<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995 Commission File No. 0-15340
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to _______________________
PSICOR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Pennsylvania 25-1228645
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
16818 Via Del Campo Court
San Diego, California 92127
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (619) 485-5599
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of the registrant's outstanding voting
stock held by nonaffiliates of the registrant (i.e., persons other than
executive officers and directors of the registrant) as of November 1, 1995,
computed by reference to the last sale price for such stock on that date as
reported on the NASDAQ National Market System, was $30,603,379.
At November 1, 1995, there were outstanding 4,354,942 shares of the
registrant's common stock, no par value.
<PAGE> 2
ITEM 1. BUSINESS.
GENERAL
BACKGROUND. The Company was incorporated in the State of Pennsylvania
on May 3, 1972. The Company's operations are grouped into two industry
segments - cardiovascular and clinical technology services; and medical
laboratory products and services. The Company's cardiovascular and clinical
technology services operations constitute the Company's principal business
segment, through which the Company supplies perfusionists, clinical
technicians, equipment and disposable supplies to hospitals performing
open-heart surgical procedures. The Company's clinical staff of 392
perfusionists and technicians provide cardiac surgery services for 147
hospitals in which open-heart surgery is performed. The Company also provides
mechanical assist devices and autotransfusion services to many of its
open-heart client hospitals and to another 271 hospitals for which the Company
does not provide cardiac surgery services. Perfusionists are skilled
technicians who set up, prime and operate the heart-lung machine used in an
increasing variety of surgical and other medical situations. Mechanical assist
devices reduce the heart's workload and are used in treating patients suffering
from various types of heart failure. Autotransfusion is a procedure used
during surgery to eliminate or minimize the use of donor blood from blood
banks, and the provision of related equipment.
PSICOR Office Laboratories, Inc., formerly Meditech Diagnostic
Systems, Inc. ("POL"), a wholly-owned subsidiary of the Company acquired in
1994, constitutes the Company's medical laboratory products and services
segment which provides on-site laboratory testing systems to individual
physicians and group medical practices. Clinical laboratory tests are used by
physicians to diagnose and monitor diseases and other medical conditions.
RECENT EVENTS. On November 22, 1995, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Baxter Healthcare
Corporation ("Parent") and its wholly owned subsidiary, Baxter CVG Services II,
Inc. ("Purchaser"), which provides for the merger (the "Merger") of the
Purchaser with and into the Company and the conversion of all of the
outstanding shares of common stock of the Company, no par value (the "Shares"),
into the right to receive cash in the amount of $17.50 per Share. The Merger
Agreement also provides for the Purchaser to commence a tender offer (the
"Offer") for any and all Shares at a price of $17.50 per Share, net to the
seller in cash. The Offer was commenced on November 29, 1995, and is scheduled
to expire at midnight, New York City time, on January 3, 1996 (the "Expiration
Date"), unless extended by the Purchaser. The Offer is subject to the
satisfaction or waiver of the condition that there will be validly tendered
prior to the Expiration Date and not withdrawn a number of Shares which,
together with the Shares owned by the Purchaser or Parent, represents at least
80% of the Shares outstanding on a fully diluted basis, and to certain other
conditions.
1
<PAGE> 3
The Merger Agreement provides that promptly upon the later of (i) the
purchase of and payment for any Shares (including without limitation all Shares
subject to the Tender and Option Agreement, as defined below) by Purchaser or
any other subsidiary of Parent pursuant to the Offer or the Tender and Option
Agreement and (ii) the expiration or waiver of the Company's right to terminate
the Merger Agreement in the event that the Company accepts an Acceptable Offer
(as defined in the Merger Agreement) prior to the later of (x) the purchase of
Shares pursuant to the Offer or Tender and Option Agreement or (y) January 3,
1996, Parent will be entitled to designate such number of directors, rounded up
to the next whole number, on the Company's board of directors (the "Board") as
is equal to the product of the total number of directors then serving on the
Board (which, immediately prior to such calculation, may not consist of more
than four directors) multiplied by the ratio of the aggregate number of Shares
beneficially owned by Parent, Purchaser and any of their affiliates to the
total number of Shares then outstanding. The Company must, upon request of
Purchaser, take all action necessary to cause Parent's designees to be elected
or appointed to the Board, including without limitation increasing the size of
the Board or, at the Company's election, securing the resignations of such
number of its incumbent directors as is necessary to enable Parent's designees
to be so elected or appointed to the Board, and must cause Parent's designees
to be so elected or appointed. At such time, the Company will also cause
persons designated by Parent to constitute the same percentage (rounded up to
the next whole number) as is on the Board of (i) each committee of the Board,
(ii) each board of directors (or similar body) of each subsidiary of the
Company and (iii) each committee (or similar body) of each such board. In
addition, Parent and Purchaser have agreed that, until the Effective Time (as
defined in the Merger Agreement), neither they nor their affiliates will take
any action as directors or shareholders of the Company to cause the removal of
Laverne W. Rees and Whitney A. McFarlin, independent directors of the Company.
Concurrently with the execution of the Merger Agreement, Mr. Michael
W. Dunaway, Chairman, Chief Executive Officer and President of the Company,
Mrs. Trudy V. Dunaway, the wife of Mr. Dunaway and a Director, Vice President,
Secretary and Assistant Treasurer of the Company, and The Dunaway Family Trust,
of which Mr. and Mrs. Dunaway are co-settlors and co-trustees (the "Trust" and,
together with Mr. and Mrs. Dunaway, the "Selling Shareholders") each,
individually and as trustee of the Trust, entered into a Tender and Option
Agreement, dated as of November 22, 1995, with Parent and Purchaser (the
"Tender and Option Agreement"). The Selling Shareholders collectively own
1,931,426 Shares which are currently subject to the Tender and Option
Agreement, approximately 38% of the outstanding Shares calculated on a fully
diluted basis or approximately 44% of the outstanding Shares. Pursuant to the
Tender and Option Agreement, the Selling Shareholders have agreed, among other
things (i) to grant Parent and Purchaser an irrevocable option to buy all such
Shares owned of record or beneficially by them from and after the date of the
Tender and Option Agreement at $17.50 per Share (the "Option"), and (ii) to
validly tender and, in the event such Option is not theretofore exercised, sell
all such Shares which are owned of record or beneficially by them prior to the
Expiration Date and are subject to the Tender and Option Agreement in the Offer
and vote such Shares in favor of the Merger, in each case upon the terms and
subject to the conditions set forth in the Tender and Option
2
<PAGE> 4
Agreement. Pursuant to the Tender and Option Agreement, Parent and Purchaser
have the option to acquire from the Selling Shareholders at $17.50 per Share
all but not part of their Shares on or after January 3, 1996 until the earlier
of (i) the termination of the Merger Agreement by mutual consent of the
parties, or by the Company if prior to the purchase of Shares pursuant to the
Offer or the Tender and Option Agreement Parent or Purchaser materially
breaches any of its representations, warranties or covenants in the Merger
Agreement or (ii) May 21, 1996. The obligation of the Selling Shareholders to
sell their Shares pursuant to such option is subject to certain conditions
specified in the Tender and Option Agreement, including without limitation the
conditions that (i) Shares shall have been accepted for payment pursuant to the
Offer or the Offer shall have otherwise expired or been terminated in
accordance with its terms and (ii) neither Parent nor Purchaser shall have the
right to terminate the Merger Agreement, in certain circumstances, if the Offer
shall have been terminated or expired prior to any purchase of Shares
thereunder.
CARDIOVASCULAR SERVICES
For surgical procedures requiring the use of a heart-lung machine, the
Company provides perfusion services and a variety of equipment and disposable
supplies. The Company's technicians may also perform intra-aortic balloon
pumping, autotransfusion, extracorporeal membrane oxygenation, monitoring and
laboratory testing services as well as providing assistance in connection with
ventricular assist devices during open-heart procedures.
PERFUSIONISTS. The Company assigns perfusionists and perfusion
assistants to each of its open-heart hospital clients at the time it is
retained. The Company provides two technicians during most surgical
procedures, rather than the frequent practice in the industry of having only
one technician involved. The perfusionist works under the direction,
supervision and authority of the attending surgeon. In certain hospitals, the
perfusion team may be given responsibilities in addition to operating the
heart-lung machine, including operation of the intra-aortic balloon pump and
autotransfusion equipment, calibration of the patient monitoring system and
blood gas analyzers and performance of certain laboratory tests. As part of
its cardiovascular services, the Company also offers open-heart stand-by
services for PTCA (percutaneous transluminal coronary angioplasty), a procedure
used as an adjunct to open-heart surgery involving the insertion of a balloon
into an occluded artery that, when inflated, presses the occluding plaque
against the wall of the vessel. In addition, the Company offers preparation
and monitoring services with respect to VADs (ventricular assist devices),
which address the failure of one or both of the pumping chambers (ventricles)
of the heart and can be used as a bridge for heart transplant candidates, ECMO
(extracorporeal membrane oxygenation), a procedure usually used on infants who
have insufficient development of the lungs to provide oxygen to the blood while
the lungs develop or are treated for the insufficiency and CPS (cardiopulmonary
support), a procedure which uses a pump and a device to oxygenate the patient's
blood, typically used in the catheterization lab to support high risk
angioplasty patients during the catheterization procedure. A fixed fee is
charged for perfusion, intra-aortic
3
<PAGE> 5
balloon pumping, autotransfusion and other services at the time each surgical
procedure is performed, which varies based on the projected caseload of a
hospital. Although no minimum guaranteed caseload is required, fees are
periodically adjusted based on actual usage. In response to the changing
market demands, the Company is also able to offer a variety of pricing
arrangements to hospitals to fix or capitate fees.
EQUIPMENT. In addition to providing a perfusionist and perfusionist
assistant, the Company is also able to supply hospital clients with a full
line of equipment (manufactured by others) which may include heart-lung
machines, intra-aortic balloon pumps and autotransfusion devices. Equipment
supplied by the Company is stored at the hospital, but is owned and maintained
by the Company. The Company also evaluates, recommends and adds new equipment
to prevent obsolescence. Fixed fees are charged for equipment usage at the
time each procedure is performed. Fees for each hospital vary based upon the
equipment provided and projected usage. As with perfusion services, fees are
periodically adjusted and no minimum usage is required.
DISPOSABLE SUPPLIES. In most of its client hospitals, including its
twenty largest accounts, the Company also provides the disposable supplies
(manufactured by others) used during surgical procedures, including
oxygenators, tubing and other disposable accessories to the heart-lung machine
and related equipment. In addition, in several of its client hospitals, the
Company provides a full inventory of heart valves.
The Company offers two alternative arrangements for these supplies.
Under the first alternative, the hospital specifies the disposable supplies
utilized during each surgical procedure, the Company maintains a record of each
hospital's requirements, assembles these disposable supplies into separate kits
and consigns them to the hospitals. As kits are used, replacements are in
process pursuant to a "just in time" inventory system. The Company is
responsible for all costs associated with inventory, including shipping and
obsolescence. Eighty-nine of the Company's 147 open-heart hospital clients
utilize this alternative for purchasing disposable supplies. Under the second
alternative, the Company will sell any item in its disposable supply inventory
to its client hospitals in bulk, either individually or assembled into kits.
The hospitals carry the supplies provided under the second alternative in their
own inventory. Eighteen of the Company's open-heart hospital clients purchase
disposable supplies in this manner. The remaining 40 of the Company's
open-heart hospital clients do not purchase disposable supplies from the
Company.
The percentage of the Company's consolidated revenues contributed by
cardiovascular services was approximately 73.0% for the year ended September
30, 1995, approximately 80.0% for the year ended September 30, 1994, and
approximately 82.0% for the year ended September 30, 1993.
CLINICAL TECHNOLOGY SERVICES
Mechanical assist devices are used in minimally invasive procedures
when treating patients suffering from various types of heart failure. The
4
<PAGE> 6
Company provides personnel to operate and monitor the devices and may provide
the equipment and the disposable supplies used during the procedure. The
Company offers to hospitals services and related equipment for IABP
(intra-aortic balloon pumping), which requires a physician to insert a balloon
catheter that expands and contracts to assist blood flow and reduce the
workload of the heart. The Company normally charges a set-up fee and an hourly
monitoring fee for services and will charge an equipment rental fee and a fee
for disposable supplies if either are provided.
Autotransfusion is a procedure used during surgery to collect, filter,
wash and reinfuse the patient's own blood as an alternative to using donor
blood from blood banks. An autotransfusion device may be utilized in a variety
of surgical procedures, whenever considerable blood loss (two units or more) is
expected. Outside of coronary or vascular surgery, the widest use of
autotransfusion has been in orthopedic surgery. Autotransfusion reduces the
risks of transfusion error and infection associated with outside donor blood.
The market for autotransfusion has grown recently due to a shortage of bank
blood, increased recognition of the risks of transfusion error, and increased
concern with respect to possible infections, such as hepatitis and acquired
immune deficiency syndrome (AIDS).
The Company provides a technician to perform autotransfusion
procedures, utilizing either the hospital's equipment or equipment supplied by
the Company, and will supply the disposable supplies consumed during the
procedures if requested by the hospital. The Company charges a fee per
procedure for autotransfusion services, and will charge an equipment fee and a
fee for disposable supplies if either are provided.
The percentage of the Company's consolidated revenues contributed by
clinical technology services was approximately 14.0% for the year ended
September 30, 1995, approximately 17.0% for the year ended September 30, 1994,
and approximately 18.0% for the year ended September 30, 1993.
PHYSICIAN OFFICE LABORATORY SERVICES
In August 1994, the Company purchased all the outstanding common stock
of PSICOR Office Laboratories, Inc., formerly Meditech Diagnostic Systems, Inc.
("POL"). POL provides technical services to physician office laboratories
providing on-site clinical diagnostic testing as well as laboratory design,
equipment sales and support. Clinical laboratory tests are used by physicians
to diagnose, monitor and treat diseases and other medical conditions through
the detection of substances in blood or tissue samples and other specimens.
POL's business strategy emphasizes a Comprehensive Management Program
("CMP") which is a full turn-key diagnostic laboratory owned by the physician
and located within the physician's office. Thus, the physician has better
control over the testing and quicker response for communicating the lab results
and diagnosis to the patient.
5
<PAGE> 7
POL also provides consultation in the establishment of the physician
office laboratory and assists in the procurement of laboratory equipment and
consumables. For the year ended September 30, 1995, 68.6% of POL's revenues
have related to its provision of services and supplies to physician office
laboratories with equipment sales accounting for the remaining 31.4% of
revenues.
The percentage of the Company's consolidated revenues contributed by
physician office laboratory services was approximately 13.0% for the year ended
September 30, 1995, and approximately 3.0% for the year ended September 30,
1994.
OPERATIONS
The Company maintains 24-hour emergency telephone lines at its
corporate headquarters, where it monitors the location and activities of the
Company's perfusion related personnel. The Company has divided its
cardiovascular and clinical technology services operations into 12 geographic
areas, each managed by a president responsible for clinical operations and
sales efforts within his or her area. The largest geographic area is in the
mid-western United States, which contributed approximately 11.9% and 19.2% of
the Company's total revenue in the fiscal years ended September 30, 1995 and
1994, respectively.
The Company purchases its capital equipment and supply inventories
from various sources in the United States and is not dependent upon any one or
a limited number of suppliers, nor has it experienced any difficulties in
obtaining necessary equipment or inventories.
POL operates in a fashion similar to the cardiovascular and clinical
technology services operations. POL operates from San Diego, California and an
office in Rahway, New Jersey, monitoring sales of physician office laboratories
primarily in the north-eastern United States, with the majority of physician
office laboratories located in New York and New Jersey. The results of
operations by industry segment for the years ended September 30, 1995 and 1994
appear at Note 5 of the Consolidated Financial Statements of the Company and
are incorporated herein by reference.
MARKETING
The Company began providing perfusion services in 1968 to one hospital
and currently serves a diverse group of 147 private, public and government
hospitals, whose cardiac procedures number approximately 30,000 per year.
Intra-aortic balloon pumping services were first offered by the
Company separate from its open-heart perfusion services in 1976 and
autotransfusion services were first offered separately in 1978. During the
fiscal year ended September 30, 1995, the Company performed these ancillary
services for many of its open-heart hospital clients and for approximately 271
additional hospitals for which the Company does not provide cardiac surgery
services, primarily community hospitals where the experienced personnel and
equipment for these services are not otherwise available.
6
<PAGE> 8
The Company markets its cardiac surgery services to administrators of
hospitals with open-heart surgery programs and to cardiovascular surgeons.
Sales contacts are made in a variety of ways, including leads from
perfusionists, referrals from hospitals or physicians and direct mail programs.
As interest is expressed by a hospital, the Company conducts a preliminary
analysis of new or existing program needs, followed by an on-site survey to
determine staffing and equipment requirements. The Company markets its cardiac
surgery services on the basis of cost savings, quality of service and personnel
stability and availability. Significant personnel, equipment and other
start-up costs are typically incurred by the Company upon contracting with a
new client hospital for cardiac surgery services; however, significant revenue
is not immediately recognized. For new client hospitals with new open-heart
programs, this is due to a start-up period during which the hospital's caseload
gradually increases. For new client hospitals with established programs, this
is due to a transition period during which the Company participates in a
gradually increasing number of open-heart procedures. The start-up or
transition period typically lasts approximately six months.
The Company markets its mechanical assist device and autotransfusion
services primarily to cardiologists and vascular and orthopedic surgeons. The
Company provides these services only in geographic areas where it already has a
significant number of perfusionists and other technical staff. Within these
areas, the Company maintains a local inventory of intra-aortic balloon pumping
and autotransfusion equipment and supplies as well as specially equipped vans
to respond to direct requests for these services.
During the fiscal year ended September 30, 1995, fees and charges to
three clients accounted for approximately 3.7%, 3.2% and 3.1%, respectively, of
the Company's revenue. Twenty unrelated clients accounted for approximately
35% of the Company's revenue in such fiscal year. Management of the Company
does not believe that the loss of any of these customers would have a material
adverse effect on the Company.
POL markets its laboratory services to individual physician as well as
group primary and specialty medical practices. Marketing efforts emphasize
control, reliability and accuracy of diagnostic test results, as well as
simplicity and economic feasibility of the laboratory operation.
TRAINING
The success of the Company's operations is dependent upon its
continuing ability to attract and retain qualified perfusionists and other
technicians. In an effort to provide a future source of perfusionists, the
Company has, from time to time, sponsored programs to train perfusionists and
perfusion assistants. The Company believes that there is currently an adequate
pool of qualified perfusionists from which it may draw to meet its current
needs.
Due to the stressful nature of their work, there is a high degree of
job turnover among perfusionists. In an effort to retain perfusionists, the
7
<PAGE> 9
Company has developed an incentive program whereby perfusionists are given
opportunities to advance within the Company to positions of increasing
responsibility and to receive compensation increases and bonuses for the number
of procedures performed and for exceptional work or for referring new clients
to the Company. The Company also makes available to its employees four
vacation properties. The Company believes that its incentive program enhances
its ability to attract and retain qualified perfusionists and is an important
factor distinguishing the Company from other sources of employment available to
perfusionists, such as hospitals and other independent perfusion companies.
POL hires and trains individuals with two-year and four-year college
degrees to become qualified laboratory technicians. Many states and cities
have some licensing requirements for laboratory technicians. All of POL's
technicians meet applicable qualification and licensing requirements.
EMPLOYEES
At September 30, 1995, the Company had 657 full-time employees,
consisting of 224 practicing perfusionists, 245 technicians and 188
administrative personnel. Of the Company's administrative personnel, 20 are
also trained as perfusionists. The Company's employees have no union
affiliations, and the Company believes that its relationship with its employees
is good.
COMPETITION
The Company estimates that there are approximately 3,100 perfusionists
practicing in the United States, the majority of whom are employed by
hospitals, with the balance practicing as sole proprietors or employed by
companies offering perfusion services, including the Company. Most hospitals
requiring perfusion services provide these services using their own staff and
equipment, and thus are the largest source of indirect competition for the
Company. The Company competes in regional markets directly with other
independent providers of perfusion services and with perfusionists in private
practice, that may also provide intra-aortic balloon pumping or autotransfusion
services. The Company competes indirectly with manufacturers in supplying
equipment and disposable supplies.
Hospital laboratories and independent laboratory companies constitute
the primary indirect competition for the medical laboratory segment of the
Company's business. The Company believes that it has no significant regional
or national competition that can offer all of the products, service and
equipment necessary to install and support diagnostic testing laboratories in
physician's offices. The Company also competes indirectly with laboratory
equipment manufacturers in supplying equipment and supplies to the laboratories
the Company supports.
The Company believes that the competitive factors in each of its areas
of operation are primarily cost, quality, extent of service, and, in addition,
for laboratory services, time required to report results.
8
<PAGE> 10
INSURANCE
Under the terms of the Company's professional liability program, the
Company will self-insure claims of up to $1,250,000 for each loss and up to
$2,000,000 in the aggregate for a policy year, with specified amounts in excess
of this self-insured amount being covered by the Company's insurance policies.
It is the Company's intention to continue existing coverage or to obtain
similar or additional coverage when its existing arrangements with its
insurance carriers expire; however, there can be no assurance that such
coverage will be available on reasonable terms.
DEVELOPMENTS IN HEALTH CARE
The Company is affected by various legislative and policy changes by
those governmental and private agencies that administer Medicare and Medicaid,
as well as other third-party payors, and is subject to various actions by
certain other federal, state, and local government agencies. During recent
years there have been significant changes in the health care delivery system in
the United States which could affect the Company. The most important of these
changes is the recent and continuing adoption of legislative and regulatory
measures designed to reduce and control health care costs.
The Clinton Administration proposed substantial changes to the
national health care delivery, reimbursement and insurance systems. These
changes were not enacted and, with the change in composition of the federal
legislative bodies, it is not possible to predict what changes, if any, will be
implemented and whether they will have an adverse effect on the Company. In
addition, wide variations of bills and regulations proposing to regulate,
control, or alter the method of financing health care costs are often proposed
and introduced in state legislatures and regulatory agencies. Because of the
many possible financial effects that could result from enactment of any bills
or regulatory actions proposing to regulate the health care industry, it is not
possible at this time to predict the effect, if any, such bills or regulatory
actions may have on the business of the Company.
In addition, significant changes have occurred and continue to occur
with respect to reimbursement under Medicare. Medicare reimbursement for
inpatient acute care is a prospective payment system ("PPS") based on a
standardized rate per case. Under PPS, each Medicare discharge is classified
into one of several hundred diagnostic-related groups ("DRGs"), and a hospital
is reimbursed the prescribed amount for the DRG. With certain exceptions, such
payments are not adjusted for actual costs or variations in service or length
of stay.
As a result of changes in the health care reimbursement policies of
the federal government and private insurers, providers are finding it necessary
to take measures to reduce costs, including those relating to capital
expenditures, personnel and inventory costs. Although the Company believes
that it will benefit from these changes by providing services at
9
<PAGE> 11
prices which, in many cases, are less than the costs to hospitals of providing
such services with their own staff and equipment, there can be no assurance
that additional regulatory changes in the health care industry will not have an
adverse effect upon the Company.
The clinical laboratory industry has experienced rapid consolidation.
Consolidation will continue due to pricing pressures, over capacity, and cost
burdens to meet new regulatory requirements and restrictions for reimbursement
for tests referred by physicians to laboratories in which they have a financial
interest.
ITEM 2. PROPERTIES.
The Company leases approximately 50,000 square feet of office and
warehouse space in a building in the Rancho Bernardo Corporate Center, located
approximately 25 miles north of downtown San Diego. The term of the Company's
lease expires on May 31, 1998. Upon expiration of the original term of the
lease, the Company may renew the lease by exercising renewal options totaling
eleven years. The Company also leases approximately 10,000 square feet of
warehouse space in nearby Poway, California for supplies and inventory. The
term of this lease expires in April 1998.
POL leases approximately 5000 square feet of office and warehouse
space located in Rahway, New Jersey. The property is leased from Paul and
Gayle Reiss, founder and former President of POL and his spouse. The lease
term runs until September 30, 1996.
Rental expense under the foregoing operating leases for the years
ended September 30, 1995, 1994 and 1993, totaled approximately $717,000,
$619,000 and $617,000, respectively.
The Company also owns or leases four vacation properties which are
used primarily by the Company's employees for vacations. The Company owns a
vacation property in Lake Tahoe, Nevada and a resort condominium in Hilton
Head, South Carolina. In October, 1995, the Company renewed the lease on
property on Sannibel Island, Florida for one year with a one year renewal
option at the end of the term. During fiscal 1995, the Company rented property
in Maui, Hawaii on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS.
From time to time the Company is named in legal actions which
management considers to be incidental to the industry in which the Company
operates. In the opinion of management, the outcome of these matters will not
have a material impact on the financial condition or results of operation of
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 the fiscal year ended September 30, 1995.
10
<PAGE> 12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Shares are traded on The Nasdaq Stock Market's National
Market ("NNM") under the symbol "PCOR." The following table sets forth, for
the quarters indicated, the high and low sales prices per Share on the NNM as
reported in publicly available sources for each of the quarters indicated.
<TABLE>
<CAPTION>
Market Prices
--------------------
High Low
---- -----
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1994:
First Quarter............................ $12 1/2 $11
Second Quarter........................... 11 3/4 10
Third Quarter............................ 11 1/2 8 1/4
Fourth Quarter........................... 10 3/4 8 1/4
FISCAL YEAR ENDED SEPTEMBER 30, 1995:
First Quarter............................ 10 3/4 8 3/4
Second Quarter........................... 12 7/8 9 3/4
Third Quarter............................ 12 3/4 10 3/8
Fourth Quarter........................... 11 3/4 8 1/2
</TABLE>
On November 1, 1995, the reported closing sales price for the Shares
on the NNM was $12.75 per Share. As of such date, the approximate number of
record holders of the Shares was 208, as shown on the records of the Company's
transfer agent.
The Company has not paid a dividend on its common stock since the date
on which the common stock was first offered to the public. In the Merger
Agreement, the Company has agreed that it will not declare, set aside or pay
any dividends on or make other distributions in respect of any shares of its
capital stock. Notwithstanding the foregoing, under the Merger Agreement the
Company may, upon the consummation by the Company of a certain transaction
relating to the sale of POL in accordance with the Merger Agreement, declare
and pay a dividend in respect of Shares. Moreover, under a certain loan
agreement, the Company would be required to obtain the lender's consent prior
to paying dividends.
Item 6. SELECTED FINANCIAL DATA.
The following selected financial data was derived from the Company's
Consolidated Financial Statements, which have been audited by independent
public accountants, Arthur Anderson, LLP. The data presented below should be
read in conjunction with the Company's Consolidated Financial Statements and
the Notes thereto, included elsewhere in this Annual Report on Form 10-K.
11
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Open-heart services $85,005 $79,830 $76,918 $73,219 $67,210
Medical laboratory services1 12,348 2,236 -- -- --
Gross Profit 16,001 16,394 16,581 16,473 13,716
Operating Profit 4,691 7,045 7,647 7,347 5,539
Income Before Taxes2 3,538 7,520 8,115 7,147 5,243
Net Income 1,284 4,479 4,532 4,107 3,030
Earnings Per Share3 $.29 $1.02 $1.02 $.93 $.72
Number of Shares used in Computation 4,428 4,389 4,433 4,421 4,222
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working Capital $19,358 $15,899 $17,713 $15,418 $10,920
Total Assets 54,844 50,014 43,195 39,023 29,606
Total Long-term Liabilities 1,036 818 1,002 858 --
Shareholders' Equity 39,772 38,165 33,441 28,996 23,283
</TABLE>
____________________
1Business acquired in August 1994
2Includes a charge of approximately $1.2 million in 1995 for the write-down of
an investment. See Note 9 to Consolidated Financial Statements.
3See "Earnings Per Share" at Note 1 to Consolidated Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth the components of the Company's
Statements of Income as a percentage of revenue and the percentage changes in
the dollar amount of such components as compared to the indicated prior period.
12
<PAGE> 14
<TABLE>
<CAPTION>
Period to Period Change
Percentage of Revenue Fiscal Fiscal
Years Ended September 30, 1994- 1993-
1995 1994 1993 1995 1994
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 18.6% 6.7%
Cost of Sales and Services 83.6% 80.0% 78.4% 23.9% 8.8%
Gross Profit 16.4% 20.0% 21.6% (2.4%) (1.1%)
General and Administrative 11.6% 11.4% 11.6% 21.0% 4.6%
Operating Profit 4.8% 8.6% 10.0% (33.4%) (7.9%)
Interest Expense 0.1% 0.0% 0.0% * *
Other Income (Expense), Net (1.1%) 0.6% 0.6% (322.4%) 5.1%
Income Before Taxes 3.6% 9.2% 10.6% (53.0%) (7.3%)
Income Taxes 2.3% 3.7% 4.7% (25.9%) (15.1%)
Net Income 1.3% 5.5% 5.9% (71.3%) (1.2%)
</TABLE>
* Computed result not meaningful
Fiscal 1995 Compared to Fiscal 1994
Net income for the year ended September 30, 1995 was $1,284,000, or
$.29 per share, on revenue of $97,353,000. This compares to net income of
$4,479,000, or $1.02 per share, on revenue of $82,066,000 for the previous
year.
Revenues for the year increased primarily due to contributions of POL
for a full year, as opposed to two months in fiscal 1994, the Company's
acquisition of a perfusion company during fiscal 1995, and expanded disposable
sales through converting client hospitals to full service accounts. The
Company's acquisition of a perfusion company in fiscal 1995 contributed
approximately $781,000 to revenues. In addition, the Company's acquisition of
POL in the fourth quarter of fiscal 1994 contributed approximately $12,348,000
and $2,236,000 to fiscal 1995 and 1994 revenues, respectively. The
contributions to revenue by the Company's three principal business units for
1995 and 1994 were as follows: Cardiovascular Services - 73% and 80%,
respectively; Clinical Technology Services - 14% and 17%, respectively;
Physician Office Laboratory Services - 13% and 3%, respectively.
Cost of sales and services, which includes primarily clinician
salaries and cost of disposable supplies, increased $15,680,000 in fiscal 1995.
The Company's gross profit for fiscal 1995 and 1994 were 16.4% and 20.0%,
respectively. The decrease in gross profit is primarily due to pricing
pressures, the lack of significant caseload increases that would result in
greater clinical staff efficiency and utilization, and the addition of
physician office laboratory services that generally have lower margins than
PSICOR's previously established business units. The Company continues to
evaluate means to reduce costs and gain additional clinical caseload and
physician office laboratory service efficiencies and believes that these
measures will lessen the impact of the factors described above.
13
<PAGE> 15
General and administrative expenses increased in 1995 to 11.6% of
revenues from 11.4% in 1994, primarily due to the costs related to the
acquisition of a perfusion company, including outside services, additional
costs associated with providing physician office laboratory services,
amortization of goodwill, travel and actual operating costs associated with
additional revenues.
Other income(expense), net in fiscal 1995 and 1994 was $(1,094,000) and
$492,000, respectively. The change is primarily due to the write-down of an
investment in Clarus Medical Systems, Inc. (Clarus) preferred stock, of
approximately $1,200,000. See Note 9 of the Consolidated Financial Statements.
Additionally, the Company wrote-off the balance of capitalized software related
to a third-party medical software developer, $234,000, which ceased operations
during fiscal 1995. See Note 3 to the Consolidated Financial Statements.
The provision for income taxes for 1995 and 1994 was 63.7% and 40.4%
of income before income taxes. The higher rate in 1995 is primarily due to the
write-down of the Clarus investment noted above, which the Company cannot
deduct or receive benefit for federal or state income tax purposes, and the
increase in nondeductible amortization of acquisition costs associated with the
acquisition of POL. Additionally, the effective rate in 1994 was reduced as a
result of the successful resolution of a tax dispute concerning the
amortization of intangible assets.
On November 22, 1995, the Company entered into the Merger Agreement as
described under Item 1 and incorporated herein by reference.
Fiscal 1994 Compared to Fiscal 1993
Net income for the year ended September 30, 1994 was $4,479,000, or
$1.02 per share, on revenue of $82,066,000. This compares to net income of
$4,532,000, or $1.02 per share, on revenue of $76,918,000 for the previous
year.
The Company's revenue increased $5.1 million in 1994, primarily due to
contributions by the Company's acquisitions of five perfusion companies and POL
and expanded disposable sales through converting client hospitals to full
service accounts. The open-heart caseload at client hospitals was relatively
flat for the period from 1993 through 1994, due, in part, to uncertainty in the
health care community pertaining to federal legislation and cost concerns
related to the number and type of procedures being performed nationally. The
increase in the number of procedures in 1994 over 1993 was less than 2%. The
14
<PAGE> 16
contributions to revenue by the Company's three principal business units in
1994 and 1993 were as follows: Cardiovascular Services - 80% and 82%,
respectively; Clinical Technology Services - 17% and 18%, respectively;
Physician Office Laboratory Services - 3% and 0%, respectively. The Company's
five acquisitions in 1994 contributed approximately $3,475,000 to revenues. In
addition, the Company made an acquisition in the second quarter of 1993 that
contributed $1,550,000 for 1994 and $300,000 for 1993.
Cost of sales and services, which includes primarily clinician
salaries and cost of disposable supplies, increased $5.3 million in 1994. The
Company's gross profit dropped slightly for the year ended September 30, 1994,
primarily due to pricing pressures and the lack of significant caseload
increase that would result in greater clinical staff efficiency and
utilization.
General administrative expense decreased in 1994 to 11.4% of revenues
from 11.6% in 1993, primarily as a result of the reduction of administrative
staff levels during the year. Actual dollars increased $415,000 in 1994, due
primarily to costs related to the acquisition of five companies, including
outside services, amortization of goodwill, travel and actual operating costs
associated with additional revenues.
Other income(expense), net increased during 1994 primarily as a result
of the sale of clinical and other equipment, proceeds from an investment and
interest income.
The provision for income taxes for 1994 was 40.4% of income before
income taxes, compared with approximately 44.2% for 1993. The lower rate in
1994 was primarily the result of the successful resolution of a tax dispute
concerning the amortization of intangible assets. Such rates are anticipated
to continue in future fiscal years because the business of POL is located in
states with relatively high tax rates.
As indicated in the previous paragraphs, in early August 1994, the
Company purchased POL providing service, supplies and laboratory equipment to
physician offices. Revenues for the two month period ended September 30, 1994
were $2.2 million, with net income contributing approximately 7% of the
consolidated total. Amortization of goodwill related to this transaction
amounted to $50,000 for the two month period and general and administrative
expense was approximately 6% of the acquired company's revenues.
EFFECTS OF INFLATION AND CHANGING PRICES
The Company believes that inflation has not had a material effect on
the results of its operations to date. Pricing pressures within the healthcare
industry are expected to continue and could have an impact on margins the
Company may realize in the future.
LIQUIDTY AND CAPITAL RESOURCES
Internally generated funds have been the primary sources used to fund
the Company's needs for working capital and capital expenditures. The Company
15
<PAGE> 17
has a loan agreement with a bank to provide funds in the aggregate amount of
$10,000,000 at the bank's prime interest rate for additional working capital,
financing equipment purchases and acquisitions. The agreement contains certain
restrictions, including, among others, obtaining written approval from the bank
prior to the payment of dividends and before acquiring non-perfusion companies,
as well as maintaining minimum liquidity, tangible net worth, cash flow and net
income levels. At September 30, 1995, no amount was outstanding under this
line. See Note 6 to Consolidated Financial Statements.
Since March 1993, the Company has been authorized to repurchase shares
of its own stock and, as of September 30, 1995, has repurchased 134,779 shares
at an aggregate purchase price of approximately $1,406,000, funded by cash from
operations.
In connection with its acquisitions, the Company has entered into
agreements for future payments aggregating approximately $648,000 to be made
over the next four year period, relating to non-compete and incentive
provisions for meeting future operating goals. The Company believes that funds
generated through operations and borrowings available under its credit
facilities will be adequate to meet the Company's foreseeable capital
requirements.
Pursuant to the terms of a cancelable supply agreement for
autotransfusion equipment and related disposable supplies entered into in April
1992, the Company agreed to purchase supplies and equipment over a six-year
period from a certain vendor. If the Company terminates the supply agreement
prior to the end of the six-year period, it will be required to purchase the
equipment in accordance with a specified formula. At September 30, 1995, the
purchase obligation was approximately $767,000, as reflected in the
accompanying Consolidated Balance Sheets. See Note 6 of the Consolidated
Financial Statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules filed herewith are set forth in
the Index to Consolidated Financial Statements (on page F-1 of this report) and
the Index to Financial Statement Schedules (on page FS-1 of this report) and
are incorporated herein by reference.
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
16
<PAGE> 18
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
Michael W. Dunaway, age 56, founder of the Company, has been Chief
Executive Officer and Chairman of the Board of Directors since the Company's
inception in 1968 and has been President since January 1991. Mr. Dunaway also
served as President from July 1984 to December 1989.
Trudy V. Dunaway, age 44, the wife of Michael W Dunaway, has been a
director of the Company since 1982, Assistant Treasurer since February 1990,
Secretary since July 1992 and Vice President - Planning and Development since
February 1993. Mrs. Dunaway also served as Assistant Secretary of the Company
from 1985 to July 1992 and served as Vice President - Operations Support from
April 1986 to September 1989.
Laverne W. Rees, age 64, has served as a director of the Company since
1987. Mr. Rees has been an independent management consultant since August
1985. From January 1981 to February 1985, Mr. Rees was President of St. Jude
Medical, Inc., St. Paul, Minnesota, a manufacturer of heart valves. Mr. Rees
serves a member of the board of directors of General Securities, Inc., a mutual
fund.
Whitney A. McFarlin, age 55, was appointed a director of the Company
in December 1989. Mr. McFarlin has been the Chief Executive Officer, Chairman
of the Board of Directors and President of Angeion Corporation, a medical
products company, since October 1993. From September 1990 until October 1993,
Mr. McFarlin was the President and Chief Executive Officer of Clarus Medical
Systems, Inc. ("Clarus"), a biomedical engineering company. Mr. McFarlin is
currently a director of Clarus. Mr. McFarlin also serves as a member of the
board of directors of Zero Corporation.
RIGHT TO DESIGNATE DIRECTORS; PARENT DESIGNEES
Pursuant to the Merger Agreement, promptly upon the later of (i) the
purchase of and payment for any Shares (including without limitation all Shares
subject to the Tender and Option Agreement) by Purchaser or any other
subsidiary of Parent pursuant to the Offer or the Tender and Option Agreement
and (ii) the expiration or waiver of the Company's right to terminate the
Merger Agreement under Section 8.1(c)(i) thereof, the Parent shall be entitled
to designate such number of directors ("Parent Designees"), rounded up to the
next whole number, on the Company's Board of Directors as is equal to the
product of the total number of directors on the Board of Directors of the
Company which, immediately prior to such calculation, shall not consist of more
than four directors multiplied by the ratio of the aggregate number of Shares
beneficially owned by Parent, Purchaser or any of their affiliates to the total
number of Shares then outstanding, and the Company shall, upon request of
Purchaser, take all action necessary to cause the Parent Designees to be
elected as directors of
17
<PAGE> 19
the Company, including increasing the size of the Company's Board of Directors
or securing the resignations of incumbent directors. At such time, the Company
shall also cause persons designated by the Parent to constitute the same
percentage (rounded up to the next whole number) as is on the Board of
Directors of the Company of (i) each committee of the Company's Board of
Directors, (ii) each Board of Directors of each Subsidiary of the Company, and
(iii) each committee of each such board. Notwithstanding the foregoing, until
the Effective Time, neither Parent nor Purchaser nor their affiliates shall
take any action as directors or shareholders of the Company to cause the
removal of Laverne W. Rees and Whitney A. McFarlin, independent directors of
the Company on the date of the Merger Agreement.
The Parent has informed the Company that each of the Parent Designees
has consented to act as a director. It is expected that the Parent Designees
may assume office as described above and that, upon assuming office, the Parent
Designees will thereafter constitute at least a majority of the Board of
Directors of the Company. It is further expected that none of the Parent
Designees will receive any compensation for services performed in his capacity
as a director of the Company.
PARENT DESIGNEES
Parent will choose the Parent Designees from among the directors and
officers of Parent, Purchaser and Baxter International Inc. listed in Schedule
I of the Offer to Purchase dated November 29, 1995, a copy of which has been
mailed to shareholders of the Company, and is included as Exhibit 99 to this
Report. The information on such Schedule I is incorporated herein by
reference.
EXECUTIVE OFFICERS
The persons listed below currently are the executive officers of the
Company.
<TABLE>
<CAPTION>
Name and Age Offices and Length of Service
------------ ----------------------------------------
<S> <C>
Michael W. Dunaway, 56 Chief Executive Officer and Chairman of the Board of Directors
since 1968; President since 1991
Jeffrey C. Crowley, 46 Senior Vice President since 1988
Scott W. Soronen, 43 Senior Vice President since 1992
Michael D. Kebely, 46 Chief Financial Officer since May 1995
Trudy V. Dunaway, 44 Vice President - Planning and Development since 1993; Secretary
since 1992 and Assistant Treasurer since 1990
</TABLE>
18
<PAGE> 20
Jeffrey C. Crowley, Senior Vice President in charge of clinical
operations and hospital corporation liaison, was previously a practicing
perfusionist and has been with the Company since 1979, holding both district
and regional management positions. In 1985, he was promoted to Director of
Clinical Operations, then to Vice President - Clinical Operations in 1987, to
Senior Vice President - Clinical Operations in 1988 and to Senior Vice
President - Clinical Operations West in 1990, a position he held until being
named to his present positions.
Scott W. Soronen, Senior Vice President for acquisitions and also
responsible for physician office laboratory services, joined the Company in
1981 as a staff perfusionist. In 1984 he was named Director of Human
Resources, in July 1987 he became Vice President - Human Resources, in March
1988 he became Vice President - Clinical Operations Support and in October 1992
he became Senior Vice President - Clinical Operations Central, a position he
held until being named to his present position.
Michael D. Kebely, Chief Financial Officer, joined the Company in May
1995. From March 1993 to May 1995, Mr. Kebely was the Chief Financial Officer
of Lottery Enterprises, Inc., a manufacturer of vending machines located in San
Diego, California, and from December 1990 to March 1993, Mr. Kebely was the
Chief Financial Officer of Windsor Group, Inc., a real-estate syndication firm
located in Escondido, California.
Background information concerning Michael W. Dunaway and Trudy V.
Dunaway is set forth under "Directors."
All officers of the Company serve at the pleasure of the Board of
Directors.
COMPLIANCE WITH THE SECURITIES EXCHANGE ACT
The Company believes that for the period from October 1, 1994 through
September 30, 1995, its executive officers and directors complied with all
applicable filing requirements of Section 16(a) of the Securities Exchange Act
of 1934 except with respect to Michael W. Dunaway and Trudy V. Dunaway, each of
whom filed one late report on Form 4 relating to one transaction by Michael W.
Dunaway.
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning compensation
paid to the Chief Executive Officer and the other two most highly paid
executive officers of the Company who earned more than $100,000 in salary and
bonus in the fiscal year ended September 30, 1995 (the "Named Executive
Officers") during the fiscal years ended September 30, 1995, 1994 and 1993.
19
<PAGE> 21
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION (1) COMPENSATION
------------
AWARDS
------
SECURITIES
UNDERLYING ALL OTHER
NAME AND BONUS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($) (#)(2) ($)(3)
- ------------------------------- ---- --------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael W. Dunaway 1995 225,000 - - 3,600
Chief Executive Officer, 1994 212,692 - - 11,627
Chairman and President 1993 206,137 15,000 - 15,571
Jeffrey C. Crowley 1995 145,000 - 20,000 835
Senior Vice President 1994 139,866 - 12,500 7,600
1993 136,300 15,000 25,000 12,429
Scott W. Soronen 1995 145,000 - 20,000 489
Senior Vice President 1994 124,433 - 20,000 6,506
1993 110,088 15,000 25,000 10,866
</TABLE>
(1) Includes amounts earned in fiscal year, whether or not received in
such fiscal year.
(2) The options granted to Messrs. Crowley and Soronen during the fiscal
year ended September 30, 1993 represent options regranted upon the
cancellation of options granted to such individuals during the fiscal
year ended September 30, 1992.
(3) Represents premium payments made by the Company on a group term life
insurance policy.
OPTION GRANTS AND RELATED INFORMATION
The following table sets forth information concerning stock option
grants to the Named Executive Officers during the fiscal year ended September
30, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES
SECURITIES OPTIONS/SARS OF STOCK PRICE POTENTIAL
UNDERLYING GRANTED TO EXERCISE OR APPRECIATION REALIZABLE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION FOR OPTION TERM (2) VALUE AT OFFER
NAME GRANTED ($) (1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) PRICE (3)
- ---- --------------- ------------ ----------- ---------- --------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael W. Dunaway - - - - - - -
Jeffrey C. Crowley 20,000 19.75% $12.125 2/6/05 $152,500 $386,500 $107,500
Scott W. Soronen 20,000 19.75% $12.125 2/6/05 $152,500 $386,500 $107,500
</TABLE>
20
<PAGE> 22
________________________
(1) These options consist of both incentive stock options (12,773 for Mr.
Crowley and 14,433 for Mr. Soronen) and non-qualified stock options
(7,227 for Mr. Crowley and 5,567 for Mr. Soronen), were granted with
an exercise price equal to the fair market value of the Common Stock
on the date of grant, vest annually in twenty percent installments
beginning one year after the grant date and have a term of 10 years.
All such options will be cancelled in exchange for $17.50 in cash upon
consummation of the transactions contemplated by the Merger Agreement.
(2) Represents the value of such option at the end of its 10 year term,
assuming the market price of the Common Stock appreciates from the
grant date at an annually compounded rate of 5% or 10%. These amounts
represent assumed rates of appreciation only. Actual gains, if any,
will be dependent on overall market conditions and on the future
performance of the Common Stock. There can be no assurance that the
amounts reflected in this table will be achieved.
(3) Represents the valuation of such options based on the difference
between $17.50 per Share and the respective exercise prices of such
options.
OPTION EXERCISES AND HOLDINGS
The following table provides information as to options exercised by
each of the Named Executive Officers during the fiscal year ended September 30,
1995 and the value of options held by the Named Executive Officers both as of
such date and as of November 28, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Value of Unexercised In-the-Money
Underlying Unexercised In-the-Money Options/SARs Upon
Options/SARS at Options/SARs at Consummation of the
Fiscal Year End ($)(2) Fiscal Year End ($)(3) Merger ($)(4)
Shares ------------------------- ------------------------- --------------------
Acquired on Value Unexer-
Name Exercise ($)(1) Realized Exercisable Unexercisable Exercisable Unexercisable Exercisable cisable
- ---- --------------- -------- ----------- ------------- ----------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael W.
Dunaway - - - - - - - -
Jeffrey C.
Crowley - - 73,500 44,000 $213,720 $5,480 $650,595 $247,980
Scott W.
Soronen - - 65,500 50,000 $158,860 $8,481 $542,610 $288,480
</TABLE>
______________________
(1) There were no options exercised by the Named Executive Officers during
the fiscal year ended September 30, 1995. Mr. Dunaway does not
participate in any option plans of the Company.
21
<PAGE> 23
(2) Includes options to be cancelled in exchange for the difference
between $17.50 per Share subject to such options and the exercise
price of such options upon consummation of the transactions
contemplated by the Merger Agreement.
(3) The closing price of the Common Stock on September 30, 1995 was $11.25
per Share.
(4) Represents the total net value if all such options were cancelled
pursuant to the Merger Agreement in exchange for a cash payment as
described in note (2).
CONSULTING AND SEVERANCE AGREEMENTS
On November 21, 1995, the Company and Mr. Dunaway entered into a
consulting agreement (the "Dunaway Consulting Agreement") pursuant to which, if
Mr. Dunaway's employment is terminated either by the Company other than for
"cause" or by Mr. Dunaway for "good reason" (each as defined in the Dunaway
Consulting Agreement) on or prior to November 21, 1997, Mr. Dunaway will be
retained by the Company as a consultant for a period of three years from the
date of such termination (the "Consulting Period"). If his employment is so
terminated, as compensation for the consulting services to be rendered by Mr.
Dunaway and certain noncompetition and confidentiality agreements, the Company
will make the following payments and provide the following benefits to Mr.
Dunaway: (a) during the Consulting Period, the Company will pay Mr. Dunaway a
consulting fee at the rate of $20,000 per month; (b) during the Consulting
Period, Mr. Dunaway will be entitled to receive health care benefits no less
favorable on the whole to Mr. Dunaway than the benefits provided to Mr. Dunaway
under the terms of the health plans maintained by the Company in which he was a
participant as of November 21, 1995; and (c) within five business days
following the date of his termination of employment, the Company will transfer
to Mr. Dunaway or his designee any and all rights and interests of the Company
under certain "key man" life insurance policies (including without limitation
the cash values thereof), and Mr. Dunaway and his designee will assume any and
all obligations and liabilities of the Company thereunder.
On November 21, 1995, the Company's Board of Directors approved the
forms of consulting agreements (the "Officer Consulting Agreements") between
the Company and Scott W. Soronen and Michael D. Kebely, the Senior Vice
President and the Chief Financial Officer of the Company, respectively (the
"Officer Consultants"), pursuant to which, if the employment of either of the
Officer Consultants is terminated either by the Company other than for "cause"
or by the Consultant for "good reason" (each as defined in the Officer
Consulting Agreements) on or prior to November 21, 1997, such Officer
Consultant would be retained by the Company as a consultant for a period of
nine months from the date of such termination in the case of Mr. Soronen and
six months from the date of such termination in the case of Mr. Kebely (the
"Consulting Period"). If their employment is so terminated, as compensation
for the services to be rendered by the Officer Consultants and certain
noncompetition and confidentiality agreements, during the Consulting Period the
Company would pay Messrs. Soronen and Kebely a consulting fee at the rate of
approximately $12,000 and $8,380 per month respectively.
22
<PAGE> 24
A group of 23 officers and other key employees of the Company,
including Mr. Crowley (the "Covered Employees"), will be offered severance
agreements (the "Severance Agreements"). The Severance Agreements provide that
if, on or prior to the date which is eighteen months from the date on which
Parent's designees constitute a majority of the Board of Directors of the
Company, a Covered Employee's employment with the Company and any subsidiary is
terminated either by the Company without "cause" or by the Covered Employee for
"good reason" (each as defined in the Severance Agreements), the Company will
pay to such Covered Employee, in lieu of any severance or other termination
benefits, for a period of either six or twelve months from the date of such
termination (the "Severance Period"), an amount equal to such Covered
Employee's monthly base salary as of the date his or her Severance Agreement is
entered into.
COMPENSATION OF DIRECTORS
Directors, other than those who are also employees of the Company, are
paid an annual retainer of $5,000 plus a fee of $1,000 for attendance at each
regular or special meeting of the Board. An additional special fee of $25,000
was paid to Messrs. McFarlin and Rees for services performed in connection
with the transactions contemplated by the Merger Agreement.
At the 1988 Annual Meeting of Shareholders, the Company's shareholders
approved the adoption of the Nonqualified Stock Option Plan for Directors of
PSICOR, Inc. (the "Directors' Plan"). Under the Directors' Plan, 50,000 shares
of Common Stock were initially reserved for annual option grants to directors
of the Company who are not employees of the Company. Options may be granted
pursuant to the Directors' Plan until December 3, 1997, when the Directors'
Plan will terminate.
Under the Directors' Plan, as soon as reasonably practicable following
each annual meeting of stockholders each non-employee director of the Company
who either (i) was elected at such annual meeting or (ii) continues to serve as
a director following such annual meeting is granted an option to purchase 2,000
Shares at a price equal to the fair market value of the Common Stock on the
date of grant. Each option is exercisable in full beginning six months after
the date of grant and may be exercised for a period not to exceed five years
from the date of grant, provided, that all outstanding options that have not
previously become exercisable will become exercisable in full in the event of a
"change in control" (as defined in the Directors' Plan). No options will
become exercisable as a result of the transactions contemplated by the Merger
Agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Laverne W. Rees and Whitney A. McFarlin served on the Compensation
Committee of the Board of Directors of the Company during the fiscal year ended
September 30, 1995. Messrs. Rees and McFarlin are non-employee directors.
23
<PAGE> 25
Mr. McFarlin was the President and Chief Executive Officer of Clarus
Medical Systems, Inc. ("Clarus"), a medical device company, from September 1990
until October 1993. Mr. McFarlin is currently a director of Clarus. Michael
W. Dunaway, Chief Executive Officer, Chairman and President of the Company has
been a director of Clarus since July 1991. In fiscal 1991, the Company made a
$750,000 investment in convertible preferred stock of Clarus. In fiscal 1995
and 1993, the Company made additional investments of approximately $173,000,
including the bridge loan described below, and $776,000 in convertible
preferred and common stock of Clarus. In October 1994, the Company provided a
bridge loan to Clarus in the form of a $68,000 promissory note, in connection
with the issuance by Clarus of $1,000,000 of such notes. The note was
converted into shares of Series II preferred stock of Clarus during fiscal
1995. See Note 9 to the Consolidated Financial Statements.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Based on information available to the Company (a Schedule 13G dated
October 9, 1995), 665,100 shares of Common Stock, representing 15.25% of the
shares outstanding, were beneficially owned on October 9, 1995, by Heartland
Advisors, Inc. ("Heartland Advisors"), 790 North Milwaukee Street, Milwaukee,
Wisconsin 53202. Of these shares, Heartland Advisors has reported that it has
sole power to vote or direct the vote over 79,200 shares (1.82% of the
outstanding shares) and has sole dispositive power over all 665,100 shares
beneficially owned. Of the 665,100 shares beneficially owned by Heartland
Advisors, 313,500 shares were also beneficially owned by the Heartland Group,
Inc.
Based on information available to the Company (a Schedule 13G dated
October 9, 1995), 313,500 shares of Common Stock, representing 7.2% of the
shares outstanding, were beneficially owned on October 9, 1955, by Heartland
Group, Inc. ("Heartland Group"), 790 North Milwaukee Street, Milwaukee,
Wisconsin 53202. Of these shares, Heartland Group has reported that it has
sole power to vote or direct the vote of 313,500 shares (7.2% of the
outstanding shares) and no dispositive power over any of these shares.
The following table sets forth the number of shares of the Company's
Common Stock (which is the only class of stock outstanding) beneficially owned,
as of November 21, 1995, together with the percentage of the outstanding shares
which such ownership represents, by each director, each Named Executive Officer
(as defined under "Executive Compensation"), and all directors and executive
officers of the Company as a group. The information with respect to directors
and officers has been obtained from the respective individuals and is reported
in accordance with the beneficial ownership rules of the Securities and
Exchange Commission under which a person may be deemed to be the beneficial
owner of a security if such person has or shares voting power or investment
power with respect to such security or has the right to acquire such ownership
within the next 60 days.
24
<PAGE> 26
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
Name and Address SHARES (1) CLASS
- --------------------------------- ---------- ----------
<S> <C> <C>
Michael W. Dunaway, 56 1,936,397(2) 44.41%
16818 Via Del Campo Court
San Diego, California 92127
Trudy V. Dunaway, 44 1,763(3) - (3)
16818 Via Del Campo Court
San Diego, California 92127
Laverne W. Rees, 64 15,000(4) *
HC1 Box 98B
Hovland, Minnesota 55606
Whitney A. McFarlin, 55 12,000(5) *
460 Peavey Lane
Wayzata, Minnesota 55447
Jeffrey C. Crowley, 46 79,141(6) 1.79%
16818 Via Del Campo Court
San Diego, California 92127
Scott W. Soronen, 43 81,818(7) 1.85%
16818 Via Del Campo Court
San Diego, California 92127
All directors and executive officers
as a group (seven persons) 2,126,119(8) 47.05%
</TABLE>
___________________________
* Less than 1% of the outstanding shares
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to all shares owned by such person.
(2) Includes 1,917,526 Shares owned by the Dunaway Family Trust of which
Mr. Dunaway is a settlor and co-trustee and 4,971 Shares which have
been allocated to Mr. Dunaway under the Company's Employee Stock
Ownership Plan. Mr. Dunaway shares voting and investment power with
respect to the shares owned by the trust. See note (3).
(3) Represents shares which have been allocated to Mrs. Dunaway under the
Company's Employee Stock Ownership Plan. Mrs. Dunaway may be deemed
to own beneficially the 1,936,397 Shares beneficially owned by her
spouse, Michael W. Dunaway. Mrs. Dunaway is a settlor and co-trustee
of the Dunaway Family Trust and shares voting and investment power
with respect to the 1,917,526 Shares owned by the trust.
(4) Includes stock options for 10,000 shares which are exercisable within
60 days.
25
<PAGE> 27
(5) Includes stock options for 10,000 shares which are exercisable within
60 days.
(6) Includes 73,500 Shares which may be acquired within 60 days pursuant
to the exercise of stock options and 3,424 shares which have been
allocated under the Company's Employee Stock Ownership Plan.
(7) Includes 65,000 Shares which may be acquired within 60 days pursuant
to the exercise of stock options and 2,784 shares which have been
allocated under the Company's Employee Stock Ownership Plan. Excludes
400 shares held by Mr. Soronen's spouse, as to which Mr. Soronen does
not share voting and dispositive power.
(8) Includes an aggregate of 158,500 Shares which members of the group may
acquire within 60 days pursuant to the exercise of stock options and
12,942 Shares which have been allocated to the respective accounts of
the members of the group under the Company's Employee Stock Ownership
Plan.
Pursuant to the terms of the Tender and Option Agreement described
under Item 1, Mr. and Mrs. Dunaway and The Dunaway Family Trust have entered
into an arrangement with Parent and Purchaser which will result in a change in
control of the Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Concurrently with the execution and delivery of the Merger Agreement,
as an inducement to Parent to acquire the Company and as a condition to
Parent's willingness to enter into the Merger Agreement, the Company and
Dunaway Holdings, Inc. ("Dunaway Holdings"), a Delaware corporation all of the
capital stock of which is owned by Mr. Dunaway, entered into a put option
agreement (the "POL Put Option"), with respect to a form of stock purchase
agreement (the "POL Purchase Agreement" and, together with the POL Put Option,
the "POL Agreement"), pursuant to which Dunaway Holdings has agreed to acquire
from the Company, if the Company exercises the POL Put Option, all of the
outstanding shares of POL, together with all of the Company's rights, interests,
liabilities and obligations relating to POL for an agregate purchase price of
$4 million, subject to certain adjustments, if no higher offer for POL is
received by the Company. The additional disclosure provided under Item 11
"Executive Compensation - Compensation Committee Interlocks and Insider
Participation" is incorporated herein by reference.
26
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Schedules and Exhibits
1. The following consolidated financial statements are filed
herewith:
Consolidated Balance Sheets as of September 30, 1995
and 1994
Consolidated Statements of Income for the years ended
September 30, 1995, 1994 and 1993.
Consolidated Statements of Shareholders' Equity for
the years ended September 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years
ended September 30, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements
2. The schedule filed herewith is set forth in the Index to
Financial Statement Schedules on page FS-1 of this report.
Other financial statement schedules, for which provision is
made in the applicable accounting regulations of the
Securities and Exchange Commission, are not required under the
related instructions or are inapplicable and, therefore, have
been omitted.
3. Exhibits:
The exhibits filed with this report are listed on the "Exhibit
Index" on pages E-1 through E-3. Exhibits 10(c), 10(d),
10(f), 10(g), 10(i), 10(k), 10(l), 10(m), 10(n) and 10(o) are
management contracts or compensatory plans required to be
filed as an exhibit with this report.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-k during the quarter
ended September 30, 1995.
27
<PAGE> 29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets
As of September 30, 1995 and 1994 F-3
Consolidated Statements of Income
For the years ended September 30, 1995, 1994
and 1993 F-4
Consolidated Statements of Shareholders' Equity
For the years ended September 30, 1995, 1994, and 1993 F-5
Consolidated Statements of Cash Flows
For the years ended September 30, 1995, 1994, and 1993 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-19
</TABLE>
F-1
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PSICOR, Inc.:
We have audited the accompanying consolidated balance sheets of
PSICOR, INC. (a Pennsylvania corporation) and subsidiaries as of September 30,
1995 and 1994, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended September
30, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
PSICOR, Inc. and subsidiaries as of September 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1995, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The schedule listed
in the index to financial statement schedules is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Diego, California
November 22, 1995
F-2
<PAGE> 31
PSICOR, Inc.
Consolidated Balance Sheets
As of September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 771 $ 1,473
Accounts receivable 16,047 11,973
Inventories 14,534 11,246
Prepaid expenses and other 1,178 1,601
Deferred income taxes 864 637
------- -------
Total Current Assets $33,394 $26,930
Land, building and equipment - net 11,940 13,910
Intangibles, net, and other 9,510 9,174
------- -------
Total Assets $54,844 $50,014
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,738 $ 6,563
Salaries and other compensation payable 2,427 1,258
Employee benefit plans payable -- 750
Other accrued liabilities 1,462 2,198
Current portion of long-term liabilities 409 262
------- -------
Total Current Liabilities $14,036 $11,031
Long-term liabilities 1,036 818
Commitments and Contingencies (Note 11)
Shareholders' Equity:
Common stock - no par value; authorized -
10,000,000 shares; issued and outstanding -
4,350,000 in 1995 and 4,310,000 in 1994 11,411 11,088
Retained earnings 28,361 27,077
------- -------
Total Shareholders' Equity $39,772 $38,165
------- -------
Total Liabilities and Shareholders' Equity $54,844 $50,014
======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 32
PSICOR, Inc.
Consolidated Statements of Income
For the Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(In thousands, expect per share data)
<S> <C> <C> <C>
Revenue $97,353 $82,066 $76,918
Cost of sales and services 81,352 65,672 60,337
------- ------- -------
Gross profit $16,001 $16,394 $16,581
General and administrative 11,310 9,349 8,934
Operating profit $ 4,691 $ 7,045 $ 7,647
Interest expense 59 17 --
Other income (expense), net (1,094) 492 468
Income before provision
for income taxes $ 3,538 $ 7,520 $ 8,115
Provision for income taxes 2,254 3,041 3,583
------- ------- -------
Net income $ 1,284 $ 4,479 $ 4,532
------- ------- -------
Earnings per share $ .29 $ 1.02 $ 1.02
======= ======= =======
Number of shares used in computation 4,428 4,389 4,433
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 33
PSICOR, Inc.
Consolidated Statements of Shareholders' Equity
For the Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Common Retained
Shares Stock Earnings Total
------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Balance, September 30, 1992 4,275 $10,930 $18,066 $28,996
Net income -- -- 4,532 4,532
Exercise of stock options 23 157 -- 157
Employee stock purchase plan 86 764 -- 764
Tax benefits related
to stock options -- 84 -- 84
Treasury stock (107) (1,092) -- (1,092)
-------- -------- ------- --------
Balance, September 30, 1993 4,277 $10,843 $22,598 $33,441
Net income -- -- 4,479 4,479
Exercise of stock options 28 181 -- 181
Purchase of stock for treasury (28) (314) -- (314)
Reissuance of treasury stock 33 378 -- 378
------- ------- ------- -------
Balance, September 30, 1994 4,310 $11,088 $27,077 $38,165
Net income -- -- 1,284 1,284
Exercise of stock options 34 247 -- 247
Reissuance of treasury stock 6 76 -- 76
------- ------- ------- -------
Balance, September 30, 1995 4,350 $11,411 $28,361 $39,772
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 34
PSICOR, Inc.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,284 $4,479 $4,532
------ ------ ------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,723 5,379 4,618
Write-down of assets 1,434 -- --
Deferred income tax (benefit) liability (227) (317) 76
Tax benefits related to options -- -- 84
Gain on sale of property and equipment (126) (288) (247)
Increase (decrease) from changes in:
Accounts receivable (4,074) (712) (105)
Inventories (3,288) (1,802) (1,702)
Prepaid expenses and other 423 (421) (325)
Accounts payable 3,175 614 (649)
Salaries and other
compensation payable 1,169 (726) (236)
Employee benefit plans
payable, net (750) (250) 100
Other accrued liabilities (736) (95) 368
------- ------- ------
Total adjustments $2,723 $1,382 $1,982
----- ------ ------
Net cash provided by operating activities $4,007 $5,861 $6,514
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,151) (5,195) (6,099)
Proceeds from sales of property
and equipment 240 832 581
Acquisitions (2,000) (5,548) --
Decrease in intangibles and other, net (486) (371) (1,147)
------- ----- -----
Net cash used by investing activities (5,397) (10,282) (6,665)
----- ------ -----
</TABLE>
F-6
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance
of common stock $ 247 $ 181 $ 921
Payments for treasury stock 76 (314) (1,092)
Payments of long-term debt -- (11) --
Increase (reduction) of
long-term liabilities 365 (262) 144
------ ------- ------
Net cash provided (used) by
financing activities 688 (406) (27)
------ ------- -------
Net decrease in cash (702) (4,827) (178)
Cash and equivalents
at beginning of year 1,473 6,300 6,478
------ ------ ------
Cash and equivalents
at end of year $ 771 $1,473 $6,300
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 36
PSICOR, Inc.
Notes to Consolidated Financial Statements
For the Years Ended September 30, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
PSICOR, Inc. (the "Company") provides hospitals with medical specialists and
related equipment and sells disposable supplies for open-heart surgery and
other closely related procedures. The Company also provides on-site laboratory
testing systems to individual physicians and group medical practices.
Subsequent to September 30, 1995, the Company entered into an Agreement and
Plan of Merger with Baxter Healthcare Corporation. See Note 13.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant inter-company balances and transactions have
been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market and consist principally of disposable supplies used for open
heart surgery, reagents and other supplies for the on-site laboratory testing
systems, and supplies for other related medical procedures.
Land, Building and Equipment
Land, building and equipment are recorded at cost. Maintenance and repairs
which do not improve or extend the lives of the respective assets are charged
to expense as incurred. Depreciation and amortization are computed using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Building and improvements 10 to 25 years
Medical equipment 5 years
Furniture and fixtures,
and computer equipment 5 years
Vehicles 3 to 7 years
Leasehold improvements Life of lease
</TABLE>
Upon asset disposition, the related cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in other
income (expense), net.
Excess Costs Over Net Assets of Acquired Companies
The excess of acquisition costs over the fair value of net assets of businesses
purchased (goodwill) is being amortized using the straight-line method over a
period ranging from 15 to 20 years.
F-8
<PAGE> 37
Income Taxes
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes," was issued by the Financial Accounting Standards Board in February
1992, effective October 1, 1993, with early adoption encouraged. The Company
elected early adoption of the new standard effective October 1, 1992. See Note
10 to Consolidated Financial Statements.
Earnings Per Share
Earnings per share are computed based on the weighted average number of common
shares outstanding, adjusted for the number of shares issuable upon assumed
exercise of stock options, after the assumed repurchase of shares with the
related proceeds.
Statements of Cash Flows
During the years ended September 30, 1995, 1994 and 1993, the Company paid
interest on its obligations of $54,000, $17,000, and $0, respectively. In
addition, during the years ended September 30, 1995, 1994 and 1993, the Company
paid income taxes of $3,056,000, $3,017,000 and $3,154,000, respectively.
Non-cash transactions during fiscal 1995 and 1994 consisted of issuance of
shares of common stock, valued at $76,000 and $378,000, respectively, in
association with the acquisition of a perfusion company.
Since March 1993, the Company has been authorized to repurchase shares of its
own stock and, as of September 30, 1995, has repurchased 134,779 shares for an
aggregate purchase price of approximately $1,406,000 funded by cash from
operations.
Cash Equivalents
All highly liquid investments purchased with a maturity of three months or less
are classified as cash equivalents.
F-9
<PAGE> 38
2. Accounts Receivable
Accounts receivable at September 30, 1995 and 1994 are net of allowances for
doubtful accounts of $356,000 and $423,000, respectively.
3. Land, Building and Equipment
Land, building and equipment are summarized as follows at September 30 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Land $ 35 $ 35
Building and improvements 331 320
Medical equipment 19,759 18,407
Vehicles 2,199 2,321
Furniture, fixtures and computer equipment 12,816 11,862
Leasehold improvements 2,072 2,055
------- -------
Total $37,212 $35,000
Less:
Accumulated depreciation and amortization $25,272 $21,090
------- -------
Land, building and equipment, net $11,940 $13,910
======= =======
</TABLE>
F-10
<PAGE> 39
4. Acquisitions
In July 1995, the Company acquired substantially all of the assets of Cardio
Pulmonary Resources, Inc. (CPR), a perfusion business located in Las Vegas,
Nevada. The purchase price paid on the closing date in July 1995 was
$2,000,000 in cash, with four additional $75,000 cash payments due on the next
four anniversaries of the closing. The purchase price was financed through
PSICOR's cash reserves and its line of credit facility. The acquisition has
been recorded using the purchase method of accounting and was allocated to
inventory, accounts receivable, fixed assets and goodwill. The excess of
aggregate purchase price over the fair value of net assets acquired of
approximately $1,356,000 was recognized as goodwill, and is being amortized on a
straight-line basis over 20 years. The operating results of CPR have been
included in the Company's consolidated financial statements since the date of
acquisition. The proforma effect of this acquisition was not material to the
results of operations for the year ended September 30, 1995.
In August 1994, the Company purchased all the outstanding common stock of
Meditech Diagnostics Systems, Inc. Upon acquisition the Company renamed the
wholly-owned subsidiary, PSICOR Office Laboratories (POL). POL provides
technical services to physician office laboratories providing on-site clinical
diagnostic testing, as well as laboratory design, equipment sales and support.
The purchase price paid on the closing date in August 1994 was $5,548,000 in
cash, with two additional $500,000 cash payments due on the second and third
anniversaries of the closing, in the event that revenues of POL equal or exceed
stipulated amounts. The acquisition was primarily financed out of operating
funds of the Company. The acquisition was accounted for as a purchase and,
accordingly, the Company's consolidated financial statements include the
operating results of POL since August 1994. The aggregate purchase price was
recorded using the purchase method of accounting and was allocated primarily to
inventory, fixed assets and goodwill. The excess of the purchase price over
the estimated fair value of net assets acquired of $6,203,000 is being
amortized using the straight-line method over 20 years.
Unaudited proforma data giving effect to the purchase of POL as if it had been
acquired at the beginning of fiscal 1993 are shown below. Such data does not
purport to be indicative of what would have occurred had the acquisition been
made as of these dates or of results which may occur in the future.
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Net revenue $89,600,000 $82,962,000
Operating profit 7,159,000 7,870,000
Net income 4,410,000 4,363,000
Earnings per share $1.00 $.98
</TABLE>
F-11
<PAGE> 40
During the fiscal year ended September 30, 1994, the Company also acquired the
operating assets of four companies providing services similar to PSICOR, Inc.
The aggregate purchase price of each acquisition was recorded using the
purchase method of accounting and was allocated primarily to customer contracts
and covenants not-to-compete, which are being amortized over three to five
years. Such amounts have been included in other assets in the accompanying
consolidated balance sheets. The proforma effects of these four acquisitions
are not material to the results of operations for the year ended September 30,
1994.
At September 30, 1995, aggregate future payments related to all acquisitions
are approximately $648,000, and will be paid over four years. Intangible
assets, including goodwill from all acquisitions were $9,998,000 and $7,756,000
at September 30, 1995 and 1994, respectively, with related accumulated
amortization of $1,268,000 and $727,000, respectively.
5. Segment Information
Since its acquisition of POL, The Company's operations are divided into two
business segments which include open-heart services, supplies and products, and
medical laboratory products and services. The open-heart segment provides
skilled technicians, equipment and disposable supplies to hospitals performing
open-heart and related surgical procedures. The medical laboratory product and
services segment provides technicians, laboratory design, equipment, supplies
and support to physician office laboratories. Operations within each of the
Company's segments are typically performed on a contract basis.
Operating profit by segment (sales less cost of sales and operating
expenses) excludes income taxes, other income and interest expense. The fiscal
1994 revenue and operating profit for the medical laboratory product and
services segment shown below reflects the results of operations for the two
months ended September 30, 1994. Identifiable assets by segment include the
assets directly identified with that segment or operation. The Company operates
primarily in a single geographic area, the United States. Corporate assets
consist primarily of cash, short-term investments and other assets.
In fiscal 1995, 1994 and 1993, no one single customer or group of customers
under common control represented 10 percent or more of the Company's sales.
F-12
<PAGE> 41
Segment information is presented for the years ended September 30, 1995 and
1994 as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Sales:
Open-heart services, supplies and products $85,005 $79,830
Medical laboratory, products and services 12,348 2,236
------- -------
Total $97,353 $82,066
======= =======
Operating Profit(Loss):
Open-heart services, supplies and products $ 5,121 $ 6,413
Medical laboratory, products and services (430) 632
-------- -------
Total operating profit $ 4,691 $ 7,045
Corporate income (expense) (1,094) 492
Interest expense 59 17
------- -------
Income before provision for income taxes $ 3,538 $ 7,520
======= =======
Identifiable Assets:
Open-heart services, supplies and products $39,744 $37,437
Medical laboratory, products and services 11,098 8,664
Corporate 4,002 3,913
------- -------
Total $54,844 $50,014
======= =======
Depreciation and Amortization:
Open-heart services, supplies and products $ 5,117 $ 5,321
Medical laboratory, products and services 403 58
------- -------
Total $ 5,520 $ 5,379
======= =======
Capital Expenditures, Net:
Open-heart services, supplies and products $ 3,167 $ 5,378
Medical laboratory, products and services 145 --
------- --------
Total $ 3,312 $ 5,378
======= =======
</TABLE>
6. Long-Term Debt and Other Liabilities
The Company maintains a bank credit line under which the Company may
borrow up to $10,000,000. Borrowings under the line are on a revolving basis
through April 1, 1997 with provisions to convert up to $10,000,000 to a term
loan
F-13
<PAGE> 42
through April 1, 1997. The line is unsecured with interest at the bank's prime
rate. The agreement contains certain restrictions including, among others,
obtaining written approval from the bank prior to the payment of dividends and
before acquiring non-perfusion companies, as well as maintaining minimum
liquidity, tangible net worth, cash flow and net income levels. There were no
borrowings outstanding at September 30, 1995 and 1994.
During 1992, the Company entered into an agreement with a vendor to purchase
disposable supplies, inventory and equipment. The Company has recorded the
value of the equipment as an asset, with a corresponding liability based on the
fair market value of equipment received. This liability will be satisfied
through purchases of disposables from the vendor as called for by the
agreement. The liability as of September 30, 1995 amounts to $767,000 and,
based on management's estimate, will be relieved ratably by approximately
$200,000 per year over the next four years.
7. Leases
The Company is obligated under operating lease agreements, primarily for
office and warehouse space, which have remaining terms of one to four
years, with one lease providing for renewal options totaling eleven years. Such
leases generally provide that the Company pay taxes, maintenance and certain
other operating expenses. Rent expense for the years ended September 30, 1995,
1994 and 1993 was $1,149,000, $1,095,000, and $1,041,000, respectively. As of
September 30, 1995, future minimum lease payments under noncancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
1996 $1,470
1997 1,171
1998 768
1999 60
Thereafter --
------
Total $3,469
======
</TABLE>
8. Employee Benefit Plans
The Company maintains the employees' Retirement Savings Plan and Trust
(the "Plan") for which annual contributions may be made, at the discretion of
the Company's board of directors, to the non-contributory portion of the Plan.
The Company made no discretionary contribution for the years ended September
30, 1995, 1994 and 1993. Under the Plan, employees may contribute from 1% to
8% of their annual compensation. The Company is required to match 20% of
eligible employee contributions and is permitted to make discretionary
contributions necessary for the Plan to remain qualified under Section 501(a)
of the Internal Revenue Code. The Company matched 40% of eligible
contributions for the year ended September 30, 1993. The costs of such Company
contributions for the years ended September 30, 1995, 1994 and 1993 were
$251,000, $242,000 and $478,000, respectively.
The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit
of all employees to which annual contributions are made at the discretion of
F-14
<PAGE> 43
the Company's board of directors. There were no Company contributions for the
year ended September 30, 1995. The Company's contributions for the years ended
September 30, 1994 and 1993 were $750,000 and $1,000,000, respectively. The
Company's contributions for each of the years ended September 30, 1994 and 1993
were made by cash contributions in November 1994 and October 1993,
respectively.
9. Related Party Transactions
The Company maintains three life insurance policies on key individuals
to protect it from the loss of their services. Under the first policy, the
Company entered into an agreement with the Company's controlling shareholder
and chief executive officer and his spouse, a Company director, under which the
Company purchased a life insurance policy in the amount of $5,000,000 covering
the lives of both the chief executive officer and his spouse. Upon the death
of both of the insureds, the proceeds of the policy are to be used by the
Company to purchase shares of the Company's stock from the estate of the second
to die. The Company's obligation under the agreement would terminate if the
insureds' ownership in the Company falls below 40% of the issued and
outstanding shares. Under the second and third policies, the Company purchased
a term life insurance policy in the amount of $10,000,000 and a $1,000,000
whole life policy on the life of the Company's controlling shareholder and
chief executive officer. In the event of the chief executive officer's death,
the proceeds from the policies would be available for general corporate use.
In 1991, the Company made a $750,000 equity investment in Clarus Medical
Systems, Inc. (Clarus), a medical device development company of which
Clarus' former president and chief executive officer serves on the Company's
board of directors and the Company's chief executive officer serves on Clarus'
board of directors. In 1995 and 1993, the Company made additional equity
investments of $173,000 and $776,000, respectively.
During the fourth quarter of fiscal 1995, unrelated investors acquired
Clarus preferred stock at amounts less than the Company's investment, and, less
than the carrying amount recorded. As a result of this recent investment
activity related to Clarus, during the fourth quarter, the Company assessed the
value of its Clarus investment, and determined that an impairment had occurred.
Accordingly, the Company has recorded the difference between the carrying
amount of its Clarus investment, and the estimated fair value, approximately
$1,200,000, as a loss. The loss has been included in other income (expense),
net in the 1995 consolidated statement of income. The preferred stock
investment in Clarus is included in intangibles, net, and other assets in the
accompanying consolidated balance sheets.
The Company leases an administration and warehouse facility for POL from
a former employee of the Company. Rent paid to this individual during fiscal
1995 and 1994 under the lease agreement was $68,000 and $11,000, respectively.
The lease expires in September 1996. Management believes the rent paid by the
Company to the individual under this lease approximates fair market value.
F-15
<PAGE> 44
10. Income Taxes
As discussed in Note 1 to consolidated financial statements, effective
October 1, 1992, the company adopted Statement of Financial Accounting
Standards No. 109. The cumulative effect of this accounting change was not
material to the Company's consolidated financial statements. Deferred tax
benefits (liabilities) reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts measured by applicable tax laws. These temporary differences are
determined in accordance with SFAS No. 109. Items that give rise to deferred
tax assets and liabilities as of September 30, 1995 and 1994 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
----- ------
<S> <C> <C>
Valuation reserves $812 $854
Depreciation 40 (222)
Other 12 5
---- ----
Total $864 $637
==== ====
</TABLE>
The provision for income taxes for the years ended September 30, 1995, 1994 and
1993 is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes:
Current $1,463 $2,717 $2,530
Deferred 229 (317) 76
State and local income taxes 562 641 977
------ ------ ------
Total $2,254 $3,041 $3,583
====== ====== ======
</TABLE>
The Company's effective income tax rate differs from the federal statutory rate
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State and local taxes,
net of federal benefit 6.9% 6.9% 6.9%
Other, net 22.8% (0.5%) 3.3%
----- ------ -----
Effective rate 63.7% 40.4% 44.2%
===== ===== =====
</TABLE>
The effective tax rate for the fiscal year ended September 30, 1995, is
approximately 64% primarily as a result of the $1,200,000 write-down of the
Clarus investment, for which the Company receives no federal or state income tax
benefit.
F-16
<PAGE> 45
11. Commitments and Contingencies
The Company maintains its professional liability insurance coverage on
a "claims made" basis. The Company self-insures claims of up to $1,250,000
each loss and $2,000,000 in the aggregate for a policy year. Amounts in excess
of this self-insured amount are covered by the Company's insurance policies up
to $5,000,000 per claim, and in the aggregate, for a policy year. Included in
other accrued liabilities at September 30, 1995 and 1994 is $934,000 and
$1,090,000, respectively, of self-insurance accruals.
During November 1995, the Company terminated the employment of the three
principals involved in the August 1994 acquisition of POL (formerly Meditech
Diagnostic Systems, Inc.) for cause as defined in the respective employment
agreements. Upon acquisition of POL by the Company, the three principals
were awarded employment contracts containing various terms and compensation
amounts. The aggregate amount due the three principals at the time of their
termination was approximately $1,111,000. In November 1995, the three
principals filed a complaint against the Company and POL in New Jersey alleging
fraud, breach of contract and breach of the implied covenant of good faith by
the Company and POL stemming from, among other things, the termination of their
employment. The Company intends to file a complaint against the three
principals for, among other things, breach of contract and fraud in connection
with the Company's acquisition of POL. The Company believes that its claims
are meritorious and intends to pursue its claims vigorously. In the opinion
of the Company's management and its internal legal counsel, the ultimate
resolution of the termination of the principals for cause will favor the
Company and the probability of the Company paying significant additional
amounts under the employment agreements is remote. The stock purchase
agreement (the "Agreement") between the Company and POL includes a contingent
consideration component. The component calls for additional purchase price up
to an aggregate of $1,000,000 to be paid by the Company to the three principals
if the POL business achieves certain revenue milestones in fiscal 1996 and
1997. At September 30, 1995, the Company recorded additional purchase price of
$500,000, reduced by approximately $356,000 of offsets and reductions as called
for in the Agreement, as the Company's management believes it is probable that
the fiscal 1996 milestone will be achieved. Any additional amounts to be paid
to the three principals under the contingent consideration clause may be
effected by the previously mentioned matters.
There are various other litigation proceedings in which the Company is
involved that management considers to be incidental to the industry in which
the Company operates. Any liability that the Company may have under many of
these proceedings is covered by insurance. The results of litigation cannot be
predicted with certainty; however, in the opinion of the Company's management,
the Company does not have a potential liability in connection with
these other proceedings which would have an adverse material effect on the
financial condition or results of operation of the Company.
F-17
<PAGE> 46
12. Stock Option Plans
The Company maintains incentive stock option plans for key employees.
The Company's board of directors determines the option price, which is to be
not less than fair market value of the common stock as of the date of grant.
Each option expires no later than 10 years from the date of grant; however,
expiration may occur sooner at the board of directors' discretion. Options
generally become exercisable over a period of five years.
The Company also maintains a non-qualified stock option plan for
non-employee directors. As of September 30, 1995 and 1994, 20,000 and 22,000
non-qualified options, respectively, were outstanding at prices ranging from
$7.00 to $17.75 per share.
Stock option activity for the three years ended September 30, 1995, 1994 and
1993 for the above plans is summarized as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
-------- --------------
<S> <C> <C>
Outstanding, September 30, 1992 628,170 $2.75 - $17.25
Option granted 89,850 $8.75
Options exercised (23,750) $2.75 - $11.13
Options canceled (58,470) $2.75 - $17.75
-------- --------------
Outstanding, September 30, 1993 635,800 $2.75 - $17.75
Option granted 168,350 $10.00 - $10.75
Options exercised (27,800) $2.75 - $ 8.75
Options canceled (71,810) $2.75 - $17.75
Outstanding, September 30, 1994 704,540 $2.75 - $17.75
Option granted 101,250 $12.13
Options exercised (33,820) $2.75 - $10.75
Options canceled (68,980) $7.00 - $12.13
-------- --------------
Outstanding, September 30, 1995 702,990 $2.75 - $17.75
======= ==============
</TABLE>
As of September 30, 1995, options for 371,620 shares were exercisable and
172,070 shares were available for future grants.
13. Subsequent Event
On November 22, 1995, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Baxter Healthcare Corporation and its wholly
owned subsidiary, Baxter CVG Services II, Inc. ("Purchaser"), which provides
for the merger of the Purchaser with the Company and the conversion of all of
the outstanding shares of common stock of the Company (the "Shares") into the
right to receive cash in the amount of $17.50 per Share. The Merger Agreement
also provides for the Purchaser to commence a tender offer (the "Offer") for
any and all Shares at a price of $17.50 per
F-18
<PAGE> 47
Share, net to the seller in cash. The Offer is scheduled to commence on
November 29, 1995, and is scheduled to expire at midnight, New York City time,
on January 3, 1996 (the "Expiration Date"), unless extended by the Purchaser.
The Offer is subject to the satisfaction or waiver of the condition that there
will be validly tendered prior to the Expiration Date and not withdrawn a
number of Shares which, together with the Shares owned by the Purchaser or
Parent, represents at least 80% of the Shares outstanding on a fully diluted
basis, and to certain other conditions.
14. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended September 30, 1995:
Revenue $23,867 $24,370 $24,262 $24,854
Operating profit 2,007 1,586 757 341
Net income(loss) 1,213 927 479 (1,335)
Earnings(Loss) per share .28 .21 .11 (.30)
Weighted average shares 4,377 4,442 4,437 4,456
Year ended September 30, 1994:
Revenue $19,611 $19,718 $20,459 $22,278
Operating profit 1,881 1,597 1,618 1,949
Net income 1,102 1,048 1,044 1,285
Earnings per share .25 .24 .24 .29
Weighted average shares 4,398 4,404 4,367 4,386
</TABLE>
F-19
<PAGE> 48
INDEX TO FINANCIAL STATEMENT SCHEDULES
The following consolidated schedule of PSICOR, Inc. and its
subsidiaries is submitted herewith.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Schedule II - Valuation and Qualifying Accounts..................... FS-2
</TABLE>
FS-1
<PAGE> 49
SCHEDULE II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
------ ------ -------- ------ ------ ------
ADDITIONS
- -----------------------------------------------------------------------------------------------------------------------------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End
Description of Period Expenses Describe Describe of Period
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1993:
Deducted from asset accounts:
Allowance for
doubtful accounts $300,000 $ 21,000 $ --- $ 21,000 $300,000
Reserve for inventory
obsolescence 196,000 155,000 --- 151,000 200,000
-------- -------- --------- -------- --------
$496,000 $176,000 $ --- $172,000 $500,000
Year Ended September 30, 1994:
Deducted from asset accounts:
Allowance for doubtful
accounts $300,000 $ 33,000 $123,000* $ 33,000 $423,000
Reserve for inventory
obsolescence 200,000 --- --- --- 200,000
-------- -------- --------- -------- --------
$500,000 $ 33,000 $123,000 $ 33,000 $623,000
Year Ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful
accounts $423,000 $ 24,000 $138,000 $229,000 $356,000
Reserve for inventory
obsolescence 200,000 64,000 --- --- 264,000
-------- -------- -------- -------- --------
$623,000 $ 88,000 $138,000 $229,000 $620,000
======== ======== ======== ======== ========
</TABLE>
____________________
* Represents reserve of POL accounts receivable at acquisition
FS-2
<PAGE> 50
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, on December 28,
1995.
PSICOR, INC.
By: /s/ MICHAEL W. DUNAWAY
-------------------------------------
Michael W. Dunaway
Chairman of the Board of Directors,
President and Chief Executive Officer
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 indicated on December 28, 1995.
<TABLE>
<CAPTION>
Signature Title (Capacity)
--------- ----------------
<S> <C>
/s/ MICHAEL W. DUNAWAY Chairman of the Board of Directors,
- ------------------------------- President, and Chief Executive Officer
Michael W. Dunaway (Principal Executive Officer)
/s/ MICHAEL D. Kebely Chief Financial Officer
- ------------------------------- (Principal Financial
Michael D. Kebely and Accounting Officer)
/s/ TRUDY V. DUNAWAY Director
- -------------------------------
Trudy V. Dunaway
/s/ WHITNEY A. MCFARLIN Director
- -------------------------------
Whitney A. McFarlin
/s/ LAVERNE W. REES Director
- -------------------------------
Laverne W. Rees
</TABLE>
S-1
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.(a) Agreement and Plan of Merger, dated as of November 22, 1995, by and among the Company, Baxter Healthcare
Corporation and Baxter CVG Services II, Inc. (previously filed as Exhibit 1 to the Registrant's Schedule 14D-9
filed with the Commission on November 29, 1995 and incorporated herein by reference).
2.(b) Tender and Option Agreement, dated as of November 22, 1995, by and among Michael W. Dunaway, Trudy V. Dunaway,
The Dunaway Family Trust, Baxter Healthcare Corporation and Baxter CVG Services II, Inc. (previously filed as
Exhibit 2.5 to the Registrant's Schedule 14D-9 filed with the Commission on November 29, 1995 and incorporated
herein by reference).
3(a) Articles of Incorporation, as amended (previously filed under the corresponding Exhibit No. with the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1992).
3(b) Bylaws of the Company, as amended (previously filed under Exhibit No. 3.2 with the Company's Current Report on
Form 8-K dated December 6, 1995 and incorporated herein by reference).
10(a) Business Loan Agreement with Bank of America National Trust and Savings Association (supersedes Business Loan
Agreement, as Amended, filed as Exhibit Nos. 10(a) and 10(b) with the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994) (previously filed under Exhibit No. 10(a) with the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(c) PSICOR, Inc. 1984 Stock Option Plan, as amended (previously filed under Exhibit No. 4 with the Company's
Registration Statement on Form S-8, Registration No. 33-16128, and incorporated herein by reference).
10(d) Redemption Agreement, dated July 25, 1988, by and among Michael W. Dunaway, Trudy V. Dunaway and the
</TABLE>
E-1
<PAGE> 52
<TABLE>
<S> <C>
Company (previously filed under Exhibit No. 10(c) with the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1993 and incorporated herein by reference).
10(e) Lease, dated August 12, 1986, between the Company and Rancho Bernardo Associates, as amended October 1, 1986 and
July 26, 1990 (previously filed under Exhibit No. 10(g) with the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992 and incorporated herein by reference).
10(f) PSICOR, Inc. 1989 Stock Option Plan for Officers and Other Key Employees, as amended (previously filed under
Exhibit No. 4 with the Company's Registration Statement on Form S-8, Registration No. 33-78598, and incorporated
herein by reference).
10(g) Non-qualified Stock Option Plan for Directors of PSICOR, Inc. (previously filed under Exhibit No. 4 with the
Company's Registration Statement on Form S-8, Registration No. 33-40271, and incorporated herein by reference).
10(h) Stock Purchase Agreement among the Company and POL Diagnostic Systems, Inc. and its shareholders, dated as of
July 19, 1994 (previously filed under Exhibit No. 2(a) with the Company's Current Report on Form 8-K dated
August 9, 1994, and incorporated herein by reference).
10(i) Non-Competition Agreement by and among the Company, POL Diagnostic Systems, Inc. and Paul Reiss, dated August 9,
1994 (previously filed under Exhibit No. 2(b) with the Company's Current Report on Form 8-K dated August 9,
1994, and incorporated herein by reference).
10(j) Consulting Agreement between the Company and Michael W. Dunaway (previously filed as Exhibit 2.1 to the
Company's Schedule 14D-9 filed with the Commission on November 29, 1995 and incorporated herein by reference).
10(k) Form of Consulting Agreement between the Company and Scott Soronen (previously filed as Exhibit 2.2 to the
Company's Schedule 14D-9 filed with the Commission on November 29, 1995 and incorporated herein by reference).
</TABLE>
E-2
<PAGE> 53
<TABLE>
<S> <C>
10(l) Form of Consulting Agreement between the Company and Michael Kebely (previously filed as Exhibit 2.3 to the
Company's Schedule 14D-9 filed with the Commission on November 29, 1995 and incorporated herein by reference).
10(m) Form of Severance Agreement (previously filed as Exhibit 2.4 to the Company's Schedule 14D-9 filed with the
Commission on November 29, 1995 and incorporated herein by reference).
10(n) Put Option Agreement, dated as of November 22, 1995, between the Company and Dunaway Holdings, Inc. (previously
filed as Exhibit 2.6 to the Company's Schedule 14D-9 filed with the Commission on November 29, 1995 and
incorporated herein by reference).
10(o) Form of Director Indemnification Agreement (previously filed as Exhibit 2.7 to the Company's Schedule 14D-9
filed with the Commission on November 29, 1995 and incorporated herein by reference).
10(p) Confidentiality Agreement, dated October 13, 1995, between the Company and Baxter Healthcare Corporation
(previously filed as Exhibit 3 to the Company's Schedule 14D-9 filed with the Commission on November 29, 1995
and incorporated herein by reference).
21* Subsidiaries of the Registrant.
23* Consent of Arthur Andersen LLP.
27* Financial Data Schedule
99 Offer to Purchase dated November 29, 1995 (previously filed as Exhibit 7 to Amendment No. 1 to the Company's
Schedule 14D-9 filed with the Commission on December 18, 1995 and incorporated herein by reference).
</TABLE>
________________
*Filed herewith.
The Registrant will furnish to any shareholder a copy of
any of the exhibits listed above upon written request and upon payment of a
specified reasonable fee, which fee shall be equal to the Registrant's
reasonable expenses in furnishing the exhibit to the shareholder. Requests for
exhibits and information regarding the applicable fee shall be directed to:
Michael D. Kebely, Chief Financial Officer, at the address of the principal
executive offices set forth on the cover of this Report on Form 10-K.
E-3
<PAGE> 1
EXHIBIT 21
PSICOR, INC. SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of
- ------------------ Organization or Incorporation
-----------------------------
<S> <C>
Psicor Office Laboratories, Inc. New Jersey
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
PSICOR, Inc.:
As independent public accountants, we hereby consent to the incorporation of
our report, dated November 22, 1995, into the Company's previously filed
Registration Statements on Form S-8, File Numbers 33-16128, 33-35529, 33-40269,
33-40270, 33-40271, 33-62564 and 33-78598 and the Company's previously filed
Registration Statement on Form S-3, File Number 33-78870.
ARTHUR ANDERSEN LLP
San Diego, California
December 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 771
<SECURITIES> 0
<RECEIVABLES> 16,403
<ALLOWANCES> 356
<INVENTORY> 14,534
<CURRENT-ASSETS> 33,394
<PP&E> 37,212
<DEPRECIATION> 25,272
<TOTAL-ASSETS> 54,844
<CURRENT-LIABILITIES> 14,036
<BONDS> 0
<COMMON> 11,411
0
0
<OTHER-SE> 28,361
<TOTAL-LIABILITY-AND-EQUITY> 54,844
<SALES> 97,353
<TOTAL-REVENUES> 97,353
<CGS> 81,352
<TOTAL-COSTS> 81,352
<OTHER-EXPENSES> 12,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,538
<INCOME-TAX> 2,254
<INCOME-CONTINUING> 1,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,284
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
