
primarily attributable to the acquisition of Powers. Capital expenditures in
1994 for additional capacity were $4,723,000, of which $794,000 was financed
with long-term debt. The Company anticipates capital expenditures of
approximately $5,000,000 in fiscal 1995 for additional capacity.
Net cash provided by financing activities was $11,505,000 in 1994 which
included borrowings under a line of credit facility of $19,166,000 used to fund
the acquisition of Powers and to refinance certain debt assumed in connection
with the acquisition, partially offset by debt repayments of $7,838,000.
In November 1993, the Company obtained a $20,000,000 credit facility, the
proceeds from which were utilized to acquire Powers and repay certain long-term
debt obligations of Powers. The facility is secured by substantially all of the
assets of the Company and bears interest, at the Company's option, at an annual
rate of prime plus .5% and/or LIBOR plus 2.75%. As of October 1, 1994,
$16,850,000 was outstanding under this facility. In December 1994, the lender
committed to convert the credit facility into an $8,000,000 revolving credit
facility and term loans aggregating $10,000,000. The new facility will bear
interest at prime and expire on January 1, 1997. The term loans will bear
interest at prime plus .5% and be payable in quarterly installments of $467,000
beginning January 1, 1995 with a final payment of approximately $680,000 in
January 2000.
The Company believes that its existing working capital, anticipated funds
to be generated from future operations and funds available under the revolving
credit facility will be sufficient to meet all of the Company's operating and
capital needs for the foreseeable future. However, depending upon future growth
of the business, additional financing may be required.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report 12
Consolidated Statements of Operations -- Three Years Ended October 1, 1994 13
Consolidated Balance Sheets -- October 1, 1994 and October 2, 1993 14
Consolidated Statements of Stockholders' Equity -- Three Years Ended October 1, 1994 15
Consolidated Statements of Cash Flows -- Three Years Ended October 1, 1994 16
Notes to Consolidated Financial Statements 17 24
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
NutraMax Products, Inc.
Gloucester, Massachusetts
We have audited the accompanying consolidated balance sheets of NutraMax
Products, Inc. and subsidiaries as of October 1, 1994 and October 2, 1993, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years in the period ended October 1,
1994. Our audits also included the financial statement schedules listed in the
Index at Item 14. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedules
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of NutraMax Products, Inc. and
subsidiaries as of October 1, 1994 and October 2, 1993, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended October 1, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 7, 1994 except for the
first paragraph of Note E, to
which the date is December 15, 1994
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
OCT. 1, OCT. 2, SEPT. 30,
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES $ 55,958,000 $ 31,144,000 $ 25,151,000
COST OF SALES 38,752,000 19,598,000 13,908,000
-------------- -------------- --------------
GROSS PROFIT 17,206,000 11,546,000 11,243,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,281,000 5,928,000 5,715,000
-------------- -------------- --------------
OPERATING INCOME 7,925,000 5,618,000 5,528,000
OTHER CREDITS (CHARGES):
Interest expense (928,000) -- --
Interest income 60,000 235,000 294,000
Other 35,000 16,000 44,000
-------------- -------------- --------------
INCOME BEFORE INCOME TAX EXPENSE 7,092,000 5,869,000 5,866,000
INCOME TAX EXPENSE 2,832,000 2,350,000 2,397,000
-------------- -------------- --------------
NET INCOME $ 4,260,000 $ 3,519,000 $ 3,469,000
-------------- -------------- --------------
-------------- -------------- --------------
EARNINGS PER SHARE $ .50 $ .43 $ .43
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE SHARES OUTSTANDING 8,480,000 8,235,000 8,090,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 1, OCTOBER 2,
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 376,000 $ 1,399,000
Accounts receivable, less allowance for doubtful accounts of $738,000 in 1994
and $375,000 in 1993 8,074,000 5,230,000
Inventories 11,238,000 5,181,000
Deferred income taxes 1,050,000 --
Prepaid expenses and other 729,000 1,087,000
-------------- --------------
TOTAL CURRENT ASSETS 21,467,000 12,897,000
PROPERTY, PLANT AND EQUIPMENT, net 22,499,000 9,748,000
GOODWILL, net of accumulated amortization of $2,046,000 in 1994 and $1,518,000 in
1993 14,541,000 8,790,000
OTHER ASSETS 1,943,000 1,772,000
-------------- --------------
$ 60,450,000 $ 33,207,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,865,000 $ 2,246,000
Accrued payroll and related taxes 608,000 679,000
Accrued expenses -- other 1,378,000 269,000
Current maturities of long-term debt 1,444,000 --
-------------- --------------
TOTAL CURRENT LIABILITIES 8,295,000 3,194,000
LONG-TERM DEBT, less current maturities 16,183,000 --
OTHER LONG TERM LIABILITIES 312,000 --
DEFERRED INCOME TAXES 903,000 60,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock -- $.001 par value:
Authorized -- 20,000,000 shares
Issued and Outstanding: 8,520,000 in 1994 and
8,439,000 in 1993 9,000 8,000
Additional paid-in capital 22,565,000 22,022,000
Retained earnings 12,183,000 7,923,000
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 34,757,000 29,953,000
-------------- --------------
$ 60,450,000 $ 33,207,000
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
SHARES ADDITIONAL RETAINED
ISSUED AMOUNT PAID-IN-CAPITAL EARNINGS TOTAL
----------- --------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, October 1, 1991 8,087,000 $ 8,000 $ 18,083,000 $ 935,000 $ 19,026,000
Exercise of stock options 7,000 -- 54,000 -- 54,000
Net income 3,469,000 3,469,000
----------- --------- -------------- -------------- --------------
BALANCE, September 30, 1992 8,094,000 8,000 18,137,000 4,404,000 22,549,000
Issuance of stock -- management compensation 53,000 -- 212,000 -- 212,000
Exercise of stock options and warrants 90,000 -- 827,000 -- 827,000
Issuance of stock -- acquisition of Optopics 202,000 -- 2,846,000 -- 2,846,000
Net income 3,519,000 3,519,000
----------- --------- -------------- -------------- --------------
BALANCE, October 2, 1993 8,439,000 8,000 22,022,000 7,923,000 29,953,000
Issuance of stock -- management compensation 53,000 -- 318,000 -- 318,000
Exercise of stock options 28,000 1,000 225,000 -- 226,000
Net income 4,260,000 4,260,000
----------- --------- -------------- -------------- --------------
BALANCE, October 1, 1994 8,520,000 $ 9,000 $ 22,565,000 $ 12,183,000 $ 34,757,000
----------- --------- -------------- -------------- --------------
----------- --------- -------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
OCT. 1, OCT. 2, SEPT. 30,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,260,000 $ 3,519,000 $ 3,469,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,527,000 1,948,000 1,504,000
Deferred taxes 419,000 545,000 247,000
Change in allowance for doubtful accounts 290,000 83,000 147,000
Increase (decrease) in cash from, net of effect from acquisitions:
Accounts receivable (1,471,000) (1,851,000) (523,000)
Inventories (4,647,000) (2,112,000) (88,000)
Prepaid expenses and other 778,000 (1,022,000) (533,000)
Accounts payable 1,433,000 (226,000) 386,000
Accrued payroll and related taxes (71,000) 16,000 169,000
Accrued expenses -- other 717,000 (353,000) (251,000)
------------ ------------ ------------
Net cash provided by operating activities 5,235,000 547,000 4,527,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (13,541,000) (245,000) --
Purchases of property, plant and equipment (3,929,000) (3,420,000) (2,981,000)
Maturities (purchases) of short-term investments -- 4,940,000 (4,940,000)
Deferred costs (532,000) (620,000) (451,000)
Other 239,000 (251,000) (162,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities (17,763,000) 404,000 (8,534,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 19,166,000 -- --
Proceeds from exercise of stock options and warrants 177,000 613,000 42,000
Debt repayments (7,838,000) (3,167,000) --
------------ ------------ ------------
Net cash provided by (used in) financing activities 11,505,000 (2,554,000) 42,000
------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,023,000) (1,603,000) (3,965,000)
CASH AND CASH EQUIVALENTS:
Beginning of year 1,399,000 3,002,000 6,967,000
------------ ------------ ------------
End of year $ 376,000 $ 1,399,000 $ 3,002,000
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid $ 1,534,000 $ 2,458,000 $ 2,183,000
------------ ------------ ------------
------------ ------------ ------------
Interest paid $ 831,000 $ -- $ 2,000
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Issuance of stock -- acquisition of Optopics $ -- $ 2,846,000 $ --
------------ ------------ ------------
------------ ------------ ------------
Issuance of stock -- non-cash compensation $ 318,000 $ 212,000 $ --
------------ ------------ ------------
------------ ------------ ------------
Plant and equipment financed with long-term debt and capital lease
obligations $ 794,000 $ -- $ --
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of NutraMax Products, Inc. and its subsidiaries (the
'Company'). In consolidation, all significant intercompany transactions and
balances have been eliminated.
Cash Equivalents -- All highly liquid investments with a maturity of three
months or less at the date of purchase are considered to be cash equivalents.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. The Company's policy of providing for depreciation and amortization is
as follows:
<TABLE>
<S> <C>
Buildings 20 years on a straight-line basis
Liquid packaging machines 32,000 to 48,000 machine hours which approximate a five
to eight and one-half year life
Machinery, equipment, molds and furniture and fixtures 5 to 10 years on a straight-line basis
Leasehold improvements The terms of the related lease on a straight-line basis
Vehicles 3 to 5 years on a straight-line basis
</TABLE>
Goodwill -- The purchase price in excess of net assets acquired is
amortized on a straight-line basis over periods from thirty to forty years. The
Company evaluates the carrying value of goodwill based upon current and
anticipated net income and undiscounted cash flows, and recognizes an impairment
when it is probable that such estimated future net and/or cash flows will be
less than the carrying value of goodwill. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and fair
value.
Other Assets -- Other assets include intangible assets which are amortized
on a straight-line basis over the estimated periods of related benefit, ranging
from three to fifteen years. Accumulated amortization was $724,000 and $660,000
as of October 1, 1994 and October 2, 1993, respectively. Other assets also
include external costs deferred in connection with tools, dies and the design of
packaging materials for the Company's products which are amortized on a
straight-line basis over four years.
Income Taxes -- Effective October 3, 1993, the Company adopted on a
prospective basis the provisions of Statement of Accounting Standards ('SFAS')
No. 109, 'Accounting for Income Taxes', which supersedes SFAS No. 96. The
Company adopted SFAS No. 96 in fiscal 1990. The effect of the adoption of SFAS
No. 109 upon the provision for income taxes was not significant for the year
ended October 1, 1994.
Earnings Per Share -- Earnings per share computations are based upon the
weighted average number of common shares outstanding. Stock options and warrants
have been excluded from the calculation of weighted average shares outstanding
since the dilutive effect is less than 3%.
Fiscal Year -- Effective in fiscal 1993, the Company changed its fiscal
year to a 52/53 week operating cycle that ends on the Saturday nearest September
30.
Reclassification of Accounts -- Certain reclassifications have been made to
conform prior years' balances to the current year presentation.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
B. ACQUISITIONS
Powers Pharmaceutical Corporation -- In December 1993, the Company acquired
all of the outstanding common stock of Certified Corporation, parent of Powers
Pharmaceutical Corporation ('Powers'), for $13,500,000 in cash and related
expenses of $236,000. Powers, based in Brockton, Massachusetts, is the nation's
leading manufacturer and distributor of private label cough drops and throat
lozenges, and also manufactures cough drops on a contract basis. For financial
reporting purposes, the transaction was accounted for by the purchase method of
accounting, effective November 28, 1993. The excess of the purchase price over
the fair values of the net assets acquired of $6,206,000 is amortized over
thirty years.
Optopics Laboratories Corporation -- In June 1993, the Company acquired all
of the assets and assumed all of the liabilities of Optopics Laboratories
Corporation ('Optopics') for approximately 202,000 shares of the Company's
common stock, with a market value of $2,846,000, and related transaction costs
of $245,000. Additionally, the Company acquired Optopics' manufacturing facility
for $800,000 in cash, which was previously leased from the former stockholders
of Optopics. Optopics is a manufacturer of private label over-the-counter and
prescription ophthalmic products. The operating results of this acquisition are
included in the Company's consolidated results of operations from the date of
the acquisition. The acquisition was accounted for by the purchase method of
accounting. The excess of the purchase price over the estimated fair value of
the net assets acquired of $4,325,000 is amortized over thirty years.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisitions of Powers and Optopics had
occurred at the beginning of fiscal 1993, after giving effect to certain
adjustments, including amortization of goodwill. The pro forma information is
presented for comparative purposes only and does not necessarily reflect the
results of operations of the Company had the acquisitions been made at the
beginning of fiscal 1993.
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
OCT. 1, OCT. 2,
1994 1993
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 59,897,000 $ 50,949,000
Net income $ 4,744,000 4,182,000
Earnings per share $.56 .50
Weighted average shares outstanding 8,480,000 8,373,000
</TABLE>
C. INVENTORIES
<TABLE>
<CAPTION>
OCT. 1, OCT. 2,
1994 1993
-------------- --------------
<S> <C> <C>
Raw materials $ 4,799,000 $ 2,377,000
Finished goods 5,600,000 2,259,000
Work in process 355,000 214,000
Machinery parts and factory supplies 484,000 331,000
-------------- --------------
$ 11,238,000 $ 5,181,000
-------------- --------------
-------------- --------------
</TABLE>
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
D. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
OCT. 1, OCT. 2,
1994 1993
-------------- --------------
<S> <C> <C>
Machinery and equipment $ 18,684,000 $ 8,970,000
Land, buildings and improvements 7,392,000 2,328,000
Molds 2,268,000 2,261,000
Furniture and fixtures 1,253,000 920,000
Vehicles 41,000 27,000
-------------- --------------
29,638,000 14,506,000
Less: Accumulated depreciation and amortization 7,139,000 4,758,000
-------------- --------------
$ 22,499,000 $ 9,748,000
-------------- --------------
-------------- --------------
</TABLE>
Depreciation and amortization expense for property, plant and equipment for
fiscal years 1994, 1993 and 1992 was $2,390,000, $1,177,000 and $909,000,
respectively.
E. LONG-TERM DEBT
<TABLE>
<CAPTION>
OCT. 1,
1994
--------------
<S> <C>
Revolving credit facility with interest at the prime rate (7.75% at October
1, 1994) due in 1997 $ 7,850,000
Term loans with interest at the prime rate plus 0.5% (8.25% at October 1,
1994) maturing in 2000 9,000,000
Mortgage with interest at 7% maturing in 1997 733,000
Capital lease obligations with interest at 8% maturing in 1999 44,000
--------------
17,627,000
Less: Current maturities of long-term debt 1,444,000
--------------
$ 16,183,000
--------------
--------------
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1995 $ 1,444,000
1996 1,908,000
1997 9,395,000
1998 1,876,000
1999 1,871,000
Thereafter 1,133,000
--------------
$ 17,627,000
--------------
--------------
</TABLE>
In November 1993, the Company obtained a $20,000,000 credit facility to
acquire Powers and repay certain long-term debt obligations assumed in
connection with the acquisition. Interest, at prime plus .5% and/or LIBOR plus
2.75%, was payable monthly. As of October 1, 1994, $16,850,000 was outstanding
under this facility. In December 1994, the lender committed to convert the
credit facility into an $8,000,000 revolving credit facility and term loans
aggregating $10,000,000 which are secured by substantially all of the assets of
the Company. The new will bear interest at prime and expire on January 1, 1997.
The term loans will bear interest at prime plus .5% and be payable in quarterly
installments of $467,000 beginning January 1, 1995 with a final payment of
approximately $680,000 in January 2000. Accordingly, $15,450,000, representing
the non-current portion of the credit facility has been reclassified to
long-term debt as of October 1, 1994.
In February 1994, the Company acquired a manufacturing and warehouse
facility, which was formerly leased, for $960,000 of which $750,000 was financed
with a mortgage. The mortgage bears
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
E. LONG-TERM DEBT--(CONTINUED)
interest at 7% and is payable in monthly installments of $7,000 including
interest, with a final payment of approximately $670,000 due in
February 1997.
The revolving credit facility and term loans require the maintenance of
certain balance sheet and operating ratios and impose certain dividend
limitations. The most restrictive of these provisions limits the payment of cash
dividends to approximately $3,000,000 as of October 1, 1994.
F. COMMITMENTS AND CONTINGENCIES
Leases -- The Company leases certain of its administrative, manufacturing,
distribution and warehouse facilities under operating leases. The Company also
leases certain equipment under operating and capital leases. Future minimum
payments under noncancelable operating and capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- -----------
<S> <C> <C>
1995 $ 366,000 $ 18,000
1996 364,000 11,000
1997 96,000 11,000
1998 6,000 10,000
1999 5,000 3,000
Thereafter 5,000 0
----------- -----------
Total minimum lease payments $ 842,000 53,000
-----------
-----------
Amount representing interest 9,000
-----------
Present value of minimum lease payments $ 44,000
-----------
-----------
</TABLE>
Rental expense for operating leases was $413,000, $456,000, and $413,000
for fiscal years 1994, 1993, and 1992, respectively.
Litigation -- The Company has pending certain legal actions and claims
incurred in the normal course of business and is actively pursuing the defense
thereof. In the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's financial statements.
G. INCOME TAXES
Effective October 3, 1993, the Company adopted SFAS No. 109, 'Accounting
for Income Taxes'. Financial statements for prior years have not been restated
as the effect of the adoption of SFAS No. 109 was not significant.
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
G. INCOME TAXES--(CONTINUED)
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
OCT. 1, OCT. 2, SEPT. 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal $ 2,014,000 $ 1,368,000 $ 1,652,000
State 399,000 437,000 498,000
------------- ------------- -------------
2,413,000 1,805,000 2,150,000
Deferred:
Federal 395,000 511,000 197,000
State 24,000 34,000 50,000
------------- ------------- -------------
419,000 545,000 247,000
------------- ------------- -------------
$ 2,832,000 $ 2,350,000 $ 2,397,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The difference between the Company's income tax and the statutory federal
tax is reconciled below:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
OCT. 1, OCT. 2, SEPT. 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Statutory federal tax $ 2,411,000 $ 1,996,000 $ 1,994,000
Nondeductible goodwill amortization 179,000 87,000 69,000
State tax, net of federal benefit 279,000 311,000 362,000
Other (37,000) (44,000) (28,000)
------------- ------------- -------------
Income tax expense $ 2,832,000 $ 2,350,000 $ 2,397,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
As of October 1, 1994, the Company had Federal net operating loss
carryforwards of $3,684,000 which are available to offset future taxable income.
The Company also has investment tax credit carryforwards of $156,000.
Utilization of the operating loss carryforwards, which expire in fiscal years
1997 to 2007, is limited to $1,266,000 in 1995 and $1,049,000 in each year
thereafter.
Significant components of the Company's deferred tax assets and liabilities
as of October 1, 1994 are as follows:
<TABLE>
<S> <C>
Assets:
Net operating loss carryforwards $ 1,311,000
Allowance for bad debts 291,000
Inventory 302,000
Investment tax credits 156,000
Other 309,000
--------------
2,369,000
Valuation allowance (58,000)
--------------
Gross deferred tax assets 2,311,000
--------------
Liabilities:
Depreciation and amortization 1,965,000
Other 199,000
--------------
Gross deferred tax liabilities 2,164,000
--------------
Net deferred tax assets $ 147,000
--------------
--------------
</TABLE>
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
G. INCOME TAXES--(CONTINUED)
Under the provisions of SFAS No. 96, the deferred tax provision for fiscal
year 1993 of $545,000 resulted principally from utilization of acquired net
operating loss carryforwards of $436,000, depreciation of $189,000 partially
offset by the allowance for doubtful accounts of $58,000. The deferred tax
provision for fiscal 1992 of $247,000 resulted principally from the utilization
of acquired net operating loss carryforwards of $114,000, inventory of $91,000,
depreciation of $62,000 partially offset by the allowance for doubtful accounts
of $59,000.
H. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 (1) QUARTER QUARTER QUARTER QUARTER
- -------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 10,201,000 $ 14,977,000 $ 15,399,000 $ 15,381,000
Gross profit 3,260,000 4,628,000 4,808,000 4,510,000
Net income 662,000 1,110,000 1,185,000 1,303,000
Earnings per share .08 .13 .14 .15
Weighted average shares outstanding 8,440,000 8,455,000 8,506,000 8,520,000
1993 (2)
- --------
Net sales $ 6,614,000 $ 8,258,000 $ 7,608,000 $ 8,664,000
Gross profit 2,705,000 3,519,000 2,958,000 2,364,000(3)
Net income 781,000 1,026,000 1,121,000 591,000(3)
Earnings per share .10 .13 .14 .07
Weighted average shares outstanding 8,101,000 8,163,000 8,253,000 8,424,000
</TABLE>
- ------------------
(1) Includes the results of operations of Powers from the date of acquisition.
(2) Includes the results of operations of Optopics from the date of acquisition.
(3) The decrease in gross profit and net income in the fourth quarter of fiscal
1993 resulted from lower average sales prices for certain feminine hygiene
products and lower margins on ophthalmic products as compared to the
Company's other products.
I. RELATED PARTY TRANSACTIONS
Services Agreement -- The Company obtains certain legal, accounting, tax,
insurance and human resource services from MEDIQ Incorporated ('MEDIQ'), the
owner of approximately 47% of the outstanding common stock. Costs for such
services were $100,000 for each of the three years ended October 1, 1994. The
Company believes that MEDIQ's charges for such services are on terms no less
favorable to the Company than those that could be obtained from unaffiliated
third parties for comparable services.
Insurance -- The Company obtains certain insurance coverages through
programs administered by MEDIQ. Insurance expense under these programs was
$464,000, $213,000 and $249,000 for fiscal years 1994, 1993 and 1992,
respectively.
Pledge of Stock -- A portion of the shares of the Company's stock owned by
MEDIQ is subject to exchange for outstanding MEDIQ debentures and a portion
secures certain MEDIQ indebtedness.
J. STOCK OPTIONS
The Company maintains a Stock Option Plan which includes an Incentive Stock
Option Program and a Non-Qualified Stock Option Program. Incentive stock options
may be granted to key employees, including the Company's officers, at the
discretion of the Stock Option Plan Committee, until
<PAGE>
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
J. STOCK OPTIONS--(CONTINUED)
termination of the Plan. Non-qualified stock options may be granted to
employees, non-employee directors, advisors and independent consultants
at the discretion of the Committee. No options may be granted under the
programs for a term in excess of five years from the date of grant. As
of October 1, 1994, 331,520 stock options were exercisable under such
plans. The stock option prices listed below represent the quoted market
value of the common stock at dates of grant.
A summary of stock option activity for the three years ended October 1,
1994 follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- --------------------
<S> <C> <C>
September 30, 1991 360,000 $4.00 $8.50
Terminated (8,000) $6.00
Exercised (7,000) $6.00
---------
September 30, 1992 345,000 $4.00 $8.50
Granted 88,000 $12.25
Exercised (70,000) $5.00 $8.50
---------
October 2, 1993 363,000 $4.00 $12.25
Granted 515,000 $11.00 $12.00
Exercised (27,000) $8.00 $12.00
---------
October 1, 1994 851,000 $4.00 $12.25
---------
---------
</TABLE>
K. MAJOR CUSTOMERS
American Home Products, Inc. accounted for 17% of net sales in fiscal year
1994. No individual customer represented in excess of 10% of the Company's net
sales for fiscal years 1993 and 1992, respectively.
<PAGE>
PART III
The information required to be included herein has been incorporated herein
by reference to the Registrant's proxy statement relating to the annual meeting
of its stockholders scheduled to be held in March 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) The response to this portion of Item 14 is submitted as a separate
section of this report commencing on page 11.
(A) (2) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Schedule V Property, Plant and Equipment -- Cost
Schedule VI Accumulated Depreciation, Depletion and Amortization of Property, Plant and
Equipment
Schedule VIII Valuation and Qualifying Accounts and Reserves
Schedule X Supplementary Income Statement Information
</TABLE>
Other schedules are omitted because of the absence of conditions under which
they are required.
(A) (3) AND (C) EXHIBITS (numbered in accordance with Item 601 of
Regulation S-K).
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- ---------- ----------- ----------
<S> <C> <C>
3(a) Restated and Amended Certificate of Incorporation (1)
3(b) Amendment, filed June 12, 1991, to the Company's Certificate of Incorporation (1)
3(c) Amendment, filed March 5, 1992 to the Company's Certificate of Incorporation (2)
3(d) By-Laws (1)
10(a) Employment Agreement between the Company and Donald E. Lepone, dated November 28, (3)
1993
10(b) Employment Agreement between the Company and Richard Zakin, dated January 1, 1994 (3)
10(c) Employment Agreement between the Company and Gary A. LeDuc (4)
10(d) Amendment to Employment Agreement, dated May 1, 1991, between the Company and Gary (5)
A. LeDuc
10(e) Amendment No. 2 to Employment Agreement between the Company and Gary A. LeDuc (6)
10(f) Amendment No. 3 to Employment Agreement between the Company and Gary A. LeDuc (3)
10(g) Amendment No. 4 to Employment Agreement between the Company and Gary A. LeDuc (3)
10(h) 1988 Stock Option Plan (adopted April 28, 1988) (4)
10(i) Amendment No. 1 to the 1988 Stock Option Plan (2)
10(j) Amendment No. 2 to the 1988 Stock Option Plan (2)
10(k) Amendment No. 3 to the 1988 Stock Option Plan (2)
10(l) Amendment No. 4 to the 1988 Stock Option Plan (3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- ---------- ----------- ----------
<S> <C> <C>
10(m) Tax Allocation/Sharing Agreement between the Company and MEDIQ Incorporated, dated (1)
July 25, 1990
10(n) Lease Agreement, dated January 1, 1987, between The Aid-Pack Limited Partnership and (7)
Aid-Pack, Inc.
10(o) Lease Extension Agreement, dated May 1, 1991, between The Aid-Pack Limited (7)
Partnership and the Company
10(p) Registration Rights Agreement, dated July 1, 1991 between MEDIQ Incorporated and the (8)
Company
10(q) Amendment to Registration Rights Agreement, dated July 1, 1991 among MEDIQ, MEDIQ (6)
Investment Services, Inc. and the Company
10(r) Services Agreement, dated August 22, 1991 between MEDIQ Incorporated and the Company (8)
10(s) Revolving Credit and Security Agreement between the Company and State Street Bank (6)
and Trust Company
10(t) Revolving Credit and Security Agreement between State Street Bank and Trust Company (6)
10(u) Agreement, dated November 12, 1993, by and among the Company, Taim Management Party, (9)
Ltd., Certified Corp., Powers Pharmaceutical Corporation and Chaim Liberman and
Maurice Liberman
21 Subsidiaries of the Company (9)
23 Consent of Deloitte & Touche LLP, Independent Certified Public Accountants (9)
</TABLE>
- ------------------
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-1 on
July 5, 1991, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1992, and incorporated herein by reference.
(3) Filed herewith.
(4) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1990, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Registration Statement on Form S-3 on
July 2, 1993, and incorporated herein by reference.
(6) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
1993, and incorporated herein by reference.
(7) Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 on August 15, 1991, and incorporated herein by
reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal
year 1991, and incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Current Report on Form 8-K, dated
December 21, 1993, and incorporated herein by reference.
(B) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the
fourth quarter of fiscal 1994.
<PAGE>
SIGNATURES
Pursuant to requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
Dated: December 19, 1994 NUTRAMAX PRODUCTS, INC.
By: /s/ DONALD E. LEPONE
Donald E. Lepone, President
and Chief Executive Officer
By: /s/ ROBERT F. BURNS
Robert F. Burns, Vice
President, Treasurer and Chief
Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include at least a
majority of the Board of Directors on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------ -----------------------
<S> <C> <C>
/s/ BERNARD J. KORMAN Chairman of the Board December 19, 1994
Bernard J. Korman
/s/ DONALD E. LEPONE President, Chief Executive Officer and December 19, 1994
Donald E. Lepone Director
/s/ DONALD M. GLEKLEN Director December 19, 1994
Donald M. Gleklen
/s/ FREDERICK W. MCCARTHY Director December 19, 1994
Frederick W. McCarthy
/s/ DENNIS M. NEWNHAM Director December 19, 1994
Dennis M. Newnham
/s/ MICHAEL F. SANDLER Director December 19, 1994
Michael F. Sandler
</TABLE>
<PAGE>
NUTRAMAX PRODUCTS, INC.
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
FISCAL YEARS 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
COL. A. COL. B. COL. C. COL. D. COL. E. COL. F.
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT OTHER BALANCE AT
BEGINNING OF ADDITIONS CHANGES-ADD END OF
DESCRIPTION PERIOD AT COST RETIREMENTS (DEDUCT) PERIOD
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OCTOBER 1, 1994
Machinery and equipment $ 8,970 $ 2,908 $ -- $ 6,806 $ 18,684
Land, buildings and improvements 2,328 1,544 -- 3,520 7,392
Molds 2,261 7 -- -- 2,268
Furniture and fixtures 920 264 -- 69 1,253
Vehicles 27 -- (48) 62 41
------------ ----------- ----------- ------------- -----------
$ 14,506 $ 4,723 $ (48) $ 10,457(1) $ 29,638
------------ ----------- ----------- ------------- -----------
------------ ----------- ----------- ------------- -----------
OCTOBER 2, 1993
Machinery and equipment $ 7,467 $ 1,243 $ (7) $ 267 $ 8,970
Land, buildings and improvements 772 1,445 (2) 113 2,328
Molds 1,994 267 -- -- 2,261
Furniture and fixtures 465 458 (32) 29 920
Vehicles 13 7 -- 7 27
------------ ----------- ----------- ------------- -----------
$ 10,711 $ 3,420 $ (41) $ 416(2) $ 14,506
------------ ----------- ----------- ------------- -----------
------------ ----------- ----------- ------------- -----------
SEPTEMBER 30, 1992
Machinery and equipment $ 5,126 $ 2,347 $ (6) $ -- $ 7,467
Land, buildings and improvements 547 225 -- -- 772
Molds 1,717 277 -- -- 1,994
Furniture and fixtures 370 122 (27) -- 465
Vehicles 3 10 -- -- 13
------------ ----------- ----------- ------------- -----------
$ 7,763 $ 2,981 $ (33) $ -- $ 10,711
------------ ----------- ----------- ------------- -----------
------------ ----------- ----------- ------------- -----------
</TABLE>
- ------------------
(1) Represents additions from the acquisition of Powers.
(2) Represents additions from the acquisition of Optopics.
<PAGE>
NUTRAMAX PRODUCTS, INC.
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FISCAL YEARS 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
COL. A. COL. B. COL. C. COL. D. COL. E. COL. F.
- -------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF COSTS AND CHANGES-ADD END OF
DESCRIPTION PERIOD EXPENSES RETIREMENTS (DEDUCT) PERIOD
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OCTOBER 1, 1994
Machinery and equipment $ 2,872 $ 1,634 $ -- $ -- $ 4,506
Buildings and improvements 533 340 -- -- 873
Molds 1,069 217 -- -- 1,286
Furniture and fixtures 277 179 -- -- 456
Vehicles 7 20 (9) -- 18
------------ ----------- ----------- ------------- -----------
$ 4,758 $ 2,390 $ (9) $ -- $ 7,139
------------ ----------- ----------- ------------- -----------
OCTOBER 2, 1993
Machinery and equipment $ 2,131 $ 741 $ -- $ -- $ 2,872
Buildings and improvements 427 106 -- -- 533
Molds 849 220 -- -- 1,069
Furniture and fixtures 183 106 (12) -- 277
Vehicles 3 4 -- -- 7
------------ ----------- ----------- ------------- -----------
$ 3,593 $ 1,177 $ (12) $ -- $ 4,758
------------ ----------- ----------- ------------- -----------
------------ ----------- ----------- ------------- -----------
SEPTEMBER 30, 1992
Machinery and equipment $ 1,570 $ 564 $ (3) $ -- $ 2,131
Buildings and improvements 348 79 -- -- 427
Molds 650 199 -- -- 849
Furniture and fixtures 136 66 (19) -- 183
Vehicles 2 1 -- -- 3
------------ ----------- ----------- ------------- -----------
$ 2,706 $ 909 $ (22) $ -- $ 3,593
------------ ----------- ----------- ------------- -----------
------------ ----------- ----------- ------------- -----------
</TABLE>
<PAGE>
NUTRAMAX PRODUCTS, INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS 1994, 1993 AND 1992
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C. - ADDITIONS COL. D COL. E
- --------------------------------------------------------------------------------------------------------------------
(1)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER (2) END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 1, 1994:
Allowance for doubtful accounts $ 375,000 $ 337,000 $ 73,000 $ (47,000) $ 738,000
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
YEAR ENDED OCTOBER 2, 1993:
Allowance for doubtful accounts $ 275,000 $ 83,000 $ 17,000 $ -- $ 375,000
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
YEAR ENDED SEPTEMBER 30, 1992:
Allowance for doubtful accounts $ 128,000 $ 183,000 $ -- $ (36,000) $ 275,000
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
</TABLE>
- ------------------
(1) Includes allowance from acquisition of Optopics in 1993 and Powers in 1994.
(2) Represents accounts directly written-off net of recoveries.
<PAGE>
NUTRAMAX PRODUCTS, INC.
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FISCAL YEARS 1994, 1993 AND 1992
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B
- --------------------------------------------------------------------------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Repairs and maintenance $ 739,000 $ 274,000 $ 299,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 28.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: SEPTEMBER 30, 1994 Commission File Number: 0-19795
PCI SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 51-0336586
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
1403 FOULK ROAD, SUITE 102,
WILMINGTON, DELAWARE 19803
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (302) 479-0281
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
PAR VALUE
$.001 PER SHARE
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 _____
The aggregate market value of the registrant's voting stock held by
nonaffiliates (based upon the closing price of $7.00) on December 13, 1994, was
approximately $22,300,000. As of December 13, 1994, there were 6,181,250 shares
of Common Stock, par value $.001 per share, outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __X__
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held in March 1995 are incorporated by reference into Part III. The index to
Exhibits begins on page 27.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
PCI Services, Inc. (the 'Company') was incorporated on September 20, 1991
under the laws of the State of Delaware. Prior to its initial public offering in
January 1992, the Company had been a wholly-owned subsidiary of MEDIQ
Incorporated ('MEDIQ'). The Company provides integrated packaging services to
meet the diverse and changing packaging needs of its pharmaceutical customers in
the United States and Europe.
The packaging of a pharmaceutical product is an integral part of its
efficacy, safety and consumer acceptance. While many pharmaceutical companies
package certain products at their own facilities, many regularly utilize
independent packagers for other products and special circumstances. Some
manufacturers also use independent packagers to provide additional packaging
capacity for peaks in demand, and some manufacturers do not package their
products, using independent packagers for all of their packaging needs.
The pharmaceutical industry is affected by global concerns relating to
health care reform, the regulatory climate, environmental protection and general
economic conditions. The Company is unable to determine the effect, if any,
changes in the pharmaceutical industry may have on pharmaceutical packagers. The
market for pharmaceutical packaging services has benefited from increased
competition in the pharmaceutical industry, particularly for over-the-counter
products, increased use of 'unit-dose' packaging and changes in regulatory
practices.
THE COMPANY'S PACKAGING SERVICES
The Company provides a wide range of packaging services to its
pharmaceutical customers. By offering a single source of integrated packaging
services, the Company can assist a pharmaceutical manufacturer in enhancing
quality and uniformity, reducing waste through increased production efficiency,
and obtaining faster delivery by reducing multiple vendor involvement. The
customer can select the full range of packaging services or may select only
those which meet its existing needs for a particular product.
The Company packages pharmaceutical products in the form of tablets,
capsules, powders, ointments, lotions and liquids. The packaging services
offered by the Company include blister packaging, bottle filling, strip
packaging, pouching, capsule filling and cold-forming, as well as tamper-evident
and child-resistant features. Blister packaging consists of a blister affixed to
a rigid or semi-rigid backing material, through which an individual dose is
expelled. Bottle filling uses high speed equipment which fills glass or plastic
bottles with pharmaceutical products, and then adds cotton, safety seals, caps
and labels in one production line. Strip packaging is often used for products
that require extra protection from moisture, light and tampering and generally
consists of higher density materials produced in a perforated strip of packages.
Pouching, which is similar to strip packaging, is often used for larger volume
packages filled with powders or liquids, but can also be used as a unit-dose
package for tablets or capsules, and consists of a flexible packaging material
(plastic, foil, paper or synthetic materials) which is formed, filled and
sealed. Capsule filling consists of hard gelatin capsules which are filled with
pharmaceutical products in the form of powders, granules, pellets or tablets.
Cold-forming uses laminated foil, which is formed, filled and heat-sealed, and
is generally used for products requiring extra protection from moisture.
Tamper-evident and child-resistant features may take the form of blister,
shrink-wrap, over-wrap or other packaging.
Additional packaging services provided by the Company include the
production of folding cartons, thermoformed components, and the printing of
product inserts. Folding cartons are printed, die cut and glued boxes ready for
machine or hand filling with blisters, bottles or other pharmaceutical packages.
Thermoformed components consist of vacuum formed plastic trays and display
components. The Company provides production services from layout and design
through full color printing, die cutting, folding and gluing. The Company's
services include the design, printing and folding of inserts, containing
important dosage and other information, for the customer to add to its
pharmaceutical packages or for the Company to include as part of its other
packaging services.
<PAGE>
MARKETING
The Company markets its services primarily through the development of
relationships with senior managers within the purchasing, manufacturing, quality
assurance, marketing and package development departments of pharmaceutical
companies. These relationships are fostered and maintained by the Company's
senior management and sales force, as well as by representatives from the
Company's manufacturing and quality assurance operations. The Company's existing
customers, as well as potential new accounts, are contacted on a regular basis
by the Company's senior management and sales force.
In general, pharmaceutical packaging services are provided by the Company
to its customers on an as needed basis. The Company also has single source
relationships, in which the pharmaceutical manufacturer relies principally on
the Company to fulfill particular needs. A single source relationship can
increase volume predictability and decrease production setup time and costs,
resulting in increased operating efficiencies for the Company. In addition,
single sourcing can help streamline the customer's purchasing operations, reduce
its inventory, warehousing and personnel expenses and increase vendor
reliability, quality assurance and responsiveness.
CUSTOMERS
For the fiscal years ended September 30, 1994, 1993 and 1992, eight
separate divisions or affiliates of Johnson & Johnson accounted for an aggregate
of 21%, 22% and 30%, respectively, of net revenue. The Company maintains
separate relationships with each of these customers and believes that purchasing
decisions are made on an independent basis.
COMPETITION
The Company believes that competition for pharmaceutical packaging services
is based primarily on quality, the variety of packaging services available,
customer service, responsiveness and price. The Company competes with several
companies that provide many types of packaging services, and a large number of
companies that provide one or a few types of packaging services. The Company
currently competes with companies that are larger and have greater resources.
The Company believes that while there are a large number of independent
providers of one or more pharmaceutical packaging services, only a few, such as
the Company, offer a broad range of services. In order to compete successfully,
the Company believes an independent packager must have expertise in the
packaging services required, satisfy the high quality standards of
pharmaceutical companies and the U.S. Food and Drug Administration ('FDA'), and
respond to the diverse and changing needs of the pharmaceutical industry, all at
competitive prices.
GOVERNMENT REGULATION AND QUALITY ASSURANCE
The Company's domestic pharmaceutical packaging operations are required to
be, and the Company believes that such operations are, conducted pursuant to the
current Good Manufacturing Practices standards of the FDA. The Company is
registered with the FDA as a pharmaceutical packager and its pharmaceutical
packaging facilities undergo general FDA inspections every two years. In
addition, certain of the Company's facilities are subject to limited inspections
from time to time in connection with the Company being designated in new drug
applications by pharmaceutical companies as a potential independent packager.
The purpose of the inspections is to review the Company's capability to package
the new drug in question. Only those companies designated in an approved new
drug application may provide packaging services with respect to the product.
While the Company does not conduct an independent analysis of the products
provided by its customers for packaging, rigorous controls are maintained to
account for product utilization. The Company is also subject to various rules
and regulations administered by the Drug Enforcement Administration division of
the United States Department of Health and Human Services and other federal,
state and local agencies. In addition, the Company's facilities are inspected
periodically by the Company's customers as part of their quality assurance
process, with the frequency of inspections varying by customer and packaging
service. The Company's operations in Germany are subject to state and local
certification requirements, including compliance with the current Good
Manufacturing Practices adopted by the European Community. The Company's
facility in Germany is also subject to periodic regulatory and customer
inspections.
<PAGE>
EMPLOYEES
The Company has approximately 1,500 employees engaged in executive, sales,
technical and administrative functions and production. Certain of the Company's
employees at certain of the domestic facilities are represented by unions
pursuant to contracts expiring in 1995. As is customary in Germany, certain
terms and conditions of employment for the Company's employees in that country
are regulated by national union contracts. The number of persons employed by the
Company fluctuates depending upon the volume of business. The Company considers
its employee relations to be generally satisfactory, and has never experienced
any work stoppages or labor shortages.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Financial information about foreign and domestic operations is discussed in
Note J to the Consolidated Financial Statements included elsewhere herein.
ITEM 2. PROPERTIES
The Company operates the following facilities (which are leased unless
otherwise indicated):
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION TYPE OF FACILITY SQUARE FEET
- ------------------------------------- ------------------------------------------- ------------
<S> <C> <C>
Philadelphia, Pennsylvania(1)(2) Executive Offices and Manufacturing 293,000
Philadelphia, Pennsylvania(2) Manufacturing 220,000
Ivyland, Pennsylvania Manufacturing 40,000
Pennsauken, New Jersey(2) Manufacturing 120,000
Moorestown, New Jersey Manufacturing 20,000
Gurabo, Puerto Rico Manufacturing 65,000
Manati, Puerto Rico Manufacturing 45,000
Richmond, Virginia(2) Manufacturing 40,000
Waiblingen, Germany Manufacturing 70,000
</TABLE>
- ------------------
(1) Anticipated to be operational mid-1995.
(2) Owned
The Company's facilities in New Jersey, Germany, Puerto Rico and Virginia
also contain regional administrative and sales offices. The lease for the
Company's facility in Germany expires in April 1996. The Company, anticipating
that its operations in Germany will be relocated, is currently evaluating the
construction of a new facility. The Company believes that its facilities are
well maintained and in good operating condition, and that such facilities will
be adequate for all of the Company's reasonably foreseeable requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company may, from time to time, become involved in various legal
proceedings incidental to its business, some of which may be covered by
insurance. The Company knows of no litigation, either pending or threatened,
which is likely to have a material adverse effect on the Company. The Company
has never been subject to any product liability claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1994.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET INFORMATION
The following table sets forth, for the periods indicated, the high and low
prices for the common stock as reported by NASDAQ.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1994: HIGH LOW
- ------------------------------------------------------------ --------- ---------
<S> <C> <C>
First Quarter $ 11.750 $ 8.750
Second Quarter 12.750 9.750
Third Quarter 10.750 8.750
Fourth Quarter 9.500 6.250
FISCAL YEAR ENDED SEPTEMBER 30, 1993:
- ------------------------------------------------------------
First Quarter $ 15.625 $ 10.750
Second Quarter 14.500 8.000
Third Quarter 10.750 7.750
Fourth Quarter 9.750 8.250
</TABLE>
COMMON STOCK HOLDERS
The Company believes there are approximately 1,500 holders of common stock,
including shares held in street name by brokers.
DIVIDENDS
The Company did not declare any dividends on its common stock in the fiscal
years ended September 30, 1994 and 1993. Pursuant to a lending arrangement,
there are restrictions on the amount of dividends which may be paid, the most
restrictive of which limits cash dividends to no more than 50% of net income
during any year. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors, and will be dependent upon the Company's
financial condition, results of operations, capital requirements and such other
factors as the Board of Directors deem relevant.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below has been derived
from the audited financial statements of the Company. This data is qualified in
its entirety by reference to, and should be read in conjunction with,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1994 1993(1) 1992 1991 1990
----------- ----------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue $ 121,177 $ 111,272 $ 75,430 $ 67,825 $ 58,837
Cost of goods sold 96,092 86,932 58,097 55,452 47,285
----------- ----------- --------- --------- ---------
Gross profit 25,085 24,340 17,333 12,373 11,552
Selling, general and administrative expenses 16,249 14,334 8,377 6,961 6,073
Interest expense 1,527 1,269 632 1,318 1,099
Interest income (215) (259) (106) (107) (88)
Management fees -- MEDIQ (2) -- -- -- 3,400 4,030
----------- ----------- --------- --------- ---------
Income before income tax expense and cumulative
effect of change in accounting principle 7,524 8,996 8,430 801 438
Income tax expense 2,168 2,841 3,114 754 282
----------- ----------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle 5,356 6,155 5,316 47 156
Cumulative effect of change in accounting
principle (3) -- -- -- -- (394)
----------- ----------- --------- --------- ---------
Net income (loss) $ 5,356 $ 6,155 $ 5,316 $ 47 $ (238)
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Earnings (loss) per share $ .79 $ .92 $ 1.05 $ .02 $ (.08)
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Weighted average shares outstanding (4)(5) 6,787 6,726 5,079 2,875 2,875
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
SEPTEMBER 30,
---------------------------------------------------------
1994 1993(2) 1992 1991 1990
----------- ----------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital $ 10,595 $ 12,817 $ 13,096 $ 8,224 $ 11,671
Total assets 83,427 80,122 49,690 40,694 43,123
Long-term debt, less current maturities (5) 14,760 11,577 6,304 9,104 10,993
Due to MEDIQ (5) -- -- -- 9,199 10,648
Notes payable to MEDIQ (5) -- -- -- 12,300 --
Stockholders' equity (4)(5) 47,344 48,354 33,513 1,917 14,170
</TABLE>
See Notes to Selected Consolidated Financial Data on following page.
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) In December 1992, the Company issued 660,000 shares of common stock to
acquire Allpack Industrielle Lohnverpackung GmbH ('Allpack').
(2) Management fees -- MEDIQ represent primarily an allocation of MEDIQ's
overhead and its costs to provide senior management, financial, legal,
accounting and risk management services to the Company. In connection with
the Company's initial public offering, certain relationships with MEDIQ were
restructured. Effective October 1, 1991, the Company entered into a services
agreement pursuant to which the Company obtains certain legal, accounting,
tax and risk management services from MEDIQ. Costs for such services were
$100,000 for each of the fiscal years 1994, 1993 and 1992, and are included
in selling, general and administrative expenses. The Company believes that
the terms of the services agreement and MEDIQ's charges for such services
are on terms no less favorable than those that could be obtained from
unaffiliated third parties for comparable services.
(3) The Company adopted Statement of Financial Accounting Standards No. 96,
'Accounting for Income Taxes,' as of October 1, 1989. The cumulative effect
of adopting this change in accounting principle resulted in a charge to
income of $394,000 in 1990.
(4) In August 1994, the Company acquired 660,000 shares of common stock which
had been issued in connection with the acquisition of Allpack.
(5) In February 1992, the Company completed its initial public offering
consisting of 3,306,250 shares of common stock at a price of $10 per share.
The Company utilized a portion of the proceeds to repay amounts outstanding
to MEDIQ, to purchase equipment under capital lease arrangements and to
retire certain term loan obligations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto, contained elsewhere herein.
RESULTS OF OPERATIONS
The Company's pharmaceutical packaging services are generally provided on
an as-needed basis. As a result, revenue per customer and profit margins per
order can vary significantly from year to year and quarter to quarter. Results
for any particular quarter are not necessarily indicative of results for any
subsequent quarter or related fiscal year.
The following table sets forth for the periods indicated the percentage
relationship that items in the Consolidated Statements of Operations bear to net
revenue.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net revenue 100% 100% 100%
Cost of goods sold 79 78 77
--------- --------- ---------
Gross profit 21 22 23
Selling, general and administrative expenses 14 13 11
Interest expense 1 1 1
--------- --------- ---------
Income before income tax expense 6 8 11
Income tax expense 2 3 4
--------- --------- ---------
Net income 4% 5% 7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
Fiscal Year 1994 Compared to Fiscal Year 1993
Net revenue was $121,177,000, an increase of $9,905,000, or 9%, as compared
to 1993. The increase was primarily attributable to increased volume to existing
customers and an expanded customer base. Strong demand for contract packaging,
carton manufacturing and insert manufacturing services continued to generate new
business.
Gross profit increased to $25,085,000, representing a gross margin on net
revenue of 21%, as compared to 22% in 1993. The gross margin decrease was caused
by domestic product mix and a lower profit contribution from the Company's
foreign operations. Foreign gross profit margins were adversely affected in
fiscal 1994 as a result of a decision by a major European customer to
discontinue a packaging contract with the Company in order to perform the
packaging in its own facilities. Customer decisions to move packaging into the
customers' facilities are a normal occurrence in the pharmaceutical packaging
industry. While the Company mitigated this loss by obtaining additional foreign
business, including the return of a portion of the discontinued contract, these
operations did not return to profitability until the fourth quarter of fiscal
1994. Gross margins were also adversely affected by costs associated with the
Company's new pharmaceutical insert manufacturing plant in New Jersey, which
commenced production in April 1994.
Selling, general and administrative expenses were $16,249,000, an increase
of $1,915,000, or 13%, as compared to 1993 expenses of $14,334,000. As a
percentage of net revenue, selling, general and administrative expenses
increased to 14% from 13% in 1993, primarily attributable to costs associated
with increased sales and marketing expenses.
Interest expense increased to $1,527,000, as compared to $1,269,000 in
1993. This increase resulted primarily from debt assumed in connection with the
acquisition of the Company's Virginia facility in January 1993 and debt incurred
in connection with the purchase of an operating facility in April 1993 which had
previously been leased.
The Company's effective income tax rate decreased to 29% in 1994 as
compared to 32% in 1993 as a result of higher earnings from operations in Puerto
Rico. The Revenue Reconciliation Act of 1993 limits Section 936 tax credits
applicable to operations in Puerto Rico. Based upon current operations, these
limitations, which are effective for fiscal 1995, are not anticipated to
adversely impact the Company's effective income tax rate.
Fiscal Year 1993 Compared to Fiscal Year 1992
Net revenue was $111,272,000, an increase of $35,842,000, or 48%, as
compared to 1992. The increase was primarily attributable to new products and an
expanded customer base provided by acquisitions.
Gross profit was 22%, as compared to 23% in 1992. Lower domestic gross
profit margins, attributable to changes in product mix, were partially offset by
higher foreign gross profit margins.
Selling, general and administrative expenses were $14,334,000, an increase
of $5,957,000, or 71%, as compared to 1992 expenses of $8,377,000. As a
percentage of net revenue, selling, general and administrative expenses
increased to 13% from 11% in 1992, attributable to costs related to foreign
operations.
Interest expense increased to $1,269,000, as compared to $632,000 in 1992.
The increase resulted from debt assumed in connection with acquisitions and debt
incurred in connection with the acquisition of an operating facility which had
previously been leased.
The Company's effective tax rate decreased to 32% in 1993 from 37% in 1992
primarily as a result of higher earnings from operations in Puerto Rico.
<PAGE>
NEW ACCOUNTING STANDARDS
Effective October 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income
Taxes,' the effect of which was not significant.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1994, the Company had working capital of $10,595,000
including cash and cash equivalents of $3,089,000. For 1994, net cash provided
by operations was $11,358,000, as compared to $9,887,000 for 1993. The increase
was primarily the result of changes in accounts payable partially offset by
increases in inventories.
Net cash used in investing activities included capital expenditures of
$11,952,000. During 1994, the Company established a pharmaceutical insert
manufacturing plant in New Jersey, with expenditures for equipment and leasehold
improvements of $2,900,000. Additional equipment purchases of $6,307,000 for the
Company's other packaging and insert operations were made to provide new product
technologies and increased operating efficiencies. In September 1994, the
Company purchased a facility in Philadelphia, Pennsylvania for $2,745,000, which
will be converted into a pharmaceutical packaging facility in 1995. Additional
capital expenditures related to this facility of approximately $7,300,000 for
building improvements and equipment will be financed with state and municipal
financing (at rates ranging from 2% to 5%) and bank financing. In addition, the
Company anticipates capital expenditures of approximately $6,000,000 in fiscal
1995 for equipment for the Company's other facilities.
Financing activities for 1994 included borrowings of $14,543,000 and
principal payments and debt refinancings of $8,404,000. In August 1994, the
Company entered into an agreement with a commercial lender for a $5,000,000
revolving credit facility and two term notes aggregating $8,483,000. The
revolving credit facility bears interest at prime and expires on March 31, 1996.
Draws under this credit facility for equipment purchases aggregating $1,000,000
or more will convert to term notes, payable over a maximum of 60 months. The
Company utilized proceeds from the revolving credit facility to repay certain
term loans and acquire the new Philadelphia facility. At September 30, 1994,
$2,802,000 was outstanding under this credit facility, with $2,198,000 available
for additional borrowing. Proceeds from the term notes were utilized for
equipment purchases and to purchase, for an aggregate price of $7,458,000,
660,000 shares of common stock, which had been issued in connection with the
acquisition of Allpack. At September 30, 1994, the Company had $1,553,000
outstanding under an additional line of credit of $1,934,000.
The Company's Board of Directors has authorized the purchase of
approximately 300,000 additional shares of common stock from time to time in the
open market or through private transactions.
The lease for the Company's facility in Germany expires in April 1996. The
Company, anticipating that its operations in Germany will be relocated, is
currently evaluating the construction of a new facility.
Management believes that existing working capital and anticipated funds to
be generated from future operations, in addition to financing commitments for
the new facility in Philadelphia, will be sufficient to meet the Company's
anticipated operating and capital needs. Depending upon the relocation needs of
the Company's operations in Germany and future growth of the business,
additional financing may be required.
SUBSEQUENT EVENT
In November 1994, the Company sold its 70% interest in KR-Verpackungen GmbH
('KR') of Muggensturm, Germany, and its manufacturing facility to the management
of KR for $5,201,000, including the assumption of debt. Cash proceeds on the
sale were $790,000. Total revenues and the Company's share of net income from KR
for fiscal 1994 were $6,700,000 and $152,000, respectively.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<S> <C>
Independent Auditors' Report 13
Consolidated Statements of Operations -- Three Years Ended September 30, 1994 14
Consolidated Balance Sheets -- September 30, 1994 and 1993 15
Consolidated Statements of Stockholders' Equity -- Three Years Ended September 30, 1994 16
Consolidated Statements of Cash Flows -- Three Years Ended September 30, 1994 17
Notes to Consolidated Financial Statements 18
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
PCI Services, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheets of PCI Services,
Inc. and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1994. Our audits also
include the financial statement schedules listed in the index at Item 14. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of PCI Services, Inc. and
subsidiaries as of September 30, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
November 15, 1994
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1994 1993 1992
---------------- ---------------- --------------
<S> <C> <C> <C>
Net revenue $ 121,177,000 $ 111,272,000 $ 75,430,000
Cost of goods sold 96,092,000 86,932,000 58,097,000
---------------- ---------------- --------------
Gross profit 25,085,000 24,340,000 17,333,000
Selling, general and administrative expenses 16,249,000 14,334,000 8,377,000
Interest expense 1,527,000 1,269,000 632,000
Interest income (215,000) (259,000) (106,000)
---------------- ---------------- --------------
Income before income tax expense 7,524,000 8,996,000 8,430,000
Income tax expense 2,168,000 2,841,000 3,114,000
---------------- ---------------- --------------
Net income $ 5,356,000 $ 6,155,000 $ 5,316,000
---------------- ---------------- --------------
---------------- ---------------- --------------
Earnings per share $ .79 $ .92 $ 1.05
---------------- ---------------- --------------
---------------- ---------------- --------------
Weighted average shares outstanding 6,787,000 6,726,000 5,079,000
---------------- ---------------- --------------
---------------- ---------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,089,000 $ 5,626,000
Accounts receivable, less allowance for doubtful accounts of $103,000 in 1994
and $76,000 in 1993 13,858,000 14,248,000
Inventories 8,444,000 7,755,000
Deferred income taxes 621,000 --
Net assets held for sale 683,000 --
Other current assets 1,606,000 1,249,000
-------------- --------------
Total current assets 28,301,000 28,878,000
Property, plant and equipment, net 44,145,000 40,900,000
Goodwill, net of accumulated amortization of $1,930,000 in 1994 and $1,624,000 in
1993 9,857,000 9,589,000
Other assets 1,124,000 755,000
-------------- --------------
$ 83,427,000 $ 80,122,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to financial institutions $ 1,553,000 $ 2,549,000
Accounts payable 6,241,000 4,706,000
Accrued payroll and related taxes 1,110,000 1,479,000
Accrued insurance 1,523,000 642,000
Accrued expenses -- other 3,203,000 3,685,000
Federal, state and foreign taxes payable 668,000 517,000
Long-term debt -- current maturities 3,408,000 2,483,000
-------------- --------------
Total current liabilities 17,706,000 16,061,000
Long-term debt, less current maturities 14,760,000 11,577,000
Deferred income taxes 2,254,000 2,426,000
Other liabilities 1,363,000 1,704,000
Stockholders' equity:
Preferred stock -- $.001 par value:
Authorized -- 10,000,000 shares
Issued and outstanding -- none -- --
Common stock -- $.001 par value:
Authorized -- 25,000,000 shares
1994: Issued -- 6,841,250, outstanding -- 6,181,250
1993: Issued and outstanding -- 6,841,250 7,000 7,000
Additional paid-in-capital 35,461,000 37,063,000
Retained earnings 16,827,000 11,471,000
Foreign currency translation adjustment 329,000 (187,000)
Treasury stock, at cost -- 660,000 shares (5,280,000) --
-------------- --------------
47,344,000 48,354,000
-------------- --------------
$ 83,427,000 $ 80,122,000
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
------------------------ CURRENCY
SHARES ADDITIONAL RETAINED TRANSLATION TREASURY
ISSUED AMOUNT PAID-IN-CAPITAL EARNINGS ADJUSTMENT STOCK
----------- ----------- -------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1991 2,875,000 $ 3,000 $ 1,914,000 $ -- $ -- $ --
Issuance of common stock -- Initial public
offering 3,306,250 3,000 30,163,000 -- -- --
Dividend of PCI/Virginia -- -- (1,996,000) -- -- --
Special dividend to MEDIQ -- -- (1,890,000) -- -- --
Net income -- -- -- 5,316,000 -- --
----------- ----------- -------------- ------------ ----------- -----------
Balance at September 30, 1992 6,181,250 6,000 28,191,000 5,316,000 -- --
Issuance of common stock -- Acquisition of
Allpack 660,000 1,000 8,801,000 -- -- --
Contribution of capital -- -- 71,000 -- -- --
Foreign currency translation adjustment -- -- -- -- (187,000) --
Net income -- -- -- 6,155,000 -- --
----------- ----------- -------------- ------------ ----------- -----------
Balance at September 30, 1993 6,841,250 7,000 37,063,000 11,471,000 (187,000) --
Acquisition of treasury stock -- -- (1,602,000) -- -- (5,280,000)
Foreign currency translation adjustment -- -- -- -- 516,000 --
Net income -- -- -- 5,356,000 -- --
----------- ----------- -------------- ------------ ----------- -----------
Balance at September 30, 1994 $ 6,841,250 $ 7,000 $ 35,461,000 $ 16,827,000 $ 329,000 $(5,280,000)
----------- ----------- -------------- ------------ ----------- -----------
----------- ----------- -------------- ------------ ----------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,356,000 $ 6,155,000 $ 5,316,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,390,000 4,812,000 2,676,000
Deferred taxes (481,000) 638,000 (134,000)
Other 246,000 139,000 --
Increase (decrease), net of effect of acquisitions:
Accounts receivable (288,000) (738,000) (1,760,000)
Inventories (968,000) 254,000 (808,000)
Other current assets (336,000) (498,000) 197,000
Accounts payable 1,972,000 (649,000) (96,000)
Accrued payroll and related taxes 17,000 (355,000) 778,000
Accrued expenses -- other 343,000 430,000 (140,000)
Federal, state and foreign taxes payable 107,000 (301,000) 547,000
-------------- -------------- --------------
Net cash provided by operating activities 11,358,000 9,887,000 6,576,000
Cash flows from investing activities:
Expenditures for property, plant and equipment (11,952,000) (5,740,000) (3,037,000)
Acquisitions and contingent consideration (533,000) (1,227,000) (4,944,000)
Other (407,000) 433,000 74,000
-------------- -------------- --------------
Net cash used in investing activities (12,892,000) (6,534,000) (7,907,000)
Cash flows from financing activities:
Borrowings 14,543,000 2,579,000 2,927,000
Debt repayments (8,404,000) (4,521,000) (5,295,000)
Acquisition of treasury stock (6,882,000) -- --
Other (162,000) (380,000) --
Proceeds from issuance of common stock -- -- 30,166,000
Payment of notes payable to MEDIQ -- -- (14,190,000)
Net activity -- MEDIQ -- -- (8,430,000)
-------------- -------------- --------------
Net cash provided by (used in) financing activities (905,000) (2,322,000) 5,178,000
Effect of exchange rate changes on cash (98,000) (35,000) --
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (2,537,000) 996,000 3,847,000
Decrease in cash and cash equivalents related to dividend of
PCI/Virginia -- -- (913,000)
Cash and cash equivalents:
Beginning of period 5,626,000 4,630,000 1,696,000
-------------- -------------- --------------
End of period $ 3,089,000 $ 5,626,000 $ 4,630,000
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental disclosures of cash flow information:
Interest paid $ 1,391,000 $ 1,239,000 $ 635,000
-------------- -------------- --------------
-------------- -------------- --------------
Income taxes paid $ 2,385,000 $ 2,527,000 $ 2,657,000
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental disclosures of non-cash investing and financing
activities:
Plant and equipment financed with long-term debt $ 1,035,000 $ 4,443,000 $ 1,281,000
-------------- -------------- --------------
-------------- -------------- --------------
Issuance of stock -- acquisition of Allpack $ -- $ 8,802,000 $ --
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of PCI Services, Inc. and its subsidiaries (the 'Company').
In consolidation, all significant intercompany transactions and balances have
been eliminated.
Cash Equivalents -- Cash equivalents include all unrestricted, liquid
investments purchased with maturities of three months or less.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. Capital leases are recorded at the lower of fair market value or the
present value of future lease payments. The Company provides for depreciation
and amortization on a straight-line basis as follows:
<TABLE>
<S> <C>
Buildings 25 to 30 years
Building improvements 15 years
Machinery, equipment, furniture and fixtures 10 years
</TABLE>
Goodwill -- The purchase price in excess of net assets acquired is
amortized on a straight-line basis over forty years.
Foreign Currency Translation -- In accordance with Statement of Financial
Accounting Standards ('SFAS') No. 52, 'Foreign Currency Translation,' the
financial statements of the Company's German subsidiary, Allpack Industrielle
Lohnverpackung GmbH ('Allpack'), are translated from deutschemarks to U.S.
dollars using the exchange rate at the balance sheet date for assets and
liabilities, and the weighted average exchange rate during the period for
results of operations and cash flows. The related translation adjustment is
included as a separate component of stockholders' equity.
Income Taxes -- Effective October 1, 1993, the Company adopted the
provisions of SFAS No. 109, 'Accounting for Income Taxes', which supercedes SFAS
No. 96. The Company adopted SFAS No. 96 in fiscal 1990. The effect of the
adoption of SFAS No. 109 was not significant for the year ended September 30,
1994.
Earnings Per Share -- Earnings per share computations are based upon the
weighted average number of common shares outstanding. Outstanding stock options
have been excluded from the calculation of weighted average shares outstanding,
since the dilutive effect is less than 3%.
Reclassifications -- Certain items in the prior years' financial statements
have been reclassified to conform with the 1994 presentation.
B. ACQUISITIONS
PCI/Virginia -- In January 1993, the Company acquired PCI/Virginia, a
pharmaceutical packaging operation in Virginia, from MEDIQ Incorporated
('MEDIQ'), owner of 47% of the Company's common stock, for aggregate
consideration of approximately $2,300,000. (See Note K).
Allpack -- In December 1992, the Company acquired Allpack, a pharmaceutical
packaging operation in Germany, for 660,000 shares of common stock. The excess
of the purchase price over the estimated fair values of the net assets acquired,
$820,000, has been recorded as goodwill, and is amortized over forty years. The
acquisition agreement provided for additional consideration for any shortfall
between the market value of the shares issued and $15 per share after the third
anniversary of closing. In settlement of this contingent obligation, the Company
purchased on August 31, 1994, the
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
B. ACQUISITIONS--(CONTINUED)
660,000 shares at an aggregate price of $7,458,000. The purchase price was
allocated $5,280,000 to treasury stock, $1,602,000 to additional paid-in
capital, and $576,000 to a modification of the lease on Allpack's manufacturing
facility, which is leased from the former shareholders of Allpack.
C. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Raw materials $ 5,077,000 $ 4,484,000
Work in process 1,760,000 1,235,000
Finished goods 1,607,000 2,036,000
-------------- --------------
$ 8,444,000 $ 7,755,000
-------------- --------------
-------------- --------------
</TABLE>
D. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Land $ 1,388,000 $ 1,736,000
Building and improvements 12,289,000 13,094,000
Machinery, equipment, furniture and fixtures 48,768,000 40,173,000
Equipment under capital lease 3,667,000 3,886,000
Deposits on equipment 916,000 356,000
-------------- --------------
67,028,000 59,245,000
Less: accumulated depreciation and amortization 22,883,000 18,345,000
-------------- --------------
$ 44,145,000 $ 40,900,000
-------------- --------------
-------------- --------------
</TABLE>
Depreciation and amortization expense related to property, plant and
equipment for fiscal years 1994, 1993 and 1992 was $5,037,000, $4,472,000 and
$2,448,000, respectively.
E. NOTES PAYABLE TO FINANCIAL INSTITUTIONS
At September 30, 1994, the Company had $381,000 available under an
unsecured line of credit with a financial institution with $1,553,000
outstanding, bearing interest at 5.125%. The average amount outstanding under
lines of credit in fiscal year 1994 was $1,966,000, including a portion
converted to a term loan in February 1994, and the weighted average interest
rate computed on the quarterly outstanding balance was 5.5%.
F. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Revolving credit facility, maturing March 31, 1996, with interest at
the prime rate (7.75% at September 30, 1994) $ 2,802,000 $ --
Term loans with interest rates of prime and fixed rates of 7.0% to
10.0% maturing through 2002 12,070,000 5,276,000
Mortgages with interest rates ranging from a fixed rate of 7.8% to
prime plus 0.5% maturing through 2011 2,352,000 6,913,000
Capital lease obligations with interest rates ranging from 8.5% to 13%
maturing through 1996 944,000 1,871,000
-------------- --------------
18,168,000 14,060,000
Less: current maturities 3,408,000 2,483,000
-------------- --------------
$ 14,760,000 $ 11,577,000
-------------- --------------
-------------- --------------
</TABLE>
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
F. LONG-TERM DEBT--(CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
- -------------------------
<S> <C>
1995 $ 3,408,000
1996 7,231,000
1997 3,336,000
1998 1,952,000
1999 1,758,000
Thereafter 483,000
--------------
$ 18,168,000
--------------
--------------
</TABLE>
In August 1994, the Company entered into an agreement with a commercial
lender for a $5,000,000 revolving credit facility and two term notes of
$7,500,000 and $983,000. The revolving credit facility expires on March 31, 1996
and bears interest, at the Company's option, at the prime rate or LIBOR plus 2%.
Draws under this facility for equipment purchases aggregating $1,000,000 or more
will be converted to term notes, payable over a maximum of 60 months. At
September 30, 1994, $2,802,000 was outstanding under this facility, with
$2,198,000 available for additional borrowing. The $7,500,000 term note was
utilized to purchase 660,000 shares of the Company's common stock from the
former shareholders of Allpack (see Note B) and is payable in monthly
installments of $125,000 through August 1999 with interest at the prime rate
plus .25%. The $983,000 term note is payable in monthly installments of $17,000
through May 1999 plus interest at the prime rate.
The revolving credit facility and certain term loans and mortgages require
the maintenance of specific balance sheet and operating ratios and impose other
financial and dividend limitations. The most restrictive of these provisions
limits cash dividends to no more than 50% of net income in any one year. At
September 30, 1994, the Company either complied with or obtained the necessary
waivers from its lenders regarding these ratios and limitations.
The net carrying value of assets pledged as collateral under long-term debt
agreements was $59,584,000 as of September 30, 1994.
G. LEASES
The Company leases certain manufacturing and warehouse facilities and
equipment. Rental expense for operating leases was $1,452,000, $1,286,000 and
$425,000 for fiscal years 1994, 1993 and 1992, respectively. At September 30,
1994 equipment under capitalized lease obligations was $3,667,000, less
accumulated amortization of $1,606,000. Future minimum payments under capital
leases and noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- ------------------------ ------------- -------------
<S> <C> <C>
1995 $ 918,000 $ 1,044,000
1996 99,000 779,000
1997 6,000 297,000
1998 -- 102,000
1999 -- 49,000
------------- -------------
Total minimum lease payments 1,023,000 $ 2,271,000
-------------
-------------
Amount representing interest 79,000
-------------
Present value of minimum lease payments $ 944,000
-------------
-------------
</TABLE>
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
H. INCOME TAXES
Effective October 1, 1993, the Company adopted SFAS No. 109, 'Accounting
for Income Taxes.' Financial statements for prior years have not been restated
and the effect of the adoption of SFAS No. 109 was not significant.
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal $ 1,793,000 $ 1,799,000 $ 2,428,000
State 629,000 404,000 820,000
Foreign 227,000 -- --
------------- ------------- -------------
2,649,000 2,203,000 3,248,000
------------- ------------- -------------
Deferred:
Federal 10,000 (86,000) (96,000)
State (230,000) 12,000 (38,000)
Foreign (261,000) 712,000 --
------------- ------------- -------------
(481,000) 638,000 (134,000)
------------- ------------- -------------
Total income tax expense $ 2,168,000 $ 2,841,000 $ 3,114,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The differences between the Company's provision for income taxes and the
income taxes computed using the U.S. federal income tax rate were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Statutory expense $ 2,558,000 $ 3,059,000 $ 2,866,000
Goodwill amortization 91,000 86,000 76,000
State tax, net of federal benefit 311,000 268,000 562,000
Puerto Rico operations (813,000) (657,000) (414,000)
Other 21,000 85,000 24,000
------------- ------------- -------------
Total income tax expense $ 2,168,000 $ 2,841,000 $ 3,114,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
H. INCOME TAXES--(CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
as of September 30, 1994 were as follows:
<TABLE>
<S> <C>
LIABILITIES
Depreciation expense $ 3,079,000
Deferred acquisition costs 179,000
Amortization of goodwill 161,000
Other 231,000
-------------
3,650,000
ASSETS
Foreign net operating losses 770,000
State net operating losses 317,000
Inventory capitalization 178,000
Insurance accruals 534,000
Other 295,000
-------------
2,094,000
Valuation allowance (77,000)
-------------
2,017,000
-------------
Net deferred tax liability $ 1,633,000
-------------
-------------
</TABLE>
Under the provisions of SFAS No. 96, the deferred tax provision for fiscal
year 1993 of $638,000 resulted principally from depreciation of $432,000 and the
net tax effect of the German net operating loss of $597,000, partially offset by
insurance accruals of $271,000. The deferred tax benefit of $134,000 for fiscal
year 1992 resulted principally from depreciation of $55,000 and inventory
capitalization of $40,000.
At September 30, 1994, the Company had state net operating loss
carryforwards of approximately $5,900,000, expiring through 2009, and German net
operating loss carryforwards of $1,926,000, which can be carried forward
indefinitely.
At September 30, 1994, the balance of undistributed earnings of foreign
subsidiaries was $747,000. It is presumed that ultimately these earnings will be
distributed to the Company. The tax effect of this presumption was evaluated by
assuming that these earning were remitted to the Company in the period in which
they were earned and that the Company received the benefit of all available tax
planning alternatives and available tax credits and deductions.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
I. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenue $ 27,917,000 $ 30,413,000 $ 31,427,000 $ 31,420,000
Gross profit 5,614,000 5,993,000 6,364,000 7,114,000
Net income 1,305,000 1,471,000 1,146,000 1,434,000
Earnings per share .19 .22 .17 .22
Weighted average shares outstanding 6,841,000 6,841,000 6,841,000 6,626,000
1993
- -----------------------------------------------
Net revenue $ 21,574,000 $ 29,784,000 $ 29,026,000 $ 30,888,000
Gross profit 4,156,000 6,121,000 6,566,000 7,497,000
Net income 884,000 1,504,000 1,883,000 1,884,000
Earnings per share .14 .22 .28 .28
Weighted average shares outstanding 6,382,000 6,841,000 6,841,000 6,841,000
</TABLE>
J. GEOGRAPHIC SEGMENT DATA
The Company operates in the United States (including Puerto Rico) and
Europe. The following table presents operating results for fiscal years 1994 and
1993 and identifiable assets of the Company as of September 30, 1994 and 1993,
by geographic area.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
Revenues:
United States $ 96,449,000 $ 88,244,000
Europe 24,728,000 23,028,000
---------------- ----------------
$ 121,177,000 $ 111,272,000
---------------- ----------------
---------------- ----------------
Pre-tax income (loss):
United States $ 7,630,000 $ 6,751,000
Europe (106,000) 2,245,000
---------------- ----------------
$ 7,524,000 $ 8,996,000
---------------- ----------------
---------------- ----------------
YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1993
---------------- ----------------
Identifiable assets:
United States $ 72,987,000 $ 66,521,000
Europe 18,696,000 23,227,000
Intersegment eliminations (8,256,000) (9,626,000)
---------------- ----------------
$ 83,427,000 $ 80,122,000
---------------- ----------------
---------------- ----------------
</TABLE>
K. RELATED PARTY TRANSACTIONS
PCI/Virginia -- Effective October 1, 1991, the Company transferred by
dividend to MEDIQ all of the capital stock of PCI/Virginia, resulting in a
reduction of stockholders' equity of $1,996,000. In January 1993, the Company
exercised its purchase option and acquired PCI/Virginia from MEDIQ for
aggregate consideration equal to MEDIQ's net book value of approximately
$2,300,000. In addition, MEDIQ assigned to the Company a purchase option to
acquire the real estate leased by PCI/Virginia, in consideration for which the
Company reimbursed MEDIQ for a $1,010,000 deposit previously made
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
K. RELATED PARTY TRANSACTIONS--(CONTINUED)
on the purchase. For the periods in which PCI/Virginia was owned by MEDIQ, the
Company provided senior management services to PCI/Virginia and recognized
management fee income of $97,000 and $280,000 for 1993 and 1992, respectively.
Pennsauken Facility -- Effective February 25, 1994, the asset and related
mortgage obligation related to the Pennsauken, New Jersey facility were
transferred from MEDIQ to the Company. Prior to such date, in anticipation of
this transfer, the asset, the related mortgage obligation and all costs related
to the ownership and operation of the facility, were reflected in the Company's
financial statements.
Insurance -- The Company obtains certain insurance coverages through
insurance programs administered by MEDIQ, including worker's compensation
coverage through June 1, 1992. As of September 30, 1994, the Company had
outstanding letters of credit in the amount of $1,017,000 to secure the
Company's obligations under such programs. Insurance expense related to such
insurance programs was $681,000, $471,000 and $1,012,000 for fiscal years 1994,
1993 and 1992, respectively.
Services Agreement -- In connection with the Company's initial public
offering, effective October 1, 1991, the Company entered into a services
agreement pursuant to which the Company obtains certain legal, accounting, tax
and risk management services from MEDIQ. Costs for such services were $100,000
for each of the fiscal years 1994, 1993 and 1992, and are included in selling,
general and administrative expenses. The Company believes that the terms of the
services agreement and MEDIQ's charges for such services are on terms no less
favorable than those that could be obtained from unaffiliated third parties for
comparable services.
Inventory Purchases -- The Company purchases certain packaging materials
from a company owned by one of its directors, totalling $1,486,000, $1,073,000
and $1,314,000 for fiscal years 1994, 1993 and 1992, respectively. Amounts due
to this company were $168,000 and $117,000 as of September 30, 1994 and 1993,
respectively.
Special Dividends -- In September 1991 and December 1991, the Company
declared special dividends on its common stock in the form of four notes payable
to MEDIQ aggregating $14,190,000. In fiscal year 1992, all notes payable in
connection with the special dividends were paid with proceeds from the initial
public offering.
Pledge of Stock -- A portion of the shares of the Company's stock owned by
MEDIQ secures certain MEDIQ indebtedness.
L. MAJOR CUSTOMERS
Eight separate divisions or affiliates of Johnson & Johnson accounted for
an aggregate of 21%, 22% and 30%, of net revenue for fiscal years 1994, 1993 and
1992, respectively.
M. STOCK OPTION PLAN
In September 1991, the Company's Board of Directors adopted a stock option
plan under which 600,000 shares have been reserved for stock options. These
options may be granted to directors, officers and key employees of the Company
and its subsidiaries. No option may be granted under the plan for a term in
excess of ten years from the date of grant. As of September 30, 1994, 415,000
shares
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
M. STOCK OPTION PLAN--(CONTINUED)
are outstanding and had been granted at option prices ranging from $10 to $12.25
per share, representing the fair market value at dates of grant and 365,000
stock options were exercisable under the plan.
N. EMPLOYEE BENEFIT PLANS
The Company maintains and administers a money purchase pension plan and a
profit sharing plan for substantially all of its employees other than those
covered by collective bargaining agreements or compensated solely on a
commission basis. The benefits accruing under these plans are funded by
contributions made by the Company and earnings thereon. Under the money purchase
pension plan, the Company contributes in each year an amount equal to 4% of each
participant's earnings up to the Social Security taxable wage tax base for the
year and an additional amount equal to 8% of each participant's earnings in
excess of the taxable wage base. Under the profit sharing plan, the Company
contributes an annual amount determined at the discretion of the Company's Board
of Directors.
The Company also participates in multi-employer plans which provide defined
benefits to employees covered by collective bargaining agreements.
Expenses related to these plans were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1994 1993 1992
------------- ------------- -----------
<S> <C> <C> <C>
Money purchase pension plan $ 495,000 $ 462,000 $ 323,000
Profit sharing plan 374,000 315,000 217,000
Multi-employer plans 432,000 361,000 344,000
------------- ------------- -----------
$ 1,301,000 $ 1,138,000 $ 884,000
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
O. SUBSEQUENT EVENT
In November 1994, the Company completed the sale of its ownership interest
in KR-Verpackungen GmbH ('KR') of Muggensturm, Germany, a 70% owned subsidiary
of Allpack, and its manufacturing facility to the management of KR for
$5,201,000, including the assumption of debt. The following table summarizes the
net assets of KR including the manufacturing facility as of September 30, 1994:
<TABLE>
<S> <C>
Cash $ 217,000
Acccounts receivable 873,000
Inventories 393,000
Other current assets 60,000
Property, plant and equipment 5,253,000
Accounts payable (598,000)
Accrued expenses -- other (687,000)
Long term debt (4,446,000)
Deferred income taxes (136,000)
Other liabilities (246,000)
-------------
Net assets held for sale $ 683,000
-------------
-------------
</TABLE>
The net assets of KR and the manufacturing facility have been classified as
a current asset in the accompanying balance sheet as of September 30, 1994. The
sale of KR and the manufacturing facility resulted in a pre-tax gain of
approximately $90,000 which will be recorded in fiscal 1995. Total revenues
and the Company's share of net income from KR for fiscal 1994 was $6,700,000
and $152,000, respectively.
<PAGE>
PART III
The information required to be included herein has been incorporated herein
by reference to the Registrant's proxy statement relating to the Annual Meeting
of Stockholders scheduled to be held March 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) The response to this portion of Item 14 is submitted as a separate
section of this report commencing on page 12.
(A) (2) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Schedule V Property, plant and equipment
Schedule VI Accumulated depreciation, depletion and amortization of property, plant and
equipment
Schedule VIII Valuation and qualifying accounts and reserves
Schedule IX Short-term borrowings
Schedule X Supplementary income statement information
</TABLE>
Other schedules are omitted because of the absence of conditions under which
they are required.
(A) (3) EXHIBITS. The exhibits are listed on the Index to Exhibits
appearing below.
(B) Reports on Form 8-K: No reports on Form 8-K were filed during the
fourth quarter of fiscal 1994.
(C) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
3(a) Certificate of Incorporation of the Registrant (1)
3(b) By-Laws of the Registrant (1)
10(a) Stock Option Plan of the Registrant (1)
10(b) Amendment No. 1 to Stock Option Plan of the Registrant (2)
10(c) Profit Sharing Plan of Packaging Coordinators, Inc. (1)
10(d) Profit Sharing Trust Agreement of Packaging Coordinators, Inc. (1)
10(e) Money Purchase Pension Plan of Packaging Coordinators, Inc. (1)
10(f) Money Purchase Pension Plan Trust of Packaging Coordinators, Inc. (1)
10(g) Services Agreement, dated September 20, 1991, between the Registrant and MEDIQ Incorporated (1)
10(h) Tax Allocation/Sharing Agreement, dated September 20, 1991, between the Registrant and MEDIQ
Incorporated (1)
10(i) Registration Rights Agreement, dated September 20, 1991, between the Registrant, MEDIQ incorporated
and MEDIQ Investment Services, Inc. (1)
10(j) Lease dated November 20, 1990 between Packaging Coordinators, Inc. and D.D. Williamson (PR), Ltd. (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
10(k) Reimbursement Agreement, dated September 27, 1991, between Packaging Coordinators, Inc. and MEDIQ
Incorporated (1)
10(l) Real Estate Agreement, dated September 27, 1991, between Packaging Coordinators, Inc. and MEDIQ
Incorporated (1)
10(m) Purchase and Sale Agreement, dated July 30, 1990 and amended on December 14, 1990 and September 20,
1991, between P.C. Realty, Inc. and PCI of Virginia, Inc. (1)
10(n) Annual Incentive Compensation Plan (1)
10(o) Employment Agreement dated August 27, 1991 between Packaging Coordinators, Inc. and Daniel F. Gerner
(1)
10(p) Letter Agreement dated July 22, 1992 between Packaging Coordinators, Inc. and McNeil Consumer Products
Company (1)
10(q) Right of First Refusal and Purchase Option dated October 1, 1991 by and between Packaging
Coordinators, Inc. and MEDIQ Investment Services, Inc. (1)
10(r) Management Services Agreement dated October 1, 1991 by and between Packaging Coordinators, Inc. and
PCI of Virginia, Inc. (1)
10(s) Insurance Program Agreement dated October 1, 1991 by and between the Registrant and MEDIQ Incorporated
(1)
10(t) English translation of Share Purchase Agreement, dated as of November 30, 1993 (3)
10(u) English translation of Letter Agreement, dated December 4, 1992, amending the Share Purchase Agreement
(3)
10(v) English translation of Agreement, dated August 1994, between the Company and the Hofliger family (4)
10(w) English translations of Share Transfer Agreement and Real Estate Purchase Agreement, dated October 20,
1994, between Allpack, Raimund Merkel, Renate-Hasenohr-Merkel and KR-Verpackungen GmbH (4)
10(x) Loan Agreement, dated January 23, 1986, between MEDIQ and Fidelity Bank (4)
10(y) Amendment, Assignment, Assumption and Release Agreement, dated as of February 25, 1994, among MEDIQ,
Packaging Coordinators, Inc. and First Fidelity Bank, National Association (4)
10(z) Mortgage Modification and Assumption Agreement, dated as of February 25, 1994, among MEDIQ, Packaging
Coordinators, Inc. and First Fidelity Bank, National Association (4)
10(aa) Amended and Restated Promissory Note, dated February 25, 1994 in the principal amount of $2,490,000(4)
10(bb) Loan Agreement, dated as of August 30, 1994, between the Company, Packaging Coordinators, Inc., PCI of
Virginia, Inc., PCI/Delvco, Inc., PCI/Tri-Line (USA), Inc. and Meridian Bank (4)
10(cc) Revolving Credit Note, dated August 30, 1994, in the principal amount of $5,000,000 (4)
10(dd) First Term Loan Note, dated August 30, 1994, in the principal amount of $7,500,000 (4)
10(ee) Second Term Loan Note, dated August 30, 1994, in the principal amount of $983,250 (4)
10(ff) Agreement of Sale, dated July 28, 1994, between Interco, Incorporated and Packaging Coordinators,
Inc., as amended on September 19, 1994 (4)
10(gg) Acquisition Agreement, dated September 19, 1994, between PIDC Financing Corporation and Packaging
Coordinators, Inc. (4)
21 Subsidiaries of the Registrant (4)
</TABLE>
- ------------------
(1) Incorporated by reference to Registration Statement on Form S-1 filed
September 25, 1991 as amended.
(2) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended September 30, 1992.
(3) Incorporated by reference to Current Report on Form 8-K, dated December 4,
1992.
(4) Filed herewith.
<PAGE>
SIGNATURES
Pursuant to requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
Dated: December 19, 1994 PCI SERVICES, INC.
By: /s/ RICHARD S. SAUTER
Richard S. Sauter
Chief Executive Officer
By: /s/ MICHAEL F. SANDLER
Michael F. Sandler
Vice President and Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include at least a
majority of the Board of Directors on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------ -----------------------
<S> <C> <C>
/s/ BERNARD J. KORMAN Chairman of the Board of Directors December 19, 1994
Bernard J. Korman
/s/ RICHARD S. SAUTER Vice Chairman of the Board of Directors December 19, 1994
Richard S. Sauter and Chief Executive Officer
/s/ LAWRENCE CHIMERINE Director December 19, 1994
Lawrence Chimerine
/s/ HERBERT LOTMAN Director December 19, 1994
Herbert Lotman
/s/ Director
Robert Purcell
/s/ THEODORE H. SEIDENBERG Director December 19, 1994
Theodore H. Seidenberg
</TABLE>
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
COL. A. COL. B. COL. C. COL. D. COL. E. COL. F.
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT OTHER BALANCE AT
BEGINNING OF ADDITIONS CHANGES-ADD END OF
DESCRIPTION PERIOD AT COST RETIREMENTS (DEDUCT) PERIOD
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1994
Land $ 1,736 $ 873 $ -- $ (1,221) $ 1,388
Buildings and improvements 13,094 2,552 -- (3,357) 12,289
Machinery, equipment, furniture and fixtures 40,173 9,001 (760) 354 48,768
Equipment under capital lease 3,886 -- -- (219) 3,667
Deposits on equipment 356 -- -- 560 916
------------ ----------- ----------- ------------- -----------
$ 59,245 $ 12,426 $ (760) $ (3,883)(1) $ 67,028
------------ ----------- ----------- ------------- -----------
------------ ----------- ----------- ------------- -----------
SEPTEMBER 30, 1993
Land $ 351 $ 1,400 $ -- $ (15) $ 1,736
Buildings and improvements 6,790 6,343 -- (39) 13,094
Machinery, equipment, furniture and fixtures 24,323 16,226 (136) (240) 40,173
Equipment under capital lease 1,005 2,186 (43) 738 3,886
Deposits on equipment 414 -- -- (58) 356
------------ ----------- ----------- ------------- -----------
$ 32,883 $ 26,155(2) $ (179) $ 386(3) $ 59,245
------------ ----------- ----------- ------------- -----------
------------ ----------- ----------- ------------- -----------
SEPTEMBER 30, 1992
Land $ 515 $ -- $ (164) $ -- $ 351
Buildings and improvements 8,011 960 (2,181) -- 6,790
Machinery, equipment, furniture and fixtures 12,682 5,043 (237) 6,835(6) 24,323
Equipment under capital lease 9,031 1,005 (2,196) (6,835)(6) 1,005
Deposits on equipment 490 -- -- (76) 414
------------ ----------- ----------- ------------- -----------
$ 30,729 $ 7,008(4) $ (4,778)(5) $ (76) $ 32,883
------------ ----------- ----------- ------------- -----------
------------ ----------- ----------- ------------- -----------
</TABLE>
- ------------------
(1) Other changes include the reclassification of assets held for sale
($4,990,000) and the currency translation of Allpack's property, plant and
equipment.
(2) Additions include assets acquired in connection with the acquisition of
Allpack ($10,873,000) and PCI/Virginia ($5,041,000).
(3) Other changes include the consolidation of a 60% owned subsidiary,
PCI/Arlington ($769,000), and the currency translation of Allpack's
property, plant and equipment.
(4) Additions include assets acquired in connection with the acquisition of
Delvco ($784,000) and Tri-Line ($1,982,000).
(5) Retirements include the dividend of PCI/Virginia ($138,000) and PC Realty
($4,525,000).
(6) Equipment under capital lease was purchased with proceeds from the Offering.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
COL. A. COL. B. COL. C. COL. D. COL. E. COL. F.
- -----------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF COSTS AND CHANGES-ADD END OF
DESCRIPTION PERIOD EXPENSES RETIREMENTS (DEDUCT) PERIOD
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1994
Buildings and improvements $ 2,796 $ 665 $ -- $ (162) $ 3,299
Machinery, equipment, furniture and fixtures 14,256 3,921 (364) 165 17,978
Equipment under capital lease 1,293 451 -- (138) 1,606
------------ ----------- ------ ------------- -----------
$ 18,345 $ 5,037 $ (364) $ (135)(1) $ 22,883
------------ ----------- ------ ------------- -----------
------------ ----------- ------ ------------- -----------
SEPTEMBER 30, 1993
Buildings and improvements $ 2,069 $ 551 $ $ 176 $ 2,796
Machinery, equipment, furniture and fixtures 10,759 3,570 (92) 19 14,256
Equipment under capital lease 182 351 (32) 792 1,293
------------ ----------- ------ ------------- -----------
$ 13,010 $ 4,472 $ (124) $ 987 (2) $ 18,345
------------ ----------- ------ ------------- -----------
------------ ----------- ------ ------------- -----------
SEPTEMBER 30, 1992
Buildings and improvements $ 1,831 $ 324 $ (86) $ -- $ 2,069
Machinery, equipment, furniture and fixtures 6,947 1,959 (123) 1,976 (4) 10,759
Equipment under capital lease 2,249 165 (256) (1,976)(4) 182
------------ ----------- ------ ------------- -----------
$ 11,027 $ 2,448 $ (465)(3) $ -- $ 13,010
------------ ----------- ------ ------------- -----------
------------ ----------- ------ ------------- -----------
</TABLE>
- ------------------
(1) Other changes include the reclassification of assets held for sale
($260,000) and the currency translation of Allpack's accumulated
depreciation.
(2) Other changes include the contribution of PC Realty ($697,000), the
consolidation of a 60% owned subsidiary, PCI/Arlington ($281,000) and the
currency translation of Allpack's accumulated depreciation.
(3) Retirements include the dividend of PCI/Virginia ($8,000) and PC Realty
($341,000).
(4) Equipment under capital lease was purchased with proceeds from the Offering.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
COL. A. COL. B. COL. C. COL. D. COL. E.
- ------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND (1) END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994
Allowance for doubtful accounts $ 76 $ 27 $ -- $ 103
------ ----- ------ ------
------ ----- ------ ------
YEAR ENDED SEPTEMBER 30, 1993
Allowance for doubtful accounts $ 139 $ 30 $ (93) $ 76
------ ----- ------ ------
------ ----- ------ ------
YEAR ENDED SEPTEMBER 30, 1992
Allowance for doubtful accounts $ 140 $ -- $ (1) $ 139
------ ----- ------ ------
------ ----- ------ ------
</TABLE>
- ------------------
(1) Represents accounts directly written-off net of recoveries.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
SCHEDULE IX
SHORT-TERM BORROWINGS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT INTEREST RATE DATA)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COL. A. COL. B. COL. C. COL. D. COL. E. COL. F.
- ----------------------------------------------------------------------------------------------------------------------
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD(1) PERIOD(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994:
Notes Payable to Banks $ 1,553 5.125% $ 2,710 $ 1,966 9.5%
----------- ----------- ----------- ----------- ---
----------- ----------- ----------- ----------- ---
YEAR ENDED SEPTEMBER 30, 1993:
Notes Payable to Banks $ 2,549 6.900% $ 2,549 $ 2,182 6.9%
----------- ----------- ----------- ----------- ---
----------- ----------- ----------- ----------- ---
YEAR ENDED SEPTEMBER 30, 1992:
Notes Payable to Banks $ -- --% $ -- $ -- --%
----------- ----------- ----------- ----------- ---
----------- ----------- ----------- ----------- ---
</TABLE>
- ------------------
(1) The average borrowings were determined based on the amounts outstanding at
each quarter-end.
(2) Weighted average interest rate was computed on the quarterly outstanding
loan balances.
<PAGE>
PCI SERVICES, INC. AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
- ---------------------------------------------------------------
COL. A. COL. B.
- ---------------------------------------------------------------
CHARGED TO COSTS AND EXPENSES
- ---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Maintenance and Repairs $ 3,173 $ 2,908 $ 1,652
</TABLE>
