-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, n3CsL5Lr5g0/5Vi5YK/PiG2NM/FTeaA1m07WbdWmx25J+n8Uv3ElVuPBzwe4rfXj n8iNVcKwrmlgFisnlN5S+A== 0000950115-95-000002.txt : 19950111 0000950115-95-000002.hdr.sgml : 19950111 ACCESSION NUMBER: 0000950115-95-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19950110 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIQ INC CENTRAL INDEX KEY: 0000350920 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 510219413 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08147 FILM NUMBER: 95500870 BUSINESS ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 BUSINESS PHONE: 6096656300 MAIL ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: SEPTEMBER 30, 1994 Commission File Number: 1-8147 MEDIQ INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 51-0219413 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
ONE MEDIQ PLAZA, PENNSAUKEN, NEW JERSEY 08110 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 665-9300 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------------------------------------------------------------- -------------------------------- COMMON STOCK, PAR VALUE $1.00 AMERICAN STOCK EXCHANGE SERIES A PREFERRED STOCK, PAR VALUE $.50 AMERICAN STOCK EXCHANGE 7.25% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006 AMERICAN STOCK EXCHANGE 7.5% EXCHANGEABLE SUBORDINATED DEBENTURES DUE 2003 AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes __X__ No _____ The approximate aggregate market value of the voting stock held by non-affiliates of the registrant as of December 23, 1994: Common Stock $45,000,000 Series A Preferred Stock $ 3,300,000
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _____ The number of shares outstanding of each of the registrant's classes of stock as of December 23, 1994:
CLASS - ------------------------------------------------------------------------ Common Stock 17,744,464 Shares Series A Preferred Stock 6,403,339 Shares
DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held in March 1995 are incorporated by reference into Part III. The Index to Exhibits begins on page 44. PART I ITEM 1. BUSINESS GENERAL MEDIQ Incorporated (the 'Company') offers essential healthcare services in a cost effective manner to a variety of healthcare providers facing increasing pressure to reduce costs and allocate capital expenditures efficiently while striving to offer high quality care. Through its principal business, MEDIQ/PRN, the Company responds to the needs of healthcare providers confronting these conflicting pressures. On September 30, 1994, the Company acquired the critical care and life support rental equipment of Kinetic Concepts, Inc. ('KCI'), a competitor of MEDIQ/PRN, for a purchase price of approximately $88 million, including transaction costs and the assumption of certain capital lease obligations. The acquisition substantially increased MEDIQ/PRN's rental inventory and solidified the Company's position as the leader in the critical care equipment rental business. While focusing its attention on the continued growth of MEDIQ/PRN, the Company continues to pursue the objectives which have guided its recent development. Since 1990, the Company has been implementing a strategic plan to reduce debt at the parent company level, deleverage primarily through divestitures, clarify corporate identity, enhance shareholder value and increase market liquidity. In addition to the expansion of the Company's equipment rental business through the acquisition described above, the Company's efforts have resulted in the following developments: * January 1991 -- Sale of an optical frame business for $6.7 million. * June 1991 -- Sale of a financial services organization for $62.2 million. * August 1991 -- Public offering for NutraMax Products, Inc. * February 1992 -- Public offering for PCI Services, Inc. * April 1992 -- Sale of a sub-acute care service manager for $5.4 million. * May 1992 -- MEDIQ/PRN acquisition of ATI Medical, Inc. for $23.9 million in cash and the assumption of debt. * June 1992 -- Sale of an institutional pharmaceutical supplier for $8.8 million. * July 1992 -- MEDIQ/PRN debt refinancing with the issuance of $100 million of 11.125% Senior Secured Notes due 1999. * November 1992 -- Sale of a durable medical equipment business for $5.7 million. * August 1993 -- Tax-free shareholder distribution of Mental Health Management, Inc. * August 1994 -- Merger of MEDIQ Equipment and Maintenance Services, Inc. with MMI Medical, Inc. * September 1994 -- Sale of management contract for kidney stone treatment center for $7 million, including $3 million of contingent consideration. The Company is continually striving to maximize shareholder value and as a result may divest subsidiaries or assets in the future. The Company uses various means to enhance and realize value including investing in internal growth, acquiring related businesses, offering shares of its businesses to the public and divesting businesses and business units. MEDIQ/PRN The Company believes that MEDIQ/PRN is the leading supplier of life support and critical care medical equipment on a rental basis in the United States, servicing hospitals, home healthcare providers, nursing homes and alternate care facilities, including sub-acute facilities. MEDIQ/PRN significantly expanded its business on September 30, 1994 with the acquisition of the critical care and life support rental equipment inventory of KCI. MEDIQ/PRN's revenues are expected to increase in fiscal 1995 with the addition of approximately $45 million of incremental rental revenues as a result of the acquisition. MEDIQ/PRN has incorporated the additional equipment into its national distribution system with the addition of six branch offices and moderate increases in personnel, which, together with anticipated rental price increases, are expected to result in increased revenues and enhanced operating margins. The Company believes that the acquisition will enable MEDIQ/PRN to expand its market share in servicing acute care hospitals and the growing sub-acute, nursing home and home healthcare provider markets. MEDIQ/PRN rents medical equipment, including adult and infant ventilators, adult, infant, neonatal and fetal monitors, infusion and suction pumps, incubators, infant warmers, pulse oximeters, sequential compression devices and other movable critical care equipment for use in respiratory care, intensive care, labor and delivery, pediatric, neonatal intensive care and other departments of acute care general hospitals and for use in alternate care facilities and by home healthcare providers. MEDIQ/PRN delivers patient-ready equipment to any part of the United States, typically within two hours of a request, 24 hours a day, 365 days a year, through a nationwide network of 85 branch offices. MEDIQ/PRN provides essential cost-effective services to its customers. In order to maximize operating efficiency, hospitals often elect to rent medical equipment rather than incur the capital costs required for equipment purchases. In addition, renting patient-ready equipment provides a vital adjunct for a hospital to meet periods of increased patient census without investing capital in stand-by equipment. MEDIQ/PRN also provides a Comprehensive Asset Management Program (CAMP), which enables the customer to outsource any element of its equipment management needs, including equipment inventory, personnel, maintenance, documentation and tracking. MEDIQ/PRN can also own all or part of the customer's equipment, eliminating the customer's burdens of ownership, under-utilization and seasonal usage. MEDIQ/PRN's customers also benefit from use of CAMP through reduction of biomedical staff, equipment maintenance expenses and the elimination or reduction of capital expenditures for equipment. As healthcare costs have steadily increased and coverage provided by employers and state and Federal governments has decreased, health insurers and managed care providers are encouraging patients to use home healthcare providers and alternate care facilities to meet their medical needs. The Company believes that alternate care and home healthcare providers also benefit from renting rather than investing capital in equipment. As a result, the Company believes that the market for medical equipment rentals to these healthcare providers is growing, and MEDIQ/PRN is actively servicing this market. The Company believes that MEDIQ/PRN is the leading provider of critical care medical equipment rentals to home healthcare providers and alternate care facilities. Revenues from MEDIQ/PRN represented 45%, 44% and 31% of MEDIQ's consolidated revenues from continuing operations for 1994, 1993 and 1992, respectively. As a result of the expansion of MEDIQ/PRN's business through the acquisition described above, revenues from MEDIQ/PRN in fiscal 1995 are anticipated to represent a significantly larger percentage of the Company's consolidated revenues. OTHER OPERATING SUBSIDIARIES The Company's Diagnostic Imaging Services Group, consisting of MEDIQ Mobile X-Ray Services, Inc., MEDIQ Imaging Services, Inc. and MEDIQ Diagnostic Centers, provides comprehensive diagnostic imaging service programs to meet the increasing demands of nursing homes, physicians, group practices, clinics and hospitals for cost-effective and convenient access to diagnostic services. These businesses have expanded in recent years through internal growth and acquisitions, and continue to pursue additional opportunities to broaden geographic and market coverage, customer base and range of services. MEDIQ Mobile X-Ray Services, Inc. ('Mobile X-Ray') provides X-ray and EKG services primarily to patients in nursing homes, principally in the New England and Mid-Atlantic states. Most nursing homes do not maintain diagnostic imaging capabilities on-site, choosing instead to allocate resources to their primary care activities. Mobile X-Ray provides nursing home customers with trained technologists and equipment on call. This service also provides an alternative to transporting patients to hospitals or radiologists' offices, which would result in transportation and other costs and could involve health risks related to the movement of the patient. The convenience and cost-effectiveness of Mobile X-Ray's services provide an important alternative for a growing elderly population. Mobile X-Ray's services are billed to third party payors. MEDIQ Imaging Services, Inc. ('MEDIQ Imaging') provides mobile and fixed site ultrasound and nuclear imaging services to hospitals, cardiologists, urologists, obstetricians/gynecologists and internists in 22 states. These imaging technologies offer accurate and non-invasive diagnostic procedures and are cost-effective alternatives to exploratory surgery. MEDIQ Imaging provides a convenient alternative to the expense and risks of transporting patients to a hospital. For many physicians and smaller hospitals in rural settings, the cost of maintaining imaging equipment and recruiting, training and maintaining qualified imaging technologists is prohibitive. Through a network of registered technologists, MEDIQ Imaging provides services on a prescheduled daily basis, as needed, in the convenient and familiar surroundings of the healthcare provider's own location. MEDIQ Imaging is a cost-effective alternative to a healthcare provider maintaining its own imaging capabilities. MEDIQ Imaging services are billed to third party payors or hospitals under fee-for-service arrangements. MEDIQ Diagnostic Centers ('MDC') provides management and other administrative support services to four freestanding diagnostic imaging centers, all of which provide magnetic resonance imaging services and two of which provide CT scanning, ultrasound, radiography, fluoroscopy and nuclear medicine. Revenues from Mobile X-Ray, MEDIQ Imaging and MDC aggregated 29%, 26% and 23% of MEDIQ's consolidated revenues from continuing operations for 1994, 1993 and 1992, respectively. Medifac, Inc. ('Medifac') provides integrated healthcare facility programming, planning and development services, including project management, financing, facility master planning, design, architecture, interior design, construction supervision and total project management. Medifac's projects include hospitals, medical office buildings, multi-modality imaging centers and ambulatory service centers. MEDIQ Management Services, Inc. ('MEDIQ Management') provides a variety of specialized consulting services to healthcare facilities dealing with development of new services, financial feasibility analysis, strategic planning, preparation of certificate of need applications, facility master planning and analysis of reimbursement issues. MEDIQ Management also manages imaging centers. In September 1994, MEDIQ Management sold its rights under a management contract for a kidney stone treatment center to a regional hospital for $7 million, including $3 million which is contingent upon future earnings. In addition, MEDIQ Management continues to provide certain management services to the center. Health Examinetics, Inc. ('Health Examinetics') contracts with corporations, third-party insurance carriers, unions and governments to provide to their clients, members and employees, computerized health testing programs in self-contained mobile units operating throughout the United States. Health testing, quality control, patient scheduling and data processing are performed daily in the mobile medical units and at operational headquarters. HealthQuest, Inc. ('HealthQuest'), which was created in November 1993 by the merger of OmniMed Corp. and the Company's MEDIQ Review Services, Inc. subsidiary, is a national managed care company providing case management and utilization review programs to health, auto and workers' compensation insurance companies, third party administrators, self insured businesses, unions and governments. EQUITY INVESTMENTS PCI Services, Inc. ('PCI') (NASDAQ:PCIS) is a leading provider of integrated pharmaceutical packaging services, including blister packaging, bottle filling, pouch filling, strip packaging, capsule filling, the design and production of folding cartons and thermoformed components, and the printing of inserts. At December 20, 1994, the Company owned 2,875,000 shares of PCI common stock, or approximately 47% of the outstanding shares, having an approximate market value of $19.4 million. PCI's stock traded during fiscal 1994 in the range of $6.25 to $12.75 per share. NutraMax Products, Inc. ('NutraMax') (NASDAQ:NMPC) is a leading private label health and personal care products company, marketing products in the feminine needs, cough/cold, baby care, ophthalmics and personal care categories. At December 20, 1994, the Company owned 4,037,258 shares of NutraMax common stock, or approximately 47% of the outstanding shares, having an approximate market value of $37.3 million. NutraMax's stock traded during fiscal 1994 in the range of $7.875 to $16.125 per share. The Company's ownership interest in NutraMax may decrease in the future in the event that certain of the Company's outstanding debentures are exchanged into shares of NutraMax common stock owned by the Company. Assuming the Company does not elect to pay cash, the effect of the exchange of all of such debentures would decrease the Company's ownership of NutraMax to approximately 21%. MMI Medical, Inc. ('MMI') (NASDAQ:MMIM) is the leading independent provider of cost-effective specialized services to hospital radiology departments and other healthcare providers. Innoserv, MMI's principal subsidiary, represents the combination of the Company's MEDIQ Equipment and Maintenance Services, Inc. subsidiary and MMI's R Squared Scan Systems subsidiary which merged in August 1994. Innoserv provides repair and maintenance service programs for diagnostic imaging equipment, including CT scanners, MRI systems, cardiac catherization labs and general X-ray equipment. Innoserv also offers multivendor asset management programs which provide comprehensive on-site management for the maintenance and repair of all diagnostic imaging equipment. As a result of the merger, the Company received approximately 2,000,000 shares of MMI common stock, or approximately 40% of the outstanding shares, having an approximate market value of $7.9 million at December 20, 1994. It is anticipated that the MMI shares will be distributed to the Company's shareholders. The Company also received warrants to purchase at $6.25 per share an additional 325,000 shares of MMI common stock. MMI's stock traded in the range of $3.75 to $4.875 per share from the date of the merger through September 30, 1994. DISCONTINUED OPERATIONS Discontinued operations represent the operations of Mental Health Management, Inc. ('MHM'), a provider of behavioral health services. The common stock of MHM was distributed in August 1993 to the Company's shareholders in a tax-free distribution. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Information about the Company's revenues, operating income and other financial data by segment for each of the three years ended September 30, 1994 is included in Part II, Item 8, and in Note R to the Company's Consolidated Financial Statements, included elsewhere herein. GOVERNMENT REGULATION The Company's businesses are subject to Federal, state and local regulations relating to the operation of such businesses. The Company is unable to predict whether, or to what extent, new legislation or regulations affecting its businesses will be enacted and, if enacted, what impact they will have on the Company. The following is a summary of some of the significant regulations currently affecting the operations of MEDIQ/PRN and the Company's other businesses. Compliance with FDA Regulations -- The FDA regulates companies which manufacture, prepare, propagate, compound or process medical devices. The FDA currently does not regulate MEDIQ/PRN as a device manufacturer. Device manufacturers must comply with registration and labeling regulations, submit premarket notifications or obtain premarketing approvals, comply with medical device reporting, tracking and post-market surveillance regulations and with device good manufacturing practices ('GMPs'), and are subject to FDA inspection. The GMP regulations specify the minimum standards for the manufacture, packing, storage, and installation of medical devices, and impose certain record keeping requirements. It is the FDA's current policy that companies which service, repair, or recondition medical devices as a service to the owners of the devices are not device manufacturers. However, any company which services, repairs or reconditions medical devices could be subject to regulatory action by the FDA if its activities cause the devices to become adulterated or mislabeled. In addition, no assurance can be given that in the future the FDA will not regulate as device manufacturers companies such as MEDIQ/PRN, which acquire ownership of devices, recondition or rebuild such devices and rent them to customers or which service, repair or recondition devices owned by others. The Company is unable to predict the cost of compliance with any such regulation. MEDIQ/PRN is required to comply with certain other device tracking and reporting regulations administered by the FDA. Reimbursement of Healthcare Costs -- Substantially all of the revenues generated by Mobile X-Ray and MEDIQ Imaging are received from reimbursement by third party payors or governmental programs, such as Medicare and Medicaid, which subjects these businesses to rules and regulations governing participation in such programs (See Item 3. Legal Proceedings). The Medicare and Medicaid anti-fraud and abuse rules prohibit individuals or entities participating in the Medicare or Medicaid programs from knowingly or willfully offering, paying, soliciting, or receiving remuneration in order to induce referrals for services reimbursed under those programs. Any relationship that satisfies the terms of 'safe harbor' regulations is considered permitted, but failure to satisfy the safe harbor conditions does not necessarily mean the relationship is prohibited. Since these businesses have not entered into any financial arrangement with referral sources with the intent to induce referrals through providing remuneration for referrals, the Company does not believe that it is operating in violation of the laws and regulations governing referrals. Regulation of Nuclear Imaging Services -- MEDIQ Imaging's nuclear imaging services involve the use of radio-pharmaceuticals. The transportation, handling, use and disposition of radio-pharmaceuticals are subject to Federal and/or state regulation. MEDIQ Imaging disposes of all of its radio-pharmaceuticals at approved treatment, storage and disposal facilities. MEDIQ Imaging currently has all necessary licenses to engage in these activities in the states in which it currently conducts its businesses. EMPLOYEES The Company's wholly-owned businesses have approximately 1,700 employees. The Company believes relations with employees are satisfactory. ITEM 2. PROPERTIES The Company owns a one-story building in Pennsauken, New Jersey, which houses the Company's corporate headquarters and a portion of its operating activities, including MEDIQ/PRN's corporate and administrative headquarters. The Company also owns and leases office and warehouse space in various locations throughout the United States for regional operations. The properties owned and leased by the Company are adequate for the Company's operations. ITEM 3. LEGAL PROCEEDINGS Mobile X-Ray and one of its subsidiaries have been notified that certain prior billing practices under the Medicare program are under investigation by the United States Attorney for the Middle District of Pennsylvania (the 'U.S. Attorney'). An officer of Mobile X-Ray has been notified that he is a target of the investigation. The billing practices under investigation, which ceased in February 1993, related to services performed prior to mid-1992. The Company and Mobile X-Ray have been cooperating in the investigation. The Company and its counsel believe that the billing practices subject to the investigation did not constitute a criminal violation of any statute or regulation. The Company believes that a likely resolution of this matter would involve prior year rate adjustments and a payment by Mobile X-Ray and/or its subsidiary. Mobile X-Ray and its subsidiary have also been advised that such resolution would not impair their ability to continue participation in the Medicare program. The Company has been advised that the U.S. Attorney does not contemplate any action against the parent company, MEDIQ Incorporated, or any of its other subsidiaries, or their officers, directors or employees. While it is expected that this matter will not have a material adverse affect on the Company, there can be no assurances to that effect. In addition, the Company has pending several legal claims incurred in the normal course of business, which in the opinion of management, will not have a material effect on the consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended September 30, 1994. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock and its Series A Preferred Stock, which is convertible into Common Stock, are listed on the American Stock Exchange. The following table sets forth the high and low closing prices for the Company's Common and Preferred Stocks on the American Stock Exchange for the past two fiscal years.
COMMON STOCK PREFERRED STOCK -------------------- -------------------- FISCAL YEAR ENDED SEPTEMBER 30, HIGH LOW HIGH LOW - ------------------------------------------------------- --------- --------- --------- --------- 1994: First Quarter $ 4.688 $ 3.938 $ 4.500 $ 3.875 Second Quarter 4.500 3.625 4.313 3.875 Third Quarter 4.000 3.375 4.000 3.000 Fourth Quarter 4.250 3.500 4.125 3.500 1993: First Quarter $ 6.875 $ 4.625 $ 6.625 $ 4.500 Second Quarter 6.875 5.250 6.750 5.375 Third Quarter 5.500 4.063 5.000 4.500 Fourth Quarter 5.125 3.875 5.250 4.063
As of December 1994, there were approximately 2,000 holders of record of the Company's Common Stock and approximately 350 holders of record of the Company's Preferred Stock. Since a portion of the Company's Common Stock and Preferred Stock is held in 'street' or nominee name, the Company is unable to determine the exact number of beneficial holders. It is the policy of the Company to pay cash dividends on a quarterly basis, dependent upon the earnings, capital requirements, operating and financial condition of the Company, compliance with debt agreements, and other factors deemed relevant by the Board of Directors. The Company paid cash dividends of $.03 per share on its Common Stock and $.018 per share on its Preferred Stock for the first, second and third quarters of 1994 and quarterly in 1993. In August 1993, the Company distributed to the holders of Common and Preferred Stock all of the outstanding shares of common stock of MHM in a tax-free distribution. As of September 30, 1994, the terms of one of the Company's loan agreements did not permit the payment of dividends or the purchase of the Company's stock. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below has been derived from the audited financial statements of the Company. This data is qualified in its entirety by reference to, and should be read in conjunction with the Company's Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.
YEAR ENDED SEPTEMBER 30, --------------------------------------------------------------- 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) SUMMARY INCOME STATEMENT DATA: Revenues $ 168,081 $ 174,834 $ 182,147 $ 166,583 $ 163,236 Operating income 1,925 15,466 14,460 5,434 10,757 Interest expense (24,627) (23,347) (20,995) (22,069) (21,912) Equity in earnings of unconsolidated affiliates 4,308 4,343 4,776 3,623 2,995 Other(1) 7,031 5,528 7,751 8,235 4,793 Income (loss) from continuing operations before income tax benefit (11,363) 1,990 5,992 (4,777) (3,367) Income (loss) from continuing operations (7,318) 3,614 6,579 (1,657) 439 PER SHARE DATA: Income (loss) from continuing operations $ (.30) $ .15 $ .27 $ (.07) $ .02 Weighted average shares outstanding 24,405 24,366 24,007 23,808 23,885 Cash dividends per common share $ .09 $ .12 $ .06 $ .03 $ .12 Cash dividends per preferred share $ .05 $ .07 $ .03 $ .02 $ .07 SEPTEMBER 30, --------------------------------------------------------------- 1994(2)(3) 1993(4) 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS) SUMMARY BALANCE SHEET DATA: Current assets $ 60,939 $ 73,159 $ 80,969 $ 96,400 $ 124,494 Investments in unconsolidated affiliates 47,730 34,693 26,830 11,359 19,935 Property, plant and equipment 173,379 155,083 139,366 86,300 93,767 Total assets 426,393 351,261 348,835 313,576 361,728 Current liabilities 75,581 57,515 57,819 59,702 60,193 Senior debt -- recourse 166,779 120,162 132,496 89,123 139,188 Senior debt -- nonrecourse 27,297 25,382 17,636 16,962 18,967 Subordinated debt 103,388 86,229 63,539 63,539 63,556 Stockholders' equity 36,280 44,574 58,748 74,799 71,073
See Notes to Selected Consolidated Financial Data on next page. Notes To Selected Consolidated Financial Data (1) Gains (losses) on issuances of stock by unconsolidated affiliates were ($.7) million, $3.5 million, $14.5 million and $3.6 million in 1994, 1993, 1992, 1991, respectively. Net gains (losses) from the sale of assets were $4.8 million, ($.3) million, $3.0 million, $3.1 million and $3.1 million in 1994, 1993, 1992, 1991 and 1990, respectively. In 1992, the Company recorded a loss reserve of $10.6 million for an investment in a real estate limited partnership. (2) On September 30, 1994, the Company acquired the critical care and life support rental equipment inventory of KCI. The purchase price, which was primarily financed with long-term debt, approximated $88 million, including transaction costs and the assumption of certain capital lease obligations. (3) On August 2, 1994, the Company merged MEMS with MMI. The Company received approximately 2,000,000 shares of MMI's common stock representing approximately a 40% equity interest in MMI. No gain or loss resulted from this transaction. The Company accounts for its investment in MMI under the equity method of accounting. (4) In May 1992, MEDIQ/PRN acquired ATI for $23.9 million in cash and the assumption of debt. The acquisition resulted in the expansion of MEDIQ/PRN's medical equipment inventory and an increase in long-term debt. In July 1992, MEDIQ/PRN refinanced its outstanding debt by issuing $100 million of 11.125% Senior Secured Notes due 1999. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Since 1990, the Company has been implementing a strategic plan to reduce debt at the parent company level, deleverage primarily through divestitures, clarify corporate focus, enhance shareholder value, and increase market liquidity. In implementing the plan, the Company has sold a number of subsidiaries, completed public stock offerings and a tax-free stock distribution, as well as other transactions. The Company's principal business is MEDIQ/PRN, the leading supplier of life support and critical care medical equipment on a rental basis in the United States. On September 30, 1994, the Company acquired the critical care and life support rental equipment inventory of Kinetic Concepts, Inc. ('KCI'), a competitor of MEDIQ/PRN, for a purchase price of approximately $88 million, including transaction costs and the assumption of certain capital lease obligations. The Company's other operating subsidiaries include the Diagnostic Imaging Services Group, which consists of MEDIQ Mobile X-Ray Services, Inc. ('Mobile X-Ray'), a provider of portable X-ray and EKG services, MEDIQ Imaging Services, Inc. ('MEDIQ Imaging'), a provider of diagnostic imaging services in mobile and fixed sites and MEDIQ Diagnostic Centers, Inc. ('MDC'), a provider of management and other administrative support services to diagnostic imaging centers; Medifac, Inc. ('Medifac'), a provider of healthcare facility planning, architectural and development services; MEDIQ Management Services, Inc. ('MEDIQ Management'), a provider of healthcare management and consulting services, Health Examinetics, Inc. ('Health Examinetics'), a provider of mobile health testing services; and HealthQuest, Inc. ('HealthQuest'), a provider of case management and utilization review services. The Company has significant equity investments in PCI Services, Inc. ('PCI') and NutraMax Products, Inc. ('NutraMax'). The Company owns 2,875,000 shares of the common stock of PCI, or approximately 47% of the outstanding shares. PCI is a leading provider of integrated packaging services to pharmaceutical manufacturers. The Company owns 4,037,258 shares of the common stock of NutraMax, or approximately 47% of the outstanding shares. NutraMax is a leading private label health and personal care products company. The Company's ownership interest in NutraMax may decrease in the future in the event that certain of the Company's outstanding debentures are exchanged into shares of NutraMax common stock owned by the Company. Assuming the Company does not elect to pay cash, the effect of the exchange of all of such debentures would decrease the Company's ownership of NutraMax to approximately 21%. The Company's investments in PCI and NutraMax are accounted for under the equity method of accounting. In August 1994, the Company merged its MEDIQ Equipment and Maintenance Services, Inc. ('MEMS') subsidiary with MMI Medical, Inc. ('MMI'), and the Company received approximately 2,000,000 shares of MMI common stock, or approximately 40% of the outstanding shares, and warrants to purchase at $6.25 per share an additional 325,000 shares of MMI common stock. MMI is the leading independent provider of cost-effective specialized services to hospital radiology departments and other healthcare providers. It is anticipated that MMI shares will be distributed to the Company's shareholders. The results of operations of MEMS were included in the Company's consolidated results of operations through the date of its merger with MMI. Since the merger, the Company's investment in MMI is accounted for under the equity method of accounting. RESULTS OF OPERATIONS Fiscal Year 1994 Compared with Fiscal Year 1993 Revenues were $168.1 million, as compared to $174.8 million in the prior year, a decrease of $6.7 million, or 4%. MEDIQ/PRN's revenues decreased 2%, to $74.9 million, as compared to revenues of $76.5 million in the prior year. Revenues from MEDIQ/PRN were adversely affected by lower average rental prices in response to competitive pressures. This situation was mitigated by MEDIQ/PRN's growth in the sub-acute, nursing home and home healthcare markets. MEDIQ/PRN's revenues are expected to increase in fiscal 1995 with the addition of approximately $45 million of incremental rental revenues as a result of the acquisition of the critical care and life support rental equipment of KCI on September 30, 1994. MEDIQ/PRN has incorporated the additional equipment into its national distribution system with the addition of six branch offices and moderate increases in personnel, which, together with anticipated rental price increases, are expected to result in increased revenues and enhanced operating margins. Revenues from the Diagnostic Imaging Services Group increased 7%, to $48.5 million, as compared to 1993 revenues of $45.4 million. This increase was principally attributable to additional revenues as a result of increased market penetration and geographic expansion primarily through acquisitions, partially offset by decreased third party reimbursement rates. Changes in reimbursement rates are not expected to be significant for 1995. Revenues from MEMS through the date of its merger with MMI were $15.7 million, as compared to $16.9 million in the prior fiscal year. Revenues from the Company's other operating subsidiaries were $26.6 million, as compared to $33.3 million in the prior year. This decrease reflects the sale of certain operations in 1993, which had revenues of $5.4 million in 1993. Medifac had revenues of $10.8 million, as compared to $13.0 million in the prior year. The remaining revenues from other operating subsidiaries were generated by MEDIQ Management, Health Examinetics and HealthQuest. The aggregate revenues from these businesses were $15.8 million, as compared to $15.2 million in 1993. Operating income was $1.9 million, as compared to $15.5 million in 1993, a decrease of $13.6 million. MEDIQ/PRN's operating income decreased 61%, to $5.1 million, as compared to $13.1 million in 1993. This decrease resulted from reductions in average rental prices due to competition and higher administrative and operating expenses. MEDIQ/PRN's operating income was also adversely affected by higher depreciation and amortization expense related to increases in rental equipment inventory. MEDIQ/PRN expects enhanced operating margins in 1995 as a result of the acquisition of rental equipment from KCI and anticipated rental price increases. The operating loss from the Diagnostic Imaging Services Group was $.6 million, as compared to operating income of $6.9 million in 1993. The decrease of $7.5 million was primarily attributable to reimbursement rate reductions and an increase in the reserve for prior year rate adjustments. Operating income from MEDIQ Imaging was also adversely affected by lower operating margins associated with geographic expansion. MEMS had an operating loss of $.5 million through the date of its merger with MMI, as compared to $1.3 million in 1993. The improvement was a result of increased revenues associated with new programs and services. The Company's other operating activities had operating income of $1.4 million, as compared to $.9 million in 1993. Interest expense increased 5%, to $24.6 million, from $23.3 million in 1993, which resulted from increased debt at the subsidiary level, principally MEDIQ/PRN and the Diagnostic Imaging Services Group. The Company's equity in the earnings of its unconsolidated affiliates was $4.3 million in fiscal 1994, which was comparable to the prior year. Equity participation in 1994 represented a loss of $.8 million as a result of PCI's purchase of its stock in August 1994, and income of $.1 million related to the issuance of stock by NutraMax. Equity participation in 1993 represented income of $3.5 million as a result of issuances of stock by PCI and NutraMax. Interest income was $1.4 million in 1994 and $1.1 million in 1993 and was primarily related to the MHM note receivable. Other income was $6.3 million in 1994, as compared to $.9 million in 1993. In September 1994, MEDIQ Management sold its rights under a management contract for a kidney stone treatment center to a regional hospital for $4 million in cash and $3 million contingent upon future earnings, resulting in a gain of $4 million. The Company also recognized $1.4 million of income from dividends and the sale of other assets in 1994. The income tax benefit from continuing operations was $4.0 million, as compared to $1.6 million in the prior year. The Company's effective tax rates were disproportionate compared to the statutory rates as a result of goodwill amortization, non-recognition for state income tax purposes of certain operating losses and permanent differences related to the disposition of assets. Fiscal Year 1993 Compared with Fiscal Year 1992 Revenues were $174.8 million, as compared to $182.1 million in the prior year, a decrease of $7.3 million, or 4%. Excluding revenues from operations sold, revenues increased $23.7 million primarily attributable to MEDIQ/PRN and the Diagnostic Imaging Services Group. MEDIQ/PRN's revenues increased 34%, to $76.5 million, as compared to revenues of $56.9 million in the prior year, as a result of greater volume from the expansion of its geographic market, medical equipment inventory and customer base principally attributable to the acquisition of ATI Medical, Inc. ('ATI') in May 1992 and an $8.0 million increase in revenues in 1993 from alternate care and home healthcare customers. Revenues from the Diagnostic Imaging Services Group increased 9%, to $45.4 million, compared to 1992 revenues of $41.7 million, principally attributable to an increase in revenues at MEDIQ Imaging of $2.4 million as a result of an expanded customer base through acquisitions. In addition, Mobile X-Ray's revenues increased by $1.9 million primarily from an increase in volume with existing nursing homes, partially offset by a 5% reduction in revenues from decreased third party reimbursement rates, particularly Medicare. Revenues from MEMS increased to $16.9 million, as compared to $15.4 million in the prior year, as a result of the expansion of its range of services. Revenues from the Company's other operating activities were $33.3 million, as compared to $65.4 million in the prior year. This decrease primarily reflects divestitures in 1993 and 1992. Revenues from divested operations were $5.4 million in 1993, as compared to $36.4 million in the prior year. Medifac had revenues of $13.0 million, as compared to $13.4 million in the prior year. The remaining revenues from other operating activities were generated by MEDIQ Management, Health Examinetics and MEDIQ Review (now part of HealthQuest), aggregating $15.2 million in 1993, as compared to $15.6 million in 1992. Operating income was $15.5 million, as compared to $14.5 million in 1992, an increase of $1.0 million, or 7%. The improvement in operating income was primarily attributable to MEDIQ/PRN, with operating income of $13.1 million, an increase of 6% over 1992, principally related to the acquisition of ATI. Operating income from the Diagnostic Imaging Services Group was $6.9 million, as compared to $9.6 million in 1992. The decrease of $2.7 million, or 28%, was primarily attributable to Mobile X-Ray which had a decrease in operating income of $2.8 million in 1993, as a result of higher bad debt expense and salary expense, and reductions in reimbursement rates, partially offset by increased volume through geographic expansion. Operating income from MEDIQ Imaging increased $.7 million as a result of increased volume and geographic expansion, partially offset by reductions in reimbursement rates. MDC had operating income of $.4 million, as compared to $1.0 million in 1992, which was attributable to the sale of an imaging center in 1992. MEMS' operating loss decreased to $1.3 million from $1.5 million. Divested operations had operating losses of $.9 million in 1993, as compared to $2.2 million in 1992. The Company's other operating activities had operating income of $.9 million in 1993, which was comparable to the prior year. Interest expense increased 11%, to $23.3 million, from $21.0 million in 1992. Increased debt at the subsidiary level, particularly MEDIQ/PRN, resulted in higher interest expense, which was partially offset by interest savings at the parent company level. The Company's equity in the earnings of its unconsolidated affiliates was $4.3 million, as compared to $4.8 million in 1992. This decrease was primarily attributable to a decrease in the Company's ownership percentage of PCI. Equity participation income from issuances of stock by PCI and NutraMax was $3.5 million in 1993, as compared to $14.5 million in the prior year. Fiscal 1992 income was attributable to the initial public offering of PCI. Other income was $.9 million in 1993, as compared to a net expense of $7.3 million in 1992. Fiscal 1992 included a charge of $10.6 million related to the establishment of a reserve for the Company's investment in a real estate limited partnership, partially offset by a net pretax gain of $3.0 million on the disposition of businesses. Interest income was $1.1 million in 1993 and $.6 million in 1992 and was primarily related to the investment of proceeds from the sale of assets. The income tax benefit from continuing operations was $1.6 million, as compared to $.6 million in the prior year. The Company's effective tax rates were disproportionate compared to the statutory rates as a result of the recognition of alternative minimum tax credits and equity in the earnings of unconsolidated affiliates, offset by goodwill amortization and the non-recognition for state income tax purposes of certain operating losses. Discontinued operations, which consisted principally of MHM, had revenues of $46.6 million in 1993, which was comparable to the prior year. Net income from discontinued operations was $.6 million, as compared to a net loss of $14.5 million. In 1992, the Company determined that the value of goodwill related to MHM was impaired, other than temporarily. Accordingly, the carrying value of such goodwill was reduced to its estimated fair value resulting in a net charge of $15.3 million. In 1993, the Company repaid approximately $15.9 million of corporate debt with proceeds from the disposition of operations and the Company's debenture offering in July 1993. As a result of such repayments, the Company incurred prepayment premiums of $1.5 million, or $1.0 million net of taxes. In 1992, the Company incurred prepayment premiums of $10.1 million, or $6.7 million net of taxes, principally related to MEDIQ/PRN debt refinancing. NEW ACCOUNTING STANDARDS Effective October 1, 1993, the Company adopted on a prospective basis the provisions of Statement of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income Taxes', which supersedes SFAS No. 96. The Company adopted SFAS No. 96 in fiscal 1990. The effect of the adoption of SFAS No. 109 upon the provision for income taxes was not significant for the fiscal year ended September 30, 1994. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $14.4 million for 1994, as compared to $22.8 million for the prior year. The decrease was principally a result of lower operating income from MEDIQ/PRN and the Diagnostic Imaging Services Group. Cash and cash equivalents totalled $3.2 million as of September 30, 1994. Net cash used in investing activities was $73.6 million for 1994, which included acquisitions of $73.3 million, principally for the acquisition of the rental medical equipment inventory of KCI and expenditures for property, plant and equipment of $9.1 million, partially offset by proceeds from the sale of assets of $8.8 million. Other acquisitions included the purchase of several regional businesses by MEDIQ Imaging. The Company anticipates capital expenditures of approximately $10.0 million during fiscal 1995, primarily for rental equipment. The Company expects to fund a portion of the rental equipment expenditures with cash from operations and to finance the balance. Net cash provided by financing activities was $44.3 million for 1994, which included borrowings of $71.3 million, of which $61.6 million was for the acquisition of equipment from KCI. Financing activities also included repayments of debt of $24.7 million and cash dividends of $2.7 million. In connection with the acquisition of equipment from KCI, the Company obtained a $43.0 million term loan and issued $10.0 million of senior subordinated notes (including warrants) to finance a portion of the purchase price. In addition, KCI provided financing for the acquisition aggregating $17.1 million (net of related discounts). Borrowings under the Company's lines of credit and cash proceeds from the sale of assets were utilized to fund the balance of the purchase price. The $43.0 million term loan is payable in seventy-two equal monthly payments of approximately $600,000 commencing January 1, 1995. Interest at prime plus 2% or, at the Company's option, a rate equal to the adjusted Eurodollar rate plus 4.25%. The $10.0 million of senior subordinated notes include warrants which allow the holders to purchase an aggregate of 10% of the common stock of MEDIQ/PRN for a nominal amount. Interest on the notes of 10% is payable semi-annually on April 1 and October 1. Annual principal payments on the notes of $1.0 million commence April 1, 2000, with the remaining principal balance payable on October 1, 2004. Financing provided by KCI in the amount of $17.1 million is comprised of $8.6 million of subordinated notes and two term loans aggregating $8.5 million. The subordinated notes are due in September 1999 and bear interest at 10% commencing April 1, 1996. The first term loan in the amount of $3.0 million is payable in ten equal monthly installments with interest at 8%, commencing December 31, 1994. The second term loan of $5.5 million is non-interest bearing and payable over ten equal monthly installments commencing December 31, 1994. In September 1994, in connection with the acquisition of equipment from KCI, MEDIQ/PRN amended the indenture relating to its outstanding $100 million of 11.125% senior secured notes to provide for an increase in the interest rate on the notes to 12.125% commencing September 30, 1995 under certain circumstances. The notes, which are not guaranteed by the Company, are not redeemable prior to July 1997. MEDIQ/PRN is required to offer to repay a portion of the principal amount of the notes under certain circumstances (as defined in the indenture). At September 30, 1994, MEDIQ/PRN was not required to offer to repay any portion of the notes. Interest is payable on the notes semi-annually on January 1 and July 1. Although MEDIQ/PRN is highly leveraged, it anticipates that excess cash flow will be sufficient to repay the notes when due. If MEDIQ/PRN does not generate funds from operations sufficient to repay the notes upon maturity in 1999, MEDIQ/PRN would attempt to refinance such indebtedness. The Company's 7.25% convertible subordinated debentures due 2006 require annual sinking fund payments equal to 10% of the principal commencing in June 1997. The Company is also required to offer to repurchase a portion of the debentures if stockholders' equity is $40 million or less at the end of two consecutive fiscal quarters. For the quarters ended June 30, 1994 and September 30, 1994, the Company's stockholders' equity was less than $40 million. The requirement to repurchase debentures at December 31, 1994 and the potential requirement to repurchase debentures at June 30, 1995 (if stockholders' equity continues to be less than $40 million) were satisfied through the Company's previous acquisition of $23.3 million principal amount of debentures. If stockholders' equity continues to be less than $40 million, the Company may be required to repurchase approximately $10.5 million of debentures on December 31, 1995 and $11.25 million of debentures semi-annually thereafter until all debentures are repurchased or stockholders' equity is more than $40 million. Certain of the Company's loan agreements require the maintenance of specified financial ratios and impose financial and dividend limitations. As of September 30, 1994, the terms of one of the Company's loan agreements did not permit the payment of dividends or the purchase of the Company's stock. As of September 30, 1994, the Company had lines of credit aggregating $18 million, of which $15.9 million was available based on eligible accounts receivable, and $10.1 million was outstanding bearing interest at prime (7.75% at September 30, 1994) to prime plus 1.75%. As a result of the acquisition of equipment from KCI, the Company had a working capital deficit of $14.6 million at September 30, 1994. Current assets associated with the acquisition were $4.8 million and current liabilities were $23.3 million, including current maturities of long-term debt of $16.3 million. Repayment of such debt commences as of December 31, 1994 and is anticipated to be funded by cash flows from the operations of MEDIQ/PRN which are anticipated to be significantly higher in fiscal 1995 as a result of the increase in revenues and operating margins arising from the acquisition. The Company expects that its primary sources of liquidity for operating activities will be generated through internal cash flows from consolidated subsidiaries and proceeds from the sale of assets. The Company's ability to obtain cash from MEDIQ/PRN is limited by provisions in certain of MEDIQ/PRN's debt agreements. For 1994 and 1993, such provisions did not permit MEDIQ/PRN to pay any dividends to the Company. As a result of increased revenues and operating income related to the acquisition of equipment from KCI, it is anticipated that the Company will be able to obtain a portion of its cash requirements from MEDIQ/PRN. Accordingly, the Company believes that sufficient funds will be available from operating cash flows and the sale of assets to meet the Company's anticipated corporate and subsidiary operating and capital requirements. The Company is continuing its program to maximize shareholder value and as a result may divest certain subsidiaries or assets in the future. Proceeds from any such divestitures will be used to reduce debt and/or for general corporate purposes. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE --------- Independent Auditors' Report 20 Consolidated Statements of Operations -- Three Years Ended September 30, 1994 21 Consolidated Balance Sheets -- September 30, 1994 and 1993 22 Consolidated Statements of Stockholders' Equity -- Three Years Ended September 30, 1994 23 Consolidated Statements of Cash Flows -- Three Years Ended September 30, 1994 24 Notes to Consolidated Financial Statements 25-44
INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders MEDIQ Incorporated Pennsauken, New Jersey We have audited the accompanying consolidated balance sheets of MEDIQ Incorporated and subsidiaries as of September 30, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1994. Our audits also include the financial statement schedules listed in the index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MEDIQ Incorporated and subsidiaries as of September 30, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note K to the consolidated financial statements, two of the Company's subsidiaries have been notified that certain prior billing practices under the Medicare program are under investigation by the United States Attorney for the Middle District of Pennsylvania. Although the Company has increased its reserve for prior year rate adjustments as a result of the investigation, the ultimate outcome of the investigation cannot presently be determined. Accordingly, no provision for any other loss that may result upon resolution of this matter has been made in the accompanying consolidated financial statements. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania December 29, 1994 MEDIQ INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1993 1992 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues $ 168,081 $ 174,834 $ 182,147 Costs and Expenses: Operating 87,290 88,158 101,532 Selling and administrative 50,781 46,231 46,323 Depreciation and amortization 28,085 24,979 19,832 --------- --------- --------- 166,156 159,368 167,687 --------- --------- --------- Operating Income 1,925 15,466 14,460 Other (Charges) Credits: Interest expense (24,627) (23,347) (20,995) Equity in earnings of unconsolidated affiliates 4,308 4,343 4,776 Equity participation (662) 3,519 14,503 Interest income 1,418 1,077 586 Other 6,275 932 (7,338) --------- --------- --------- Income (Loss) from Continuing Operations before Income Tax Benefit and Extraordinary Charge (11,363) 1,990 5,992 Income Tax Benefit (4,045) (1,624) (587) --------- --------- --------- Income (Loss) from Continuing Operations before Discontinued Operations and Extraordinary Charge (7,318) 3,614 6,579 Discontinued Operations: Income (Loss) from operations (net of income taxes of $761,000 in 1993 and $(6,552,000) in 1992) -- 1,102 (14,450) Gain (Loss) on disposal -- (467) -- --------- --------- --------- -- 635 (14,450) --------- --------- --------- Income (Loss) before Extraordinary Charge (7,318) 4,249 (7,871) Extraordinary Charge, Early Retirement of Debt (net of income tax benefit of $509,000 in 1993 and $3,413,000 in 1992) -- (953) (6,682) --------- --------- --------- Net Income (Loss) $ (7,318) $ 3,296 $ (14,553) --------- --------- --------- --------- --------- --------- Earnings Per Share: Income (Loss) from: Continuing Operations $ (.30) $ .15 $ .27 Discontinued Operations -- .03 (.60) --------- --------- --------- Income (Loss) before Extraordinary Charge (.30) .18 (.33) Extraordinary Charge -- (.04) (.28) --------- --------- --------- Net Income (Loss) $ (.30) $ .14 $ (.61) --------- --------- --------- --------- --------- --------- Weighted Average Shares Outstanding 24,405 24,366 24,007 --------- --------- --------- --------- --------- ---------
See Notes to Consolidated Financial Statements MEDIQ INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, ------------------------ 1994 1993 ----------- ----------- (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents $ 3,232 $ 18,123 Accounts receivable (net of allowance of $7,862,000 in 1994 and $7,259,000 in 1993) 36,304 37,152 Inventories 5,995 9,086 Deferred taxes 4,864 -- Prepaid income taxes -- 3,495 Other current assets 10,544 5,303 ----------- ----------- Total Current Assets 60,939 73,159 Investments in unconsolidated affiliates 47,730 34,693 Note receivable from MHM 11,500 11,500 Property, plant and equipment 173,379 155,083 Goodwill 85,191 36,865 Net investment in leases 27,875 16,156 Other assets 19,779 23,805 ----------- ----------- Total Assets $ 426,393 $ 351,261 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to financial institutions $ 10,060 $ 1,434 Accounts payable 8,451 8,757 Accrued expenses 28,054 22,326 Other current liabilities 1,703 2,781 Current portion of long term debt 27,313 22,217 ----------- ----------- Total Current Liabilities 75,581 57,515 Senior debt -- recourse 166,779 120,162 Senior debt -- nonrecourse 27,297 25,382 Subordinated debt 103,388 86,229 Deferred income taxes 10,487 9,225 Other liabilities 6,581 8,174 Commitments and contingencies -- -- Stockholders' Equity: Preferred stock ($.50 par value: Authorized 20,000,000 shares; issued Series A: 6,816,000 in 1994 and 6,838,000 in 1993) 3,408 3,419 Common stock ($1 par value: Authorized 40,000,000 shares; issued 19,064,000 in 1994 and 19,042,000 in 1993) 19,064 19,042 Capital in excess of par value 22,357 23,349 Retained earnings (accumulated deficit) (1,120) 8,281 Treasury stock, at cost (preferred shares: 377,000 in 1994 and 377,000 in 1993; common shares: 1,335,000 in 1994 and 1,638,000 in 1993) (7,429) (9,517) ----------- ----------- Total Stockholders' Equity 36,280 44,574 ----------- ----------- Total Liabilities and Stockholders' Equity $ 426,393 $ 351,261 ----------- ----------- ----------- -----------
See Notes to Consolidated Financial Statements MEDIQ INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
PREFERRED STOCK COMMON STOCK RETAINED ------------------------ -------------------- CAPITAL IN EARNINGS SHARES SHARES EXCESS OF (ACCUMULATED TREASURY ISSUED AMOUNT ISSUED AMOUNT PAR VALUE DEFICIT) STOCK ----------- ----------- --------- --------- ----------- ----------- --------- Balance October 1, 1991 7,480 $ 3,740 18,325 $ 18,325 $ 24,004 $ 38,840 $ (10,110) Net loss (14,553) Dividends (1,151) Conversion of preferred stock to common stock (206) (103) 205 205 (102) Stock options exercised (115) 246 Purchase of treasury stock (759) Issuance of stock 75 75 206 ----------- ----------- --------- --------- ----------- ----------- --------- Balance September 30, 1992 7,274 3,637 18,605 18,605 23,993 23,136 (10,623) Net income 3,296 Dividends (2,541) Conversion of preferred stock to common stock (436) (218) 437 437 (219) Stock options exercised (425) 1,106 Distribution of MHM (15,610) ----------- ----------- --------- --------- ----------- ----------- --------- Balance September 30, 1993 6,838 3,419 19,042 19,042 23,349 8,281 (9,517) Net loss (7,318) Dividends (2,083) Issuance of stock (600) 1,309 Conversion of preferred stock to common stock (22) (11) 22 22 (11) Stock options exercised (381) 779 ----------- ----------- --------- --------- ----------- ----------- --------- Balance September 30, 1994 6,816 $ 3,408 19,064 $ 19,064 $ 22,357 $ (1,120) $ (7,429) ----------- ----------- --------- --------- ----------- ----------- --------- ----------- ----------- --------- --------- ----------- ----------- ---------
See Notes to Consolidated Financial Statements MEDIQ INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, -------------------------------- 1994 1993 1992 --------- --------- ---------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (7,318) $ 3,296 $ (14,553) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 28,085 24,979 19,832 Provision for doubtful accounts 5,735 5,990 4,489 Provision for deferred income taxes (benefit) (4,086) 1,013 3,810 Undistributed earnings from unconsolidated affiliates (4,308) (4,343) (4,776) Reserve on investment in real estate limited partnership -- -- 10,589 Equity participation 662 (3,519) (14,503) (Gain) loss on sale of subsidiaries and assets (4,969) 1,462 (3,058) Discontinued operations -- 288 16,407 Increase (decrease), net of effects from acquisitions and dispositions: Accounts receivable (93) 2,748 (3,570) Inventories 822 731 1,487 Accounts payable (1,351) (2,047) (6,440) Accrued expenses 5,031 (5,926) (4,219) Other current assets and liabilities (3,814) (1,826) (3,489) --------- --------- ---------- Net cash provided by operating activities 14,396 22,846 2,006 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of subsidiaries and assets 8,805 9,148 16,475 Net cash provided by unconsolidated affiliates -- -- 23,283 Purchase of property, plant and equipment (9,141) (18,208) (10,382) Acquisitions (73,343) (1,414) (21,358) Other 111 (3,810) (1,083) --------- --------- ---------- Net cash provided by (used in) investing activities (73,568) (14,284) 6,935 CASH FLOWS FROM FINANCING ACTIVITIES Borrowings 71,313 34,649 123,781 Debt repayments (24,708) (30,852) (130,380) Dividends (2,722) (1,903) (1,151) Proceeds from exercise of options 398 642 -- --------- --------- ---------- Net cash provided by (used in) financing activities 44,281 2,536 (7,750) --------- --------- ---------- Increase (decrease) in cash and cash equivalents (14,891) 11,098 1,191 Cash and cash equivalents Beginning balance 18,123 7,025 5,834 --------- --------- ---------- Ending balance $ 3,232 $ 18,123 $ 7,025 --------- --------- ---------- --------- --------- ---------- Supplemental disclosure of cash flow information: Interest paid $ 23,988 $ 23,753 $ 17,794 --------- --------- ---------- --------- --------- ---------- Income taxes paid (refunded) $ (2,858) $ (1,008) $ 3,940 --------- --------- ---------- --------- --------- ---------- Supplemental disclosure of non-cash investing and financing activities: Equipment financed with long-term debt and capital leases $ 10,967 $ 20,732 $ 17,530 --------- --------- ---------- --------- --------- ---------- Portion of acquisitions financed by sellers $ 19,384 -- -- --------- --------- ---------- --------- --------- ---------- Liabilities assumed in connection with acquisitions $ 7,739 -- $ 36,065 --------- --------- ---------- --------- --------- ----------
See Notes to Consolidated Financial Statements MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation -- The consolidated financial statements include the accounts of MEDIQ Incorporated and its subsidiaries (the 'Company'). Investments in companies owned 20% to 50% are accounted for under the equity method of accounting. All other investments are stated at the lower of cost or net realizable value. In consolidation all significant intercompany transactions and balances have been eliminated. Cash and cash equivalents -- Cash and cash equivalents include all unrestricted liquid investments purchased with maturities of three months or less. Inventories -- Inventories, which consist primarily of repair parts for rental equipment and finished goods held for sale, are stated at the lower of cost (first-in, first-out method) or market. Property, plant and equipment -- Rental equipment, machinery and equipment, buildings and improvements, and land are recorded at cost. Capital leases are recorded at the lower of fair market value or the present value of future lease payments. The Company provides straight-line depreciation and amortization over the estimated useful lives (rental equipment and machinery and equipment - -- 3 to 10 years; and buildings and improvements -- 10 to 40 years). Goodwill -- The cost of acquired businesses in excess of net assets is amortized on a straight-line basis over periods of 20 to 40 years. Accumulated amortization was $13.1 million and $11.2 million as of September 30, 1994 and 1993, respectively. Net investment in leases -- Net investment in leases represents the aggregate future minimum lease payments to be received under sales-type leases, plus the estimated unguaranteed residual value of the leased property, less unearned income. Unearned income represents the sum of the aggregate future minimum lease payments and the estimated residual value less the cost of the property. Income from sales-type leases is recognized at a constant periodic rate of return on the net investment over the lease term (See Note G). Carrying value of long-term assets -- The Company evaluates the carrying value of long-term assets, including rental equipment, goodwill and other intangible assets, based upon current and anticipated undiscounted cash flows, and recognizes an impairment when it is probable that such estimated cash flows will be less than the carrying value of the asset. Measurement of the amount of impairment, if any, is based upon the difference between carrying value and fair value. Revenue recognition policy -- The Company recognizes revenue for each of its operating segments as follows: MEDIQ/PRN -- Revenue is recognized in accordance with the terms of the related rental agreement and the usage of the related rental equipment. Diagnostic Imaging Services Group -- Revenue is recognized as services are performed. Net patient service revenue is reported at estimated net realizable amounts from patients and third party payors for services rendered. MEDIQ Equipment and Maintenance Services -- Revenue is recognized ratably over the term of the related contract. Other Operating Activities -- Revenues are recognized as services are rendered or as income is earned. Income taxes -- Effective October 1, 1993, the Company adopted on a prospective basis the provisions of Statement of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income Taxes', which supersedes SFAS No. 96. The Company adopted SFAS No. 96 in fiscal 1990. The effect of the adoption of SFAS No. 109 was not significant for the fiscal year ended September 30, 1994. The Company files a consolidated federal tax return with its 80% or more owned subsidiaries and, accordingly, any dividends from included companies are not taxable to the Company. MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Subsidiary and unconsolidated affiliate stock transactions -- Gains (losses) resulting from the issuance or repurchase of stock by subsidiaries and unconsolidated affiliates are recognized by the Company as equity participation in the Consolidated Statements of Operations. Earnings (loss) per share -- Primary net earnings (loss) per share are computed by dividing net earnings (loss) by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents include shares issuable upon conversion of the Company's convertible preferred stock and exercise of outstanding stock options. Reclassification of accounts -- Certain reclassifications have been made to conform prior years' balances to the current year presentation. NOTE B -- ACQUISITIONS On September 30, 1994, the Company acquired the critical care and life support rental equipment inventory of Kinetic Concepts, Inc. ('KCI'), a principal competitor of MEDIQ/PRN. The purchase price was approximately $88 million, including transaction costs and the assumption of certain capitalized lease obligations (See Note J). The purchase price was allocated to assets acquired and liabilities assumed based on preliminary fair values at the date of the acquisition. The excess of the purchase price over preliminary fair values of the net assets acquired of $44.2 million was recorded as goodwill and will be amortized over twenty years. The following unaudited pro forma financial information includes the operating results associated with the assets acquired from KCI as if the acquisition had occurred at the beginning of fiscal 1993. Pro forma adjustments include reductions in operating and administrative expenses, interest expense and adjustments to depreciation and amortization expense. The pro forma information is presented for comparative purposes only and does not necessarily reflect the results of operations of the Company had the acquisition been made at the beginning of fiscal 1993.
YEAR ENDED SEPTEMBER 30, ------------------------ 1994 1993 ----------- ----------- (UNAUDITED) (IN THOUSANDS) Revenues $ 226,698 $ 230,824 Income (loss) before extraordinary change $ (1,665) $ 9,231 Net income (loss) $ (1,665) $ 8,278 Earnings (loss) per share $ (.07) $ .34
In May 1992, MEDIQ/PRN acquired ATI Medical, Inc. ('ATI'), one of its major competitors, for $23.9 million in cash including related expenses. The operations of ATI are included in the Consolidated Statements of Operations from the date of the acquisition. The acquisition was accounted for by the purchase method of accounting and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair value at the date of the acquisition. The excess of the purchase price over the estimated fair values of the net assets acquired of $21.3 million was recorded as goodwill and is amortized over twenty years. NOTE C -- SALE OF ASSETS Since 1990, the Company has been implementing a strategic plan to reduce debt at the parent company level, deleverage primarily through divestitures, clarify corporate identity, enhance shareholder value and increase market liquidity. In addition to the acquisitions discussed in Note B, the Company's efforts have resulted in the developments discussed below. The Company is also considering the sale and/or spin-off of additional businesses, however, the Company has not made a decision to sell or spin-off any specific subsidiary. MEDIQ Management Services, Inc. -- On September 30, 1994, the Company sold its rights under a management contract related to a kidney stone treatment center for $4 million in cash and $3 million contingent upon future results of operations. The sale resulted in a $4 million pretax gain which is included in 'other charges/credits' in the Consolidated Statements of Operations. MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE C -- SALE OF ASSETS--(CONTINUED) MEDIQ Equipment and Maintenance Services, Inc. -- In August 1994, the Company merged its MEDIQ Equipment and Maintenance Services, Inc. ('MEMS') subsidiary with MMI Medical, Inc. ('MMI'), and the Company received approximately 2,000,000 shares of MMI common stock, or approximately 40% of the outstanding shares, and warrants to purchase at $6.25 per share an additional 325,000 shares of MMI common stock. No gain or loss resulted from the merger. It is anticipated that the Company will distribute shares of MMI common stock to MEDIQ shareholders. New West Eyeworks, Inc. -- In December 1993, the Company exercised warrants to purchase 229,518 shares of common stock of New West Eyeworks, Inc. ('New West') in connection with New West's initial public offering. The warrants were issued to the Company in 1988 together with $5.1 million of New West preferred stock as partial consideration for the sale of a business. In connection with the offering, the Company received $1.9 million, representing a partial redemption of the preferred shares, net proceeds from the sale of 82,500 shares of common stock and partial payment of accumulated preferred stock dividends and accrued interest. The Company received an additional 57,143 shares of New West common stock in payment of the balance of accumulated dividends and interest. The Company recorded income of $1.2 million in 1994 related to the sale of New West common stock and the payment of dividends and interest, which is included in 'other charges/credits' in the Consolidated Statements of Operations. PCI of Virginia, Inc. -- The Company sold PCI of Virginia, Inc. ('PCI/Virginia') to PCI Services, Inc. ('PCI'), effective January 1, 1993, for aggregate consideration of $2.3 million which approximated the Company's investment. Harrisburg Healthcare, Inc. -- In November 1992, the Company sold certain assets representing the durable medical equipment and respiratory therapy business, for a sale price of approximately $5.7 million in cash. The assets of this division were written-down to net realizable value, resulting in a pretax loss of approximately $4.0 million in fiscal 1992 which is included in 'other charges/credits' in the Consolidated Statements of Operations. Suburban Medical Services, Inc. -- In July 1992, the Company sold its institutional pharmacy supply operation for a sale price of $8.8 million in cash, resulting in a pretax gain of $3.0 million. This gain is included in 'other charges/credits' in the Consolidated Statements of Operations. MEDIQ Care, Inc. -- In April 1992, the Company sold MEDIQ Care, a manager of sub-acute services to hospitals, for a sale price of $5.4 million, resulting in a pretax gain of approximately $4.0 million. This gain is included in 'other charges/credits' in the Consolidated Statements of Operations. NOTE D -- REAL ESTATE PARTNERSHIP The Company has a limited partnership interest in a real estate partnership relating to the construction of luxury life care condominium units in Marin County, California. The Company invested approximately $10.6 million, representing the Company's maximum required investment in the partnership. Proceeds from the current and anticipated future sales may not be sufficient to provide the necessary funds to complete the project and provide a return to the partners. As a result, the Company established a reserve of $10.6 million in 1992 for its investment. This reserve is included in 'other charges/credits' in the Consolidated Statements of Operations. The Company has no further obligation related to its partnership interest. MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE E -- DISCONTINUED OPERATIONS In August 1993, the Company completed the tax-free distribution to the Company's shareholders of the stock of MHM, a provider of behavioral healthcare services. The distribution was accounted for as a dividend with a resultant reduction in consolidated stockholders' equity of $15.6 million, representing the Company's equity investment in MHM. In 1992, the Company determined that the value of goodwill related to MHM was impaired, other than temporarily. Accordingly, the carrying value of such goodwill was reduced to its estimated fair value resulting in a net charge of $15.3 million, which was included in discontinued operations. Revenues from MHM were $46.7 million and $46.4 million in 1993 and 1992, respectively. In connection with the distribution, the Company obtained a five-year note receivable from MHM for the balance of unpaid management fees and intercompany interest in the amount of $11.5 million. The note bears interest at a rate of prime (7.75% at September 30, 1994) plus 1.5%, with monthly interest payments for two years beginning October 1, 1993 and monthly principal and interest payments for the following three years, based on a fifteen year amortization period, with the balance due on August 31, 1998. NOTE F -- PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, ------------------------ 1994 1993 ----------- ----------- (IN THOUSANDS) Rental equipment $ 211,373 $ 161,707 Machinery and equipment 41,125 41,369 Building and improvements 18,937 31,296 Land 2,200 2,200 ----------- ----------- 273,635 236,572 Less accumulated depreciation and amortization 100,256 81,489 ----------- ----------- $ 173,379 $ 155,083 ----------- ----------- ----------- -----------
Depreciation and amortization expense related to property, plant and equipment was $24.8 million, $22.2 million and $17.9 million in 1994, 1993 and 1992, respectively. MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE G -- NET INVESTMENT IN LEASES The Company, as lessor, leases two medical office buildings, which were financed with non-recourse debt (See Note J), for terms of 20 and 22 years. The components of the investment in these leases were as follows:
SEPTEMBER 30, -------------------- 1994 1993 --------- --------- (IN THOUSANDS) Minimum rentals receivable $ 57,322 $ 32,888 Estimated unguaranteed residual values of leased property 800 800 Less: unearned income (29,578) (17,140) --------- --------- Net investment in leases $ 28,544 $ 16,548 --------- --------- --------- ---------
Annual minimum aggregate lease payments to be received are as follows:
YEAR ENDING SEPTEMBER 30 (IN THOUSANDS) - ------------------------ 1995 $ 3,250 1996 3,250 1997 3,250 1998 3,250 1999 3,250 Thereafter 41,072 ------------- $ 57,322 ------------- -------------
MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE H -- ACCRUED EXPENSES
SEPTEMBER 30, ------------------------ 1994 1993 ----------- ----------- (IN THOUSANDS) Interest $ 4,830 $ 5,159 Payroll and related taxes 3,432 4,129 Insurance 4,077 3,594 Other 15,715 9,444 ----------- ----------- $ 28,054 $ 22,326 ----------- ----------- ----------- -----------
MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE I -- NOTES PAYABLE TO FINANCIAL INSTITUTIONS At September 30, 1994, the Company had $10.1 million outstanding under lines of credit aggregating $18 million. The lines bear interest at the prime rate (7.75% at September 30, 1994) to prime plus 1.75% and are secured primarily by certain accounts receivable. The amount of available credit fluctuates based upon the amount of eligible accounts receivable. Based upon management's analysis of accounts receivable, approximately $5.8 million of credit was available at September 30, 1994. The average amount outstanding under lines of credit in 1994 was $5.2 million and the weighted average interest rate computed on the monthly outstanding balance was 8.2%. NOTE J -- LONG-TERM DEBT Senior recourse debt consisted of the following:
SEPTEMBER 30, ------------------------ 1994 1993 ----------- ----------- (IN THOUSANDS) Corporate debt: Revolving credit facility $ 11,147 $ -- Term loans payable in varying installments through 2005 at rates from prime (7.75% at September 30, 1994) to 12% 1,862 4,208 Mortgage payable in installments through 1998 at a fixed rate of 10.25% 3,917 4,917 Subsidiary debt: 11.125% senior secured notes due 1999 100,000 100,000 Term loan payable monthly through 2000 at prime plus 2% 43,000 -- Term loans payable in varying installments through 1999 at rates from prime plus 1% to 13% 13,562 6,470 Capital lease obligations payable in varying installments through 1999 at fixed rates from 8% to 16% 19,699 14,371 ----------- ----------- 193,187 129,966 Less current portion 26,408 9,804 ----------- ----------- $ 166,779 $ 120,162 ----------- ----------- ----------- -----------
Senior nonrecourse debt consisted of the following:
SEPTEMBER 30, ------------------------ 1994 1993 ----------- ----------- (IN THOUSANDS) Subsidiary debt: Mortgages payable monthly through 2010 at fixed rates of 8.8% and 10.25% $ 27,369 $ 24,901 10.125% term loan payable monthly through 1997 833 1,084 ----------- ----------- 28,202 25,985 Less current portion 905 603 ----------- ----------- $ 27,297 $ 25,382 ----------- ----------- ----------- -----------
MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE J -- LONG-TERM DEBT--(CONTINUED) Subordinated debt consisted of the following:
SEPTEMBER 30, ------------------------ 1994 1993 ----------- ----------- (IN THOUSANDS) Corporate debt: 7.5% exchangeable subordinated debentures due 2003 $ 34,500 $ 34,500 7.25% convertible subordinated debentures due 2006 51,729 51,729 6% convertible subordinated debentures due 1994 -- 11,810 Subsidiary debt: 10% subordinated notes due 2004 8,547 -- 10% subordinated notes due 1999 8,612 -- ----------- ----------- 103,388 98,039 Less current portion -- 11,810 ----------- ----------- $ 103,388 $ 86,229 ----------- ----------- ----------- -----------
On September 30, 1994, in connection with the acquisition of the rental equipment inventory of KCI, the Company obtained financing consisting of: a $43.0 million term loan, $8.5 million of senior subordinated notes, $8.6 million of subordinated notes payable to KCI and two term loans aggregating $8.5 million payable to KCI. The $43.0 million term loan is payable in seventy-two equal monthly payments of approximately $600,000 commencing January 1, 1995. Interest on the term loan is payable monthly at the prime rate plus 2%, or at the Company's option, a rate equal to the adjusted Eurodollar rate plus 4.25%. The term loan is collateralized by all of the acquired equipment. The $8.5 million of senior subordinated notes, which have a face value of $10 million, include warrants which allow the holders to purchase, in the aggregate, up to 10% of the common stock of MEDIQ/PRN for a nominal amount. Interest on the notes of 10% is payable semi-annually on April 1 and October 1. Annual principal payments on the notes of $1.0 million commence April 1, 2000, with the remaining principal balance payable on October 1, 2004. The $8.6 million of subordinated notes payable to KCI mature on September 30, 1999 and bear interest at 10%, commencing April 1, 1996. The first term loan, in the principal amount of $3.0 million, is payable to KCI in ten equal monthly installments with interest at 8%, commencing December 31, 1994. The second term loan, in the principal amount of $5.5 million, is non-interest bearing and payable to KCI over ten equal monthly installments commencing December 31, 1994. The subordinated notes payable to KCI and certain of the term notes are carried net of related discounts. The MHM note receivable is pledged as collateral for the Company's obligations to KCI. In October 1993, the Company entered into an agreement with a commercial bank for a $7.5 million revolving credit facility, which was increased to $13.4 million in August 1994. This credit facility bears interest at prime plus 1% and expires October 1995, at which time the Company may convert the outstanding balance to a term note payable over thirty-six months. At September 30, 1994, the Company had $11.1 million outstanding and $2.1 million of letters of credit under this facility. This facility is secured by a portion of the shares of common stock of NutraMax and PCI owned by the Company. In September 1994, in connection with the acquisition of equipment from KCI, MEDIQ/PRN amended the indenture related to its outstanding $100 million of 11.125% senior secured notes to provide for an increase in the interest rate on the notes to 12.125% commencing after September 1995 under certain circumstances. Interest on the notes is payable semi-annually on January 1 and July 1. The notes, which are collateralized by certain of MEDIQ/PRN's assets, are redeemable at the option of MEDIQ/PRN in whole or in part on or after July 1, 1997 at specified redemption prices, plus accrued interest. MEDIQ/PRN is obligated to make offers to purchase the senior secured notes under certain circumstances. At September 30, 1994, MEDIQ/PRN was not required to offer to repay any portion of the senior secured notes. The Company's ability to obtain cash from MEDIQ/PRN is limited by provisions in certain of MEDIQ/PRN's debt agreements. For 1994 and 1993, such provisions did not permit MEDIQ/PRN to pay any dividends to the Company. MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE J -- LONG-TERM DEBT--(CONTINUED) Nonrecourse debt is collateralized by the leased property and an assignment of the rental payments thereunder. In the event of default by the lessee, the lender's recourse against the Company is limited solely to the collateral covered by the assigned leases. Lease receivables and equipment securing non-recourse debt amounted to $30.5 million as of September 30, 1994. The 7.5% debentures are exchangeable for an aggregate of 2,255,000 shares of NutraMax common stock owned by the Company, or an equivalent of $15.30 per share, and are redeemable in whole or in part at the option of the Company after July 1996. Interest is payable semi-annually on January 15 and July 15. The 7.25% debentures are convertible at any time prior to maturity into shares of the common stock of the Company at $7.50 per share. Interest is payable semi-annually on June 1 and December 1. Annual sinking fund payments equal to 10% of the principal commence in June 1997. The Company is also required to offer to repurchase a portion of the debentures if stockholders' equity is $40 million or less at the end of two consecutive fiscal quarters. For the quarters ended June 30, 1994 and September 30, 1994, the Company's stockholders' equity was less than $40 million. The requirement to repurchase debentures at December 31, 1994 and the potential requirement to repurchase debentures at June 30, 1995 (if stockholders' equity continues to be less than $40 million) were satisfied through the Company's previous acquisition of $23.3 million principal amount of debentures. If stockholders' equity continues to be less than $40 million, the Company may be required to repurchase approximately $10.5 million of debentures on December 31, 1995 and $11.25 million of debentures semi-annually thereafter until all debentures are repurchased or stockholders' equity is more than $40 million. The Company incurred prepayment premiums in connection with repayments of debt resulting in an extraordinary charge of $1.5 million, or $1.0 million net of taxes, in 1993 and $10.1 million, or $6.7 million net of taxes, in 1992. Certain of the Company's loan agreements require the maintenance of specified financial ratios and impose financial limitations. At September 30, 1994, the Company either complied with or obtained the necessary waivers from its lenders regarding these ratios and limitations. As of September 30, 1994, the terms of one of the Company's loan agreements did not permit the payment of dividends or the purchase of the Company's stock. Restricted net assets of consolidated subsidiaries aggregated approximately $30.0 million at September 30, 1994. Maturities of long-term debt are as follows:
YEAR ENDING SEPTEMBER 30, RECOURSE NON-RECOURSE SUBORDINATED TOTAL - ----------------------------------------------- ----------- ------------- ------------ ----------- (IN THOUSANDS) 1995 $ 26,408 $ 905 $ -- $ 27,313 1996 17,199 998 -- 18,197 1997 15,994 1,013 5,173 22,180 1998 14,420 840 5,173 20,433 1999 108,424 925 5,173 114,522 Thereafter 10,742 23,521 87,869 122,132 ----------- ------------- ------------ ----------- $ 193,187 $ 28,202 $ 103,388 $ 324,777 ----------- ------------- ------------ ----------- ----------- ------------- ------------ -----------
MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE K -- COMMITMENTS AND CONTINGENCIES Leases -- The Company leases certain equipment, automobiles and office space. The future minimum lease payments under noncancelable operating leases and capital leases are as follows:
CAPITAL OPERATING YEAR ENDING SEPTEMBER 30, LEASES LEASES - ----------------------------------------------------------------------------- --------- --------- (IN THOUSANDS) 1995 $ 9,716 $ 6,090 1996 5,271 4,037 1997 4,356 2,572 1998 2,614 1,299 1999 and thereafter 1,339 1,417 --------- --------- Total minimum lease payments $ 23,296 $ 15,415 --------- --------- Amount representing interest 3,597 --------- Present value of minimum lease payments $ 19,699 --------- ---------
Total rent expense under operating leases was $7.9 million, $8.2 million and $7.3 million in 1994, 1993 and 1992, respectively. The leases, which are for terms of up to 10 years, contain options to renew for additional periods. At September 30, 1994, rental equipment and machinery and equipment included assets under capitalized lease obligations of $37.0 million, less accumulated amortization of $16.5 million. Purchase Commitments -- MEDIQ/PRN has agreed to purchase from one of its vendors certain rental equipment parts and supplies, and to obtain certain remanufacturing services from the vendor in the aggregate amount of approximately $5.7 million through 1997. Legal Proceedings -- MEDIQ Mobile X-Ray Services, Inc. ('Mobile X-Ray') and one of its subsidiaries have been notified that certain prior billing practices under the Medicare program are under investigation by the United States Attorney for the Middle District of Pennsylvania. The billing practices under investigation, which ceased in February 1993, were related to services performed prior to mid-1992. The Company believes that a likely resolution of this matter would involve prior year rate adjustments and a payment by Mobile X-Ray and/or its subsidiary. Accordingly, the Company has increased its reserve for prior year rate adjustments in respect of this matter. Mobile X-Ray and its subsidiary have also been advised that such resolution would not impair their ability to continue participation in the Medicare program. While it is expected that this matter will not have a material adverse affect on the Company, there can be no assurances to that effect. In addition, the Company has pending several legal claims incurred in the normal course of business, which in the opinion of management, will not have a material adverse effect on the Company's consolidated financial statements. NOTE L -- FAIR VALUE OF FINANCIAL INSTRUMENTS Estimated fair value of financial instruments is provided in accordance with the requirements of SFAS No. 107, 'Disclosures About Fair Value of Financial Instruments'. The estimated fair value amounts have been determined by the Company using available market information and appropriate methodologies. However, considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, accounts receivable and accounts payable -- The carrying amounts of these items are an estimate of their fair values at September 30, 1994. Note receivable from MHM -- The carrying amount of the Company's note receivable from MHM of $11.5 million is a reasonable estimate of its fair value since the receivable earns interest based upon the prime rate. Long-term investments -- The Company had long-term investments in common stock with an aggregate carrying amount of $1.0 million and a fair value of $1.5 million, which is based on quoted market MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE L -- FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED) prices. In addition, it was not practicable to estimate the fair value of an investment in preferred stock which is carried at cost of approximately $4.0 million as a result of the absence of quoted market prices and the excessive cost involved in determining such fair value. Long-term debt (excluding capital lease obligations) -- The fair value of the Company's publicly traded debt is based on quoted market prices. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues for which quoted market prices are not available. The carrying amount and estimated fair value of long-term debt are $305.1 million and $278.6 million, respectively. The fair value estimates presented herein are based on information available to management as of September 30, 1994, and have not been comprehensively revalued for purposes of these financial statements since that date. Current estimates of fair value may differ significantly from the amounts presented herein. NOTE M -- COMMON AND PREFERRED STOCK Series A preferred stock is convertible on a one-for-one basis into shares of common stock, votes generally with the common stock as a single class, and in all such votes, has ten votes per share. The preferred stock participates in cash dividends at a rate equal to 60% of the amount paid on the common stock and has a $.50 per share preference in the event of dissolution or liquidation. Cash dividends of $.03 per share on the common stock and $.018 per share on the preferred stock were paid for the first, second and third quarters of 1994 and quarterly in 1993. MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE N -- INCOME TAXES Income tax benefit consisted of the following:
YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1993 1992 --------- --------- --------- (IN THOUSANDS) Current: Federal $ -- $ (2,836) $ (4,896) State 41 199 499 --------- --------- --------- 41 (2,637) (4,397) --------- --------- --------- Deferred: Federal (4,685) (370) 4,280 State 599 1,383 (470) --------- --------- --------- (4,086) 1,013 3,810 --------- --------- --------- Total income tax benefit $ (4,045) $ (1,624) $ (587) --------- --------- --------- --------- --------- ---------
The differences between the Company's income tax benefit and the income tax expense (benefit) computed using the U.S. federal income tax rate were as follows:
YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1993 1992 --------- --------- --------- (IN THOUSANDS) Statutory federal tax $ (3,863) $ 677 $ 2,037 State income taxes, net of federal income tax benefit 422 1,044 717 Goodwill amortization 582 508 606 Effects of dispositions of subsidiaries (1,174) 6 (2,651) Utilization of alternative minimum tax credits -- (2,858) -- Undistributed earnings of unconsolidated affiliates -- (1,182) (1,377) Other items -- net (12) 181 81 --------- --------- --------- Income tax benefit $ (4,045) $ (1,624) $ (587) --------- --------- --------- --------- --------- ---------
Significant components of the Company's deferred tax assets and liabilities were as follows:
SEPTEMBER 30, 1994 -------------- LIABILITIES (IN THOUSANDS) Depreciation $ 29,559 Intangible assets 9,800 Accrued expenses 570 Prepaid expenses 564 Other 4,649 ------------- Gross deferred tax liabilities 45,142 ASSETS Net operating and capital losses 23,250 Accrued expenses and reserves 8,129 Intangible assets 3,917 Other 7,248 ------------- Gross deferred tax assets 42,544 Valuation allowance (3,025) ------------- 39,519 ------------- Net deferred tax liability $ 5,623 ------------- -------------
MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE N -- INCOME TAXES--(CONTINUED) Under the provisions of SFAS No. 96, the deferred tax expense for 1993 of $1.0 million resulted principally from depreciation and amortization of $2.9 million, allowance for doubtful accounts of $1.5 million, accrued expenses of $1.9 million, differences between book and tax gains and losses of $1.6 million and equity participation of $1.2 million, partially offset by net operating loss carryforwards of $5.8 million and the reduction of alternative minimum tax accrual of $2.9 million. The deferred tax expense for 1992 of $3.8 million resulted principally from depreciation and amortization of $1.8 million and equity participation of $4.9 million, partially offset by differences between book and tax gains and losses of $3.0 million. Deferred taxes of $1.5 million and $.3 million were recorded in 1994 and 1993, respectively, for the undistributed earnings of unconsolidated affiliates. At September 30, 1994, for income tax purposes, the Company had alternative minimum tax credit carryforwards of approximately $5.0 million, net operating loss carryforwards of $37.6 million expiring through 2009, and capital loss carryforwards of $21.0 million expiring in 1998. State net operating loss carryforwards were $50.4 million, expiring through 2009. The Company also had a carryforward of Investment Tax Credit and Rehabilitation Tax Credit of $.5 million expiring through 2003. NOTE O -- RELATED PARTY TRANSACTIONS In 1994, the Company paid legal fees of approximately $250,000 to a law firm of which the Company's Chairman of the Board of Directors is a partner. The Company derived revenues of $327,000, $225,000 and $200,000 in 1994, 1993 and 1992, respectively, pursuant to agreements to provide financial management, legal and risk management services to PCI, NutraMax and MHM. Effective October 1, 1991, PCI transferred by dividend all of the capital stock of PCI/Virginia to the Company at net book value, or approximately $2.0 million. In January 1993, the Company sold PCI/Virginia to PCI for aggregate consideration of $2.3 million which approximated the Company's investment. In addition, the Company assigned to PCI a purchase option to acquire the real estate leased by PCI/Virginia, in consideration for which PCI reimbursed the Company for a $1.0 million deposit. NOTE P -- STOCK OPTIONS Under the Company's stock option plans, options may be granted to officers and key employees of the Company and its subsidiaries. No option may be granted for a term in excess of ten years from the date of grant. As of September 30, 1994, all incentive and non-qualified stock options were exercisable under the plan. The exercise prices of outstanding options represented the fair market value at dates of grant. The Company's Board of Directors has reserved a sufficient number of shares for the exercise of outstanding stock options. MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE P -- STOCK OPTIONS--(CONTINUED) In August 1993, the Company's Board of Directors reduced the exercise prices of certain outstanding stock options in connection with the distribution of MHM. A summary of the Company's stock option plan activity for common and preferred shares for the three years ended September 30, 1994 follows:
NUMBER OF OPTION PRICE SHARES PER SHARE --------------- ----------------- (IN THOUSANDS) Outstanding at October 1, 1991 2,262 $2.45 to $7.50 Exercised (35) $3.13 to $4.00 Terminated (318) $3.13 to $7.50 ------- Outstanding at September 30, 1992 1,909 $2.45 to $5.16 Exercised (172) $3.13 to $5.16 Terminated (32) $2.45 to $4.09 ------- Outstanding at September 30, 1993 1,705 $2.73 to $4.51 Exercised (114) $3.06 Terminated (149) $2.73 to $4.51 ------- Outstanding at September 30, 1994 1,442 $2.73 to $4.51 ------- -------
NOTE Q -- PENSION PLAN The Company maintains a noncontributory pension plan which provides retirement benefits to substantially all employees. Employees generally are eligible to participate in the plan after one year of service and become fully vested after five years of service. The plan provides defined benefits based on years of credited service and compensation. The Company makes contributions that are sufficient to fully fund its actuarially determined cost, generally equal to the minimum amounts required by ERISA. Assets of the plan consist primarily of stocks, bonds and annuities. Net periodic pension expense is comprised the following:
YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1993 1992 --------- --------- --------- (IN THOUSANDS) Service cost -- benefits earned during the period $ 1,193 $ 1,220 $ 1,190 Interest cost on projected benefit obligation 894 836 720 Actual return on plan assets (436) (713) (598) Net amortization and deferrals (331) 45 5 --------- --------- --------- Net periodic pension expense $ 1,320 $ 1,388 $ 1,317 --------- --------- --------- --------- --------- ---------
MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE Q -- PENSION PLAN--(CONTINUED) The following table presents the funded status of the Company's pension plan and the amounts reflected in the Consolidated Balance Sheets:
SEPTEMBER 30, ---------------------- 1994 1993 ---------- ---------- (IN THOUSANDS) Actuarial present value of benefit obligations: Vested benefits $ (9,532) $ (10,188) ---------- ---------- ---------- ---------- Accumulated benefit obligation $ (10,502) $ (12,098) ---------- ---------- ---------- ---------- Projected benefit obligation $ (12,261) $ (13,002) Plan assets at fair value 10,095 10,238 ---------- ---------- Projected benefit obligation in excess of plan assets (2,166) (2,764) Unrecognized net (gain) loss (1,054) 810 Balance of unrecorded transition obligation 701 755 Adjustment to recognize minimum required liability -- (660) ---------- ---------- Accrued pension liability $ (2,519) $ (1,859) ---------- ---------- ---------- ----------
The actuarial assumptions used in determining net periodic pension costs were:
YEAR ENDED SEPTEMBER 30, ------------------------------------- 1994 1993 1992 ----- ----- ----- Discount rate 8% 7% 8% Expected long-term return on plan assets 8% 8% 8% Weighted average rate of increase in compensation levels 4.5% 4.5% 5.5%
NOTE R -- BUSINESS SEGMENT DATA The table below sets forth, for the three years ended September 30, 1994, an analysis of the Company's operations by business segment.
YEAR ENDED SEPTEMBER 30, ------------------------------------- 1994 1993 1992 ----------- ----------- ----------- (IN THOUSANDS) Revenues: MEDIQ/PRN $ 74,944 $ 76,527 $ 56,898 Diagnostic Imaging Services Group 48,481 45,368 41,746 MEDIQ Equipment and Maintenance Services 15,665 16,875 15,430 Other operating subsidiaries 26,591 33,356 65,408 ----------- ----------- ----------- 165,681 172,126 179,482 Other 4,723 5,590 5,247 Intersegment eliminations (2,323) (2,882) (2,582) ----------- ----------- ----------- Consolidated revenues $ 168,081 $ 174,834 $ 182,147 ----------- ----------- ----------- ----------- ----------- -----------
MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE R -- BUSINESS SEGMENT DATA--(CONTINUED)
YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1993 1992 --------- --------- --------- (IN THOUSANDS) Operating income (loss): MEDIQ/PRN $ 5,103 $ 13,163 $ 12,432 Diagnostic Imaging Services Group (587) 6,881 9,553 MEDIQ Equipment and Maintenance Services (488) (1,280) (1,459) Other operating subsidiaries 1,358 910 968 --------- --------- --------- 5,386 19,674 21,494 Other (principally corporate overhead) (3,716) (4,360) (6,849) Intersegment eliminations 255 152 (185) --------- --------- --------- Consolidated operating income $ 1,925 $ 15,466 $ 14,460 --------- --------- --------- --------- --------- ---------
SEPTEMBER 30, ------------------------------------- 1994 1993 1992 ----------- ----------- ----------- Identifiable assets: MEDIQ/PRN $ 245,194 $ 163,548 $ 159,883 Diagnostic Imaging Services Group 48,491 40,177 54,399 MEDIQ Equipment and Maintenance Services -- 14,166 12,367 Other operating subsidiaries 16,477 17,284 22,023 ----------- ----------- ----------- 310,162 235,175 248,672 Other 118,933(1) 119,584 89,231 Discontinued operations -- -- 15,416 Intersegment eliminations (2,702) (3,498) (4,484) ----------- ----------- ----------- Consolidated assets $ 426,393 $ 351,261 $ 348,835 ----------- ----------- ----------- ----------- ----------- -----------
- ------------------ (1) The significant components of other identifiable assets in fiscal 1994 were investments in unconsolidated affiliates -- $47.7 million; net investment in lease -- $28.5 million; property, plant and equipment -- $13.1 million; note receivable from MHM -- $11.5 million; and long-term investments -- $5.0 million. MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE R -- BUSINESS SEGMENT DATA--(CONTINUED)
YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1993 1992 --------- --------- --------- (IN THOUSANDS) Capital expenditures: MEDIQ/PRN $ 13,211 $ 21,935 $ 17,490 Diagnostic Imaging Services Group 2,921 2,643 2,773 MEDIQ Equipment and Maintenance Services 108 2,891 1,750 Other operating subsidiaries 912 702 2,010 --------- --------- --------- 17,152 28,171 24,023 Other 2,956 10,769 3,889 --------- --------- --------- Total capital expenditures $ 20,108 $ 38,940 $ 27,912 --------- --------- --------- --------- --------- --------- Depreciation and amortization expense: MEDIQ/PRN $ 20,316 $ 17,377 $ 11,242 Diagnostic Imaging Services Group 4,020 3,097 2,910 MEDIQ Equipment and Maintenance Services 1,248 1,224 736 Other operating subsidiaries 1,408 1,771 2,743 --------- --------- --------- 26,992 23,469 17,631 Other 1,093 1,510 2,201 --------- --------- --------- Total depreciation and amortization expense $ 28,085 $ 24,979 $ 19,832 --------- --------- --------- --------- --------- ---------
NOTE S -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data (in thousands except per share data) for 1994 and 1993 is as follows:
FIRST SECOND THIRD FOURTH 1994 QUARTER QUARTER QUARTER QUARTER - -------------------------------------------------------- --------- --------- --------- --------- Revenues $ 40,473 $ 44,974 $ 43,043 $ 39,591 Operating income (loss) 1,270 5,068 743 (5,156) Net income (loss) (1,262) 174 (2,849) (3,381) Net income (loss) per share (.05) .01 (.12) (.14)
FIRST SECOND THIRD FOURTH 1993 QUARTER QUARTER QUARTER QUARTER - ------------------------------------------------------- --------- --------- --------- ----------- Revenues $ 46,107 $ 45,590 $ 42,902 $ 40,235 Operating income 5,172 5,477 4,524 293 Income from continuing operations 1,712 779 968 155 Income (loss) from discontinued operations 247 442 149 (203) Extraordinary charge, early retirement of debt (45) (293) (615) -- Net income (loss) 1,914 928 502 (48) Earnings per share: Income from continuing operations .07 .03 .04 .01 Income (loss) from discontinued operations .01 .02 .01 (.01) Extraordinary charge, early retirement of debt -- (.01) (.03) -- Net income .08 .04 .02 --
MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE T -- INVESTMENTS IN UNCONSOLIDATED AFFILATES As of September 30, 1994, the Company's investments in unconsolidated affiliates consisted of NutraMax Products, Inc., PCI Services, Inc. and MMI Medical, Inc. The following summary presents the Company's approximate ownership interest, carrying value and market value as of September 30.
1994 1993 ------------------------------------- ------------------------------------- OWNERSHIP CARRYING MARKET OWNERSHIP CARRYING MARKET INTEREST VALUE VALUE INTEREST VALUE VALUE --------------- --------- --------- --------------- --------- --------- (IN THOUSANDS) PCI 47% $ 21,861 $18,688 42% $ 20,357 $ 27,312 NutraMax 47% 16,477 41,887 48% 14,336 60,559 MMI 40% 9,392 8,584 -- -- -- --------- --------- --------- --------- $ 47,730 $69,159 $ 34,693 $ 87,871 --------- --------- --------- --------- --------- --------- --------- ---------
The Company's ownership interest in NutraMax may decrease in the future in the event that certain of the Company's outstanding debentures are exchanged into shares of NutraMax common stock owned by the Company. Assuming the Company does not elect to pay cash, the effect of the exchange of all of such debentures would decrease the Company's ownership interest of NutraMax to approximately 21%. Gains (losses) on issuances of stock by unconsolidated affiliates were ($.7) million, $3.5 million and $14.5 million in 1994, 1993 and 1992, respectively. The gain in 1992 resulted from PCI's initial public offering. Undistributed earnings from unconsolidated affiliates were $13.3 million as of September 30, 1994. Summarized consolidated financial information for NutraMax and PCI is presented below. MMI's results from the date of the merger to September 30, 1994 were not significant to the Company. NutraMax Products, Inc. -- Condensed Consolidated Balance Sheets
OCT. 1, OCT. 2, 1994 1993 --------- --------- (IN THOUSANDS) ASSETS: Total current assets $ 21,467 $ 12,897 Property and equipment, net 22,499 9,748 Goodwill, net 14,541 8,790 Other assets 1,943 1,772 --------- --------- $ 60,450 $ 33,207 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY: Total current liabilities $ 8,295 $ 3,194 Long term debt, less current maturities 16,183 -- Deferred income taxes and other liabilities 1,215 60 Stockholders' equity 34,757 29,953 --------- --------- $ 60,450 $ 33,207 --------- --------- --------- ---------
MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE T -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES--(CONTINUED) NutraMax Products, Inc. -- Condensed Consolidated Statements of Operations
YEAR ENDED ------------------------------- OCT. 1, OCT. 2, SEPT. 30, 1994 1993 1992 --------- --------- --------- (IN THOUSANDS) Net sales $ 55,958 $ 31,144 $ 25,151 Cost of sales 38,752 19,598 13,908 --------- --------- --------- Gross profit 17,206 11,546 11,243 Operating expenses 9,281 5,928 5,715 --------- --------- --------- Operating income 7,925 5,618 5,528 Other credits (charges) (833) 251 338 --------- --------- --------- Income before income tax expense 7,092 5,869 5,866 Income tax expense 2,832 2,350 2,397 --------- --------- --------- Net income $ 4,260 $ 3,519 $ 3,469 --------- --------- --------- --------- --------- ---------
PCI Services, Inc. -- Condensed Consolidated Balance Sheets
SEPTEMBER 30, -------------------- 1994 1993 --------- --------- (IN THOUSANDS) ASSETS: Total current assets $ 28,301 $ 28,878 Property, plant and equipment, net 44,145 40,900 Goodwill, net 9,857 9,589 Other assets 1,124 755 --------- --------- $ 83,427 $ 80,122 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY: Total current liabilities $ 17,706 $ 16,061 Long-term debt, less current maturities 14,760 11,577 Deferred income taxes and other liabilities 3,617 4,130 Stockholders' equity 47,344 48,354 --------- --------- $ 83,427 $ 80,122 --------- --------- --------- ---------
PCI Services, Inc. -- Condensed Consolidated Statements of Operations
YEAR ENDED SEPTEMBER 30, ----------------------------------- 1994 1993 1992 ----------- ----------- --------- (IN THOUSANDS) Net revenue $ 121,177 $ 111,272 $ 75,430 Cost of goods sold 96,092 86,932 58,097 ----------- ----------- --------- Gross profit 25,085 24,340 17,333 Operating expenses 17,561 15,344 8,903 ----------- ----------- --------- Income before income tax expense 7,524 8,996 8,430 Income tax expense 2,168 2,841 3,114 ----------- ----------- --------- Net income $ 5,356 $ 6,155 $ 5,316 ----------- ----------- --------- ----------- ----------- ---------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III The information required to be included herein has been incorporated by reference to the Company's proxy statement relating to the Annual Meeting of Stockholders expected to be held in early 1995. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this portion of Item 14 is submitted as a separate section of this report. (a)(2) FINANCIAL STATEMENT SCHEDULES Included in Part IV of this report: Schedule III -- Condensed Financial Information of Registrant Schedule VIII -- Valuation and Qualifying Accounts and Reserves Other Schedules are omitted because of the absence of conditions under which they are required. (a)(3) EXHIBITS The exhibits are listed in the Index to Exhibits appearing below. (b) REPORTS ON FORM 8-K: A current report on Form 8-K was filed on September 1, 1994 to report, pursuant to Item 5 of the Form, the execution of the acquisition agreement between the Company and Kinetics Concepts, Inc. The Company's news release, dated August 23, 1994, was filed as an exhibit to the Current Report. (c) EXHIBITS
EXHIBIT # DESCRIPTION INCORPORATION REFERENCE - ---------- ----------------------------------------------- -------------------------------------------- 2.1 Agreement of Merger and Plan of Exhibit 2 to Current Report on Form 8-K filed Reorganization among MMI Medical, Inc., June 9, 1994. MMI Acquisition Subsidiary, Inc., MEDIQ and MEDIQ Equipment and Maintenance Services, Inc., dated May 18, 1994. 2.2 Asset Purchase Agreement dated August 23, 1994 by Exhibit 2.1 to Current Report on Form 8-K filed and among Kinetic Concepts, Inc., KCI Therapeutic October 14, 1994. Services, Inc., MEDIQ, PRN Holdings, Inc. and MEDIQ/PRN Life Support Service-I, Inc. 2.3 Amendment No. 1 to Asset Purchase Agreement dated Exhibit 2.2 to Current Report on Form 8-K filed September 30, 1994 by and among Kinetic Concepts, October 14, 1994. Inc., KCI Therapeutic Services, Inc., MEDIQ, PRN Holdings, Inc., and MEDIQ/PRN Life Support Services-I, Inc. 3.1 Certificate of Incorporation. Exhibit 3.1 to Annual Report on Form 10-K filed on December 30, 1985. 3.2 Amendment to Certificate of Incorporation Exhibit 3.2 to Annual Report on Form 10-K for fiscal 1993. 3.3 By-Laws. Exhibit 3.2 to S-1 Registration Statement No. 2-75550 originally filed on December 30, 1981. 4.1 Indenture dated as of June 1, 1986 between Exhibit 4.1 to S-2 Registration Statement No. MEDIQ and Mellon Bank N.A. for 7.25% 33-5089 originally filed on May 2, 1986, as Convertible Subordinated Debentures due 2006. amended. 4.2 7.25% Convertible Subordinated Debenture due Exhibit 4.2 to S-2 Registration Statement No. 2006. 33-5089 originally filed on May 2, 1986, as amended. 4.3 Certificate of Designation for Series A Exhibit 4.4 to S-2 Registration Statement No. Preferred Stock of MEDIQ. 33-5089 originally filed on May 2, 1986, as amended. 4.4 Agreement with the American Stock Exchange, Exhibit 4.5 to S-2 Registration Statement No. Inc. 33-5089 originally filed on May 2, 1986, as amended. 4.5 Indenture, dated as of July 1, 1993 between Exhibit 4.1 to S-2 Registration Statement No. MEDIQ and First Fidelity Bank, N.A. for 7.5% 33-61724 originally filed April 28, 1993, as Exchangeable Subordinated Debentures due 2003 amended. 4.6 7.5% Exchangeable Subordinated Debentures due Exhibit 4.2 to S-2 Registration Statement No. 2003 33-61724 originally filed April 28, 1993, as amended. 4.7(a) Warrant Agreement, dated as of May 29, 1992 Exhibit 4.5 to the Form S-1 Registration among MEDIQ, MEDIQ/PRN Life Support Services, Statement of MEDIQ/PRN Life Support Inc. and Internationale Nederlanden Bank, N.V., Services, Inc. (File No. 33-47787) New York Branch 4.7(b) Warrant issued to Internationale Nederlanden Exhibit 4.6 to the Form S-1 Registration (US) Finance Corporation Statement of MEDIQ/PRN Life Support Services, Inc. (File No. 33-47787) 4.8(a) Indenture, dated as of July 6, 1992, between Exhibit 4.1 to the Form 10-K Annual MEDIQ/PRN and United Jersey Bank, as trustee. Report of MEDIQ/PRN Life Support Services, Inc. for fiscal 1992. 4.8(b) Supplemental Indenture, dated as of September Filed herewith. 30, 1994, between MEDIQ/PRN and United Jersey Bank, as Trustee filed herewith. 4.9(a) Revolving Credit Loan Agreement, dated as of Exhibit 10.12 of the Annual Report October 14, 1993, between MEDIQ, MEDIQ Report on Form 10-K for fiscal 1993. Investment Services, Inc. and United Jersey Bank/South, N.A. 4.9(b) Amendment No. 1 to Revolving Credit Loan Agreement Filed herewith. between MEDIQ, MEDIQ Investment Services, Inc. and United Jersey Bank, N.A., dated August 9, 1994. 4.9(c) Amendment No. 2 to Revolving Credit Loan Agreement Filed herewith. between MEDIQ, MEDIQ Investment Services, Inc. and United Jersey Bank, N.A., dated September 29, 1994. 4.9(d) Second Amended and Restated Revolving Credit Note, Filed herewith. dated September 29, 1994, in the principal amount of $13,400,000. 4.10(a) Promissory Note dated September 30, 1994 in the Exhibit 4.1 to Current Report on Form 8-K principal amount of $2,000,000 payable by PRN filed on October 14, 1994. Holdings, Inc. to the order of KCI Therapeutic Services, Inc. 4.10(b) Promissory Note dated September 30, 1994 in the Exhibit 4.2 to Current Report on Form 8-K principal amount of $3,000,000 payable by PRN filed on October 14, 1994. Holdings, Inc. to the order of KCI Therapeutic Services, Inc. 4.10(c) Promissory Note dated September 30, 1994 in the Exhibit 4.3 to Current Report on Form 8-K principal amount of $5,000,000 payable by PRN filed on October 14, 1994. Holdings, Inc. to the order of KCI Therapeutic Services, Inc. 4.10(d) Promissory Note dated September 30, 1994 in the Exhibit 4.4 to Current Report on Form 8-K principal amount of $2,956,957 payable by filed on October 14, 1994. MEDIQ/PRN Life Support Services-I, Inc. to the order of KCI Therapeutic Services, Inc. 4.10(e) Promissory Note dated September 30, 1994 in the Exhibit 4.5 to Current Report on Form 8-K principal amount of $5,835,707 payable by filed on October 14, 1994. MEDIQ/PRN Life Support Services, Inc. to the order of KCI Therapeutic Services, Inc. 4.10(f) Negative Covenants Agreement dated September 30, Exhibit 4.6 to Current Report on Form 8-K 1994 by and among Kinetic Concepts, Inc., KCI filed on October 14, 1994. Therapeutic Services, Inc., MEDIQ, PRN Holdings, Inc. and MEDIQ/PRN Life Support Services-I, Inc.
4.10(g) Guaranty Agreement dated September 30, 1994 made Exhibit 4.7 to Current Report on Form 8-K by PRN Holdings, Inc. in favor of KCI Therapeutic filed on October 14, 1994. Services, Inc. 4.10(h) Guaranty Agreement dated September 30, 1994 made Exhibit 4.8 to Current Report on Form 8-K by MEDIQ Incorporated in favor of KCI Therapeutic filed on October 14, 1994. Services, Inc. 4.11 Loan and Security Agreement by and between Exhibit 4.9 to Current Report on Form 8-K Congress Financial Corporation and MEDIQ/PRN Life filed on October 14, 1994. Support Services-I, Inc. dated September 30, 1994. 4.12(a) PRN Holdings, Inc. Note Agreement, dated as of Exhibit 4.10 to Current Report on Form 8-K September 30, 1994 RE: $10,000,000 Senior filed on October 14, 1994. Subordinated Notes due October 1, 2004 and Warrants to Purchase Common Stock. 4.12(b) Form of Warrant to Purchase Shares of Common Stock Exhibit 4.11 to Current Report on Form 8-K of PRN Holdings, Inc. filed on October 14, 1994. 10.1 1981 Stock Option Plan, as Amended and Exhibit 10.2(a) to S-1 Registration Statement Restated. No. 33-5089 originally filed on December 30, 1981. 10.2 Stock Option Certificate, as Amended and Exhibit 10.2(b) to S-1 Registration Statement Restated. No. 33-5089 originally filed on December 30, 1981. 10.3 Description of Incentive Bonus Plan for Exhibit 10.3 to Annual Report on Form 10-K Employees. filed on December 27, 1982. 10.4(a) Memorandum of Installment Sale Agreement Exhibit 10.5(a) to Annual Report on Form 10-K between MEDIQ and the New Jersey Economic filed on December 27, 1982. Development Authority dated April 23, 1979. 10.4(b) Collateral Assignment of Installment Sale Exhibit 10.5(b) to Annual Report on Form 10-K Agreement between MEDIQ and the New Jersey filed on December 27, 1982. Economic Development Authority dated April 23, 1979. 10.4(c) Loan Agreement, dated April 23, 1979, between Exhibit 10.5(c) to S-1 Registration Statement R.H. Realty Management, Inc. and Girard Bank. No. 2-88029 originally filed on December 14, 1983, as amended. 10.4(d) Amendment, dated November 10, 1981, to Exhibit 10.5(d) to Annual Report on Form 10-K Installment Sale Agreement between MEDIQ and filed on December 27, 1982. the New Jersey Economic Development Authority. 10.4(e) Second Assignment of Installment Sale Agreement Exhibit 10.5(e) to Annual Report on Form 10-K between MEDIQ and the New Jersey Economic filed on December 27, 1982. Development Authority dated November 10, 1981. 10.4(f) Second Amendment, dated December 28, 1982, to Exhibit 10.5(g) to Annual Report on Form 10-K Installment Sale Agreement between MEDIQ and filed on December 27, 1982. the New Jersey Economic Development Authority. 10.4(g) Third Assignment of Installment Sale Agreement Exhibit 10.5(h) to Annual Report on Form 10-K between MEDIQ and the New Jersey Economic filed on December 27, 1982. Development Authority dated December 28, 1982. 10.4(h) Bond Purchase Agreement, dated December 28, Exhibit 10.5(i) to S-1 Registration Statement 1982, between MEDIQ, Fidelity Bank, and the New No. 2-88029 originally filed on December 14, Jersey Economic Development Authority. 1983, as amended. 10.4(i) Amendment, dated May 27, 1988 to Bond Purchase Exhibit 10.5(k) to Annual Report on Form 10-K Agreement, dated December 28, 1982 between filed on December 29, 1988. MEDIQ, Fidelity Bank and the New Jersey Economic Development Authority. 10.5 Employees' Savings Plan, as amended. Exhibit 10.6 to Annual Report on Form 10-K filed on December 29, 1988. 10.6 MEDIQ Executive Security Plan. Exhibit 10.23 to Form 8 filed on January 21, 1986. 10.7 1987 Stock Option Plan. Exhibit 10.26 to Annual Report on Form 10-K filed on December 29, 1987. 10.8 Employment contract with Michael F. Sandler. Exhibit 10.28 to Annual Report on Form 10-K filed on December 29, 1988. 10.9 Registration Rights Agreement, dated July 1, Annual Report on Form 10-K of 1991 between MEDIQ Incorporated and NutraMax NutraMax Products, Inc. for the Products, Inc. year ended September 30, 1991. 10.10 Form of Amendment to Registration Rights Exhibit 10.12 of S-2 Registration Agreement, dated July 1, 1991 among MEDIQ, Statement No. 33-61724 MEDIQ Investment Services, Inc. and NutraMax originally filed April 28, 1993, as amended. Products, Inc. 10.11 Asset Sale Agreement by and between MEDIQ Filed herewith Management Services, Inc. and Zurbrugg Memorial Hospital, dated as of September 30, 1994. 11 Statement re computation of per share earnings. Filed herewith 21 Subsidiaries of the Registrant. Filed herewith 23 Consent of Deloitte & Touche LLP Filed herewith 27 Financial Data Schedule Filed herewith 99.1 Financial Statements of NutraMax Products, Inc. Items 8 and 14 of the Annual Report (approx. 47% owned by MEDIQ as of September 30, on Form 10-K of NutraMax Products, Inc. 1994). for the fiscal year ended September 30, 1993 (File No. 0-18671). 99.2 Financial Statements of PCI Services, Inc. Items 8 and 14 of the Annual Report on (approx. 47% owned by MEDIQ as of September Form 10-K of PCI Services, 30, 1994). Inc. for the fiscal year ended September 30, 1993 (File No. 0-19795).
(d) FINANCIAL STATEMENTS OF UNCONSOLIDATED AFFILIATES: The financial statements of NutraMax Products, Inc. and PCI Services, Inc., unconsolidated affiliates of the Company, which are required to be filed pursuant to Item 14(d) of Form 10-K are filed herein through incorporation by reference under Rule 12b-23, promulgated under the Securities Exchange Act of 1934, as amended (the 'Act'), to the Annual Report on Form 10-K of each of such companies filed under the Act, which are included as exhibits to this Annual Report on Form 10-K pursuant to Rule 12b-23(c), and such exhibits are incorporated by reference into this Annual Report on Form 10-K under Rule 12b-32, promulgated under the Act. 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. Dated: January 6, 1995 MEDIQ Incorporated By: /s/ BERNARD J. KORMAN Bernard J. Korman President and Chief Executive Officer By: /s/ MICHAEL F. SANDLER Michael F. Sandler Senior Vice President -- Finance, Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------------------ ----------------------- /s/ BERNARD J. KORMAN President and Chief Executive Officer and January 6, 1995 Bernard J. Korman Director /s/ LIONEL H. FELZER Director January 6, 1995 Lionel H. Felzer /s/ BESSIE G. ROTKO Director January 6, 1995 Bessie G. Rotko /s/ MICHAEL J. ROTKO Chairman of the Board January 6, 1995 Michael J. Rotko and Director /s/ MICHAEL F. SANDLER Director January 6, 1995 Michael F. Sandler Jacob Shipon Vice Chairman of the Board and Director /s/ MARK LEVITAN Director January 6, 1995 Mark Levitan /s/ H. SCOTT MILLER Director January 6, 1995 H. Scott Miller
MEDIQ INCORPORATED AND SUBSIDIARIES SCHEDULE III CONDENSED STATEMENTS OF OPERATIONS (REGISTRANT -- ONLY) YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
YEAR ENDED SEPTEMBER 30, -------------------------------- 1994 1993 1992 --------- --------- ---------- (IN THOUSANDS) Revenues: Management fees $ 6,770 $ 9,454 $ 13,238 Other 1,917 3,664 3,288 --------- --------- ---------- 8,687 13,118 16,526 Other (income) and expenses: General and administrative 7,114 8,385 9,749 Depreciation and amortization 903 1,634 2,344 Interest expense 7,518 7,635 10,177 Interest income (4,621) (4,134) (9,077) (Earnings) losses from unconsolidated subsidiaries and affiliates, net of taxes 6,811 (1,195) (321) Other -- net (1,660) (3,268) (7,632) --------- --------- ---------- 16,065 9,057 5,240 --------- --------- ---------- Income (Loss) from Continuing Operations before Income Taxes and Extraordinary Charge (7,378) 4,061 11,286 Income Tax Expense (Benefit) (60) (553) 2,117 --------- --------- ---------- Income from Continuing Operations before Extraordinary Charge (7,318) 4,614 9,169 Discontinued Operations (1) -- (365) (17,040) --------- --------- ---------- Income (Loss) before Extraordinary Charge (7,318) 4,249 (7,871) Extraordinary Charge, Early Retirement of Debt -- (953) (6,682) --------- --------- ---------- Net Income (Loss) $ (7,318) $ 3,296 $ (14,553) --------- --------- ---------- --------- --------- ---------- Earnings Per Share: Income (Loss) from: Continuing Operations $ (.30) $ .19 $ .38 Discontinued Operations (1) -- (.01) (.71) --------- --------- ---------- Income (Loss) before Extraordinary Charge (.30) .18 (.33) Extraordinary Charge -- (.04) (.28) --------- --------- ---------- Net Income (Loss) $ (.30) $ .14 $ (.61) --------- --------- ---------- --------- --------- ----------
- ------------------ (1) Loss from discontinued operations does not agree to the consolidated statements of operations because the respective management fees and intercompany interest of discontinued operations have not been eliminated. See Notes to Schedule III MEDIQ INCORPORATED AND SUBSIDIARIES SCHEDULE III CONDENSED BALANCE SHEETS (REGISTRANT -- ONLY) YEARS ENDED SEPTEMBER 30, 1994 AND 1993
SEPTEMBER 30, ------------------------ 1994 1993 ----------- ----------- (IN THOUSANDS) ASSETS Current Assets: Cash $ 166 $ 12,293 Accounts receivable 303 1,131 Deferred taxes 867 -- Prepaid income taxes -- 3,578 Other current assets 2,527 2,324 ----------- ----------- Total Current Assets 3,863 19,326 Investments in unconsolidated subsidiaries and affiliates 100,416 74,483 Advances to unconsolidated subsidiaries 8,526 25,228 Property, plant and equipment -- net 11,177 11,635 Note receivable -- MHM 11,500 11,500 Deferred income taxes 12,165 8,240 Goodwill 656 8,310 Other assets 10,118 12,657 ----------- ----------- Total Assets $ 158,421 $ 171,379 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to financial institutions $ 1,000 $ -- Accounts payable 513 1,601 Accrued expenses 12,608 13,630 Other current liabilities 723 1,290 Current portion of long-debt 1,277 13,781 ----------- ----------- Total Current Liabilities 16,121 30,302 Senior debt -- recourse 15,649 7,154 Subordinated debt 86,229 86,229 Other liabilities 4,142 3,120 Stockholders' Equity: Preferred stock 3,408 3,419 Common stock 19,064 19,042 Additional paid-in capital 22,357 23,349 Retained earnings (accumulated deficit) (1,120) 8,281 Treasury stock (7,429) (9,517) ----------- ----------- Total Stockholders' Equity 36,280 44,574 ----------- ----------- Total Liabilities and Stockholders' Equity $ 158,421 $ 171,379 ----------- ----------- ----------- -----------
See Notes to Schedule III MEDIQ INCORPORATED AND SUBSIDIARIES SCHEDULE III CONDENSED STATEMENTS OF CASH FLOWS (REGISTRANT -- ONLY) YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
YEAR ENDED SEPTEMBER 30, -------------------------------- 1994 1993 1992 --------- --------- ---------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (7,318) $ 3,296 $ (14,553) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities 10,681 (19,419) 14,348 --------- --------- ---------- Net cash provided by (used in) operating activities 3,363 (16,123) (205) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of subsidiaries and assets 1,672 8,667 14,338 Net cash provided by (used in) unconsolidated affiliates and subsidiaries (11,557) 9,529 23,401 Purchase of property, plant and equipment (135) (2,421) (87) Other (138) (3,099) 1,701 --------- --------- ---------- Net cash provided by (used in) investing activities (10,158) 12,676 39,353 CASH FLOWS FROM FINANCING ACTIVITIES Borrowings 10,634 34,646 9,848 Debt repayments (13,642) (19,623) (46,139) Dividends (2,722) (1,903) (1,151) Proceeds from exercise of stock options 398 642 -- --------- --------- ---------- Net cash provided by (used in) financing activities (5,332) 13,762 (37,442) Increase (decrease) in cash (12,127) 10,315 1,706 Cash Beginning balance 12,293 1,978 272 --------- --------- ---------- Ending balance $ 166 $ 12,293 $ 1,978 --------- --------- ---------- --------- --------- ---------- Supplemental disclosure of cash flow information: Interest paid $ 7,841 $ 8,218 $ 9,651 --------- --------- ---------- --------- --------- ---------- Income taxes paid (refunded) $ (2,801) $ (1,727) $ 3,783 --------- --------- ---------- --------- --------- ----------
See Notes to Schedule III MEDIQ INCORPORATED AND SUBSIDIARIES SCHEDULE III NOTES TO CONDENSED FINANCIAL STATEMENTS (REGISTRANT -- ONLY) NOTE A -- DEBT
YEAR ENDED SEPTEMBER 30, ------------------------ 1994 1993 --------- --------- (IN THOUSANDS) Senior recourse debt: Revolving credit facility $ 11,147 $ -- Term loans payable in varying installments through 2005 at rates ranging from prime (7.75% at September 30, 1994) to 12% 1,862 4,208 Mortgage payable in installments through 1998 at a fixed rate of 10.25% 3,917 4,917 Subordinated Debt: 7.5% exchangeable subordinated debentures due 2003 34,500 34,500 7.25% convertible subordinated debentures due 2006 51,729 51,729 6% convertible subordinated debentures due 1994 -- 11,810 --------- --------- 103,155 107,164 Current portion (1,277) (13,781) --------- --------- $ 101,878 $ 93,383 --------- --------- --------- ---------
Maturities of long term debt at September 30, 1993 are as follows: 1995 $ 1,277 1996 4,716 1997 9,889 1998 9,805 1999 5,173 Thereafter 72,295 ----------- $103,155 ----------- -----------
Certain of the Registrant's loan agreements require the maintenance of specified financial ratios and impose financial limitations. At September 30, 1994, the Registrant either complied with or obtained the necessary waivers from its lenders regarding these ratios and limitations. As of September 30, 1994, the terms of one of the Registrant's loan agreements did not permit the Registrant to pay dividends or purchase shares of its stock. NOTE B -- DIVIDENDS FROM UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES There were no cash dividends received by the Registrant from unconsolidated subsidiaries and affiliates for the fiscal years ended September 30, 1994 and 1993. MEDIQ INCORPORATED AND SUBSIDIARIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- COL. A. COL. B. COL. C. COL. D. COL. E. - -------------------------------------------------------------------------------------------------------------------- ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER (2) END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS PERIOD - -------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 1994: Allowance for doubtful accounts $ 7,259 $ 5,735 $ 76 $ 5,208(3) $ 7,862 ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- YEAR ENDED SEPTEMBER 30, 1993: Allowance for doubtful accounts $ 8,766 $ 5,990 $ 724 $ 8,221 $ 7,259 ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- YEAR ENDED SEPTEMBER 30, 1992: Allowance for doubtful accounts $ 7,576 $ 4,489 $ 3,249 $ 6,548 $ 8,766 ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
- ------------------ (1) Primarily represents allowances for doubtful accounts related to acquisitions. (2) Represents accounts directly written-off net of recoveries. (3) Includes reduction in allowance related to the merger of MEDIQ Equipment & Maintenance Services, Inc. INDEX TO EXHIBITS EDGAR EXHIBIT NO. DESCRIPTION PAGE - ----------- ---------------------------------------------------------------------------------------------- ----------- 4.8(b) Supplemental Indenture 54 4.9(b) Amendment No. 1 to Revolving Credit Loan and Pledge and Security Agreement 56 4.9(c) Amendment No. 2 to Revolving Credit Loan and Pledge and Security Agreement 67 4.9(d) Form of Second Amended and Restated Revolving Credit Note 79 10.11 Asset Sale Agreement 82 11 Statement re: Computation of per share earnings 96 21 Subsidiaries of the Registrant 97 23 Consent of Deloitte & Touche, LLP independent auditors 98 27 Financial Data Schedules 99 99.1 Nutramax Products, Inc. 10-K 100 99.2 PCI Services, Inc. 10-K 128
EX-4.8(B) 2 SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE, dated as of September 30, 1994 between MEDIQ/PRN Life Support Services, Inc., a Delaware corporation (the 'Company'), and United Jersey Bank, as Trustee (the 'Trustee') under an Indenture dated as of July 6, 1992 (the 'Original Indenture'). WITNESSETH: WHEREAS, the Company has heretofore executed and delivered to the Trustee the Original Indenture providing for the issuance of the Company's 11 1/8% Senior Secured Notes Due 1999 (the 'Senior Secured Notes'); and WHEREAS, Section 9.01 of the Original Indenture authorizes the Company and the Trustee, without the consent of the Noteholders, to amend the Original Indenture, the Security Documents or the Senior Secured Notes and to execute a Supplemental Indenture in connection therewith, to make any change that does not adversely affect the rights of any Noteholder under the Original Indenture; and WHEREAS, all acts and proceedings required by law and by the Original Indenture to constitute this Supplemental Indenture a valid and binding agreement for the uses and purposes herein set forth, in accordance with its terms, have been done and taken, and the execution and delivery of this Supplemental Indenture have been in all respects duly authorized by the Company. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company covenants and agrees with the Trustee, for the equal and proportionate benefit of all present and future Noteholders, as follows: 1. Article 4 of the Original Indenture is hereby amended by the inclusion of the following new Section following Section 4.01: Section 4.01.1. Collateral Enhancement If the right, title and interest of MEDIQ/PRN Life Support Services-I, Inc., a Delaware corporation, ('PRN-I') in its Medical Equipment, except for Excluded Equipment (as hereinafter defined), have not become Collateral for the Senior Secured Notes under the terms of the Security Documents (the 'Collateral Enhancement') prior to September 30, 1995 (the 'Rate Increase Effective Date'), the Company agrees to pay to the holders of the Senior Secured Notes additional interest at the rate of 1% per annum (the 'Rate Increase'), from the Rate Increase Effective Date to but not including the Rate Increase Termination Date payable at the same time and in the same manner as provided for interest payments on the Senior Secured Notes in the Original Indenture. The Rate Increase will continue in effect only until the Collateral Enhancement has been effected by the Company (the 'Rate Increase Termination Date'), as evidenced by the execution of such documents as the Company and the Trustee deem reasonably necessary. For the purposes of this paragraph, Excluded Equipment is defined as any Medical Equipment acquired by PRN-I, acquired after the effective date of this Supplemental Indenture, which is subject to Capitalized Lease Obligations or other indebtedness incurred in connection with the purchase of assets. The Rate Increase shall constitute interest for all purposes of the Original Indenture including Section 6.01(a)(i) thereof. Notwithstanding the foregoing and the provisions of Section 6.01 of the Original Indenture, the failure of the Company to effect the Collateral Enhancement shall not constitute a Default or Event of Default under Section 6.01 of the Original Indenture. 2. Except as hereby expressly amended, the Original Indenture and the Senior Secured Notes issued thereunder are in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. 3. This Supplemental Indenture shall form a part of the Original Indenture for all purposes, and every Note heretofore or hereafter authenticated and delivered shall be bound hereby. 4. This Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, and all of such counterparts shall together constitute one and the same instrument. All capitalized terms used and not otherwise defined herein shall have the meanings given them in the Original Indenture, the Senior Secured Notes or the Security Documents as applicable. 5. This Supplemental Indenture shall be construed in accordance with and governed by the laws of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, and their respective seals to be hereunto affixed and attested, all as of the day and year first above written. [Corporate Seal] MEDIQ/PRN Life Support Services, Inc. By: Michael F. Sandler Michael F. Sandler, Vice President Attest: Steven J. Feder Steven J. Feder, Asst. Secretary [Corporate Seal] United Jersey Bank, as Trustee By: J.C. LUDES J.C. Ludes, Vice President Attest: John P. Workstus John P. Workstus, Assistant Secretary
EX-4.9(B) 3 REVOLVING CREDIT LOAN AGREEMENT AMENDMENT NO. 1 TO REVOLVING CREDIT LOAN AGREEMENT AND PLEDGE AND SECURITY AGREEMENT Amendment No. 1 (the 'Amendment') to a certain Revolving Credit Loan Agreement and Pledge and Security Agreement, each dated as of October 14, 1993, between UNITED JERSEY BANK (successor in interest to United Jersey Bank/South, N.A.) (the 'Bank') and MEDIQ INCORPORATED, a Delaware corporation ('Mediq'), and MEDIQ INVESTMENT SERVICES, INC., a Delaware corporation ('Investment', collectively with Mediq, the 'Borrowers'). WHEREAS, the Bank and the Borrowers made, executed and delivered a Revolving Credit Loan Agreement, dated October 14, 1993 (the 'Original Loan Agreement'), and in connection therewith the Borrowers executed and delivered a Revolving Credit Note in the principal amount of $7,500,000, dated as of October 14, 1993, to the Bank (the 'Original Note'); and WHEREAS, as security for (a) the punctual performance in full by the Borrowers of their obligations under the Loan Documents (as such term is defined in the Original Loan Agreement), (b) the punctual payment in full of all amounts owing or to be owing under any Loan Document, (c) the punctual payment of any other amounts which at any time may be due and payable from either Borrower to the Bank, and (d) the punctual payment in full by each Borrower of their respective obligations under a certain Pledge and Security Agreement, dated as of October 14, 1993, between the Borrowers and the Bank (the 'Original Pledge Agreement'), in each case whether presently existing or hereafter arising (collectively, the 'Secured Obligations'), Investment granted a security interest to the Bank in the Stock (as such term is defined in the Original Pledge Agreement), pursuant to the terms and provisions of the Original Pledge Agreement; and WHEREAS, the Borrowers have requested that the Bank amend the terms and provisions of the Original Loan Agreement and the Original Pledge Agreement to (a) increase the Revolving Credit Loan Limit (as such term is defined in the Original Loan Agreement) from $7,500,000 to $8,400,000, and (b) permit Investment to pledge to the Bank, as collateral for the Secured Obligations, shares of the common stock issued by PCI Services, Inc., a Delaware corporation ('PCI'), which are owned by Investment, and the Bank is willing to consent to such amendments upon the terms and conditions set forth herein and in a certain Amended and Restated Revolving Credit Note, in the principal amount of $8,400,000 from the Borrowers to the Bank, substantially in the form of Annex I attached hereto (the 'Restated Note'). NOW, THEREFORE, in consideration of the mutual promises herein contained, and each intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Except as expressly defined herein, all terms used herein shall have the meanings ascribed to them in the Original Loan Agreement. This Amendment is intended to amend the Original Loan Agreement and the Original Pledge Agreement and the Original Loan Agreement and the Original Pledge Agreement shall be so amended from and as of the date hereof. 2. The Original Loan Agreement shall be amended so that all references to (a) 'Agreement' contained therein shall mean the Original Loan Agreement, as amended herein, and as further amended, supplemented or modified from time to time, (b) 'Revolving Credit Note' contained therein shall mean the Restated Note, as further amended, supplemented or modified from time to time, (c) 'Pledge Agreement' contained therein shall mean the Original Pledge Agreement, as amended herein, and as further amended, supplemented or modified from time to time, and (d) 'Letter Agreement' contained therein shall mean 'Letter Agreements' (as such term is defined in subparagraph 5(a) of the Original Loan Agreement, as amended herein). 3. Subparagraph 2(a) of the Original Loan Agreement is hereby amended to read in its entirety as follows: (a) In reliance on the representations, warranties and covenants contained in, and upon the terms and conditions of, this Agreement, the Bank agrees to make loans (herein called the 'Revolving Credit Loans') to the Borrowers, at such time or times on or before October 14, 1995 (the 'Termination Date') and in such amount as to each borrowing as the Borrowers shall request, subject to the limitations set forth in subparagraphs 2(f) and 2(i) hereof, up to and not exceeding at any one time an aggregate outstanding principal amount equal to Eight Million Four Hundred Thousand Dollars ($8,400,000) (the 'Revolving Credit Loan Limit'). 4. The reference to '$2,500,000' contained in subparagraph 2(f) of the Original Loan Agreement is hereby changed to '$3,400,000.' 5. Subparagraph 2(i) of the Original Loan Agreement is hereby amended to read in its entirety as follows: '(i) Subject to the provisions of this paragraph 2, the Borrowers may make borrowings under the Revolving Credit Loan for working capital purposes (the 'Working Capital Advances'), at such time or times, and in such amount as to each borrowing, as the Borrowers may request pursuant to subparagraph 2(k) below, so long as (i) the amount of each such Working Capital Advance, when added to the amount of all Revolving Credit Loans then outstanding (which includes the aggregate principal amount of all Working Capital Advances then outstanding, the face amount of all Letters of Credit then outstanding pursuant to the provisions of subparagraph 2(f), and the amount of all unreimbursed Draws pursuant to subparagraph 2(h)) does not exceed the Revolving Credit Loan Limit, (ii) the amount of each such Working Capital Advance, when added to the amount of all Working Capital Advances then outstanding hereunder, does not exceed $7,500,000 (the 'Working Capital Advance Sublimit'), and (iii) the purpose of each such Working Capital Advance is to provide working capital to a Borrower. In addition, the Bank will have no obligation to make advances of the Revolving Credit Loan unless, on the date of the advance, the conditions precedent set forth in paragraph 6 below shall have been satisfied' 6. Subparagraph 2(m) of the Original Loan Agreement is hereby amended to read in its entirety as follows: '(m) In the event that at any time (i) the amount outstanding under the Revolving Credit Loan exceeds the Revolving Credit Loan Limit or (ii) the aggregate outstanding principal balance of the Working Capital Advances then outstanding hereunder exceeds the Working Capital Advance Sublimit, the Borrowers shall be jointly and severally required to pay to the Bank immediately an amount thereof such that the outstanding balance of the Revolving Credit Loan shall not exceed the Revolving Credit Loan Limit and the aggregate outstanding principal balance of the Working Capital Advances then outstanding hereunder shall not exceed the Working Capital Advance Sublimit. Failure to make such payment shall constitute an Event of Default under this Agreement.' 7. Paragraph 5 of the Original Loan Agreement is hereby amended to read in its entirety as follows: '5. Security. (a) As security for all of the Obligations of the Borrowers to the Bank, including without limitation all amounts owed by the Borrowers to the Bank under this Agreement, the Revolving Credit Note or the Term Note, Investment is providing to the Bank an unconditional pledge of (i) 1,782,356 shares (the 'NutraMax Shares') of the common stock of NutraMax and (ii) and 250,000 shares (the 'PCI Shares' together, with the NutraMax Shares, the 'Shares') of the common stock of PCI Services, Inc., a Delaware corporation ('PCI'), and the Borrower shall hereafter provide such other shares of the common stock of NutraMax and/or PCI as is required to be pledged pursuant to subparagraph 5(b) below (collectively with the Shares, the 'Pledged Stock') pursuant to a Pledge and Security Agreement substantially in the form of Annex IV hereto (the 'Pledge Agreement'). In connection therewith, the Borrowers shall also cause to be delivered to the Bank a certain Letter Agreement between NutraMax and the Bank, and a certain Letter Agreement between PCI and the Bank, each substantially in the form of Annex V hereto (the 'Letter Agreements'). (b) So long as the Revolving Credit Loan or the Term Loan, if applicable, shall remain outstanding or this Agreement shall remain in effect, within one (1) Business Day after the last trading day of each calendar month, the Pledged Stock shall be valued by the Bank and the Borrowers (the 'Pledged Stock Value') based on the last trading price of the Pledged Stock quoted in the Nasdaq National Market System (or any other national securities exchange or automated quotation system of a national securities association if, pursuant to the terms of the Letter Agreements, the Pledged Stock is on such exchange or system) on the last trading day of such calendar month (the 'Valuation Date'). In the event that the Revolving Credit Loan Limit is greater than forty-seven (47%) percent of the Pledged Stock Value, the Borrowers, within three (3) business days after the Valuation Date, shall either: (i) elect to effect a permanent reduction in the Revolving Credit Loan Limit in such amount as is necessary to ensure that it is not greater than forty-seven (47%) percent of the Pledged Stock Value by the delivery of a written notice to the Bank in the form of Schedule A attached hereto, and pay to the Bank an amount thereof such that the outstanding balance of the Revolving Credit Loan does not exceed the revised Revolving Credit Loan Limit, or (ii) provide the Bank with a pledge of such number of additional shares of the capital stock of NutraMax and/or PCI, upon terms and conditions satisfactory to the Bank in its sole discretion, as is necessary so that the Revolving Credit Loan Limit is not greater than forty-seven percent (47%) of the Pledged Stock Value. (Any additional shares of the capital stock of NutraMax or PCI pledged by the Borrowers to the Bank pursuant to the provisions of this subparagraph 5(b)(ii) shall be deemed to be Pledged Stock for purposes of this Agreement). Failure of the Borrowers to comply with the requirements set forth in subparagraph 5(b)(i) or subparagraph 5(b)(ii) above shall constitute an immediate Event of Default without additional notice or grace period. No failure of the Bank to exercise, or timely exercise, the rights and procedures described in this subparagraph 5(b) shall operate as a waiver thereof or operate to preclude any such future exercise. (c) In the event that the Revolving Credit Loan Limit is less than forty-seven percent (47%) of the Pledged Stock Value on any Valuation Date (based on the valuation required under subparagraph 5(b) above), the Borrowers, within three (3) Business Days of the Valuation Date, may request that the Bank return to the Borrowers such number of shares of the Pledged Stock as is necessary so that the Revolving Credit Loan Limit is not less than forty-seven percent (47%) of the Pledged Stock Value. The Borrowers' right to make such a request for the return of Pledged Stock shall be limited to three (3) requests per calendar year. The Bank shall not be required to return Pledged Stock under this subparagraph 5(c) until such steps have been taken as the Bank has determined are necessary to ensure the Bank's continued position as the holder of a perfected lien in the Pledged Stock retained by the Bank.' 8. Subparagraph 9(a) of the Original Loan Agreement shall be amended to read in its entirety as follows: '(a) Structure; Etc. (i) Dissolve, or merge or consolidate with or into any other corporation or business entity; sell, lease or otherwise dispose of substantially all of its assets; or consent to, or approve of, (A) the dissolution of NutraMax or PCI, (B) the sale of all or substantially all of the assets of NutraMax or PCI, or (C) the lease or encumbrance of substantially all the assets of NutraMax or PCI for less than adequate consideration; (ii) Sell, transfer, or otherwise dispose of any of the capital stock of Investment; or (iii) Alter or amend Investment's capital structure; or issue, purchase, redeem or retire any shares of Investment's capital stock.' 9. Subparagraph 9(f) of the Original Loan Agreement shall be amended to read in its entirety as follows: '(f) Stock of NutraMax and PCI. Sell, register, or pledge or cause, or permit any of its Subsidiaries to sell, register or pledge, any of the capital stock of NutraMax or PCI unless pursuant to the terms of (i) the Pledge Agreement, (ii) a certain employee stock ownership plan implemented by NutraMax on behalf of its employees in effect as of April 28, 1988, for a ten year period, (iii) a certain employee stock ownership plan implemented by PCI on behalf of its employees in effect as of September 21, 1991, or (iv) the 7 1/2% Indenture.' 10. Subparagraphs 10(d) through 10(i) of the Original Loan Agreement shall be amended to read in their entireties as follows: '(d) Any material representation, statement or warranty made by NutraMax or PCI in the Letter Agreements shall prove to have been incorrect in any material respect when made; or (e) NutraMax or PCI shall default in the performance or observance of any term, covenant or agreement contained in the Letter Agreements; or (f) A receiver shall be appointed with respect to any Borrower, NutraMax or PCI, or any of their respective assets, and such action shall not be discharged or stayed within thirty (30) days; or (g) An attachment, garnishment, levy or involuntary lien shall be made, issued or filed against any of the assets of any Borrower, NutraMax or PCI in the aggregate amount of $500,000, $250,000 and $250,000, respectively, and such action shall not be discharged or stayed within thirty (30) days; (h) Either Borrower, NutraMax or PCI shall (i) apply for, consent to or permit the appointment of a trustee or liquidator of either Borrower, NutraMax or PCI, or of all or a substantial part of any such entity's assets, (ii) be unable, or admit in writing its inability, to pay debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, or (v) file a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any insolvency law, or an answer admitting the material allegations of a petition filed against it in any such proceeding; or (i) A judgment or judgments for the payment of money in excess of the sum of (i) $500,000 in the aggregate shall be rendered against any Borrower, (ii) $250,000 in the aggregate shall be rendered against NutraMax, or (iii) $250,000 in the aggregate shall be rendered against PCI, which shall remain unsatisfied and in effect for any period of thirty (30) consecutive days without a stay of execution; or.' 11. Subparagraph 10(r) of the Original Loan Agreement shall be amended to read in its entirety as follows: '(r) A material change shall occur in the business, financial condition, assets or affairs or either Borrower, NutraMax and/or PCI which in the Bank's reasonable opinion materially increases its risk hereunder.' 12. The Original Pledge Agreement shall be amended so that all references to (a) 'Loan Agreement' contained therein shall mean the Original Loan Agreement, as amended herein, and as further amended, supplemented or modified from time to time, (b) 'Revolving Credit Note' contained therein shall mean the Restated Note, as further amended, supplemented or modified from time to time, and (c) 'Issuer' contained therein shall mean the Issuers (as such term is defined in subparagraph 2(a) of the Original Pledge Agreement, as amended herein). 13. Paragraph 2 of the Original Pledge Agreement shall be amended to read in its entirety as follows: '2. Pledge of Stock. (a) As security for (i) the punctual performance in full by the Borrowers, NutraMax Products, Inc., a Delaware corporation ('NutraMax'), and PCI Services, Inc., a Delaware corporation ('PCI', together with NutraMax, the 'Issuers') of their respective obligations under the Loan Documents, (ii) the punctual payment in full of all amounts owing or to be owing under any Loan Document, (iii) the punctual payment of any other amounts which at any time may be due and payable from either Borrower to the Bank, and (iv) the punctual performance in full by the Borrowers of their respective obligations under this Agreement, in each case whether presently or hereafter arising (collectively, the 'Obligations'), the Pledgor hereby delivers, pledges and grants to the Bank a security interest in all of the Pledgor's right, title and interest in and to (A) 1,782,356 shares (the 'NutraMax Shares') of the Common Stock of NutraMax and (B) 250,000 shares (the 'PCI Shares', together with the NutraMax Shares, the 'Shares'), and such other shares of Common Stock of the Issuers as is hereinafter required to be pledged by the Borrowers to the Bank pursuant to subparagraph 5(b) of the Loan Agreement (collectively, the 'Pledged Stock'), and all certificates, options, rights or other distributions issued as an addition to, in substitution or exchange for, or on account of, any share of the Pledged Stock, and all proceeds of all the foregoing, now or hereafter owned or acquired by the Pledgor (the 'Stock'). (b) The Shares of the Pledged Stock issued by NutraMax are recorded in the stock ledger of NutraMax in the name of the Pledgor, and are represented by two (2) stock certificates (the 'NutraMax Share Certificates') bearing Certificate Nos. NMP5424 and NMP6027, issued to the Pledgor. The NutraMax Share Certificates accompanied by stock powers duly executed in blank have heretofore been delivered to the Bank to be held by the Bank as provided in this Agreement. (c) The Shares of the Pledged Stock issued by PCI are recorded in the stock ledger of PCI in the name of the Pledgor, and are represented by a single stock certificate (the 'PCI Share Certificate' together, with the NutraMax Share Certificate, the 'Share Certificates') of PCI bearing Certificate No. ____, issued to the Pledgor. The PCI Share Certificate, accompanied by a stock power duly executed in blank has heretofore been delivered to the Bank to be held by the Bank as provided in this Agreement. (d) The Bank accepts the deposit and pledge of the Stock made by the Pledgor hereunder, acknowledges the receipt of the Share Certificates and their accompanying stock powers, and agrees to hold the Stock in accordance with the terms and provisions of this Agreement.' 14. Subparagraph 3(g) of the Original Pledge Agreement shall be amended to read in its entirety as follows: '(g) NutraMax's currently outstanding capital stock consists of 8,438,948 shares of common stock, par value $.001 per share. The Pledgor owns 47.8% of the currently outstanding shares of NutraMax's common stock. At no time since the date of the consummation of NutraMax's public offering, and the exercise of the underwriter's overallotment in connection therewith, has the Pledgor owned more than 50% of the outstanding shares of NutraMax's common stock.' 15. Paragraph 3 of the Original Pledge Agreement shall be further amended to add the following subparagraphs: '(k) PCI's currently outstanding capital stock consists of 6,841,250 shares of common stock, par value $.001 per share. The Pledgor owns 42% of the currently outstanding shares of PCI's common stock. At no time since February 28, 1992 has the Pledgor owned more than 50% of the outstanding shares of PCI's common stock. (l) PCI's common stock is quoted on the Nasdaq National Market System under the symbol 'PCIS.' (m) The transfer agent for PCI's Common Stock is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.' 16. Subparagraph 3(j) of the Original Pledge Agreement is hereby amended to read in its entirety as follows: '(j) The transfer agent for NutraMax's common stock is Midlantic National Bank, Corporate Trust Department, 499 Thornall Street, Edison, New Jersey 08818.' 17. Subparagraph 4(d) of the Original Pledge Agreement shall be amended to read in its entirety as follows: '(d) Neither Borrower will consent to, or approve of, the dissolution or liquidation of any Issuer; the sale of all or substantially all the assets of any Issuer; or the lease or encumbrance of substantially all of the assets of any Issuer for less than adequate consideration.' 18. Subparagraph 4(g) of the Original Pledge Agreement shall be amended so that all references to 'the Issuer' contained therein shall be deemed to be references to 'NutraMax'. 19. Simultaneously with the execution and delivery of this Amendment by the Borrowers, Investment is delivering to the Bank 250,000 shares of PCI's common stock, par value $.001 per share (the 'PCI Shares') to be held by the Bank as Pledged Stock pursuant to the terms and provisions of the Original Loan Agreement, as amended herein, and the Original Pledge Agreement, as amended herein, as security for all Obligations arising under the Original Loan Agreement, as amended herein, the Restated Note, and the Term Note, if applicable. The Borrowers hereby, jointly and severally, represent, covenant and warrant to the Bank as follows: (a) Upon the PCI Registration Statement (as such term is defined hereinafter) being declared effective by the SEC (as such term is defined hereinafter), the PCI Shares will be freely transferrable by the Bank pursuant to the terms and provisions of the Original Pledge Agreement, as amended herein, following the occurrence of an Event of Default without further registration with, or further approval by, or notice to, any federal or state governmental authority. (b) PCI is a corporation duly incorporated, in good standing and validly existing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions wherein the character of the property owned or leased or the nature of the business transacted by it makes qualification as a foreign corporation necessary. PCI has the necessary corporate power to execute, deliver and perform the Letter Agreement to be delivered by it to the Bank pursuant to subparagraph 23(g) hereof. (c) The execution, delivery and performance by PCI of the PCI Letter Agreement have been duly authorized by all necessary action and will not violate any provision of law or of its Certificate of Incorporation or By-laws or other constituent document, or result in the breach of, or constitute a default under, or result in the creation of any lien, charge or incumbrance upon any of its property or assets (other than as expressly provided in the PCI Letter Agreement) pursuant to, any indenture, agreement or instrument to which it is a party or by which it or any of its property may be bound or affected. The PCI Letter Agreement has been duly executed and delivered by PCI and constitutes the legal, valid and binding obligation of PCI, enforceable in accordance with its terms. (d) No approval or consent by, or notice to or filing with, any third party, including without limitation any governmental or regulatory authority, is required for the authorization, or in connection with the execution, delivery and performance, of the PCI Letter Agreement, other than the filing of the PCI Registration Statement with the SEC. (e) PCI has all governmental consents, licenses and approvals required for the conduct of its business as presently conducted and the execution, delivery and performance of the PCI Letter Agreement. (f) All of the PCI Shares are eligible for registration with the SEC on Form S-3. 20. The Borrowers acknowledge that, as of the date hereof, the principal amount outstanding under the Original Note is $______, that such amount is owing to the Bank without any claim, defense or set-off, and that such amount shall be treated as having been advanced to each of the Borrowers (who shall be jointly and severally liable for the repayment thereof to the Bank). This Amendment does not constitute the extinguishment of any debt evidenced by the Original Note and the Borrowers confirm their full liability with respect thereto. 21. Pursuant to the terms of paragraph 6 of the Original Loan Agreement, as amended herein, the Borrowers have provided to the Bank, as security for all Obligations arising under the Original Loan Agreement, the Original Note, the Term Note, if applicable, and each other Loan Document, an unconditional pledge of the Pledged Stock, including without limitation the PCI Shares, pursuant to the terms and provisions of the Original Pledge Agreement, as amended herein. The Borrower hereby ratifies and confirms without condition the pledge of the Pledged Stock, including without limitation the PCI Shares, granted to the Bank under and pursuant to the Original Loan Agreement, as amended herein, including without limitation those liens and security interests granted under the Original Pledge Agreement, as amended herein; and further ratifies and confirms, without condition, that (a) such liens and security interests shall secure all amounts due or to become due under the Original Loan Agreement, as amended herein, the Restated Note, the Term Note, if applicable, the LC Agreement, and any LC Application, including without limitation, any amounts paid by the Bank on account of any draft issued under, or purporting to have been issued under, the LC Agreement, any LC Application or any Letter of Credit, and (b) the perfected status and priority of such liens and security interests shall not be affected in any way by the amendments to the Original Loan Agreement and the Original Pledge Agreement set forth herein or the execution and delivery by the Borrowers of the Restated Note. 22. All representations, warranties and covenants of the Borrowers contained in the Original Loan Agreement or the Original Pledge Agreement, are hereby ratified and confirmed without condition as if made anew upon the execution of this Amendment and are hereby incorporated by reference. All representations, warranties and covenants of the Borrowers, whether hereunder, or contained in the Original Loan Agreement or the Original Pledge Agreement, shall remain in full force and effect until all amounts due under the Original Loan Agreement and the Original Pledge Agreement, each as amended herein, the Restated Note, the Term Note, if applicable, the LC Agreement, and any LC Application are satisfied in full. The Borrowers represent and warrant that there has been no material changes or modifications to the provisions of the Certificate of Incorporation or By-Laws of each Borrower which were previously delivered to the Bank in connection with the Original Loan Agreement. 23. As a condition precedent to the effectiveness of this Amendment (excluding paragraphs 3, 4 and 5 hereof), simultaneously with the execution and delivery of this Amendment, the Borrowers shall deliver to the Bank the following: (a) A certificate of the Secretary or an Assistant Secretary of each Borrower certifying the names of the officers of such Borrower authorized to execute this Amendment, the Restated Note, and any other document hereunder; (b) Certified copies of resolutions of the directors of each Borrower authorizing the execution, delivery and performance of this Amendment, the Restated Note, and any other document hereunder, which resolutions shall be in form and substance satisfactory to the Bank in its sole discretion; (c) The fully executed Restated Note; (d) The PCI Shares and stock powers executed in blank (in form satisfactory to the Bank); (e) A favorable opinion of Alan Einhorn, general counsel to the Borrowers, addressed to the Bank, in substantially the form of Annex II hereto, and as to such other matters as the Bank may reasonably request; (f) An acknowledgment executed by an authorized officer of NutraMax, substantially in the form of Annex III attached hereto, and otherwise in form and substance satisfactory to the Bank in its sole discretion, that the amendments to the Original Loan Agreement and the Original Pledge Agreement effectuated by this Amendment do not affect, in any way, the obligations of NutraMax set forth in that certain Letter Agreement dated as of October 14, 1993 between the Bank and NutraMax; (g) A Letter Agreement, substantially in the form of Annex IV attached hereto, and otherwise in form and substance satisfactory to the Bank in its sole discretion, executed by PCI (the 'PCI Letter Agreement'); (h) Certified copies of resolutions of the Board of Directors of PCI authorizing the execution, delivery and performance of the PCI Letter Agreement, which resolutions shall be in form and substance satisfactory to the Bank in its sole discretion; (i) A certificate of the Secretary or an Assistant Secretary of PCI, certifying the names of the officers of PCI authorized to execute the PCI Letter Agreement and any other document required to be delivered by PCI thereunder; (j) Evidence satisfactory to the Bank, in its reasonable discretion, that the value of the Pledged Stock, including without limitation the PCI Shares, based on the last trade price of the Pledged Stock quoted on the Nasdaq National Market System on the last Business Day immediately preceding the date hereof, is not less than $17,872,500; (k) Evidence of all other actions necessary or, in the opinion of the Bank, desirable to create, perfect and protect the security interests and liens intended to be created by the Original Pledge Agreement, as amended herein; (l) The following supporting documents: (i) a copy of the Certificate of Incorporation of PCI certified by the Secretary of State of its state of incorporation; (ii) a certificate of such Secretary of State as to the good standing of PCI; and (iii) a certificate of the Secretary or an Assistant Secretary of PCI, dated the date hereof, and certifying (X) that attached thereto is a true and complete copy of the By-laws of PCI, as in effect on the date of such certification, and (Y) that the Certificate of Incorporation of PCI has not been amended since the date of the last amendment thereto indicated on the certificate of the Secretary of State furnished pursuant to clause (i) of this subparagraph (l); (m) Good standing certificates for Borrowers and NutraMax; (n) A Form U-1, completed and executed by the Borrowers, setting forth in detail the purpose of the Revolving Credit Loan, as amended herein; and (o) Evidence satisfactory to the Bank in its sole discretion that a Notice, in the form of Annex V attached hereto has been executed by the Borrowers and delivered to the Trustee named in each of the 7 1/4% Indenture and the 7 1/2% Indenture; 24. As a condition precedent to the effectiveness of paragraphs 3, 4 and 5 of this Amendment, the Borrowers shall, in addition to the items specified in paragraph 23 hereof, also deliver to the Bank the following: (a) Evidence satisfactory to the Bank in its sole discretion that the PCI Registration Statement has been declared effective by the SEC; and (b) A favorable opinion of Alan Einhorn, general counsel to the Borrowers, addressed to the Bank, in substantially the form of Annex VI hereto, and as to such other matters as the Bank may reasonably request. 25. (a) Notwithstanding the failure of the Borrowers to fulfill the conditions precedent listed in paragraph 24 hereof, the Bank and the Borrowers agree that, upon the filing by PCI of a Registration Statement (the 'PCI Registration Statement') on Form S-3 with the United States Securities and Exchange Commission (the 'SEC') covering the PCI Shares and correctly describing the Original Loan Agreement, as amended herein, and the transactions contemplated therein, the Revolving Credit Loan Limit shall be temporarily increased, for a period of ninety (90) days from the date of filing of the PCI Registration Statement with the SEC, to SEVEN MILLION SIX HUNDRED EIGHTY-FIVE THOUSAND DOLLARS ($7,685,000). All terms and provisions of the Original Loan Agreement, as amended herein (other than the amendments described in paragraphs 3, 5 and 6 hereof), including without limitation the requirement contained in subparagraph 5(b)(ii) thereof that the Revolving Credit Loan Limit not exceed forty-seven percent (47%) of the Pledged Stock Value, shall be considered to be in full force and effect during such ninety (90) day period. (b) The terms and provisions of the PCI Registration Statement shall be satisfactory to the Bank and the Bank's legal counsel, and the Borrower shall deliver a copy of the PCI Registration Statement, and any amendments to the PCI Registration Statement, to the Bank and the Bank's legal counsel at least five (5) business days prior to the date on which it is anticipated that such material will be filed with the SEC. (c) If the PCI Registration Statement has not been declared effective by the SEC within ninety (90) days of the date of its filing with the SEC, this Amendment shall terminate and the Revolving Credit Loan Limit shall be automatically reduced to SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) on such ninetieth (90th) day and the Borrowers, on such date, shall be required to pay to the Bank immediately an amount such that the outstanding balance of the Revolving Credit Loan does not exceed the reduced Revolving Credit Loan Limit. Failure to make such payment shall constitute an immediate Event of Default under the Original Loan Agreement, as amended herein. 26. Except as modified by the terms hereof, all terms, provisions and conditions of the Original Loan Agreement and the Original Pledge Agreement, and all documents duly executed and delivered in connection therewith, are in full force and effect, and are hereby incorporated by reference as if set forth herein. This Amendment, the Original Loan Agreement, the Original Pledge Agreement, and the Restated Note shall be deemed as complementing and not restricting the Bank's rights hereunder or thereunder. If there is any conflict or discrepancy to the provisions of this Amendment in any provision of the Original Loan Agreement, the Original Pledge Agreement, or the Restated Note, the terms and provisions of this Amendment shall control and prevail. 27. Each Borrower hereby acknowledges and agrees that a default by the Borrowers in the performance or observance of any term, covenant or agreement contained in this Amendment, including without limitation the failure to deliver any item required by paragraphs 23 or 24 hereof shall constitute an immediate Event of Default under the Original Loan Agreement, as amended herein, subject to no notice or grace period. 28. Each Borrower hereby represents, warrants and certifies to Bank that no Default or Event of Default has occurred and is presently existing under the Loan Documents. 29. This Amendment (a) shall be construed and enforced in accordance with the laws of the State of New Jersey; (b) shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns; (c) may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument; and (d) may only be amended or modified pursuant to a writing signed by the parties hereto. 30. EACH BORROWER HEREBY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST THE BANK WITH RESPECT TO THE RIGHTS AND OBLIGATIONS OF THE Initials PARTIES HERETO.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized, as of the ___ day of July, 1994. UNITED JERSEY BANK (SUCCESSOR IN INTEREST TO UNITED JERSEY BANK/SOUTH, N.A. BY: ____________________________ Dante J. Bucci, Vice President ATTEST: MEDIQ INCORPORATED BY: NAME: NAME: TITLE: TITLE: [SEAL] ATTEST: MEDIQ INVESTMENT SERVICES, INC. BY: NAME: NAME: TITLE: TITLE: [SEAL]
EX-4.9(C) 4 REVOLVING CREDIT LOAN AGREEMENT AMENDMENT NO. 2 TO REVOLVING CREDIT LOAN AGREEMENT AND PLEDGE AND SECURITY AGREEMENT Amendment No. 2 (the 'Amendment') to a certain Revolving Credit Loan Agreement and Pledge and Security Agreement, each dated as of October 14, 1993, between UNITED JERSEY BANK, a state banking association (as successor in interest to United Jersey Bank/South, N.A.) (the 'Bank') and MEDIQ INCORPORATED, a Delaware corporation ('Mediq'), and MEDIQ INVESTMENT SERVICES, INC., a Delaware corporation ('Investment', collectively with Mediq, the 'Borrowers'). WHEREAS, the Bank and the Borrowers made, executed and delivered a Revolving Credit Loan Agreement, dated October 14, 1993, as amended by a certain Amendment No. 1 to Revolving Credit Loan Agreement and Pledge and Security Agreement, dated as of August 9, 1994, between the Borrowers and the Bank (collectively, the 'Original Loan Agreement'), and in connection therewith the Borrowers executed and delivered an Amended and Restated Revolving Credit Note in the principal amount of $8,400,000, dated as of August 9, 1994, to the Bank (the 'Original Note'); and WHEREAS, as security for (a) the punctual performance in full by the Borrowers of their obligations under the Loan Documents (as such term is defined in the Original Loan Agreement), (b) the punctual payment in full of all amounts owing or to be owing under any Loan Document, (c) the punctual payment of any other amounts which at any time may be due and payable from either Borrower to the Bank, and (d) the punctual payment in full by each Borrower of their respective obligations under a certain Pledge and Security Agreement, dated as of October 14, 1993, between the Borrowers and the Bank, as amended by a certain Amendment No. 1 to Revolving Credit Loan Agreement and Pledge and Security Agreement, dated as of August 9, 1994, between the Borrowers and the Bank (collectively, the 'Original Pledge Agreement'), in each case whether presently existing or hereafter arising (collectively, the 'Secured Obligations'), Investment granted a security interest to the Bank in the Stock (as such term is defined in the Original Pledge Agreement), pursuant to the terms and provisions of the Original Pledge Agreement; and WHEREAS, the Borrowers have requested that the Bank amend the terms and provisions of the Original Loan Agreement and the Original Pledge Agreement to increase the Revolving Credit Loan Limit (as such term is defined in the Original Loan Agreement) from $8,400,000 to $13,400,000, and the Bank is willing to consent to such amendment upon the terms and conditions set forth herein and in a certain Second Amended and Restated Revolving Credit Note, in the principal amount of $13,400,000 from the Borrowers to the Bank, substantially in the form of Annex I attached hereto (the 'Restated Note'). NOW, THEREFORE, in consideration of the mutual promises herein contained, and each intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Except as expressly defined herein, all terms used herein shall have the meanings ascribed to them in the Original Loan Agreement. This Amendment is intended to amend the Original Loan Agreement and the Original Pledge Agreement and the Original Loan Agreement and the Original Pledge Agreement shall be so amended from and as of the date hereof. 2. The Original Loan Agreement shall be amended so that all references to (a) 'Agreement' contained therein shall mean the Original Loan Agreement, as amended herein, and as further amended, supplemented or modified from time to time, (b) 'Revolving Credit Note' contained therein shall mean the Restated Note, as further amended, supplemented or modified from time to time, and (c) 'Pledge Agreement' contained therein shall mean the Original Pledge Agreement, as amended herein, and as further amended, supplemented or modified from time to time. 3. The Original Loan Agreement shall be amended to delete the definition of 'Consolidated Cash Flow.' 4. The definition of 'Fixed Charge Coverage' contained in the Original Loan Agreement shall be amended to read in its entirety as follows: ' 'Fixed Charge Coverage' means, as to the Borrowers, as of a specified date, the ratio of: (a) the difference between (i) the sum of (X) the Borrowers' Consolidated Net Income, (Y) the aggregate amount of cash dividends paid by any member of the MEDIQ PRN Group to the Borrowers, and (Z) the Borrowers' consolidated deferred taxes, depreciation expense, amortization expense, amounts charged to write-off of goodwill, interest expense, and non-cash losses (but, in each case, only to the extent included as a deduction in determining the Borrowers' Consolidated Net Income), less (ii) the sum of the Borrowers' consolidated non-cash income and the aggregate EBITDA of the MEDIQ PRN Group, each computed for the twelve month period immediately preceding the date of review; to (b) the sum of (i) the Borrowers' current portion of long term Indebtedness and capital lease obligations, determined on a consolidated basis (excluding, to the extent otherwise included in the Borrowers' then current portion of long term Indebtedness and capital lease obligations, the current portion of long-term Indebtedness and capital lease obligations owed by any of the MEDIQ PRN Group), (ii) interest payments (excluding interest payments to be made by any member of the MEDIQ PRN Group), and (iii) cash dividends (excluding cash dividends to be paid by any member of the MEDIQ PRN Group but excluding cash dividends paid to Mediq), each as required to be paid by any Borrower or its Subsidiaries in the subsequent four (4) full fiscal quarters immediately following the date of review. For purposes of this Agreement, the term 'EBITDA' of a Person shall mean, for any fiscal period, the sum of (i) Net Income for that period, plus (ii) any deferred taxes reflected in such Net Income, plus (iii) interest expense for the period, plus (iv) depreciation, amortization, and all other non-cash expenses for that period, in each case determined in accordance with GAAP and, in the case of items (ii), (iii), and (iv), only to the extent deducted in the determination of such Net Income for that period.' 5. The Original Loan Agreement shall be amended to add the following definition: 'MEDIQ PRN Group' shall mean PRN Holdings, Inc., MEDIQ/PRN Life Support Services, Inc. and MEDIQ/PRN Life Support Services-I, Inc. 6. The definition of 'Minimum Tangible Capital Funds' contained in the Original Loan Agreement shall be amended to read in its entirety as follows: 'Minimum Tangible Capital Funds' means, as to the Borrowers, on a specified date, the sum of (i) the Borrowers' Consolidated Tangible Net Worth as of that date, plus (ii) the then unpaid principal balance of Subordinated Indebtedness, plus (iii) the then unpaid principal balance (but not to exceed $10,000,000) of certain Senior Subordinated Notes due October 1, 2004 issued by PRN Holdings, Inc. and payable to Massachusetts Mutual Life Insurance Company and its affiliates, plus (iv) the then unpaid principal balance (but not to exceed $10,000,000) of a certain promissory note, in the original principal amount of $10,000,000, to be issued by PRN Holdings, Inc. in favor of KCI Therapeutic Services, Inc. in connection with the purchase of certain assets of KCI Therapeutic Services, Inc. by members of the MEDIQ PRN Group (the 'KCI Transaction'), plus (v) the amount of deferred charges treated as an intangible in accordance with GAAP and actually deducted in determining the Borrowers' Consolidated Tangible Net Worth as of that date (up to a maximum of $13,000,000). 7. The definition of 'Senior Liabilities' contained in the Original Loan Agreement shall be amended to read in its entirety as follows: 'Senior Liabilities' means, as to the Borrowers, on a specified date, the Borrowers' Consolidated Liabilities as of that date reduced by an amount equal to the then unpaid principal of (i) Subordinated Indebtedness, (ii) Nonrecourse Liabilities, (iii) (but not to exceed $10,000,000) of certain Senior Subordinated Notes due October 1, 2004 issued by PRN Holdings, Inc. and payable to Massachusetts Mutual Life Insurance Company and its affiliates, and (iv) (but not to exceed $10,000,000) of a certain promissory note, in the original principal amount of $10,000,000, to be issued by PRN Holdings, Inc. in favor of KCI Therapeutic Services, Inc. in connection with the KCI Transaction. 8. The definition of 'Subordinated Indebtedness' contained in the Original Loan Agreement shall be amended to read in its entirety as follows: 'Subordinated Indebtedness' means, as to the Borrowers, the 7 1/4% Debentures, the 7 1/2% Debentures, and such other Indebtedness incurred at any time by the Borrowers, the repayment of which is subordinated in such form and on such terms and conditions as are acceptable to the Bank in its sole discretion, to the prior payment of the principal of, and interest on, the Revolving Credit Note, the Term Note, if applicable, and the other Obligations of the Borrowers to the Bank. 9. Subparagraph 2(a) of the Original Loan Agreement is hereby amended to read in its entirety as follows: '(a) In reliance on the representations, warranties and covenants contained in, and upon the terms and conditions of, this Agreement, the Bank agrees to make loans (herein called the 'Revolving Credit Loans') to the Borrowers, at such time or times on or before October 14, 1995 (the 'Termination Date') and in such amount as to each borrowing as the Borrowers shall request, subject to the limitations set forth in subparagraphs 2(f), 2(i) and 8(l) hereof, up to and not exceeding at any one time an aggregate outstanding principal amount equal to Thirteen Million Four Hundred Thousand Dollars ($13,400,000) (the 'Revolving Credit Loan Limit').' 10. Subparagraph 2(i) of the Original Loan Agreement is hereby amended to read in its entirety as follows: '(i) Subject to the provisions of this paragraph 2 and subparagraphs 5(c) and 8(l) hereof, the Borrowers may make borrowings under the Revolving Credit Loan for working capital purposes (the 'Working Capital Advances'), at such time or times, and in such amount as to each borrowing, as the Borrowers may request pursuant to subparagraph 2(k) below, so long as (i) the amount of each such Working Capital Advance, when added to the amount of all Revolving Credit Loans then outstanding (which includes the aggregate principal amount of all Working Capital Advances then outstanding, the face amount of all Letters of Credit then outstanding pursuant to the provisions of subparagraph 2(f), and the amount of all unreimbursed Draws pursuant to subparagraph 2(h)) does not exceed the Revolving Credit Loan Limit, and (ii) the purpose of each such Working Capital Advance is to provide working capital to a Borrower. In addition, the Bank will have no obligation to make advances of the Revolving Credit Loan unless, on the date of the advance, the conditions precedent set forth in paragraph 6 below shall have been satisfied.' 11. Subparagraph 2(m) of the Original Loan Agreement is hereby amended to read in its entirety as follows: '(m) In the event that at any time the amount outstanding under the Revolving Credit Loan exceeds the Revolving Credit Loan Limit, the Borrowers shall be jointly and severally required to pay to the Bank immediately an amount thereof such that the outstanding balance of the Revolving Credit Loan shall not exceed the Revolving Credit Loan Limit. Failure to make such payment shall constitute an Event of Default under this Agreement.' 12. Paragraph 5 of the Original Loan Agreement is hereby amended to read in its entirety as follows: '5. Security. (a) As security for all of the Obligations of the Borrowers to the Bank, including without limitation all amounts owed by the Borrowers to the Bank under this Agreement, the Revolving Credit Note or the Term Note, Investment is providing to the Bank an unconditional pledge of (i) 1,782,356 shares (the 'NutraMax Shares') of the common stock of NutraMax and (ii) and 1,550,000 shares (the 'PCI Shares' together, with the NutraMax Shares, the 'Shares') of the common stock of PCI Services, Inc., a Delaware corporation ('PCI'), and the Borrower shall hereafter provide such other shares of the common stock of NutraMax and/or PCI as is required to be pledged pursuant to subparagraph 5(c) below (collectively with the Shares, the 'Pledged Stock') pursuant to a Pledge and Security Agreement substantially in the form of Annex IV hereto (the 'Pledge Agreement'). In connection therewith, the Borrowers shall also cause to be delivered to the Bank a certain Letter Agreement between NutraMax and the Bank, and a certain Letter Agreement between PCI and the Bank, each substantially in the form of Annex V hereto (the 'Letter Agreements'). (b) So long as the Revolving Credit Loan or the Term Loan, if applicable, shall remain outstanding or this Agreement shall remain in effect, within one (1) Business Day after the last trading day of each calendar month, the Pledged Stock shall be valued by the Bank and the Borrowers (the 'Pledged Stock Value') based on the last trading price of the Pledged Stock quoted in the Nasdaq National Market System (or any other national securities exchange or automated quotation system of a national securities association if, pursuant to the terms of the Letter Agreements, the Pledged Stock is on such exchange or system) on the last trading day of such calendar month (the 'Valuation Date'). Within three Business Days after any Valuation Date, the Borrowers shall provide the Bank with a written certification signed by the chief financial officer of each Borrower as to the Pledged Stock Value on such Valuation Date, which such certification shall be in form and substance satisfactory to the Bank in its sole discretion. (c) In the event that (i) the Revolving Credit Loan Limit is greater than forty-seven (47%) percent of the Pledged Stock Value on any Valuation Date or (ii) at any time (hereinafter referred to as the 'Trigger Date') the Pledged Stock Value, as determined by the Bank based on the then trading price of the Pledged Stock quoted in the Nasdaq National Market System (or any other national securities exchange or automated quotation system of a national securities association if, pursuant to the terms of the Letter Agreements, the Pledged Stock is on such exchange or system), is less than seventy-five percent (75%) of the Pledged Stock Value on the immediately preceding Valuation Date, the Borrowers, within three (3) Business Days after such Valuation Date, shall either: (X) elect to effect a permanent reduction in the Revolving Credit Loan Limit in such amount as is necessary to ensure that it is not greater than forty-seven (47%) percent of the Pledged Stock Value by the delivery of a written notice to the Bank in the form of Schedule A attached hereto, and pay to the Bank an amount thereof such that the outstanding balance of the Revolving Credit Loan does not exceed the revised Revolving Credit Loan Limit, or (Y) provide the Bank with a pledge of such number of additional shares of the capital stock of NutraMax and/or PCI, upon terms and conditions satisfactory to the Bank in its sole discretion, as is necessary so that the Revolving Credit Loan Limit is not greater than forty-seven percent (47%) of the Pledged Stock Value. (Any additional shares of the capital stock of NutraMax or PCI pledged by the Borrowers to the Bank pursuant to the provisions of this subparagraph 5(c) shall be deemed to be Pledged Stock for purposes of this Agreement). Failure of the Borrowers to comply with the requirements set forth in subparagraph 5(c) above shall constitute an immediate Event of Default without additional notice or grace period. No failure of the Bank to exercise, or timely exercise, the rights and procedures described in this subparagraph 5(c) shall operate as a waiver thereof or operate to preclude any such future exercise. (d) In the event that the Revolving Credit Loan Limit is less than forty-seven percent (47%) of the Pledged Stock Value on any Valuation Date (based on the valuation required under subparagraph 5(b) above), the Borrowers, within three (3) Business Days of the Valuation Date, may request that the Bank return to the Borrowers such number of shares of the Pledged Stock as is necessary so that the Revolving Credit Loan Limit is not less than forty-seven percent (47%) of the Pledged Stock Value. The Borrowers' right to make such a request for the return of Pledged Stock shall be limited to three (3) requests per calendar year. The Bank shall not be required to return Pledged Stock under this subparagraph 5(d) until such steps have been taken as the Bank has determined are necessary to ensure the Bank's continued position as the holder of a perfected lien in the Pledged Stock retained by the Bank.' 13. The Original Loan Agreement shall be amended to add a subparagraph 8(l) thereto, which such subparagraph shall read in its entirety as follows: '(l) Sales of Assets; Mandatory Prepayments. (i) At any time the Revolving Credit Loan Commitment or the outstanding principal balance of the Term Note, as applicable, is greater than Eight Million Four Hundred Thousand Dollars ($8,400,000), the Borrowers shall provide the Bank with forty-five (45) days' prior written notice of the intended sale of any Qualified Asset. For purposes of this Agreement, the term 'Qualified Asset' shall refer to (i) any asset or assets (including without limitation any shares of stock) sold by any Borrower or any Subsidiary in any one transaction if the Net Proceeds (as hereinafter defined) received by the seller for such sale exceed $250,000, or (ii) any assets (including without limitation any shares of stock) sold during any consecutive six (6) month period by the Borrowers and the Subsidiaries which are not described in clause (i) if the aggregate Net Proceeds received by the seller for such assets exceeds $250,000. (ii) For purposes of this subparagraph 8(l), the term 'Net Proceeds' shall mean: (A) with respect to any asset (including without limitation any shares of stock) sold by any Borrower or any Subsidiary (other than a member of the MEDIQ PRN Group), the gross sales price of the asset less the sum of (X) all reasonable expenses normally incurred and in fact contemporaneously paid by the seller in connection with the sale of the asset, (Y) all sales and/or transfer taxes required to be paid by applicable law by the seller in connection with the sale of the asset and in fact actually paid by the seller contemporaneously therewith and all income taxes reasonably determined by the seller to be directly attributable to the sale and actually paid by the seller (provided that, if the seller later discovers that it has overestimated its income tax liability with respect to the sale, the Borrowers shall immediately pay to the Bank an amount equal to fifty percent (50%) of such overestimate), and (Z) all amounts required to be paid, and in fact contemporaneously paid, by the seller to release any liens or security interests encumbering the asset (but only to the extent such liens or security interests were specifically granted in connection with indebtedness used to fund the acquisition of, or any improvement to, the asset); and (B) with respect to any asset (including without limitation any shares of stock) sold by any member of the MEDIQ PRN Group, the gross sales price of the asset less the sum of (X) all reasonable expenses normally incurred and in fact contemporaneously paid by the seller in connection with the sale of the asset, (Y) all sales and/or transfer taxes required to be paid by applicable law by the seller in connection with the sale of the asset and in fact actually paid by the seller contemporaneously therewith and all income taxes reasonably determined by the seller to be directly attributable to the sale and actually paid by the seller (provided that, if the seller later discovers that it has overestimated its income tax liability with respect to the sale, the Borrowers shall immediately pay to the Bank an amount equal to fifty percent (50%) of such overestimate), and (Z) all amounts required to be (i) paid, and in fact contemporaneously paid, by the seller to release any liens or security interests encumbering the asset (but only to the extent such liens or security interests were specifically granted in connection with indebtedness used to fund the acquisition of, or any improvement to, the asset) or (ii) applied by the seller for a specific purpose pursuant to the terms and provisions of any agreement (AA) to which the seller was a party as of September 27, 1994 or (BB) entered into between the members of the MEDIQ PRN Group in connection with the KCI Transaction. (iii) Immediately upon the sale of any Qualified Asset, the Borrowers shall provide the Bank with a written statement signed by the chief financial officer of each Borrower, and otherwise in form and substance satisfactory to the Bank in its sole discretion, certifying the Net Proceeds to be received by the applicable Borrower or Subsidiary from the sale of such Qualified Asset and detailing how such Net Proceeds were computed. (iv) If the Net Proceeds received by any Borrower or any Subsidiary for the sale of any Qualified Asset, when added to the aggregate Net Proceeds received for all Qualified Assets sold by the Borrowers and the Subsidiaries on or after October 1, 1994 exceeds Five Million Dollars ($5,000,000) at any time, the Borrowers shall be required to make an immediate prepayment in cash or immediately available funds (hereinafter referred to as a 'Mandatory Prepayment') on the outstanding principal balance of the Revolving Credit Note or the Term Note, as applicable. The amount of any Mandatory Prepayment required to be made by the Borrowers hereunder shall be equal to fifty percent (50%) of the aggregate Net Proceeds of the Qualified Assets in excess of Five Million Dollars ($5,000,000). Notwithstanding anything to the contrary contained herein, if the Revolving Credit Loan Commitment (as adjusted pursuant to this subparagraph 8(l)) or the then outstanding principal balance of the Term Note, as applicable, is less than or equal to Eight Million Four Hundred Thousand Dollars ($8,400,000), no additional Mandatory Prepayments pursuant to this subparagraph 8(l) shall be required. The failure by the Borrowers to make any Mandatory Prepayment required hereunder shall constitute an immediate Event of Default, subject to no notice or grace period. (v) If the purchase price for any Qualified Asset is payable in cash or cash equivalents on a deferred basis (including without limitation pursuant to any promissory note, instrument, contract or other agreement), the Borrowers shall be required to make the Mandatory Prepayment otherwise required to be paid in connection with the sale of such Qualified Asset hereunder immediately when and as the payments for the Qualified Asset are received by the seller of the Qualified Asset. In addition, if the purchase price for any Qualified Asset is paid in a form other than cash or cash equivalents (by way of example, and not in limitation thereof, through the delivery of shares of stock or other personal property), the Borrowers shall be required to make the Mandatory Prepayment otherwise required to be paid in connection with the sale of such Qualified Asset hereunder upon the conversion of such property into cash or cash equivalents (including without limitation upon any sale of the property or any financing of the property pursuant to which loan proceeds are received in exchange for the granting of a lien on the property). (vi) Any Mandatory Prepayment made by the Borrowers hereunder shall be applied first to accrued and unpaid interest and then to the principal payments due under the Revolving Credit Note or the Term Note, as applicable, in the inverse order of maturity. If a Mandatory Prepayment is made by the Borrowers prior to the conversion of the Revolving Credit Note to the Term Note, then the Revolving Credit Loan Commitment shall be reduced on a dollar-for-dollar basis by the amount of the Mandatory Prepayment received by the Bank. No portion of the Revolving Credit Note or the Term Note, as applicable, which is repaid or prepaid as the result of a Mandatory Prepayment by the Borrowers pursuant to this subparagraph 8(l) may be reborrowed.' 14. Subparagraph 9(c) of the Original Loan Agreement shall be amended to read in its entirety as follows: 'Fixed Charge Coverage. Permit the Borrowers' Fixed Charge Coverage to be less than (i) 1.15 to 1.00 as of the fiscal year of the Borrowers ending September 30, 1995, and (ii) 1.25 to 1.00 as of the end of each fiscal year of the Borrowers thereafter.' 15. Subparagraph 9(d) of the Original Loan Agreement shall be amended to read in its entirety as follows: '(d) Minimum Tangible Capital Funds. Permit the Borrowers' Minimum Tangible Capital Funds to be less than: (i) $77,000,000 as of the last day of the Borrowers' fiscal year ending September 30, 1994 and the last day of each of the first three fiscal quarters of the Borrowers fiscal year ending September 30, 1995; (ii) $82,000,000 as of last day of the Borrowers' fiscal year ending September 30, 1995 and the last day of each of the first three fiscal quarters of the Borrowers' fiscal year ending September 30, 1996; (iii) $92,000,000 as of last day of the Borrowers' fiscal year ending September 30, 1996 and the last day of each fiscal quarter of the Borrowers' thereafter.' 16. Subparagraph 9(e) of the Original Loan Agreement shall be amended to read in its entirety as follows: 'Senior Liabilities to Minimum Tangible Capital Funds. Permit the ratio of the Borrowers' Senior Liabilities to the Borrowers' Minimum Tangible Capital Funds to exceed (i) 3.70 to 1.00 as of the last day of the Borrowers' fiscal year ending September 30, 1994 and the last day of each of the first three fiscal quarters of the Borrowers' fiscal year ending September 30, 1995, (ii) 3.40 to 1.00 as of the last day of the Borrowers' fiscal year ending September 30, 1995 and the last day of each of the first three fiscal quarters of the Borrowers' fiscal year ending September 30, 1996, (iii) 3.20 to 1.00 as of the last day of the Borrowers' fiscal year ending September 30, 1996 and the last day of each of the first three fiscal quarters of the Borrowers' fiscal year ending September 30, 1997, and (iv) 3.00 to 1.00 as of the last day of the Borrowers' fiscal year ending September 30, 1997 and the last day of each fiscal quarter of the Borrowers' ending thereafter.' 17. Subparagraph 9(f) of the Original Loan Agreement shall be amended to read in its entirety as follows: '(f) Stock of NutraMax and PCI. Sell, register, or pledge or cause, or permit any of its Subsidiaries to sell, register or pledge, any of the capital stock of NutraMax or PCI unless pursuant to the terms of (i) a certain employee stock ownership plan implemented by NutraMax on behalf of its employees in effect as of April 28, 1988, for a ten year period, (ii) a certain employee stock ownership plan implemented by PCI on behalf of its employees in effect as of September 21, 1991, or (iii) the 7 1/2% Indenture.' 18. Simultaneously with the execution and delivery of this Amendment by the Borrowers, the Borrowers shall pay to the Bank a non-refundable facility fee in the amount of $50,000 (the 'Facility Fee'), with respect to the commitment by the Bank to increase the Revolving Credit Loan Commitment hereunder. In addition, upon the earlier to occur of (a) a reduction, pursuant to subparagraphs 5(c) or 8(l) of the Original Loan Agreement, as amended herein, in the Revolving Credit Loan Commitment to Eight Million Four Hundred Thousand Dollars ($8,400,000), (b) the conversion of the Revolving Credit Note to the Term Note, and (c) the payment in full of all of the Obligations owed by the Borrowers to the Bank, the Borrowers hereby agree that they shall be jointly and severally liable for the immediate payment to the Bank of a termination fee in the amount of $25,000. 19. The Original Pledge Agreement shall be amended so that all references to (a) 'Loan Agreement' contained therein shall mean the Original Loan Agreement, as amended herein, and as further amended, supplemented or modified from time to time, and (b) 'Revolving Credit Note' contained therein shall mean the Restated Note, as further amended, supplemented or modified from time to time. 20. Paragraph 2 of the Original Pledge Agreement shall be amended to read in its entirety as follows: '2. Pledge of Stock. (a) As security for (i) the punctual performance in full by the Borrowers, NutraMax Products, Inc., a Delaware corporation ('NutraMax'), and PCI Services, Inc., a Delaware corporation ('PCI', together with NutraMax, the 'Issuers') of their respective obligations under the Loan Documents, (ii) the punctual payment in full of all amounts owing or to be owing under any Loan Document, (iii) the punctual payment of any other amounts which at any time may be due and payable from either Borrower to the Bank, and (iv) the punctual performance in full by the Borrowers of their respective obligations under this Agreement, in each case whether presently or hereafter arising (collectively, the 'Obligations'), the Pledgor hereby delivers, pledges and grants to the Bank a security interest in all of the Pledgor's right, title and interest in and to (A) 1,782,356 shares (the 'NutraMax Shares') of the Common Stock of NutraMax and (B) 1,550,000 shares (the 'PCI Shares', together with the NutraMax Shares, the 'Shares') of the common stock of PCI, and such other shares of Common Stock of the Issuers as is hereinafter required to be pledged by the Borrowers to the Bank pursuant to subparagraph 5(c) of the Loan Agreement (collectively, the 'Pledged Stock'), and all certificates, options, rights or other distributions issued as an addition to, in substitution or exchange for, or on account of, any share of the Pledged Stock, and all proceeds of all the foregoing, now or hereafter owned or acquired by the Pledgor (the 'Stock'). (b) The Shares of the Pledged Stock issued by NutraMax are recorded in the stock ledger of NutraMax in the name of the Pledgor, and are represented by two (2) stock certificates (the 'NutraMax Share Certificates') bearing Certificate Nos. NMP5424 and NMP6027, issued to the Pledgor. The NutraMax Share Certificates accompanied by stock powers duly executed in blank have heretofore been delivered to the Bank to be held by the Bank as provided in this Agreement. (c) The Shares of the Pledged Stock issued by PCI are recorded in the stock ledger of PCI in the name of the Pledgor, and are represented by two (2) stock certificates (the 'PCI Share Certificates' together, with the NutraMax Share Certificates, the 'Share Certificates') of PCI bearing Certificate Nos. P0394 and P0397, issued to the Pledgor. The PCI Share Certificate, accompanied by stock powers duly executed in blank have heretofore been delivered to the Bank to be held by the Bank as provided in this Agreement. (d) The Bank accepts the deposit and pledge of the Stock made by the Pledgor hereunder, acknowledges the receipt of the Share Certificates and their accompanying stock powers, and agrees to hold the Stock in accordance with the terms and provisions of this Agreement.' 21. Simultaneously with the execution and delivery of this Amendment by the Borrowers, Investment is delivering to the Bank 1,300,000 shares of PCI's common stock, par value $.001 per share (the 'Additional PCI Shares') to be held by the Bank as Pledged Stock pursuant to the terms and provisions of the Original Loan Agreement, as amended herein, and the Original Pledge Agreement, as amended herein, as security for all Obligations arising under the Original Loan Agreement, as amended herein, the Restated Note, and the Term Note, if applicable. The Borrowers hereby, jointly and severally, represent, covenant and warrant to the Bank that the Additional PCI Shares are freely transferrable by the Bank pursuant to the terms and provisions of the Original Pledge Agreement, as amended herein, following the occurrence of an Event of Default without further registration with, or further approval by, or notice to, any federal or state governmental authority. 22. The Borrowers acknowledge that, as of September 27, 1994, the principal amount outstanding under the Original Note is $1,597,222.40 and the aggregate face amount of all outstanding Letters of Credit is $2,033,000.00, that such amounts are owing to the Bank without any claim, defense or set-off, and that such amounts shall be treated as having been advanced to each of the Borrowers (who shall be jointly and severally liable for the repayment thereof to the Bank). This Amendment does not constitute the extinguishment of any debt evidenced by the Original Note and the Borrowers confirm their full liability with respect thereto. 23. Pursuant to the terms of paragraph 6 of the Original Loan Agreement, as amended herein, the Borrowers have provided to the Bank, as security for all Obligations arising under the Original Loan Agreement, the Original Note, the Term Note, if applicable, and each other Loan Document, an unconditional pledge of the Pledged Stock, including without limitation the Additional PCI Shares, pursuant to the terms and provisions of the Original Pledge Agreement, as amended herein. The Borrower hereby ratifies and confirms without condition the pledge of the Pledged Stock, including without limitation the Additional PCI Shares, granted to the Bank under and pursuant to the Original Loan Agreement, as amended herein, including without limitation those liens and security interests granted under the Original Pledge Agreement, as amended herein; and further ratifies and confirms, without condition, that (a) such liens and security interests shall secure all amounts due or to become due under the Original Loan Agreement, as amended herein, the Restated Note, the Term Note, if applicable, the LC Agreement, and any LC Application, including without limitation, any amounts paid by the Bank on account of any draft issued under, or purporting to have been issued under, the LC Agreement, any LC Application or any Letter of Credit, and (b) the perfected status and priority of such liens and security interests shall not be affected in any way by the amendments to the Original Loan Agreement and the Original Pledge Agreement set forth herein or the execution and delivery by the Borrowers of the Restated Note. 24. All representations, warranties and covenants of the Borrowers contained in the Original Loan Agreement or the Original Pledge Agreement, are hereby ratified and confirmed without condition as if made anew upon the execution of this Amendment and are hereby incorporated by reference. All representations, warranties and covenants of the Borrowers, whether hereunder, or contained in the Original Loan Agreement or the Original Pledge Agreement, shall remain in full force and effect until all amounts due under the Original Loan Agreement and the Original Pledge Agreement, each as amended herein, the Restated Note, the Term Note, if applicable, the LC Agreement, and any LC Application are satisfied in full. The Borrowers represent and warrant that there has been no changes or modifications to the provisions of the Certificate of Incorporation or By-Laws of each Borrower which were previously delivered to the Bank in connection with the Original Loan Agreement. 25. As a condition precedent to the effectiveness of this Amendment, simultaneously with the execution and delivery of this Amendment, the Borrowers shall deliver to the Bank the following: (a) A certificate of the Secretary or an Assistant Secretary of each Borrower certifying the names of the officers of such Borrower authorized to execute this Amendment, the Restated Note, and any other document hereunder; (b) Certified copies of resolutions of the directors of each Borrower authorizing the execution, delivery and performance of this Amendment, the Restated Note, and any other document hereunder, which resolutions shall be in form and substance satisfactory to the Bank in its sole discretion; (c) The fully executed Restated Note; (d) The Additional PCI Shares and stock powers executed in blank (in form satisfactory to the Bank); (e) A favorable opinion of Alan Einhorn, general counsel to the Borrowers, addressed to the Bank, in substantially the form of Annex II hereto, and as to such other matters as the Bank may reasonably request; (f) An acknowledgment executed by an authorized officer of NutraMax, substantially in the form of Annex III attached hereto, and otherwise in form and substance satisfactory to the Bank in its sole discretion, that the amendments to the Original Loan Agreement and the Original Pledge Agreement effectuated by this Amendment do not affect, in any way, the obligations of NutraMax set forth in that certain Letter Agreement dated as of October 14, 1993 between the Bank and NutraMax; (g) An acknowledgment executed by an authorized officer of PCI, substantially in the form of Annex IV attached hereto, and otherwise in form and substance satisfactory to the Bank in its sole discretion, that the amendments to the Original Loan Agreement and the Original Pledge Agreement effectuated by this Amendment do not affect, in any way, the obligations of PCI set forth in that certain Letter Agreement dated as of August 9, 1994 between the Bank and PCI; (h) Evidence satisfactory to the Bank, in its reasonable discretion, that the value of the Pledged Stock, including without limitation the PCI Shares, based on the last trade price of the Pledged Stock quoted on the Nasdaq National Market System on the last Business Day immediately preceding the date hereof, is not less than $28,510,640; (i) Evidence of all other actions necessary or, in the opinion of the Bank, desirable to create, perfect and protect the security interests and liens intended to be created by the Original Pledge Agreement, as amended herein; (j) Good standing certificates for the Borrowers, PCI and NutraMax; (k) A Form U-1, completed and executed by the Borrowers, setting forth in detail the purpose of the Revolving Credit Loan, as amended herein; (l) Payment in full of the Facility Fee; and (m) Evidence satisfactory to the Bank in its sole discretion that a Notice, in the form of Annex V attached hereto has been executed by the Borrowers and delivered to the Trustee named in each of the 7 1/4% Indenture and the 7 1/2% Indenture. 26. Except as modified by the terms hereof, all terms, provisions and conditions of the Original Loan Agreement and the Original Pledge Agreement, and all documents duly executed and delivered in connection therewith, are in full force and effect, and are hereby incorporated by reference as if set forth herein. This Amendment, the Original Loan Agreement, the Original Pledge Agreement, and the Restated Note shall be deemed as complementing and not restricting the Bank's rights hereunder or thereunder. If there is any conflict or discrepancy to the provisions of this Amendment in any provision of the Original Loan Agreement, the Original Pledge Agreement, or the Restated Note, the terms and provisions of this Amendment shall control and prevail. 27. Each Borrower hereby acknowledges and agrees that a default by the Borrowers in the performance or observance of any term, covenant or agreement contained in this Amendment, including without limitation the failure to deliver any item required by paragraph 25 hereof shall constitute an immediate Event of Default under the Original Loan Agreement, as amended herein, subject to no notice or grace period. 28. Each Borrower hereby represents, warrants and certifies to Bank that no Default or Event of Default has occurred and is presently existing under the Loan Documents. 29. This Amendment (a) shall be construed and enforced in accordance with the laws of the State of New Jersey; (b) shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns; (c) may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument; and (d) may only be amended or modified pursuant to a writing signed by the parties hereto. 30. EACH BORROWER HEREBY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO A JURY TRIAL IN _____________ CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST THE BANK WITH RESPECT TO THE RIGHTS AND Initials OBLIGATIONS OF THE PARTIES HERETO.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized, as of the __ day of September, 1994. UNITED JERSEY BANK, A STATE BANKING ASSOCIATION (SUCCESSOR IN INTEREST TO UNITED JERSEY BANK/SOUTH, N.A.) BY: Dante J. Bucci, Vice President ATTEST: MEDIQ INCORPORATED BY: NAME: NAME: TITLE: TITLE: [SEAL] ATTEST: MEDIQ INVESTMENT SERVICES, INC. BY: NAME: NAME: TITLE: TITLE: [SEAL]
EX-4.9(D) 5 REVOLVING CREDIT LOAN AGREEMENT ANNEX I FORM OF SECOND AMENDED AND RESTATED REVOLVING CREDIT NOTE $13,400,000.00 September 29, 1994 FOR VALUE RECEIVED, the undersigned, MEDIQ INCORPORATED, a Delaware corporation, and MEDIQ INVESTMENT SERVICES, INC., a Delaware corporation (collectively, the 'Borrowers'), hereby, jointly and severally, promise to pay to the order of UNITED JERSEY BANK, a state banking association (as successor in interest to United Jersey Bank/South, N.A.) (the 'Bank'), as hereinafter provided, the principal sum of THIRTEEN MILLION FOUR HUNDRED THOUSAND DOLLARS ($13,400,000.00), or so much thereof as shall have been advanced pursuant to Paragraph 2 of the Revolving Credit and Term Loan Agreement dated as of October 14, 1993, as amended by a certain Amendment No. 1 to Revolving Credit Loan Agreement and Pledge and Security Agreement, dated as of August 9, 1994, between the Borrowers and the Bank, and a certain Amendment No. 2 to Revolving Credit Loan Agreement and Pledge and Security Agreement, dated as of the date hereof, between the Borrowers and the Bank (collectively, the 'Loan Agreement'), together with interest on the unpaid principal hereof from the date of this Note until said principal shall be paid, at a floating rate per annum equal to one (1) percentage point in excess of the Bank's Base Rate as from time to time in effect. The term 'Base Rate' as utilized herein refers to the fluctuating rate of interest determined by the Bank from time to time as a means of pricing some loans to some of its customers and is neither tied to an external rate of interest or index nor does it necessarily reflect the lowest rate of interest actually charged by the Bank to any particular category or class of customers of the Bank. Both the principal of and interest on this Note are payable in lawful money of the United States of America to the Bank at the Bank's principal offices in Cherry Hill, New Jersey in same day funds. Interest on the unpaid principal balance hereof shall be computed on the basis of a 360 day year for the actual number of days elapsed and changes in the interest rate will be effective concurrently with changes in the Base Rate. All interest accruing on this Note in each calendar month shall be due and payable on the first day of the following month, commencing on October 1, 1994, and shall become immediately due and payable upon the principal hereof becoming due and payable. The Borrowers shall, jointly and severally, repay the entire unpaid principal amount of this Note on October 14, 1995. In the event that any payment of interest or principal hereunder shall not be received by the Bank on its due date, the Bank shall, in addition to and not to the exclusion of its other rights under this Note or the Loan Agreement, be entitled to, and the Borrowers shall, jointly and severally, pay to the Bank, a late charge in an amount equal to the lesser of (a) five percent (5%) of the overdue payment or (b) $1,000. Late charges assessed by the Bank are immediately due and payable. This Note may at the Borrowers' option be prepaid in whole or in part, at any time and from time to time, without penalty or premium; provided, however, such repayments shall be in amounts of $50,000 or more, and applied first to accrued and unpaid interest and then to the outstanding principal balance of this Note. If the date of any payment required by this Note be Saturday, Sunday or a bank holiday, such payment shall be payable on the first business day following such date. Payments made pursuant to this Note shall be deemed made the banking day payment is received by the Bank; payments received after 3:00 P.M. shall be deemed made the next banking day. This Note is the Revolving Credit Note referred to in, and is entitled to the benefits of, the Loan Agreement. This Note has the benefit of the stock pledge required under Paragraph 5 of the Loan Agreement. In case an Event of Default (as such term is defined in the Loan Agreement) shall happen and be continuing, the holder of this Note may declare the entire outstanding principal of this Note, and all accrued, unpaid interest thereon, to be due and payable immediately, and upon any such declaration such principal and interest shall become and be immediately due and payable without further action. Upon and after the occurrence of such an Event of Default and during the continuation thereof, the outstanding principal balance hereof shall bear interest at a fluctuating rate per annum equal to three percent (3%) above the interest rate then in effect hereunder (the 'Default Rate'). Such provision for the payment of interest at the Default Rate shall be in addition to, and not in limitation of, the Bank's other remedies provided hereunder or under the Loan Agreement. Should the indebtedness represented by this Note or any part thereof be collected in any proceeding or placed in the hands of attorneys for collection, the Borrowers, jointly and severally, agree to pay, in addition to the principal and interest due and payable hereon, all costs of collecting this Note, including reasonable attorneys' fees and expenses. Each Borrower expressly waives presentment for payment, demand, notice of dishonor, notice of protest, protest or any other notice whatsoever. Each Borrower hereby irrevocably and unconditionally agrees that any suit, action, or other legal proceeding arising out of or in connection with this Note shall be brought in the courts of record of the State of New Jersey or the courts of the United States located in said state, consents to the jurisdiction of each such court in any such suit, action or proceeding, and waives any objection to the venue of any such suit, action, or proceeding in any of such courts. EACH BORROWER HEREBY WAIVES ANY AND ALL RIGHTS WHICH IT MAY HAVE TO A JURY TRIAL IN ___________ CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST THE BANK WITH RESPECT TO THIS NOTE OR THE Initials OBLIGATIONS OF THE BORROWERS HEREUNDER.
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed, sealed and delivered on the date first above written. Attest: MEDIQ INCORPORATED BY: BY: , Secretary , President [SEAL] Attest: MEDIQ INVESTMENT SERVICES, INC. BY: BY: , Secretary , President [SEAL]
EX-10.11 6 ASSET SALE AGREEMENT ASSET SALE AGREEMENT BY AND BETWEEN MEDIQ MANAGEMENT SERVICES, INC., AS SELLER AND ZURBRUGG MEMORIAL HOSPITAL, AS BUYER DATED AS OF: September 30, 1994 TABLE OF CONTENTS PARAGRAPH NO. TITLE PAGE - ------------ --------------------------------------------------------------------------------------------- ----- 1 Transfer of Assets........................................................................... 2 2 Purchase Price............................................................................... 2 3 Assumption of Obligations of Seller.......................................................... 5 4 Representations and Warranties of Seller..................................................... 5 5 Obligations and Covenants of Seller.......................................................... 8 6 Representations and Warranties of Buyer...................................................... 9 7 Conditions Precedent to Obligations of Buyer................................................. 10 8 Conditions Precedent to Obligations of Seller................................................ 13 9 Closing...................................................................................... 14 10 'AS IS' Purchase............................................................................. 15 11 Additional Covenants......................................................................... 16 12 Survival of Representations.................................................................. 19 13 Indemnification.............................................................................. 19 14 Termination.................................................................................. 23 14A Restrictive Covenant......................................................................... 24 15 General Provisions........................................................................... 25
EXHIBITS 9(b)(iii) Seller Management Agreement 11(a) Prepaid Expenses
ASSET SALE AGREEMENT THIS ASSET SALE AGREEMENT ('Agreement') is made and effective as of the 30th day of September, 1994 by and between MEDIQ Management Services, Inc., a Delaware corporation ('Seller') and Zurbrugg Memorial Hospital, a New Jersey non-profit corporation ('Buyer'), with reference to the following facts: W I T N E S S E T H: WHEREAS, Seller owns and operates a business in connection with the management of a certain lithotripsy center (the 'Center') located in Marlton, New Jersey; and WHEREAS, by Agreement dated June 4, 1985 as amended by addendums dated 1986 and January 20, 1989 (the 'Management Agreement') by and between Seller and Jersey Kidney Specialists, P.A. ('JKS') Seller agreed to provide certain management services, a lithotripter (the 'Lithotripter') and other equipment, leased space and leasehold improvements to JKS with respect to the operation of the Center; and WHEREAS, Buyer desires to purchase from Seller and Seller desires to sell to Buyer all of Seller's right, title and interest with respect to the Management Agreement on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the foregoing recitals, and the representations, warranties and covenants herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. TRANSFER OF ASSETS (a) Transferred Assets. At the Closing (as hereinafter defined in paragraph 9), for the consideration hereinafter provided, Seller shall sell, transfer, convey and assign to Buyer, and Buyer shall purchase from Seller, all right, title and interest of Seller with respect to the Management Agreement as of the date of Closing (the 'Assets'). (b) Retained Assets. At the Closing, Seller shall retain all accounts receivable with respect to the performance of services under the Management Agreement through the Effective Date. 2. PURCHASE PRICE (a) The purchase price (the 'Purchase Price') to be paid by Buyer to Seller for the Assets shall be Seven million ($7,000,000) dollars. (b) At the Closing: (i) Buyer shall wire transfer immediately available funds to an account designated by Seller in the amount of Four million ($4,000,000) dollars; and (ii) Buyer shall remit to Seller an amount equal to all sales tax, if any, due and payable in connection with the transactions contemplated herein. (c) The balance of the Purchase Price shall be paid by Buyer to Seller as follows: (i) From the Annual Net Pre-Tax Earnings (as defined in subparagraph 2(c)(iv) below) derived from the operations of the Center subsequent to the Effective Date, during each twelve-month period (each a 'Payout Year') commencing on the day after the Effective Date (as defined in paragraph 9) and each anniversary thereof: (A) Buyer shall retain the initial One million ($1,000,000) dollars; (B) the next Five hundred thousand ($500,000) dollars shall be paid by Buyer to Seller; and (C) all amounts in excess of One million five hundred thousand ($1,500,000) dollars shall be divided equally between Seller and Buyer. In no event, however, shall the aggregate amount paid by Buyer to Seller pursuant to this subparagraph 2(c)(i) exceed Three million ($3,000,000) dollars (the 'Maximum Amount'). (ii) All amounts due from Buyer to Seller pursuant to this subparagraph 2(c) shall be paid within sixty (60) days of the end of each quarter of each Payout Year. In the event that a payment hereunder is not made in a timely fashion and such breach continues for a period of twenty (20) days or more after written notice from Seller, the balance due, pursuant to this subparagraph 2(c), of the Maximum Amount shall immediately become due and payable in full. (iii) Buyer shall cause the business activities and operations of the Center subsequent to the Effective Date to be accounted for separately from any other business activities and operations of Buyer, its parent, affiliates and subsidiaries. (iv) Annual Net Pre-Tax Earnings shall be computed in accordance with generally accepted accounting principles consistently applied. Notwithstanding the foregoing, in the computation of Annual Net Pre-Tax Earnings, for purposes of this paragraph 2, there shall be excluded from consideration, either as income or expense: (A) depreciation; (B) any management fees, allocation of administrative overhead or other similar or dissimilar charges by Buyer or any subsidiary, or parent of Buyer or any person or entity affiliated with Buyer, or any allocation with respect to the operations of the Center of any sum for legal or accounting services, other than, as to each of the foregoing, charges for such services actually rendered; (C) amortization of goodwill arising out of the transactions contemplated by this Agreement; (D) extraordinary or non-recurring items; or (E) interest or other charge for the use of funds. (v) The computation of Annual Net Pre-Tax Earnings shall be made by Buyer, and certified by Buyer's regularly employed independent certified public accountants. A copy of the computation shall be delivered by Buyer to Seller within sixty (60) days of the end of each quarter of each Payout Year together with the amount, if any, then due from Buyer to Seller. (vi) Any dispute between the parties regarding the computation of Annual Net Pre-Tax Earnings shall be resolved by arbitration before a single arbitrator selected in accordance with the Commercial Arbitration Rules of the American Arbitration Association. All expenses of the arbitrator shall be shared equally by the parties. 3. ASSUMPTION OF OBLIGATIONS OF SELLER Except as set forth in the Seller Management Agreement (as defined in subparagraph 9(b)(iii)), Buyer shall not assume or become obligated with respect to any obligation or liability of Seller (the 'Excluded Liabilities'), including, without limiting the generality of the foregoing, the following: obligations arising from the breach by Seller on or prior to the Effective Date of any term, covenant or provision of any of contract or other obligations of Seller now existing or which may hereafter exist by reason of, or in connection with, any alleged misfeasance or malfeasance of Seller on or prior to the Effective Date. The Excluded Liabilities shall remain the sole responsibility of Seller. 4. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: (a) Organization of Seller. Seller is a corporation duly incorporated and validly existing under the laws of the State of Delaware and is authorized to exercise its corporate powers, rights and privileges in the State of New Jersey and has full corporate power to carry on its business as presently conducted and as will be conducted through the Closing and to own or lease and operate its properties and assets now owned or leased and operated by it. (b) Authority. Seller has the full corporate power and authority to execute, deliver and perform the obligations and covenants set forth in this Agreement and to carry out the transactions contemplated hereby. The execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of Seller and no further corporate action is necessary on the part of Seller to make this Agreement binding upon Seller in accordance with its terms. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not violate or conflict with any provision of the Certificate of Incorporation or Bylaws of Seller. (c) Title to the Assets. Seller has title to the Assets free and clear of all liens, encumbrances, covenants, conditions, restrictions, charges or other rights, claims or interests of any third party whatsoever. (d) Third Party Rights. Except for the consent of JKS pursuant to paragraphs 10 and 11 of the Management Agreement, as of the Closing Seller may transfer and assign to Buyer all of its right, title and interest in and to the Assets, without obtaining the consent or approval of any other person or party. (e) Litigation. There are no actions, suits, claims or proceedings pending, or to the current actual knowledge of Seller, threatened against or affecting the Assets (including the Management Agreement) or Lithotripter at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, agency or instrumentality. (f) Compliance with Laws. Seller has managed the Center in compliance in all material respects with all applicable laws and regulations and the Management Agreement. (g) Employees. (i) Seller is not a party to any agreement with any union, trade association or other employee organization with respect to the employees of Seller located at the Center, (ii) there are currently no union disputes, grievances, charges, complaints or proceedings involving the employees of Seller located at the Center, (iii) no demand has been made for recognition by a labor organization with respect to any employees of Seller located at the Center, and (iv) no union organizing activities by or with respect to any such employees are taking place. (h) Brokers. Seller has not employed, contracted for the services of or authorized any broker, finder or investment banker with respect to the negotiations leading up to the execution of this Agreement or the consummation of the transactions contemplated hereby, and Seller shall be solely responsible for any fees or commissions payable to any such broker, finder or investment banker by reason of the actions (or alleged actions) of Seller. (i) Condition of the Lithotripter. Seller has performed all necessary routine maintenance on the Lithotripter. At the Closing the Lithotripter will be in proper operating condition. 5. OBLIGATIONS AND COVENANTS OF SELLER Seller hereby covenants and agrees as follows: (a) Conduct of Business. From the date hereof to the Closing Date, Seller agrees that, with respect to its management activities at the Center, unless Buyer otherwise consents in writing Seller shall operate its business with respect to the Center as presently operated and only in the ordinary course, and, consistent with such operation, will comply in all material respects with all applicable legal and contractual obligations; provided, however, that Seller may terminate prior to the Closing Date any contract that it does not consider material to the operations of the Center, and any change in the management activities of Seller with respect to the Center as a result of such termination shall not constitute a violation of this paragraph 5(a). (b) Access and Information. Subject to the provisions contained in paragraph 11(c) hereof, Seller shall afford Buyer and the counsel, accountants and other representatives of Buyer reasonable access, throughout the period from the date hereof to the Closing, to the Assets and Lithotripter and all the books, contracts, commitments, tax returns, reports and records of Seller relating to the Assets. Such access shall be afforded after no less than 24 hours prior notice, during normal business hours and only in such manner so as not to disturb patient care or to interfere with the normal operations of the Center; provided, however, that, notwithstanding the foregoing, without first obtaining the written consent of Jo Surpin, neither Buyer nor its counsel, accountants or other representatives shall tour or visit the Center or contact any of the employees, personnel or medical staff of the Center or of Seller. Seller's covenants under this paragraph 5(b) are made with the understanding that Buyer shall use all such information in compliance with all laws. (c) Consent of Others. As soon as reasonably practicable after the date hereof, and in any event prior to the Closing, Seller shall use its reasonable commercial efforts to obtain the consents required to be obtained by Seller hereunder of all necessary persons and entities to the consummation of the transactions contemplated hereunder, including, without limitation, the third-party consents specified in paragraph 4(d). Seller shall have no liability to Buyer if, after using its reasonable commercial efforts, it is unable to obtain any of the consents referred to in the first sentence of this paragraph. 6. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: (a) Organization. Buyer is a corporation duly incorporated, duly organized and validly existing under the laws of, and is authorized to exercise its corporate powers, rights and privileges in, the State of New Jersey, and has full corporate power to carry on its business as contemplated hereby. (b) Authority. Buyer has the full corporate power and authority to execute, deliver and perform the obligations and covenants set forth in this Agreement and to carry out the transactions contemplated herein. The execution, delivery and performance of this Agreement by Buyer and the consummation of the transactions contemplated herein have been duly authorized by the Board of Directors of Buyer, and no further corporate action is necessary on the part of Buyer to make this Agreement binding upon Buyer in accordance with its terms. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not (i) violate any law applicable to Buyer, or (ii) violate or conflict with any provision of the Articles of Incorporation or Bylaws of Buyer. (c) Brokers. Buyer has not employed, contracted for the service of or authorized any broker, finder or investment banker with respect to the negotiations leading up to the execution of this Agreement or the consummation of the transactions contemplated hereby, and Buyer shall be solely responsible for any fees or commissions payable to any such broker, finder or investment banker by reason of the actions (or alleged actions) of Buyer. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER The obligations of Buyer under this Agreement are subject to the satisfaction or Buyer's waiver in writing, at or prior to the Closing, of each of the following conditions: (a) Accuracy of Warranties and Representations. Each of the representations and warranties of Seller set forth in this Agreement and in the Exhibits attached hereto shall be true and correct in all material respects as of the date of this Agreement and at and as of the Closing Date with the same force and effect as though such representations and warranties had been made as of the Closing Date, except as to changes occurring in the ordinary course of business of the Seller and/or Center after the date of this Agreement and not materially adversely affecting the Assets. (b) Performance of Obligations. Seller shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it on or prior to the Closing. (c) Third Party Consents. Seller shall have received all requisite consents, approvals and authorizations of third parties as specified in paragraph 4(d). (d) Instruments of Transfer. At the Closing, Seller shall have delivered to Buyer such instruments of transfer, conveyance and assignment as are reasonably requested by Buyer and reasonably satisfactory to counsel for Buyer and Seller and which shall be effective to vest in Buyer title to the Assets. (e) Seller Management Agreement. At the Closing the parties shall have entered into the Seller Management Agreement referenced in subparagraph 9(b)(iii). (f) Officer's Certificate. Seller shall have delivered to Buyer a certificate, dated as of the Closing, executed by its President or any Vice President, on behalf of Seller (and not in such person's individual capacity), stating that as of the Closing (i) Seller knows of no facts except as specifically disclosed in writing in such certificate which would cause Seller to be in breach of any of its representations and warranties hereunder, and (ii) Seller has duly performed all obligations and covenants to be performed by it hereunder. (g) Certified Resolutions. Copies of the following shall have been delivered to Buyer: (i) the resolutions of the Board of Directors of Seller authorizing the execution of this Agreement and the performance of the transactions contemplated herein which shall be certified as true, correct and effective as of the Closing Date by the Secretary or Assistant Secretary of Seller, and (ii) an incumbency certificate from Seller which shall be certified as true, correct and effective as of the Closing Date by the Secretary or Assistant Secretary of Seller. (h) Condition of the Center and Lithotripter. At the Actual Closing Date no casualty shall have occurred with respect to the Center or Lithotripter such as would render the Center inoperable for a period in excess of ninety (90) days. 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER The obligations of Seller under this Agreement are subject to the satisfaction or Seller's waiver in writing, at or prior to the Closing, of each of the following conditions: (a) Accuracy of Warranties and Representations. Each of the representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and at and as of the Closing Date with the same force and effect as though such representations and warranties had been made as of the Closing Date. (b) Performance of Obligations. Buyer shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it on or prior to the Closing. (c) Payment of Purchase Price. Buyer shall have delivered, or caused to be delivered, to Seller at the Closing (i) the immediately available funds described in subparagraph 2(b)(i) and (ii) all other documents and instruments to be delivered to Seller pursuant hereto. (d) Seller Management Agreement. At the Closing, the parties shall have entered into the Seller Management Agreement referenced in subparagraph 9(b)(iii). (e) Officer's Certificate. Buyer shall have delivered to Seller a certificate, dated as of the Closing, executed by its President or any Vice President, on behalf of Buyer (and not in such person's individual capacity), stating that as of the Closing (i) Buyer knows of no facts except as specifically disclosed in writing in such certificate which would cause Buyer to be in breach of any of its representations and warranties hereunder, and (ii) Buyer has duly performed all obligations and covenants to be performed by it hereunder. (f) Certified Resolutions. Copies of the following shall have been delivered to Seller: (i) the resolutions of the Board of Directors of Buyer authorizing the execution of this Agreement and the performance of the transactions contemplated herein, which shall be certified as true, correct and effective as of the Closing Date by the Secretary or Assistant Secretary of Buyer, and (ii) an incumbency certificate of Buyer which shall be certified as true, correct and effective as of the Closing Date by the Secretary or Assistant Secretary of Buyer. 9. CLOSING (a) The Closing shall take place on September 23, 1994, at a time and a place mutually agreeable to the parties. The date on which the Closing actually occurs shall be referred to herein as the 'Actual Closing Date'. Notwithstanding anything to the contrary contained herein, the Closing shall be deemed effective for all purposes as of the close of business on September 30, 1994 (the 'Effective Date'). (b) Deliveries at Closing. At the Closing, Buyer shall cause the portion of the Purchase Price referred to in subparagraph 2(b)(i) to be wired to the account designated by Seller and, upon oral confirmation from the sending bank that said wire transfer has commenced, the parties shall take the actions set forth below: (i) Seller. Seller shall deliver to Buyer the instruments of transfer, conveyance and assignment as described in Paragraph 7(d) and the other agreements, documents and instruments referred to in Paragraph 7. (ii) Buyer. Buyer shall deliver to Seller the agreements, certificates, documents and instruments referred to in Paragraph 8. Buyer shall also deposit with Seller an amount equal to all sales tax owed by Buyer in connection with the transactions contemplated herein. (iii) Seller Management Agreement. The parties shall enter into the management agreement ('Seller Management Agreement') attached hereto and made a part hereof as Exhibit 9(b)(iii) whereby Seller shall manage the operations of the Center for Buyer until such time as the payments made by Buyer to Seller pursuant to subparagraph 2(c) above shall equal Three million ($3,000,000) dollars. 10. 'AS IS' PURCHASE Buyer acknowledges and agrees (and upon which Seller shall have materially relied in selling the Assets at the Purchase Price and on the other terms and conditions herein set forth) that prior to the execution of this Agreement Buyer shall have inspected the Assets and Lithotripter and conducted its due diligence regarding the transactions contemplated herein. Upon the Closing, Buyer shall conclusively be deemed to have been satisfied with the results of said inspection. Based on its inspection, Buyer is purchasing the Assets on an 'AS IS' basis and in 'WITH ALL FAULTS' condition and Seller makes no warranty, whether expressed or implied, regarding the Assets except as specifically set forth in this Agreement. 11. ADDITIONAL COVENANTS The following provisions shall apply, and the following actions shall be taken, prior to or subsequent to the Closing: (a) Prepaid Expenses. Exhibit 11(a) describes certain prepaid expenses (including credits with Dornier Company) that Seller has incurred in connection with the operation of the Center through August 31, 1994. Seller hereby grants to Buyer the right to use said prepaid expenses in connection with the operations of the Center subsequent to the Closing. Buyer agrees that as said prepaid expenses are utilized by Buyer, or on behalf of Buyer, it shall reimburse Seller an amount equal to the amount so utilized. (b) Further Assurances. From time to time, at the request of either party, whether on or after the Closing, without further consideration, either party, at its expense and within a reasonable amount of time after request hereunder is made, shall execute and deliver such further instruments of assignment and transfer and take such other action as may be reasonably required to more effectively assign and transfer the Assets to Buyer or the payment of the Purchase Price to Seller or any amounts due from one party to the other pursuant to the terms of this Agreement. (c) Preservation of Records: Access by Seller. For the five-year period commencing on the Closing Date, Buyer shall maintain at its expense all records relating to the Center, the Management Agreement, the Assets and the Lithotripter existing as of the Closing Date which are delivered to Buyer by Seller. After the Closing, Buyer shall make such records available for use by Seller as needed for any lawful purpose, and Buyer shall instruct its appropriate employees to cooperate in providing access to such records to Seller and its authorized representatives as contemplated herein. Access to such records shall be during normal business hours, with reasonable prior written notice to Buyer of the time when such access shall be needed. Seller's employees, representatives and agents shall conduct themselves in such a manner so that Buyer's normal business activities shall not be unduly or unnecessarily disrupted. After the expiration of the aforementioned five-year period, Buyer shall not, without ninety (90) days prior written notification to Seller (the 'Destruction Notice') destroy any such records. Within eighty (80) days of the receipt of the Destruction Notice, Seller shall have the right, at its own expense, to require Buyer to deliver any such records to Seller. (d) Confidentiality. The parties hereto recognize and agree that all information, instruments, documents and details concerning the business of Buyer and Seller and the transactions contemplated herein are strictly confidential, and Seller and Buyer expressly covenant and agree with each other that they will not, nor will they allow any of their respective officers, directors, employees or agents to, reproduce, distribute or disclose any matters relating to the business of the other or to this Agreement, its negotiation, terms, provisions or conditions, including Purchase Price, except as may be reasonably necessary to effectuate the transactions contemplated hereby and in a manner consistent with the provisions of this Agreement; provided, however: (i) neither party shall be prohibited from making any public announcement or other disclosure required by Law of its sale or acquisition of the Assets, including such details as to price, terms and the like as may be required, provided the other party is notified prior to such announcement or disclosure and approves the form and content of the same, which approval shall not be unreasonably withheld, and (ii) either party shall be entitled to disclose any information which is required or ordered by any court or other official authority. Each party shall keep all information obtained from the other either before or after the date of this Agreement confidential, and neither party shall reveal such information to, nor produce copies of any written information for, any person outside its management group or its professional advisors without the prior written consent of the other party, unless such party is compelled to disclose such information by judicial or administrative process or by any other requirements of law. If the sale contemplated by this Agreement should fail to close for any reason, each party shall return to the other as soon as possible all originals and copies of written information provided to such party by or on behalf of the other party and none of such information shall be used by either party, or their employees, agents or representatives in the business operations of any person. Notwithstanding the foregoing, each party's obligations under this Paragraph 11(d) shall not apply to any information or document which is or becomes available to the public other than as a result of a disclosure by the other party in violation of this Agreement or other obligation of confidentiality under which such information may be held or becomes available to the party on a non-confidential basis from a source other than the other party or its officers, directors, employees or agents. The parties' obligations under this Paragraph 11(c) shall survive the termination of this Agreement. 12. SURVIVAL OF REPRESENTATIONS Notwithstanding any investigation made by Seller or Buyer, subject to the provisions of Paragraph 13(d), the representations, warranties, covenants, agreements and indemnifications made by the parties shall survive the Closing and shall be deemed to have been relied upon by Buyer and Seller. 13. INDEMNIFICATION (a) Indemnification of Buyer by Seller. Subject to the provisions of paragraphs 12, 13(c) and 13(d), Seller shall indemnify and hold Buyer harmless from and against all losses, liabilities, costs and expenses, including reasonable attorneys' fees (including a reasonable estimate of the allocable costs of in-house legal counsel and staff), actually incurred, paid or required under penalty of law to be paid by Buyer, resulting from (i) any breach of any representation, warranty, covenant or agreement made herein by Seller, (ii) any obligation, liability or claim relating to the Excluded Liabilities or (iii) any obligation, liability or claim relating to the Assets or Lithotripter or the performance by Seller under the Management Agreement, to the extent such obligation, liability or claim is based upon acts or omissions occurring on or prior to the Effective Date. (b) Indemnification of Seller by Buyer. Subject to the provisions of paragraphs 12, 13(c) and 13(d) Buyer shall indemnify and hold Seller harmless from and against all losses, liabilities, costs and expenses, including reasonable attorneys' fees (including a reasonable estimate of the allocable costs of in-house legal counsel and staff), actually incurred, paid or required under penalty of law to be paid by Seller, resulting from (i) any breach of any representation, warranty, covenant or agreement made herein by Buyer, or (ii) any obligation, liability or claim relating to the Assets or Lithotripter or the performance by Buyer under the Management Agreement, to the extent such obligation, liability or claim is based upon acts or omissions occurring after the Effective Date except for liabilities or claims arising in whole or in part from any act or omission of Seller in the performance of Seller's obligations under the Seller Management Agreement. (c) Notification and Settlement of Claims. Notwithstanding the foregoing, neither party shall be required to indemnify the other with respect to any claim unless the party seeking indemnification (the 'Indemnitee') shall within 120 days from the date the Indemnitee received actual knowledge of the claim (or by such earlier date after Indemnitee has received actual knowledge of the claim as may be necessary to avoid material prejudice to the other party), notify the other party (the 'Indemnitor') of such claim (the 'Indemnification Notice'), shall provide the Indemnitor with a copy of such claim or other documents received, and shall otherwise make available to the Indemnitor all relevant information material to the defense of such claim and within the Indemnitee's possession. If the Indemnitor notifies the Indemnitee in writing within ten (10) days after an Indemnification Notice is given to the Indemnitor that the Indemnitee is entitled to indemnification hereunder or defense with respect to such claim (subject, however, to any reservation of rights Indemnitor may have), then the Indemnitor shall have the right by notice given to the Indemnitee within fifteen (15) days after the date of the Indemnification Notice to assume and control the defense thereof, including the employment of counsel selected by the Indemnitor, and the Indemnitor shall pay all expenses of such defense. The Indemnitee shall have the right to employ separate counsel in any such proceeding and to participate in (but not control) the defense of such claim, but the fees and expenses of such counsel shall be borne by the Indemnitee unless the employment thereof has been specifically authorized by the Indemnitor in writing. If the Indemnitor shall have failed to assume the defense of any claim in accordance with the provisions of this Paragraph 13(c), then the Indemnitee shall have the absolute right to control the defense of such claim and, if and when it is finally determined that Indemnitee is entitled to indemnification from Indemnitor hereunder, the fees and expenses of Indemnitee's counsel shall be borne by Indemnitor, but the Indemnitor shall be entitled, at its own expense, to participate in (but not control) such defense. The Indemnitor shall have the right to settle or compromise any such claim in its sole and absolute discretion and without consultation with Indemnitee. The Indemnitee shall not settle or compromise the claim without satisfying one of the following conditions (otherwise Indemnitor shall be released from all indemnification obligations hereunder to Indemnitee with respect to such claim): (i) Indemnitee shall first obtain the written consent of the Indemnitor, (ii) suit shall have been instituted against the Indemnitee and the Indemnitor shall have failed after the lapse of a reasonable time (not to exceed 30 days) after written notice to it of such suit, to take action to defend the same, or (iii) Indemnitor shall have failed to notify Indemnitee in writing of its intention to contest the claim within ninety (90) days after the Indemnification Notice is given by Indemnitee to Indemnitor. (d) Certain Time Limitations. Seller shall not be liable for any breach of any representation, warranty, covenant or agreement contained herein or made by Seller under or in connection with this Agreement unless Buyer shall have given written notice to Seller of the basis of its claim within two (2) years of the Closing. 14. TERMINATION Any party may at or prior to the time set for Closing terminate this Agreement under the following circumstances: (a) Termination Upon Certain Events. If at the time for Closing (i) a bona fide action or proceeding shall be pending against any party wherein an unfavorable judgment, decree or order would prevent or make unlawful the carrying out of the transactions contemplated by this Agreement, or (ii) any governmental agency shall have notified any party to this Agreement that the consummation of the transactions contemplated by this Agreement would constitute a violation of the laws of any jurisdiction and that it has commenced or intends to commence proceedings to restrain the consummation of the transactions contemplated hereunder, and such agency has not withdrawn such notice prior to such termination; provided, however, that, such party shall have a period of thirty (30) days from the entry of any such judgment, decree or order or from the receipt of any such notice, as the case may be, to eliminate such judgment, decree or order or cause such notice to be withdrawn. (b) Termination Based upon Conditions. If the conditions of this Agreement to be complied with or performed by the other party at or before the Closing shall not have been complied with or performed at the time required for such compliance or performance and such noncompliance or nonperformance shall not have been waived by the party giving notice of termination. 14A. RESTRICTIVE COVENANT (a) Restrictive Covenant. Seller agrees that, throughout the term of the Seller Management Agreement as defined in subparagraph 9(b)(iii), and for a period of one (1) year after the date of termination of the Seller Management Agreement, neither Seller nor any parent or subsidiary of Seller, shall, within the counties of Camden, Burlington, Cumberland, Salem or Gloucester in the State of New Jersey or Philadelphia county in the Commonwealth of Pennsylvania, own, manage or operate a lithotripsy center. (b) Seller acknowledges that the restrictions contained in subparagraph 14A(a), in view of the nature of the business activities in which Buyer intends to utilize the Assets, are reasonable and necessary in order to protect the legitimate interests of Buyer, and that any violation thereof would result in irreparable injuries to Buyer. Seller therefore acknowledges that, in the event of a breach or threatened breach of the provisions of subparagraph 14A(a) by Seller, Buyer shall be entitled to obtain from any court of competent jurisdiction, preliminary and permanent injunctive relief restraining Seller from any violation of the foregoing. (c) Seller acknowledges that Buyer shall have the broadest possible protection in the trade area set forth above consistent with public policy, and it will not violate the intent of the parties if any court should determine that, consistent with established precedent of the forum state, the public policy of such state requires a more limited restriction in geographical area or duration of the aforesaid covenant not to compete, contained in an appropriate decree. 15. GENERAL PROVISIONS (a) Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of New Jersey as applied between residents of that state entering into contracts to be performed wholly within the State of New Jersey. (b) Notices. All notices, requests, demands, waivers, consents and other communications hereunder shall be in writing, shall be delivered in person, by facsimile, by overnight air courier or by mail, and shall be deemed to have been duly given and to have become effective (i) upon receipt if delivered in person or by facsimile, (ii) one business day after having been delivered to an air courier for overnight delivery or (iii) three business days after having been deposited in the mails as certified or registered mail, return receipted requested, all fees prepaid, directed to the parties at the following addresses (or at such other address as shall be given in writing by a party hereto): If to Seller: MEDIQ Management Services, Inc. One MEDIQ Plaza Pennsauken, NJ 08110 Attn: Jo Surpin President If to Buyer: Zurbrugg Memorial Hospital 218-A Sunset Road Willingboro, New Jersey 08046 Attn: President In each case with a copy to: Alan S. Einhorn, Esquire MEDIQ Incorporated One MEDIQ Plaza Pennsauken, NJ 08110 and Lee W. Doty, Esquire Vice President and General Counsel Graduate Health Systems 22nd and Chestnut Streets Philadelphia, PA 19103
(c) Successors and Assigns. The rights under this Agreement shall not be assignable nor the duties delegable by any party without the written consent of the other and nothing contained in this Agreement, express or implied, is intended to confer upon any person or entity, other than the parties hereto and their permitted successors-in-interest and permitted assignees, any rights or remedies under or by reason of this Agreement unless so stated to the contrary. (d) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (e) Captions and Paragraph Headings. Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it. (f) Entirety of Agreement; Amendments. This Agreement (including the Exhibits hereto) and the other documents and instruments specifically provided for in this Agreement contain the entire understanding between the parties concerning the subject matter of this Agreement and such other documents and instruments and, except as expressly provided for herein, supersede all prior understandings and agreements, whether oral or written, between them with respect to the subject matter hereof and thereof. There are no representations, warranties, agreements, arrangements or understandings, oral or written, between the parties hereto relating to the subject matter of this Agreement and such other documents and instruments which are not fully expressed herein or therein. This Agreement may be amended or modified only by an agreement in writing signed by all of the parties hereto. (g) Expenses. Each party shall bear and pay its own costs and expenses relating to the transactions contemplated by, or the performance of or compliance with any condition or covenant set forth in, this Agreement. (h) Construction. This Agreement and any documents or instruments delivered pursuant hereto shall be construed without regard to the identity of the person who drafted the various provisions of the same. Each and every provision of this Agreement and such other documents and instruments shall be construed as though the parties participated equally in the drafting of the same. Consequently, the parties acknowledge and agree that any rule of construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or such other documents and instruments. (i) Waiver. The failure of any party to insist, in any one or more instances, on performance of any of the terms, covenants and conditions of this Agreement shall not be construed as a waiver or relinquishment of any rights granted hereunder or of the future performance of any such term, covenant or condition, but the obligations of the parties with respect thereto shall continue in full force and effect. No waiver of any provision or condition of this Agreement by any party shall be valid unless in writing signed by such party. A waiver by one party of the performance of any covenant, condition, representation or warranty of the other party shall not invalidate this Agreement, nor shall such waiver be construed as a waiver of any covenant, condition, representation or warranty. A waiver by any party of the time for performing any act shall not constitute a waiver of the time for performing any other act or the time for performing an identical act required to be performed at a later time. The exercise of any remedy provided in this Agreement shall not, except as otherwise expressly provided for herein, constitute a waiver of any other remedy provided by law or equity. (j) Severability. The provisions of this Agreement are severable, and if any one or more provisions may be determined to be judicially unenforceable, in whole or in part, the remaining provisions and any partially unenforceable provisions, to the extent enforceable, shall nevertheless be binding and enforceable upon the parties hereto. (k) Time of the Essence. Time is hereby expressly made of the essence with respect to each and every term and provision of this Agreement. The parties acknowledge that each will be relying upon the timely performance by the other of its obligations hereunder as a material inducement to each party's execution of this Agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written. MEDIQ Management Services, Inc. By: /s/_______________________ Jo Surpin, President Zurbrugg Memorial Hospital By: /s/
EX-11 7 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 MEDIQ INCORPORATED AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30, -------------------------------- 1994 1993 1992 --------- --------- ---------- Computation of Primary Earnings Per Share: Net Income (Loss) $ (7,318) $ 3,296 $ (14,553) --------- --------- ---------- --------- --------- ---------- Weighted Average Number of Primary Shares: Beginning Balance 24,034 23,766 23,724 Assumed Conversion of Options 371 600 283 --------- --------- ---------- Total 24,405 24,366 24,007 --------- --------- ---------- --------- --------- ---------- Primary Earnings (Loss) Per Share $ (.30) $ .14 $ (.61) --------- --------- ---------- --------- --------- ---------- Computation of Fully Diluted Earnings Per Share: Net Income (Loss) $ (7,318) $ 3,296 $ (14,553) Interest and Amortization on Convertible Subordinated Debentures -- Net of Tax 2,317 2,762 2,762 --------- --------- ---------- Total $ (5,001) $ 6,058 $ (11,791) --------- --------- ---------- --------- --------- ---------- Weighted Average Number of Fully Diluted Shares: Beginning Balance 24,034 23,766 23,724 Assumed Conversion of Options 371 631 315 Assumed Conversion of Debentures 6,897 6,380 6,380 --------- --------- ---------- Total 31,302 30,777 30,419 --------- --------- ---------- --------- --------- ---------- Fully Diluted Earnings (Loss) Per Share $ (.16) $ .20 $ (.39) --------- --------- ---------- --------- --------- ----------
EX-21 8 SUBSIDIARIES OF THE REGISTRANT Set forth below is a list of MEDIQ's subsidiaries, as of December 10, 1994, with their respective states of incorporation, names under which they do business and the percentage of their voting securities owned by the Company as of such date.
STATE OF PERCENTAGE NAME INCORPORATION OF OWNERSHIP ---- ------------ --------------- Alpha Health Consultants, Inc.(1) DE 100 American Cardiovascular Imaging Labs, Inc.(2) PA 100 ATS Medical Services, Inc.(3) PA 100 Health Examinetics, Inc. DE 100 HealthQuest, Inc.(4) DE 67 Jersey Kidney Specialists, Inc.(5) NJ 100 KPA Design Group, Inc.(6) PA 100 MCHC, Inc. DE 100 MDTC Haddon, Inc.(7) DE 100 Medifac, Inc. DE 100 MEDIQ Diagnostic Centers Inc. DE 100 MEDIQ Diagnostic Centers-I Inc.(7) DE 100 MEDIQ Healthcare, Inc. DE 100 MEDIQ Imaging Services, Inc. DE 100 MEDIQ Investment Services, Inc. DE 100 MEDIQ Management Services, Inc. DE 100 MEDIQ Marin, Inc. DE 100 MEDIQ Mobile X-Ray Services, Inc. DE 100 MEDIQ/PRN Life Support Services, Inc.(8) DE 100 MEDIQ/PRN Life Support Services-I, Inc.(8) DE 100 MEDIQ Services, Inc. DE 100 PRN Holdings, Inc. DE 100 Southeastern Diagnostics, Inc.(2) DE 100 Thera-Kinetics Acquisition Corporation NJ 100 P.I. Corporation(4) DE 100
- ------------------ (1) Subsidiary of MEDIQ Management Services, Inc. (2) Subsidiary of MEDIQ Imaging Services, Inc. (3) Subsidiary of MEDIQ Mobile X-Ray Services, Inc. (4) Subsidiary of MEDIQ Investment Services, Inc. (5) Subsidiary of MICD, Inc. (6) Subsidiary of Medifac, Inc. (7) Subsidiary of MEDIQ Diagnostic Centers Inc. (8) Subsidiary of PRN Holdings, Inc. EX-23 9 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference, in the Registration Statements listed below of our report, dated December 29, 1994 appearing in this Annual Report on Form 10-K of MEDIQ Incorporated and subsidiaries for the year ended September 30, 1994. Registration Statement No. 33-13122 on Form S-8 Registration Statement No. 33-11042 on Form S-8 Registration Statement No. 33-10208 on Form S-4 Registration Statement No. 33-09746 on Form S-4 Registration Statement No. 33-16802 on Form S-8 Registration Statement No. 33-5089 on Form S-2 Registration Statement No. 33-47416 on Form S-8 DELOITTE & TOUCHE Philadelphia, Pennsylvania January 10, 1995 EX-27 10 ART. 5 FDS FOR FISCAL 1994 10-K
5 EXHIBIT 27 MEDIQ INCORPORATED AND SUBSIDIARIES Financial Data Schedule (Unaudited) 1,000 YEAR SEP-30-1994 SEP-30-1994 3,232 0 44,166 7,862 5,995 60,939 273,635 100,256 426,393 75,581 297,464 19,064 0 3,408 13,808 426,393 0 168,081 0 166,156 (11,339) 0 24,627 (11,363) (4,045) (7,318) 0 0 0 (7,318) (.30) (.30)
EX-99.1 11 NUTRAMAX PRODUCTS, INC. 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: OCTOBER 1, 1994 Commission File Number: 0-18671 NUTRAMAX PRODUCTS, INC. (Exact name of registrant as specified in its charter) DELAWARE 061200464 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
9 BLACKBURN DRIVE, GLOUCESTER, MASSACHUSETTS 01930 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 283-1800 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.001 PER SHARE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ The aggregate market value of the registrant's voting stock held by nonaffiliates (based upon the closing price of $9.00) on December 6, 1994 was approximately $34,700,000. As of December 6, 1994, there were 8,519,832 shares of Common Stock, par value $.001 per share, outstanding. Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1994 Annual Meeting of Stockholders are incorporated by reference into Part III. The Index to Exhibits begins on page 25. PART I ITEM 1. BUSINESS GENERAL NutraMax Products, Inc. (the 'Company') was incorporated on April 20, 1987 under the laws of the State of Delaware and is the successor by merger in July 1990 to Aid-Pack, Inc. ('Aid-Pack'), formerly a wholly-owned subsidiary of MEDIQ Incorporated ('MEDIQ'). The Company is a private label health and personal care products company. The Company's strategy is to offer a line of quality products equivalent to national brands at lower cost to consumers while providing greater profit potential to retailers than the national brands. National brands dominate health and personal care product categories. However, in recent years private label products have been capturing increasing market share by appealing to value conscious consumers seeking lower cost products of comparable quality. The Company received the 1993 Retail Excellence Award as the private label company of the year, with the selection based on a survey conducted by a trade journal. PRODUCTS Feminine Needs -- The Company manufactures disposable douches for sale under its value brands Sweet*n Fresh and Sweet Love and on a private label basis. As a result of the growth of the Company's other product lines, sales of douche products in fiscal 1994 were 25% of net sales, as compared to 56% in 1993 and 73% in 1992. The Company also markets private label feminine yeast infection medication products containing the active ingredient clotrimazole. Cough/Cold Products -- In December 1993, the Company acquired a leading manufacturer and distributor of private label cough drops and throat lozenges, which also manufactures cough drops on a contract basis. The acquisition enables the Company to offer an extensive line of solid dosage cough/cold products, including cough drops, throat lozenges, sugar-free products, vitamin C drops and liquid center items. In fiscal 1994, sales of cough/cold products represented 33% of net sales. Baby Care -- The Company manufactures disposable baby bottle liners on a private label basis and under its value brand Fresh*n Easy. The Company manufactures pediatric electrolyte oral maintenance solution, a product which is used to replace minerals lost by children who suffer from diarrhea and vomiting, for sale under its value brand NutraMax Baby Care Pediatric Electrolyte and on a private label basis. During fiscal years 1994, 1993 and 1992, sales of baby care products represented 21%, 28% and 18% of net sales, respectively. Ophthalmics -- In June 1993, the Company acquired a manufacturer of private label over-the-counter and prescription ophthalmic products for retail and industrial customers, enabling the Company to offer a broad line of eye care products, including over-the-counter contact lens solutions, artificial tears and eye drops, as well as generic prescription eye care products. In fiscal 1994, sales of ophthalmic products represented 11% of net sales. Personal Care -- The Company manufactures ready-to-use disposable enemas for sale under its value brand Pure & Gentle, on a private label basis and for the institutional market. Other Products -- The Company's other products consist principally of a patented line of sterile, prefilled, disposable dilution bottles used in laboratory testing of water, waste water, foods, drug products, pharmaceuticals and cosmetics. NEW PRODUCT STRATEGY The Company's growth strategy includes the acquisition and development of new products, and the extension or modification of existing product lines to correspond with national branded products and product variations. The Company expects to add new product lines through internal development, acquisition and joint venture or partnership agreements. The Company contemplates that product line expansion will enable the Company to capitalize on its established distribution channels and manufacturing and marketing expertise. New products will most likely focus on consumer packaged goods, including health and personal care products. The Company has recently expanded its product lines to include the following: Adult Nutrition Products -- The Company has recently introduced a new line of adult high calorie liquid nutrition products which will be sold under its value brand NutraMax Plus High Calorie Liquid Nutrition and on a private label basis. This product provides the Company entry into the growing adult nutrition category. The products will be manufactured by a third party and marketed by the Company through its distribution channels. MARKETING AND DISTRIBUTION The Company utilizes national brand marketing methods to meet the specific needs of its customers. Such marketing methods include designing contemporary packaging to improve point-of-purchase impact and increase consumer appeal. The Company also uses price, display, packaging, bonus and multi-pack promotions to increase sales and retailer support. Sales are made through the Company's sales representatives and independent brokers. CUSTOMERS For fiscal year 1994, American Home Products, Inc. accounted for 17% of net sales. For fiscal years 1993 and 1992, no individual customer represented in excess of 10% of the Company's net sales. While the Company is continually expanding its distribution and customer base, the loss of one or more of its largest customers, if not replaced with other comparable business, could have a material adverse effect on the Company's results of operations. COMPETITION The markets in which the Company competes are dominated by nationally advertised brand name products marketed by established consumer packaged goods companies, most of which have greater marketing, financial and human resources than the Company. The Company also competes with several other private label manufacturers and marketers. Competition for consumer health and personal care products is based primarily on product reliability, price, customer service, and the ability to provide tamper resistant/evident packaging. Growth in sales of private label products is also dependent on increasing the amount of shelf space available at retail stores in order to maximize brand awareness and consumer trial. The Company continues to experience greater price competition in the disposable douche product category. There can be no assurance that the Company will not continue to experience price competition in the future and that such price competition will not have a material adverse effect on the Company's results of operations (see 'ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations'). GOVERNMENTAL REGULATION AND HEALTH ISSUES The Company is registered with the Food & Drug Administration ('FDA') as a manufacturer for certain of its products. The primary forms of governmental regulation are the current 'good manufacturing practices' and 'good laboratory practices' guidelines administered by the FDA, which set forth the protocols to be followed in the manufacture, storage, packaging and distribution of medical products for human use. Certain of the Company's ophthalmic products are subject to additional FDA regulations relating to pre-market approval of products. The Company is also subject to periodic inspections by the FDA. Promotional claims made with respect to health and personal care products are also subject to regulation by the FDA, and by the Federal Trade Commission. The use of health and personal care products may result in allergic or other adverse reactions in users. Since 1952, a number of studies have been published in medical journals concerning the relationship of douching to the incidence of pelvic inflammatory disease. These studies provide no conclusive results on the issue of whether douching causes this disease. A 1990 study showed an association between douching and the disease and concluded that further studies were needed. A 1993 study stated that the results of the study lend support to the hypothesis that douching can predispose a woman to pelvic inflammatory disease. Although the Company believes its douche products are safe when used in accordance with instructions accompanying the product package, negative publicity resulting from such studies and any future studies may affect sales of douche products. In such event there could be a material adverse impact on the Company's results of operations. EMPLOYEES As of December 1, 1994, the Company had approximately 500 full-time employees engaged in quality control, marketing and sales, general corporate and administrative positions and manufacturing operations. The Company believes that relations with its employees are satisfactory. ITEM 2. PROPERTIES The Company currently operates the following facilities (which are owned unless otherwise indicated):
APPROXIMATE LOCATION TYPE OF FACILITY SQUARE FEET - --------------------------------- -------------------------------------------- ------------ Gloucester, Massachusetts(1) Corporate and Administrative Offices, 120,000 Manufacturing Facilities Fairton, New Jersey Manufacturing 35,000 Brockton, Massachusetts Manufacturing 60,000
- ------------------ (1) Consists of four facilities, of which three are leased. The Company believes that its present facilities will be adequate for all of its reasonably foreseeable manufacturing, warehousing and distribution requirements, or that alternative facilities can be obtained at a reasonable cost. ITEM 3. LEGAL PROCEEDINGS The Company, like other companies in the store brand industry, has been the subject of claims and litigation brought by national brand name companies based on packaging alleged to be similar to competing brand name products. The Company is also subject to certain claims and informal complaints relating to its products which are incidental and routine to its business and for which the Company maintains insurance coverage. The Company knows of no litigation, either pending or threatened, which is likely to have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1994. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS MARKET INFORMATION The following table sets forth, for the periods indicated, the high and low prices for the common stock as reported by NASDAQ. The Company's common stock is traded on the NASDAQ National Market System under the symbol 'NMPC'.
FISCAL 1994: HIGH LOW - ---------------------------- --------- --------- First Quarter $ 16.125 $ 10.500 Second Quarter 12.750 10.750 Third Quarter 11.625 7.875 Fourth Quarter 10.750 8.250
FISCAL 1993: - ---------------------------- First Quarter $ 11.000 $ 7.750 Second Quarter 15.250 10.375 Third Quarter 16.625 13.500 Fourth Quarter 15.250 12.125
COMMON STOCK HOLDERS The Company believes there are approximately 4,000 holders of common stock, including shares held in street name by brokers. DIVIDENDS The Company has never declared or paid any cash dividends. Pursuant to a lending arrangement, there are restrictions on the amount of dividends which may be paid, the most restrictive of which limits the payments of cash dividends to approximately $3,000,000 as of October 1, 1994. The declaration of dividends by the Company in the future will at all times be subject to the sole discretion of the Company's Board of Directors, and will depend upon operating results, capital requirements and financial position. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below has been derived from the audited financial statements of the Company. This data is qualified in its entirety by reference to, and should be read in conjunction with, Management's Discussion and Analysis of Financial Condition and Results of Operations and the Company's Consolidated Financial Statements included elsewhere herein.
YEAR ENDED ----------------------------------------------------- OCT. 1, OCT. 2, SEPT. 30, SEPT. 30, SEPT. 30, 1994 (1) 1993 (2) 1992 1991 1990 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net sales $ 55,958 $ 31,144 $ 25,151 $ 20,115 $ 14,928 Cost of sales 38,752 19,598 13,908 11,330 10,309 --------- --------- --------- --------- --------- Gross profit 17,206 11,546 11,243 8,785 4,619 Operating expenses: Selling, general and administrative 9,281 5,928 5,715 4,639 3,178 Management fees -- MEDIQ (3) -- -- -- -- 570 --------- --------- --------- --------- --------- Operating income 7,925 5,618 5,528 4,146 871 Other credits (charges): Interest expense (3) (928) -- -- (650) (979) Other 95 251 338 244 (12) --------- --------- --------- --------- --------- Income (loss) before income tax expense and cumulative effect of change in accounting principle 7,092 5,869 5,866 3,740 (120) Income tax expense 2,832 2,350 2,397 1,605 53 --------- --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle 4,260 3,519 3,469 2,135 (173) Cumulative effect of change in accounting principle (4) -- -- -- -- (272) --------- --------- --------- --------- --------- Net income (loss) $ 4,260 $ 3,519 $ 3,469 $ 2,135 $ (445) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Earnings (loss) per share $ .50 $ .43 $ .43 $ .35 $ (.09) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Weighted average shares outstanding (5) (6) 8,480 8,235 8,090 6,143 4,991 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- OCT. 1, OCT. 2, SEPT. 30, SEPT. 30, SEPT. 30, 1994 (1) 1993 (2) 1992 1991 1990 --------- --------- --------- --------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital $ 13,172 $ 9,703 $ 10,235 $ 8,559 $ 1,240 Total assets 60,450 33,207 25,925 22,416 15,168 Long-term debt, less current maturities (6) 16,183 -- -- -- 6,764 Due to MEDIQ (3) (6) -- -- -- -- 652 Stockholders' equity (6) 34,757 29,953 22,549 19,026 5,204
See Notes to Selected Consolidated Financial Data on next page. NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA (1) In December 1993, the Company acquired a manufacturer and distributor of private label cough/cold products for $13,500,000 which was financed with proceeds from a revolving credit facility. (2) In June 1993, the Company acquired a manufacturer of private label over-the-counter and prescription ophthalmic products, for approximately 202,000 shares of the Company's common stock with a market value of $2,846,000. (3) Prior to the merger of the Company and Aid-Pack in July 1990, Aid-Pack operated as a wholly-owned subsidiary of MEDIQ and incurred intercompany charges from MEDIQ for management fees and interest. Interest charges from MEDIQ were $56,000 and $400,000 for fiscal years 1991 and 1990, respectively. As a result of the reorganization of the Company in connection with the merger, certain relationships with MEDIQ were restructured. (4) The Company adopted Statement of Financial Accounting Standards No. 96, 'Accounting for Income Taxes,' as of October 1, 1989. The cumulative effect of adopting this change in accounting principle resulted in a charge to income of $272,000 in fiscal 1990. (5) Earnings (loss) per share computations are based upon the weighted average number of shares outstanding, restated in fiscal 1991 and 1990 to reflect the number of equivalent shares issued to MEDIQ in the merger and the 1 for 25 reverse stock split effected on June 19, 1991. (6) In August 1991, the Company completed a public stock offering consisting of 2,150,000 shares of common stock at a price of $6 per share. Net proceeds were used, in part, to retire outstanding obligations under a credit facility and amounts due to MEDIQ. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto, contained elsewhere herein. RESULTS OF OPERATIONS The Consolidated Statements of Operations include the results of operations of acquired companies from the dates acquired: Optopics Laboratories Corporation ('Optopics') (June 1993) and Powers Pharmaceutical Corporation ('Powers') (December 1993). The following table sets forth, for all periods indicated, the percentage relationship that items in the Consolidated Statements of Operations bear to net sales.
YEAR ENDED ------------------------------------- OCT. 1, OCT, 2, SEPT. 30, 1994 1993 1992 ----------- ----------- ----------- Net sales 100% 100% 100% Cost of sales 69 63 55 ----- ----------- ----------- Gross profit 31 37 45 Selling, general and administrative 17 19 23 ----- ----------- ----------- Operating income 14 18 22 Other credits (charges) (1) 1 1 ----- ----------- ----------- Income before income tax expense 13 19 23 Income tax expense 5 8 9 ----- ----------- ----------- Net income 8% 11% 14% ----- ----------- ----------- ----- ----------- -----------
Fiscal Year 1994 Compared to Fiscal Year 1993 Net sales for 1994 were $55,958,000, an increase of $24,814,000, or 80%, over 1993 sales of $31,144,000. The increase in net sales was primarily attributable to sales of cough/cold products which represented 33% of net sales in 1994. The increase in net sales was also attributable to increased unit sales of ophthalmic and baby care products, partially offset by a decrease in sales of certain feminine hygiene products. Sales of certain feminine hygiene products decreased as a result of lower average sale prices in response to continued competitive pressure, while unit sales for the year stabilized. The timing, frequency and nature of promotional activities in this category by brand manufacturers and other private label companies continues to have the effect of decreasing sale prices. Gross profit for 1994 increased to $17,206,000, or 31% of net sales, as compared to $11,546,000, or 37% in 1993. The decrease in the gross margin reflected changes in product mix and the continuing impact of competitive pricing pressure relating to certain of the Company's feminine hygiene products. The Company also incurred an increase in manufacturing overhead expenses in connection with anticipated higher sales of ophthalmic products. Selling, general and administrative expenses for 1994 were $9,281,000, or 17% of net sales, as compared to $5,928,000, or 19% of net sales in 1993. Fiscal 1994 included ten months of Powers' operations which accounted for a significant portion of the increase in selling, general and administrative expenses. As a percentage of net sales, selling, general and administrative expenses decreased as a result of the allocation of these costs over substantially higher net sales. Interest expense of $928,000 for 1994 was attributable to debt incurred in connection with the acquisition of Powers. Other income for 1994 was $95,000, as compared to $251,000 in 1993. The decrease was primarily attributable to lower interest income as a result of the use of investments to fund, in part, acquisitions. Fiscal Year 1993 Compared to Fiscal Year 1992 Net sales were $31,144,000, an increase of $5,993,000, or 24%, over 1992 sales of $25,151,000. The increase was primarily attributable to higher unit sales of pediatric electrolyte, which was introduced at the end of the second quarter of 1992 and sales of ophthalmic products beginning in June 1993 with the acquisition of Optopics. In addition, sales of disposable baby bottle liners increased as a result of increased volume and disposable enema sales increased as a result of a new national brand equivalent delivery system and expanded customer base. Sales of disposable douche products decreased as a result of lower average sale prices in response to competitive pressure, while unit growth was marginal. The timing, frequency and nature of promotional activities in the douche category by brand manufacturers and other private label companies has had the effect of decreasing sale prices. Gross profit was 37%, as compared to 45% in 1992. The decrease in the gross margin resulted from lower average sale prices for douche products, lower margins on ophthalmic products as compared to the Company's other products and higher costs incurred in connection with enhanced quality control programs. Selling, general and administrative expenses were $5,928,000, or 19% of net sales, as compared to $5,715,000, or 23% of net sales in 1992. The decrease, as a percentage of net sales, resulted from reductions in bonus expense, miscellaneous corporate taxes and bad debt expense. SEASONALITY During the last four months of the calendar year retailers focus their merchandising efforts on and devote more shelf space to seasonal and holiday merchandise. As a result, sales of certain of the Company's products tend to be weaker in the Company's first quarter (ending in December), and normally strengthen in the second quarter as retailers replenish their shelves with health and personal care products. Sales of pediatric electrolyte and cough/cold products may help mitigate weaker sales in the Company's first quarter, as the Company's customers purchase such products to stock inventories in anticipation of the winter months. Consequently, the results of any one quarter may not necessarily be indicative of results of future quarters. NEW ACCOUNTING STANDARDS Effective October 3, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income Taxes', which supersedes SFAS No. 96. The Company adopted SFAS No. 96 in fiscal 1990. The effect of the adoption of SFAS No. 109 upon the provision for income taxes was not significant for the fiscal year ended October 1, 1994. LIQUIDITY AND CAPITAL RESOURCES As of October 1, 1994, the Company's working capital increased to $13,172,000, as compared to $9,703,000 on October 2, 1993. Net cash provided by operating activities increased to $5,235,000 for 1994. This increase was primarily attributable to improved operating results and changes in certain current liabilities, partially offset by increases in inventories. The increase in inventories reflects higher levels of raw materials and finished goods in anticipation of higher net sales. Net cash used in investing activities was $17,763,000 in 1994 which was primarily attributable to the acquisition of Powers. Capital expenditures in 1994 for additional capacity were $4,723,000, of which $794,000 was financed with long-term debt. The Company anticipates capital expenditures of approximately $5,000,000 in fiscal 1995 for additional capacity. Net cash provided by financing activities was $11,505,000 in 1994 which included borrowings under a line of credit facility of $19,166,000 used to fund the acquisition of Powers and to refinance certain debt assumed in connection with the acquisition, partially offset by debt repayments of $7,838,000. In November 1993, the Company obtained a $20,000,000 credit facility, the proceeds from which were utilized to acquire Powers and repay certain long-term debt obligations of Powers. The facility is secured by substantially all of the assets of the Company and bears interest, at the Company's option, at an annual rate of prime plus .5% and/or LIBOR plus 2.75%. As of October 1, 1994, $16,850,000 was outstanding under this facility. In December 1994, the lender committed to convert the credit facility into an $8,000,000 revolving credit facility and term loans aggregating $10,000,000. The new facility will bear interest at prime and expire on January 1, 1997. The term loans will bear interest at prime plus .5% and be payable in quarterly installments of $467,000 beginning January 1, 1995 with a final payment of approximately $680,000 in January 2000. The Company believes that its existing working capital, anticipated funds to be generated from future operations and funds available under the revolving credit facility will be sufficient to meet all of the Company's operating and capital needs for the foreseeable future. However, depending upon future growth of the business, additional financing may be required. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Independent Auditors' Report 12 Consolidated Statements of Operations -- Three Years Ended October 1, 1994 13 Consolidated Balance Sheets -- October 1, 1994 and October 2, 1993 14 Consolidated Statements of Stockholders' Equity -- Three Years Ended October 1, 1994 15 Consolidated Statements of Cash Flows -- Three Years Ended October 1, 1994 16 Notes to Consolidated Financial Statements 17 24
INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders NutraMax Products, Inc. Gloucester, Massachusetts We have audited the accompanying consolidated balance sheets of NutraMax Products, Inc. and subsidiaries as of October 1, 1994 and October 2, 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended October 1, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of NutraMax Products, Inc. and subsidiaries as of October 1, 1994 and October 2, 1993, and the results of their operations and their cash flows for each of the three fiscal years in the period ended October 1, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Boston, Massachusetts November 7, 1994 except for the first paragraph of Note E, to which the date is December 15, 1994 NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED ---------------------------------------------- OCT. 1, OCT. 2, SEPT. 30, 1994 1993 1992 -------------- -------------- -------------- NET SALES $ 55,958,000 $ 31,144,000 $ 25,151,000 COST OF SALES 38,752,000 19,598,000 13,908,000 -------------- -------------- -------------- GROSS PROFIT 17,206,000 11,546,000 11,243,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,281,000 5,928,000 5,715,000 -------------- -------------- -------------- OPERATING INCOME 7,925,000 5,618,000 5,528,000 OTHER CREDITS (CHARGES): Interest expense (928,000) -- -- Interest income 60,000 235,000 294,000 Other 35,000 16,000 44,000 -------------- -------------- -------------- INCOME BEFORE INCOME TAX EXPENSE 7,092,000 5,869,000 5,866,000 INCOME TAX EXPENSE 2,832,000 2,350,000 2,397,000 -------------- -------------- -------------- NET INCOME $ 4,260,000 $ 3,519,000 $ 3,469,000 -------------- -------------- -------------- -------------- -------------- -------------- EARNINGS PER SHARE $ .50 $ .43 $ .43 -------------- -------------- -------------- -------------- -------------- -------------- WEIGHTED AVERAGE SHARES OUTSTANDING 8,480,000 8,235,000 8,090,000 -------------- -------------- -------------- -------------- -------------- --------------
See notes to consolidated financial statements. NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
OCTOBER 1, OCTOBER 2, 1994 1993 -------------- -------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 376,000 $ 1,399,000 Accounts receivable, less allowance for doubtful accounts of $738,000 in 1994 and $375,000 in 1993 8,074,000 5,230,000 Inventories 11,238,000 5,181,000 Deferred income taxes 1,050,000 -- Prepaid expenses and other 729,000 1,087,000 -------------- -------------- TOTAL CURRENT ASSETS 21,467,000 12,897,000 PROPERTY, PLANT AND EQUIPMENT, net 22,499,000 9,748,000 GOODWILL, net of accumulated amortization of $2,046,000 in 1994 and $1,518,000 in 1993 14,541,000 8,790,000 OTHER ASSETS 1,943,000 1,772,000 -------------- -------------- $ 60,450,000 $ 33,207,000 -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,865,000 $ 2,246,000 Accrued payroll and related taxes 608,000 679,000 Accrued expenses -- other 1,378,000 269,000 Current maturities of long-term debt 1,444,000 -- -------------- -------------- TOTAL CURRENT LIABILITIES 8,295,000 3,194,000 LONG-TERM DEBT, less current maturities 16,183,000 -- OTHER LONG TERM LIABILITIES 312,000 -- DEFERRED INCOME TAXES 903,000 60,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock -- $.001 par value: Authorized -- 20,000,000 shares Issued and Outstanding: 8,520,000 in 1994 and 8,439,000 in 1993 9,000 8,000 Additional paid-in capital 22,565,000 22,022,000 Retained earnings 12,183,000 7,923,000 -------------- -------------- TOTAL STOCKHOLDERS' EQUITY 34,757,000 29,953,000 -------------- -------------- $ 60,450,000 $ 33,207,000 -------------- -------------- -------------- --------------
See notes to consolidated financial statements. NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ---------------------- SHARES ADDITIONAL RETAINED ISSUED AMOUNT PAID-IN-CAPITAL EARNINGS TOTAL ----------- --------- -------------- -------------- -------------- BALANCE, October 1, 1991 8,087,000 $ 8,000 $ 18,083,000 $ 935,000 $ 19,026,000 Exercise of stock options 7,000 -- 54,000 -- 54,000 Net income 3,469,000 3,469,000 ----------- --------- -------------- -------------- -------------- BALANCE, September 30, 1992 8,094,000 8,000 18,137,000 4,404,000 22,549,000 Issuance of stock -- management compensation 53,000 -- 212,000 -- 212,000 Exercise of stock options and warrants 90,000 -- 827,000 -- 827,000 Issuance of stock -- acquisition of Optopics 202,000 -- 2,846,000 -- 2,846,000 Net income 3,519,000 3,519,000 ----------- --------- -------------- -------------- -------------- BALANCE, October 2, 1993 8,439,000 8,000 22,022,000 7,923,000 29,953,000 Issuance of stock -- management compensation 53,000 -- 318,000 -- 318,000 Exercise of stock options 28,000 1,000 225,000 -- 226,000 Net income 4,260,000 4,260,000 ----------- --------- -------------- -------------- -------------- BALANCE, October 1, 1994 8,520,000 $ 9,000 $ 22,565,000 $ 12,183,000 $ 34,757,000 ----------- --------- -------------- -------------- -------------- ----------- --------- -------------- -------------- --------------
See notes to consolidated financial statements. NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED ---------------------------------------- OCT. 1, OCT. 2, SEPT. 30, 1994 1993 1992 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,260,000 $ 3,519,000 $ 3,469,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,527,000 1,948,000 1,504,000 Deferred taxes 419,000 545,000 247,000 Change in allowance for doubtful accounts 290,000 83,000 147,000 Increase (decrease) in cash from, net of effect from acquisitions: Accounts receivable (1,471,000) (1,851,000) (523,000) Inventories (4,647,000) (2,112,000) (88,000) Prepaid expenses and other 778,000 (1,022,000) (533,000) Accounts payable 1,433,000 (226,000) 386,000 Accrued payroll and related taxes (71,000) 16,000 169,000 Accrued expenses -- other 717,000 (353,000) (251,000) ------------ ------------ ------------ Net cash provided by operating activities 5,235,000 547,000 4,527,000 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired (13,541,000) (245,000) -- Purchases of property, plant and equipment (3,929,000) (3,420,000) (2,981,000) Maturities (purchases) of short-term investments -- 4,940,000 (4,940,000) Deferred costs (532,000) (620,000) (451,000) Other 239,000 (251,000) (162,000) ------------ ------------ ------------ Net cash provided by (used in) investing activities (17,763,000) 404,000 (8,534,000) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 19,166,000 -- -- Proceeds from exercise of stock options and warrants 177,000 613,000 42,000 Debt repayments (7,838,000) (3,167,000) -- ------------ ------------ ------------ Net cash provided by (used in) financing activities 11,505,000 (2,554,000) 42,000 ------------ ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (1,023,000) (1,603,000) (3,965,000) CASH AND CASH EQUIVALENTS: Beginning of year 1,399,000 3,002,000 6,967,000 ------------ ------------ ------------ End of year $ 376,000 $ 1,399,000 $ 3,002,000 ------------ ------------ ------------ ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes paid $ 1,534,000 $ 2,458,000 $ 2,183,000 ------------ ------------ ------------ ------------ ------------ ------------ Interest paid $ 831,000 $ -- $ 2,000 ------------ ------------ ------------ ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: Issuance of stock -- acquisition of Optopics $ -- $ 2,846,000 $ -- ------------ ------------ ------------ ------------ ------------ ------------ Issuance of stock -- non-cash compensation $ 318,000 $ 212,000 $ -- ------------ ------------ ------------ ------------ ------------ ------------ Plant and equipment financed with long-term debt and capital lease obligations $ 794,000 $ -- $ -- ------------ ------------ ------------ ------------ ------------ ------------
See notes to consolidated financial statements. NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation -- The consolidated financial statements include the accounts of NutraMax Products, Inc. and its subsidiaries (the 'Company'). In consolidation, all significant intercompany transactions and balances have been eliminated. Cash Equivalents -- All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents. Inventories -- Inventories are stated at the lower of cost (first-in, first-out method) or market. Property, Plant and Equipment -- Property, plant and equipment are stated at cost. The Company's policy of providing for depreciation and amortization is as follows: Buildings 20 years on a straight-line basis Liquid packaging machines 32,000 to 48,000 machine hours which approximate a five to eight and one-half year life Machinery, equipment, molds and furniture and fixtures 5 to 10 years on a straight-line basis Leasehold improvements The terms of the related lease on a straight-line basis Vehicles 3 to 5 years on a straight-line basis
Goodwill -- The purchase price in excess of net assets acquired is amortized on a straight-line basis over periods from thirty to forty years. The Company evaluates the carrying value of goodwill based upon current and anticipated net income and undiscounted cash flows, and recognizes an impairment when it is probable that such estimated future net and/or cash flows will be less than the carrying value of goodwill. Measurement of the amount of impairment, if any, is based upon the difference between carrying value and fair value. Other Assets -- Other assets include intangible assets which are amortized on a straight-line basis over the estimated periods of related benefit, ranging from three to fifteen years. Accumulated amortization was $724,000 and $660,000 as of October 1, 1994 and October 2, 1993, respectively. Other assets also include external costs deferred in connection with tools, dies and the design of packaging materials for the Company's products which are amortized on a straight-line basis over four years. Income Taxes -- Effective October 3, 1993, the Company adopted on a prospective basis the provisions of Statement of Accounting Standards ('SFAS') No. 109, 'Accounting for Income Taxes', which supersedes SFAS No. 96. The Company adopted SFAS No. 96 in fiscal 1990. The effect of the adoption of SFAS No. 109 upon the provision for income taxes was not significant for the year ended October 1, 1994. Earnings Per Share -- Earnings per share computations are based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded from the calculation of weighted average shares outstanding since the dilutive effect is less than 3%. Fiscal Year -- Effective in fiscal 1993, the Company changed its fiscal year to a 52/53 week operating cycle that ends on the Saturday nearest September 30. Reclassification of Accounts -- Certain reclassifications have been made to conform prior years' balances to the current year presentation. NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) B. ACQUISITIONS Powers Pharmaceutical Corporation -- In December 1993, the Company acquired all of the outstanding common stock of Certified Corporation, parent of Powers Pharmaceutical Corporation ('Powers'), for $13,500,000 in cash and related expenses of $236,000. Powers, based in Brockton, Massachusetts, is the nation's leading manufacturer and distributor of private label cough drops and throat lozenges, and also manufactures cough drops on a contract basis. For financial reporting purposes, the transaction was accounted for by the purchase method of accounting, effective November 28, 1993. The excess of the purchase price over the fair values of the net assets acquired of $6,206,000 is amortized over thirty years. Optopics Laboratories Corporation -- In June 1993, the Company acquired all of the assets and assumed all of the liabilities of Optopics Laboratories Corporation ('Optopics') for approximately 202,000 shares of the Company's common stock, with a market value of $2,846,000, and related transaction costs of $245,000. Additionally, the Company acquired Optopics' manufacturing facility for $800,000 in cash, which was previously leased from the former stockholders of Optopics. Optopics is a manufacturer of private label over-the-counter and prescription ophthalmic products. The operating results of this acquisition are included in the Company's consolidated results of operations from the date of the acquisition. The acquisition was accounted for by the purchase method of accounting. The excess of the purchase price over the estimated fair value of the net assets acquired of $4,325,000 is amortized over thirty years. The following unaudited pro forma summary presents the consolidated results of operations of the Company as if the acquisitions of Powers and Optopics had occurred at the beginning of fiscal 1993, after giving effect to certain adjustments, including amortization of goodwill. The pro forma information is presented for comparative purposes only and does not necessarily reflect the results of operations of the Company had the acquisitions been made at the beginning of fiscal 1993.
YEAR ENDED ------------------------------ OCT. 1, OCT. 2, 1994 1993 -------------- -------------- (UNAUDITED) Net sales $ 59,897,000 $ 50,949,000 Net income $ 4,744,000 4,182,000 Earnings per share $.56 .50 Weighted average shares outstanding 8,480,000 8,373,000
C. INVENTORIES
OCT. 1, OCT. 2, 1994 1993 -------------- -------------- Raw materials $ 4,799,000 $ 2,377,000 Finished goods 5,600,000 2,259,000 Work in process 355,000 214,000 Machinery parts and factory supplies 484,000 331,000 -------------- -------------- $ 11,238,000 $ 5,181,000 -------------- -------------- -------------- --------------
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) D. PROPERTY, PLANT AND EQUIPMENT
OCT. 1, OCT. 2, 1994 1993 -------------- -------------- Machinery and equipment $ 18,684,000 $ 8,970,000 Land, buildings and improvements 7,392,000 2,328,000 Molds 2,268,000 2,261,000 Furniture and fixtures 1,253,000 920,000 Vehicles 41,000 27,000 -------------- -------------- 29,638,000 14,506,000 Less: Accumulated depreciation and amortization 7,139,000 4,758,000 -------------- -------------- $ 22,499,000 $ 9,748,000 -------------- -------------- -------------- --------------
Depreciation and amortization expense for property, plant and equipment for fiscal years 1994, 1993 and 1992 was $2,390,000, $1,177,000 and $909,000, respectively. E. LONG-TERM DEBT
OCT. 1, 1994 -------------- Revolving credit facility with interest at the prime rate (7.75% at October 1, 1994) due in 1997 $ 7,850,000 Term loans with interest at the prime rate plus 0.5% (8.25% at October 1, 1994) maturing in 2000 9,000,000 Mortgage with interest at 7% maturing in 1997 733,000 Capital lease obligations with interest at 8% maturing in 1999 44,000 -------------- 17,627,000 Less: Current maturities of long-term debt 1,444,000 -------------- $ 16,183,000 -------------- --------------
Maturities of long-term debt are as follows:
FISCAL YEAR - ----------- 1995 $ 1,444,000 1996 1,908,000 1997 9,395,000 1998 1,876,000 1999 1,871,000 Thereafter 1,133,000 -------------- $ 17,627,000 -------------- --------------
In November 1993, the Company obtained a $20,000,000 credit facility to acquire Powers and repay certain long-term debt obligations assumed in connection with the acquisition. Interest, at prime plus .5% and/or LIBOR plus 2.75%, was payable monthly. As of October 1, 1994, $16,850,000 was outstanding under this facility. In December 1994, the lender committed to convert the credit facility into an $8,000,000 revolving credit facility and term loans aggregating $10,000,000 which are secured by substantially all of the assets of the Company. The new will bear interest at prime and expire on January 1, 1997. The term loans will bear interest at prime plus .5% and be payable in quarterly installments of $467,000 beginning January 1, 1995 with a final payment of approximately $680,000 in January 2000. Accordingly, $15,450,000, representing the non-current portion of the credit facility has been reclassified to long-term debt as of October 1, 1994. In February 1994, the Company acquired a manufacturing and warehouse facility, which was formerly leased, for $960,000 of which $750,000 was financed with a mortgage. The mortgage bears NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) E. LONG-TERM DEBT--(CONTINUED) interest at 7% and is payable in monthly installments of $7,000 including interest, with a final payment of approximately $670,000 due in February 1997. The revolving credit facility and term loans require the maintenance of certain balance sheet and operating ratios and impose certain dividend limitations. The most restrictive of these provisions limits the payment of cash dividends to approximately $3,000,000 as of October 1, 1994. F. COMMITMENTS AND CONTINGENCIES Leases -- The Company leases certain of its administrative, manufacturing, distribution and warehouse facilities under operating leases. The Company also leases certain equipment under operating and capital leases. Future minimum payments under noncancelable operating and capital leases are as follows:
OPERATING CAPITAL LEASES LEASES ----------- ----------- 1995 $ 366,000 $ 18,000 1996 364,000 11,000 1997 96,000 11,000 1998 6,000 10,000 1999 5,000 3,000 Thereafter 5,000 0 ----------- ----------- Total minimum lease payments $ 842,000 53,000 ----------- ----------- Amount representing interest 9,000 ----------- Present value of minimum lease payments $ 44,000 ----------- -----------
Rental expense for operating leases was $413,000, $456,000, and $413,000 for fiscal years 1994, 1993, and 1992, respectively. Litigation -- The Company has pending certain legal actions and claims incurred in the normal course of business and is actively pursuing the defense thereof. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial statements. G. INCOME TAXES Effective October 3, 1993, the Company adopted SFAS No. 109, 'Accounting for Income Taxes'. Financial statements for prior years have not been restated as the effect of the adoption of SFAS No. 109 was not significant. NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) G. INCOME TAXES--(CONTINUED) Income tax expense consisted of the following:
YEAR ENDED ------------------------------------------- OCT. 1, OCT. 2, SEPT. 30, 1994 1993 1992 ------------- ------------- ------------- Current: Federal $ 2,014,000 $ 1,368,000 $ 1,652,000 State 399,000 437,000 498,000 ------------- ------------- ------------- 2,413,000 1,805,000 2,150,000 Deferred: Federal 395,000 511,000 197,000 State 24,000 34,000 50,000 ------------- ------------- ------------- 419,000 545,000 247,000 ------------- ------------- ------------- $ 2,832,000 $ 2,350,000 $ 2,397,000 ------------- ------------- ------------- ------------- ------------- -------------
The difference between the Company's income tax and the statutory federal tax is reconciled below:
YEAR ENDED ------------------------------------------- OCT. 1, OCT. 2, SEPT. 30, 1994 1993 1992 ------------- ------------- ------------- Statutory federal tax $ 2,411,000 $ 1,996,000 $ 1,994,000 Nondeductible goodwill amortization 179,000 87,000 69,000 State tax, net of federal benefit 279,000 311,000 362,000 Other (37,000) (44,000) (28,000) ------------- ------------- ------------- Income tax expense $ 2,832,000 $ 2,350,000 $ 2,397,000 ------------- ------------- ------------- ------------- ------------- -------------
As of October 1, 1994, the Company had Federal net operating loss carryforwards of $3,684,000 which are available to offset future taxable income. The Company also has investment tax credit carryforwards of $156,000. Utilization of the operating loss carryforwards, which expire in fiscal years 1997 to 2007, is limited to $1,266,000 in 1995 and $1,049,000 in each year thereafter. Significant components of the Company's deferred tax assets and liabilities as of October 1, 1994 are as follows: Assets: Net operating loss carryforwards $ 1,311,000 Allowance for bad debts 291,000 Inventory 302,000 Investment tax credits 156,000 Other 309,000 -------------- 2,369,000 Valuation allowance (58,000) -------------- Gross deferred tax assets 2,311,000 -------------- Liabilities: Depreciation and amortization 1,965,000 Other 199,000 -------------- Gross deferred tax liabilities 2,164,000 -------------- Net deferred tax assets $ 147,000 -------------- --------------
NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) G. INCOME TAXES--(CONTINUED) Under the provisions of SFAS No. 96, the deferred tax provision for fiscal year 1993 of $545,000 resulted principally from utilization of acquired net operating loss carryforwards of $436,000, depreciation of $189,000 partially offset by the allowance for doubtful accounts of $58,000. The deferred tax provision for fiscal 1992 of $247,000 resulted principally from the utilization of acquired net operating loss carryforwards of $114,000, inventory of $91,000, depreciation of $62,000 partially offset by the allowance for doubtful accounts of $59,000. H. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for fiscal years 1994 and 1993 is as follows:
FIRST SECOND THIRD FOURTH 1994 (1) QUARTER QUARTER QUARTER QUARTER - -------- -------------- -------------- -------------- -------------- Net sales $ 10,201,000 $ 14,977,000 $ 15,399,000 $ 15,381,000 Gross profit 3,260,000 4,628,000 4,808,000 4,510,000 Net income 662,000 1,110,000 1,185,000 1,303,000 Earnings per share .08 .13 .14 .15 Weighted average shares outstanding 8,440,000 8,455,000 8,506,000 8,520,000 1993 (2) - -------- Net sales $ 6,614,000 $ 8,258,000 $ 7,608,000 $ 8,664,000 Gross profit 2,705,000 3,519,000 2,958,000 2,364,000(3) Net income 781,000 1,026,000 1,121,000 591,000(3) Earnings per share .10 .13 .14 .07 Weighted average shares outstanding 8,101,000 8,163,000 8,253,000 8,424,000
- ------------------ (1) Includes the results of operations of Powers from the date of acquisition. (2) Includes the results of operations of Optopics from the date of acquisition. (3) The decrease in gross profit and net income in the fourth quarter of fiscal 1993 resulted from lower average sales prices for certain feminine hygiene products and lower margins on ophthalmic products as compared to the Company's other products. I. RELATED PARTY TRANSACTIONS Services Agreement -- The Company obtains certain legal, accounting, tax, insurance and human resource services from MEDIQ Incorporated ('MEDIQ'), the owner of approximately 47% of the outstanding common stock. Costs for such services were $100,000 for each of the three years ended October 1, 1994. The Company believes that MEDIQ's charges for such services are on terms no less favorable to the Company than those that could be obtained from unaffiliated third parties for comparable services. Insurance -- The Company obtains certain insurance coverages through programs administered by MEDIQ. Insurance expense under these programs was $464,000, $213,000 and $249,000 for fiscal years 1994, 1993 and 1992, respectively. Pledge of Stock -- A portion of the shares of the Company's stock owned by MEDIQ is subject to exchange for outstanding MEDIQ debentures and a portion secures certain MEDIQ indebtedness. J. STOCK OPTIONS The Company maintains a Stock Option Plan which includes an Incentive Stock Option Program and a Non-Qualified Stock Option Program. Incentive stock options may be granted to key employees, including the Company's officers, at the discretion of the Stock Option Plan Committee, until NUTRAMAX PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) J. STOCK OPTIONS--(CONTINUED) termination of the Plan. Non-qualified stock options may be granted to employees, non-employee directors, advisors and independent consultants at the discretion of the Committee. No options may be granted under the programs for a term in excess of five years from the date of grant. As of October 1, 1994, 331,520 stock options were exercisable under such plans. The stock option prices listed below represent the quoted market value of the common stock at dates of grant. A summary of stock option activity for the three years ended October 1, 1994 follows:
NUMBER OF OPTION PRICE SHARES PER SHARE --------- -------------------- September 30, 1991 360,000 $4.00 $8.50 Terminated (8,000) $6.00 Exercised (7,000) $6.00 --------- September 30, 1992 345,000 $4.00 $8.50 Granted 88,000 $12.25 Exercised (70,000) $5.00 $8.50 --------- October 2, 1993 363,000 $4.00 $12.25 Granted 515,000 $11.00 $12.00 Exercised (27,000) $8.00 $12.00 --------- October 1, 1994 851,000 $4.00 $12.25 --------- ---------
K. MAJOR CUSTOMERS American Home Products, Inc. accounted for 17% of net sales in fiscal year 1994. No individual customer represented in excess of 10% of the Company's net sales for fiscal years 1993 and 1992, respectively. PART III The information required to be included herein has been incorporated herein by reference to the Registrant's proxy statement relating to the annual meeting of its stockholders scheduled to be held in March 1995. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) (1) The response to this portion of Item 14 is submitted as a separate section of this report commencing on page 11. (A) (2) FINANCIAL STATEMENT SCHEDULES Schedule V Property, Plant and Equipment -- Cost Schedule VI Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Schedule VIII Valuation and Qualifying Accounts and Reserves Schedule X Supplementary Income Statement Information
Other schedules are omitted because of the absence of conditions under which they are required. (A) (3) AND (C) EXHIBITS (numbered in accordance with Item 601 of Regulation S-K). EXHIBIT INDEX
EXHIBIT METHOD OF NUMBER DESCRIPTION FILING - ---------- ----------- ---------- 3(a) Restated and Amended Certificate of Incorporation (1) 3(b) Amendment, filed June 12, 1991, to the Company's Certificate of Incorporation (1) 3(c) Amendment, filed March 5, 1992 to the Company's Certificate of Incorporation (2) 3(d) By-Laws (1) 10(a) Employment Agreement between the Company and Donald E. Lepone, dated November 28, (3) 1993 10(b) Employment Agreement between the Company and Richard Zakin, dated January 1, 1994 (3) 10(c) Employment Agreement between the Company and Gary A. LeDuc (4) 10(d) Amendment to Employment Agreement, dated May 1, 1991, between the Company and Gary (5) A. LeDuc 10(e) Amendment No. 2 to Employment Agreement between the Company and Gary A. LeDuc (6) 10(f) Amendment No. 3 to Employment Agreement between the Company and Gary A. LeDuc (3) 10(g) Amendment No. 4 to Employment Agreement between the Company and Gary A. LeDuc (3) 10(h) 1988 Stock Option Plan (adopted April 28, 1988) (4) 10(i) Amendment No. 1 to the 1988 Stock Option Plan (2) 10(j) Amendment No. 2 to the 1988 Stock Option Plan (2) 10(k) Amendment No. 3 to the 1988 Stock Option Plan (2) 10(l) Amendment No. 4 to the 1988 Stock Option Plan (3)
EXHIBIT METHOD OF NUMBER DESCRIPTION FILING - ---------- ----------- ---------- 10(m) Tax Allocation/Sharing Agreement between the Company and MEDIQ Incorporated, dated (1) July 25, 1990 10(n) Lease Agreement, dated January 1, 1987, between The Aid-Pack Limited Partnership and (7) Aid-Pack, Inc. 10(o) Lease Extension Agreement, dated May 1, 1991, between The Aid-Pack Limited (7) Partnership and the Company 10(p) Registration Rights Agreement, dated July 1, 1991 between MEDIQ Incorporated and the (8) Company 10(q) Amendment to Registration Rights Agreement, dated July 1, 1991 among MEDIQ, MEDIQ (6) Investment Services, Inc. and the Company 10(r) Services Agreement, dated August 22, 1991 between MEDIQ Incorporated and the Company (8) 10(s) Revolving Credit and Security Agreement between the Company and State Street Bank (6) and Trust Company 10(t) Revolving Credit and Security Agreement between State Street Bank and Trust Company (6) 10(u) Agreement, dated November 12, 1993, by and among the Company, Taim Management Party, (9) Ltd., Certified Corp., Powers Pharmaceutical Corporation and Chaim Liberman and Maurice Liberman 21 Subsidiaries of the Company (9) 23 Consent of Deloitte & Touche LLP, Independent Certified Public Accountants (9)
- ------------------ (1) Filed as an Exhibit to the Company's Registration Statement on Form S-1 on July 5, 1991, and incorporated herein by reference. (2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal year 1992, and incorporated herein by reference. (3) Filed herewith. (4) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1990, and incorporated herein by reference. (5) Filed as an Exhibit to the Company's Registration Statement on Form S-3 on July 2, 1993, and incorporated herein by reference. (6) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal 1993, and incorporated herein by reference. (7) Filed as an Exhibit to Amendment No. 1 to the Company's Registration Statement on Form S-1 on August 15, 1991, and incorporated herein by reference. (8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for fiscal year 1991, and incorporated herein by reference. (9) Filed as an Exhibit to the Company's Current Report on Form 8-K, dated December 21, 1993, and incorporated herein by reference. (B) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the fourth quarter of fiscal 1994. SIGNATURES Pursuant to requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 19, 1994 NUTRAMAX PRODUCTS, INC. By: /s/ DONALD E. LEPONE Donald E. Lepone, President and Chief Executive Officer By: /s/ ROBERT F. BURNS Robert F. Burns, Vice President, Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, which include at least a majority of the Board of Directors on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------------------ ----------------------- /s/ BERNARD J. KORMAN Chairman of the Board December 19, 1994 Bernard J. Korman /s/ DONALD E. LEPONE President, Chief Executive Officer and December 19, 1994 Donald E. Lepone Director /s/ DONALD M. GLEKLEN Director December 19, 1994 Donald M. Gleklen /s/ FREDERICK W. MCCARTHY Director December 19, 1994 Frederick W. McCarthy /s/ DENNIS M. NEWNHAM Director December 19, 1994 Dennis M. Newnham /s/ MICHAEL F. SANDLER Director December 19, 1994 Michael F. Sandler
NUTRAMAX PRODUCTS, INC. SCHEDULE V PROPERTY, PLANT AND EQUIPMENT FISCAL YEARS 1994, 1993 AND 1992 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- COL. A. COL. B. COL. C. COL. D. COL. E. COL. F. - --------------------------------------------------------------------------------------------------------------------- BALANCE AT OTHER BALANCE AT BEGINNING OF ADDITIONS CHANGES-ADD END OF DESCRIPTION PERIOD AT COST RETIREMENTS (DEDUCT) PERIOD - --------------------------------------------------------------------------------------------------------------------- OCTOBER 1, 1994 Machinery and equipment $ 8,970 $ 2,908 $ -- $ 6,806 $ 18,684 Land, buildings and improvements 2,328 1,544 -- 3,520 7,392 Molds 2,261 7 -- -- 2,268 Furniture and fixtures 920 264 -- 69 1,253 Vehicles 27 -- (48) 62 41 ------------ ----------- ----------- ------------- ----------- $ 14,506 $ 4,723 $ (48) $ 10,457(1) $ 29,638 ------------ ----------- ----------- ------------- ----------- ------------ ----------- ----------- ------------- ----------- OCTOBER 2, 1993 Machinery and equipment $ 7,467 $ 1,243 $ (7) $ 267 $ 8,970 Land, buildings and improvements 772 1,445 (2) 113 2,328 Molds 1,994 267 -- -- 2,261 Furniture and fixtures 465 458 (32) 29 920 Vehicles 13 7 -- 7 27 ------------ ----------- ----------- ------------- ----------- $ 10,711 $ 3,420 $ (41) $ 416(2) $ 14,506 ------------ ----------- ----------- ------------- ----------- ------------ ----------- ----------- ------------- ----------- SEPTEMBER 30, 1992 Machinery and equipment $ 5,126 $ 2,347 $ (6) $ -- $ 7,467 Land, buildings and improvements 547 225 -- -- 772 Molds 1,717 277 -- -- 1,994 Furniture and fixtures 370 122 (27) -- 465 Vehicles 3 10 -- -- 13 ------------ ----------- ----------- ------------- ----------- $ 7,763 $ 2,981 $ (33) $ -- $ 10,711 ------------ ----------- ----------- ------------- ----------- ------------ ----------- ----------- ------------- -----------
- ------------------ (1) Represents additions from the acquisition of Powers. (2) Represents additions from the acquisition of Optopics. NUTRAMAX PRODUCTS, INC. SCHEDULE VI ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FISCAL YEARS 1994, 1993 AND 1992 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- COL. A. COL. B. COL. C. COL. D. COL. E. COL. F. - ------------------------------------------------------------------------------------------------------------------- ADDITIONS BALANCE AT CHARGED TO OTHER BALANCE AT BEGINNING OF COSTS AND CHANGES-ADD END OF DESCRIPTION PERIOD EXPENSES RETIREMENTS (DEDUCT) PERIOD - ------------------------------------------------------------------------------------------------------------------- OCTOBER 1, 1994 Machinery and equipment $ 2,872 $ 1,634 $ -- $ -- $ 4,506 Buildings and improvements 533 340 -- -- 873 Molds 1,069 217 -- -- 1,286 Furniture and fixtures 277 179 -- -- 456 Vehicles 7 20 (9) -- 18 ------------ ----------- ----------- ------------- ----------- $ 4,758 $ 2,390 $ (9) $ -- $ 7,139 ------------ ----------- ----------- ------------- ----------- OCTOBER 2, 1993 Machinery and equipment $ 2,131 $ 741 $ -- $ -- $ 2,872 Buildings and improvements 427 106 -- -- 533 Molds 849 220 -- -- 1,069 Furniture and fixtures 183 106 (12) -- 277 Vehicles 3 4 -- -- 7 ------------ ----------- ----------- ------------- ----------- $ 3,593 $ 1,177 $ (12) $ -- $ 4,758 ------------ ----------- ----------- ------------- ----------- ------------ ----------- ----------- ------------- ----------- SEPTEMBER 30, 1992 Machinery and equipment $ 1,570 $ 564 $ (3) $ -- $ 2,131 Buildings and improvements 348 79 -- -- 427 Molds 650 199 -- -- 849 Furniture and fixtures 136 66 (19) -- 183 Vehicles 2 1 -- -- 3 ------------ ----------- ----------- ------------- ----------- $ 2,706 $ 909 $ (22) $ -- $ 3,593 ------------ ----------- ----------- ------------- ----------- ------------ ----------- ----------- ------------- -----------
NUTRAMAX PRODUCTS, INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FISCAL YEARS 1994, 1993 AND 1992
- -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C. - ADDITIONS COL. D COL. E - -------------------------------------------------------------------------------------------------------------------- (1) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER (2) END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - -------------------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 1, 1994: Allowance for doubtful accounts $ 375,000 $ 337,000 $ 73,000 $ (47,000) $ 738,000 ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- YEAR ENDED OCTOBER 2, 1993: Allowance for doubtful accounts $ 275,000 $ 83,000 $ 17,000 $ -- $ 375,000 ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- YEAR ENDED SEPTEMBER 30, 1992: Allowance for doubtful accounts $ 128,000 $ 183,000 $ -- $ (36,000) $ 275,000 ------------ ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- -----------
- ------------------ (1) Includes allowance from acquisition of Optopics in 1993 and Powers in 1994. (2) Represents accounts directly written-off net of recoveries. NUTRAMAX PRODUCTS, INC. SCHEDULE X SUPPLEMENTARY INCOME STATEMENT INFORMATION FISCAL YEARS 1994, 1993 AND 1992
- -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B - -------------------------------------------------------------------------------------------------------- 1994 1993 1992 --------- --------- --------- Repairs and maintenance $ 739,000 $ 274,000 $ 299,000 --------- --------- --------- --------- --------- ---------
EX-99.2 12 PCI SERVICES, INC. 10-K EXHIBIT 28.2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: SEPTEMBER 30, 1994 Commission File Number: 0-19795 PCI SERVICES, INC. (Exact name of registrant as specified in its charter) DELAWARE 51-0336586 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
1403 FOULK ROAD, SUITE 102, WILMINGTON, DELAWARE 19803 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 479-0281 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.001 PER SHARE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ The aggregate market value of the registrant's voting stock held by nonaffiliates (based upon the closing price of $7.00) on December 13, 1994, was approximately $22,300,000. As of December 13, 1994, there were 6,181,250 shares of Common Stock, par value $.001 per share, outstanding. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __X__ DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held in March 1995 are incorporated by reference into Part III. The index to Exhibits begins on page 27. PART I ITEM 1. BUSINESS GENERAL PCI Services, Inc. (the 'Company') was incorporated on September 20, 1991 under the laws of the State of Delaware. Prior to its initial public offering in January 1992, the Company had been a wholly-owned subsidiary of MEDIQ Incorporated ('MEDIQ'). The Company provides integrated packaging services to meet the diverse and changing packaging needs of its pharmaceutical customers in the United States and Europe. The packaging of a pharmaceutical product is an integral part of its efficacy, safety and consumer acceptance. While many pharmaceutical companies package certain products at their own facilities, many regularly utilize independent packagers for other products and special circumstances. Some manufacturers also use independent packagers to provide additional packaging capacity for peaks in demand, and some manufacturers do not package their products, using independent packagers for all of their packaging needs. The pharmaceutical industry is affected by global concerns relating to health care reform, the regulatory climate, environmental protection and general economic conditions. The Company is unable to determine the effect, if any, changes in the pharmaceutical industry may have on pharmaceutical packagers. The market for pharmaceutical packaging services has benefited from increased competition in the pharmaceutical industry, particularly for over-the-counter products, increased use of 'unit-dose' packaging and changes in regulatory practices. THE COMPANY'S PACKAGING SERVICES The Company provides a wide range of packaging services to its pharmaceutical customers. By offering a single source of integrated packaging services, the Company can assist a pharmaceutical manufacturer in enhancing quality and uniformity, reducing waste through increased production efficiency, and obtaining faster delivery by reducing multiple vendor involvement. The customer can select the full range of packaging services or may select only those which meet its existing needs for a particular product. The Company packages pharmaceutical products in the form of tablets, capsules, powders, ointments, lotions and liquids. The packaging services offered by the Company include blister packaging, bottle filling, strip packaging, pouching, capsule filling and cold-forming, as well as tamper-evident and child-resistant features. Blister packaging consists of a blister affixed to a rigid or semi-rigid backing material, through which an individual dose is expelled. Bottle filling uses high speed equipment which fills glass or plastic bottles with pharmaceutical products, and then adds cotton, safety seals, caps and labels in one production line. Strip packaging is often used for products that require extra protection from moisture, light and tampering and generally consists of higher density materials produced in a perforated strip of packages. Pouching, which is similar to strip packaging, is often used for larger volume packages filled with powders or liquids, but can also be used as a unit-dose package for tablets or capsules, and consists of a flexible packaging material (plastic, foil, paper or synthetic materials) which is formed, filled and sealed. Capsule filling consists of hard gelatin capsules which are filled with pharmaceutical products in the form of powders, granules, pellets or tablets. Cold-forming uses laminated foil, which is formed, filled and heat-sealed, and is generally used for products requiring extra protection from moisture. Tamper-evident and child-resistant features may take the form of blister, shrink-wrap, over-wrap or other packaging. Additional packaging services provided by the Company include the production of folding cartons, thermoformed components, and the printing of product inserts. Folding cartons are printed, die cut and glued boxes ready for machine or hand filling with blisters, bottles or other pharmaceutical packages. Thermoformed components consist of vacuum formed plastic trays and display components. The Company provides production services from layout and design through full color printing, die cutting, folding and gluing. The Company's services include the design, printing and folding of inserts, containing important dosage and other information, for the customer to add to its pharmaceutical packages or for the Company to include as part of its other packaging services. MARKETING The Company markets its services primarily through the development of relationships with senior managers within the purchasing, manufacturing, quality assurance, marketing and package development departments of pharmaceutical companies. These relationships are fostered and maintained by the Company's senior management and sales force, as well as by representatives from the Company's manufacturing and quality assurance operations. The Company's existing customers, as well as potential new accounts, are contacted on a regular basis by the Company's senior management and sales force. In general, pharmaceutical packaging services are provided by the Company to its customers on an as needed basis. The Company also has single source relationships, in which the pharmaceutical manufacturer relies principally on the Company to fulfill particular needs. A single source relationship can increase volume predictability and decrease production setup time and costs, resulting in increased operating efficiencies for the Company. In addition, single sourcing can help streamline the customer's purchasing operations, reduce its inventory, warehousing and personnel expenses and increase vendor reliability, quality assurance and responsiveness. CUSTOMERS For the fiscal years ended September 30, 1994, 1993 and 1992, eight separate divisions or affiliates of Johnson & Johnson accounted for an aggregate of 21%, 22% and 30%, respectively, of net revenue. The Company maintains separate relationships with each of these customers and believes that purchasing decisions are made on an independent basis. COMPETITION The Company believes that competition for pharmaceutical packaging services is based primarily on quality, the variety of packaging services available, customer service, responsiveness and price. The Company competes with several companies that provide many types of packaging services, and a large number of companies that provide one or a few types of packaging services. The Company currently competes with companies that are larger and have greater resources. The Company believes that while there are a large number of independent providers of one or more pharmaceutical packaging services, only a few, such as the Company, offer a broad range of services. In order to compete successfully, the Company believes an independent packager must have expertise in the packaging services required, satisfy the high quality standards of pharmaceutical companies and the U.S. Food and Drug Administration ('FDA'), and respond to the diverse and changing needs of the pharmaceutical industry, all at competitive prices. GOVERNMENT REGULATION AND QUALITY ASSURANCE The Company's domestic pharmaceutical packaging operations are required to be, and the Company believes that such operations are, conducted pursuant to the current Good Manufacturing Practices standards of the FDA. The Company is registered with the FDA as a pharmaceutical packager and its pharmaceutical packaging facilities undergo general FDA inspections every two years. In addition, certain of the Company's facilities are subject to limited inspections from time to time in connection with the Company being designated in new drug applications by pharmaceutical companies as a potential independent packager. The purpose of the inspections is to review the Company's capability to package the new drug in question. Only those companies designated in an approved new drug application may provide packaging services with respect to the product. While the Company does not conduct an independent analysis of the products provided by its customers for packaging, rigorous controls are maintained to account for product utilization. The Company is also subject to various rules and regulations administered by the Drug Enforcement Administration division of the United States Department of Health and Human Services and other federal, state and local agencies. In addition, the Company's facilities are inspected periodically by the Company's customers as part of their quality assurance process, with the frequency of inspections varying by customer and packaging service. The Company's operations in Germany are subject to state and local certification requirements, including compliance with the current Good Manufacturing Practices adopted by the European Community. The Company's facility in Germany is also subject to periodic regulatory and customer inspections. EMPLOYEES The Company has approximately 1,500 employees engaged in executive, sales, technical and administrative functions and production. Certain of the Company's employees at certain of the domestic facilities are represented by unions pursuant to contracts expiring in 1995. As is customary in Germany, certain terms and conditions of employment for the Company's employees in that country are regulated by national union contracts. The number of persons employed by the Company fluctuates depending upon the volume of business. The Company considers its employee relations to be generally satisfactory, and has never experienced any work stoppages or labor shortages. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Financial information about foreign and domestic operations is discussed in Note J to the Consolidated Financial Statements included elsewhere herein. ITEM 2. PROPERTIES The Company operates the following facilities (which are leased unless otherwise indicated):
APPROXIMATE LOCATION TYPE OF FACILITY SQUARE FEET - ------------------------------------- ------------------------------------------- ------------ Philadelphia, Pennsylvania(1)(2) Executive Offices and Manufacturing 293,000 Philadelphia, Pennsylvania(2) Manufacturing 220,000 Ivyland, Pennsylvania Manufacturing 40,000 Pennsauken, New Jersey(2) Manufacturing 120,000 Moorestown, New Jersey Manufacturing 20,000 Gurabo, Puerto Rico Manufacturing 65,000 Manati, Puerto Rico Manufacturing 45,000 Richmond, Virginia(2) Manufacturing 40,000 Waiblingen, Germany Manufacturing 70,000
- ------------------ (1) Anticipated to be operational mid-1995. (2) Owned The Company's facilities in New Jersey, Germany, Puerto Rico and Virginia also contain regional administrative and sales offices. The lease for the Company's facility in Germany expires in April 1996. The Company, anticipating that its operations in Germany will be relocated, is currently evaluating the construction of a new facility. The Company believes that its facilities are well maintained and in good operating condition, and that such facilities will be adequate for all of the Company's reasonably foreseeable requirements. ITEM 3. LEGAL PROCEEDINGS The Company may, from time to time, become involved in various legal proceedings incidental to its business, some of which may be covered by insurance. The Company knows of no litigation, either pending or threatened, which is likely to have a material adverse effect on the Company. The Company has never been subject to any product liability claims. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended September 30, 1994. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS MARKET INFORMATION The following table sets forth, for the periods indicated, the high and low prices for the common stock as reported by NASDAQ.
FISCAL YEAR ENDED SEPTEMBER 30, 1994: HIGH LOW - ------------------------------------------------------------ --------- --------- First Quarter $ 11.750 $ 8.750 Second Quarter 12.750 9.750 Third Quarter 10.750 8.750 Fourth Quarter 9.500 6.250 FISCAL YEAR ENDED SEPTEMBER 30, 1993: - ------------------------------------------------------------ First Quarter $ 15.625 $ 10.750 Second Quarter 14.500 8.000 Third Quarter 10.750 7.750 Fourth Quarter 9.750 8.250
COMMON STOCK HOLDERS The Company believes there are approximately 1,500 holders of common stock, including shares held in street name by brokers. DIVIDENDS The Company did not declare any dividends on its common stock in the fiscal years ended September 30, 1994 and 1993. Pursuant to a lending arrangement, there are restrictions on the amount of dividends which may be paid, the most restrictive of which limits cash dividends to no more than 50% of net income during any year. Any future determination to pay cash dividends will be at the discretion of the Board of Directors, and will be dependent upon the Company's financial condition, results of operations, capital requirements and such other factors as the Board of Directors deem relevant. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below has been derived from the audited financial statements of the Company. This data is qualified in its entirety by reference to, and should be read in conjunction with, Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements included elsewhere herein.
YEAR ENDED SEPTEMBER 30, --------------------------------------------------------- 1994 1993(1) 1992 1991 1990 ----------- ----------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenue $ 121,177 $ 111,272 $ 75,430 $ 67,825 $ 58,837 Cost of goods sold 96,092 86,932 58,097 55,452 47,285 ----------- ----------- --------- --------- --------- Gross profit 25,085 24,340 17,333 12,373 11,552 Selling, general and administrative expenses 16,249 14,334 8,377 6,961 6,073 Interest expense 1,527 1,269 632 1,318 1,099 Interest income (215) (259) (106) (107) (88) Management fees -- MEDIQ (2) -- -- -- 3,400 4,030 ----------- ----------- --------- --------- --------- Income before income tax expense and cumulative effect of change in accounting principle 7,524 8,996 8,430 801 438 Income tax expense 2,168 2,841 3,114 754 282 ----------- ----------- --------- --------- --------- Income before cumulative effect of change in accounting principle 5,356 6,155 5,316 47 156 Cumulative effect of change in accounting principle (3) -- -- -- -- (394) ----------- ----------- --------- --------- --------- Net income (loss) $ 5,356 $ 6,155 $ 5,316 $ 47 $ (238) ----------- ----------- --------- --------- --------- ----------- ----------- --------- --------- --------- Earnings (loss) per share $ .79 $ .92 $ 1.05 $ .02 $ (.08) ----------- ----------- --------- --------- --------- ----------- ----------- --------- --------- --------- Weighted average shares outstanding (4)(5) 6,787 6,726 5,079 2,875 2,875 ----------- ----------- --------- --------- --------- ----------- ----------- --------- --------- --------- SEPTEMBER 30, --------------------------------------------------------- 1994 1993(2) 1992 1991 1990 ----------- ----------- --------- --------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital $ 10,595 $ 12,817 $ 13,096 $ 8,224 $ 11,671 Total assets 83,427 80,122 49,690 40,694 43,123 Long-term debt, less current maturities (5) 14,760 11,577 6,304 9,104 10,993 Due to MEDIQ (5) -- -- -- 9,199 10,648 Notes payable to MEDIQ (5) -- -- -- 12,300 -- Stockholders' equity (4)(5) 47,344 48,354 33,513 1,917 14,170
See Notes to Selected Consolidated Financial Data on following page. NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA (1) In December 1992, the Company issued 660,000 shares of common stock to acquire Allpack Industrielle Lohnverpackung GmbH ('Allpack'). (2) Management fees -- MEDIQ represent primarily an allocation of MEDIQ's overhead and its costs to provide senior management, financial, legal, accounting and risk management services to the Company. In connection with the Company's initial public offering, certain relationships with MEDIQ were restructured. Effective October 1, 1991, the Company entered into a services agreement pursuant to which the Company obtains certain legal, accounting, tax and risk management services from MEDIQ. Costs for such services were $100,000 for each of the fiscal years 1994, 1993 and 1992, and are included in selling, general and administrative expenses. The Company believes that the terms of the services agreement and MEDIQ's charges for such services are on terms no less favorable than those that could be obtained from unaffiliated third parties for comparable services. (3) The Company adopted Statement of Financial Accounting Standards No. 96, 'Accounting for Income Taxes,' as of October 1, 1989. The cumulative effect of adopting this change in accounting principle resulted in a charge to income of $394,000 in 1990. (4) In August 1994, the Company acquired 660,000 shares of common stock which had been issued in connection with the acquisition of Allpack. (5) In February 1992, the Company completed its initial public offering consisting of 3,306,250 shares of common stock at a price of $10 per share. The Company utilized a portion of the proceeds to repay amounts outstanding to MEDIQ, to purchase equipment under capital lease arrangements and to retire certain term loan obligations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto, contained elsewhere herein. RESULTS OF OPERATIONS The Company's pharmaceutical packaging services are generally provided on an as-needed basis. As a result, revenue per customer and profit margins per order can vary significantly from year to year and quarter to quarter. Results for any particular quarter are not necessarily indicative of results for any subsequent quarter or related fiscal year. The following table sets forth for the periods indicated the percentage relationship that items in the Consolidated Statements of Operations bear to net revenue.
YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1993 1992 --------- --------- --------- Net revenue 100% 100% 100% Cost of goods sold 79 78 77 --------- --------- --------- Gross profit 21 22 23 Selling, general and administrative expenses 14 13 11 Interest expense 1 1 1 --------- --------- --------- Income before income tax expense 6 8 11 Income tax expense 2 3 4 --------- --------- --------- Net income 4% 5% 7% --------- --------- --------- --------- --------- ---------
Fiscal Year 1994 Compared to Fiscal Year 1993 Net revenue was $121,177,000, an increase of $9,905,000, or 9%, as compared to 1993. The increase was primarily attributable to increased volume to existing customers and an expanded customer base. Strong demand for contract packaging, carton manufacturing and insert manufacturing services continued to generate new business. Gross profit increased to $25,085,000, representing a gross margin on net revenue of 21%, as compared to 22% in 1993. The gross margin decrease was caused by domestic product mix and a lower profit contribution from the Company's foreign operations. Foreign gross profit margins were adversely affected in fiscal 1994 as a result of a decision by a major European customer to discontinue a packaging contract with the Company in order to perform the packaging in its own facilities. Customer decisions to move packaging into the customers' facilities are a normal occurrence in the pharmaceutical packaging industry. While the Company mitigated this loss by obtaining additional foreign business, including the return of a portion of the discontinued contract, these operations did not return to profitability until the fourth quarter of fiscal 1994. Gross margins were also adversely affected by costs associated with the Company's new pharmaceutical insert manufacturing plant in New Jersey, which commenced production in April 1994. Selling, general and administrative expenses were $16,249,000, an increase of $1,915,000, or 13%, as compared to 1993 expenses of $14,334,000. As a percentage of net revenue, selling, general and administrative expenses increased to 14% from 13% in 1993, primarily attributable to costs associated with increased sales and marketing expenses. Interest expense increased to $1,527,000, as compared to $1,269,000 in 1993. This increase resulted primarily from debt assumed in connection with the acquisition of the Company's Virginia facility in January 1993 and debt incurred in connection with the purchase of an operating facility in April 1993 which had previously been leased. The Company's effective income tax rate decreased to 29% in 1994 as compared to 32% in 1993 as a result of higher earnings from operations in Puerto Rico. The Revenue Reconciliation Act of 1993 limits Section 936 tax credits applicable to operations in Puerto Rico. Based upon current operations, these limitations, which are effective for fiscal 1995, are not anticipated to adversely impact the Company's effective income tax rate. Fiscal Year 1993 Compared to Fiscal Year 1992 Net revenue was $111,272,000, an increase of $35,842,000, or 48%, as compared to 1992. The increase was primarily attributable to new products and an expanded customer base provided by acquisitions. Gross profit was 22%, as compared to 23% in 1992. Lower domestic gross profit margins, attributable to changes in product mix, were partially offset by higher foreign gross profit margins. Selling, general and administrative expenses were $14,334,000, an increase of $5,957,000, or 71%, as compared to 1992 expenses of $8,377,000. As a percentage of net revenue, selling, general and administrative expenses increased to 13% from 11% in 1992, attributable to costs related to foreign operations. Interest expense increased to $1,269,000, as compared to $632,000 in 1992. The increase resulted from debt assumed in connection with acquisitions and debt incurred in connection with the acquisition of an operating facility which had previously been leased. The Company's effective tax rate decreased to 32% in 1993 from 37% in 1992 primarily as a result of higher earnings from operations in Puerto Rico. NEW ACCOUNTING STANDARDS Effective October 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income Taxes,' the effect of which was not significant. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1994, the Company had working capital of $10,595,000 including cash and cash equivalents of $3,089,000. For 1994, net cash provided by operations was $11,358,000, as compared to $9,887,000 for 1993. The increase was primarily the result of changes in accounts payable partially offset by increases in inventories. Net cash used in investing activities included capital expenditures of $11,952,000. During 1994, the Company established a pharmaceutical insert manufacturing plant in New Jersey, with expenditures for equipment and leasehold improvements of $2,900,000. Additional equipment purchases of $6,307,000 for the Company's other packaging and insert operations were made to provide new product technologies and increased operating efficiencies. In September 1994, the Company purchased a facility in Philadelphia, Pennsylvania for $2,745,000, which will be converted into a pharmaceutical packaging facility in 1995. Additional capital expenditures related to this facility of approximately $7,300,000 for building improvements and equipment will be financed with state and municipal financing (at rates ranging from 2% to 5%) and bank financing. In addition, the Company anticipates capital expenditures of approximately $6,000,000 in fiscal 1995 for equipment for the Company's other facilities. Financing activities for 1994 included borrowings of $14,543,000 and principal payments and debt refinancings of $8,404,000. In August 1994, the Company entered into an agreement with a commercial lender for a $5,000,000 revolving credit facility and two term notes aggregating $8,483,000. The revolving credit facility bears interest at prime and expires on March 31, 1996. Draws under this credit facility for equipment purchases aggregating $1,000,000 or more will convert to term notes, payable over a maximum of 60 months. The Company utilized proceeds from the revolving credit facility to repay certain term loans and acquire the new Philadelphia facility. At September 30, 1994, $2,802,000 was outstanding under this credit facility, with $2,198,000 available for additional borrowing. Proceeds from the term notes were utilized for equipment purchases and to purchase, for an aggregate price of $7,458,000, 660,000 shares of common stock, which had been issued in connection with the acquisition of Allpack. At September 30, 1994, the Company had $1,553,000 outstanding under an additional line of credit of $1,934,000. The Company's Board of Directors has authorized the purchase of approximately 300,000 additional shares of common stock from time to time in the open market or through private transactions. The lease for the Company's facility in Germany expires in April 1996. The Company, anticipating that its operations in Germany will be relocated, is currently evaluating the construction of a new facility. Management believes that existing working capital and anticipated funds to be generated from future operations, in addition to financing commitments for the new facility in Philadelphia, will be sufficient to meet the Company's anticipated operating and capital needs. Depending upon the relocation needs of the Company's operations in Germany and future growth of the business, additional financing may be required. SUBSEQUENT EVENT In November 1994, the Company sold its 70% interest in KR-Verpackungen GmbH ('KR') of Muggensturm, Germany, and its manufacturing facility to the management of KR for $5,201,000, including the assumption of debt. Cash proceeds on the sale were $790,000. Total revenues and the Company's share of net income from KR for fiscal 1994 were $6,700,000 and $152,000, respectively. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Independent Auditors' Report 13 Consolidated Statements of Operations -- Three Years Ended September 30, 1994 14 Consolidated Balance Sheets -- September 30, 1994 and 1993 15 Consolidated Statements of Stockholders' Equity -- Three Years Ended September 30, 1994 16 Consolidated Statements of Cash Flows -- Three Years Ended September 30, 1994 17 Notes to Consolidated Financial Statements 18
INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders PCI Services, Inc. Philadelphia, Pennsylvania We have audited the accompanying consolidated balance sheets of PCI Services, Inc. and subsidiaries as of September 30, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1994. Our audits also include the financial statement schedules listed in the index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PCI Services, Inc. and subsidiaries as of September 30, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania November 15, 1994 PCI SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, -------------------------------------------------- 1994 1993 1992 ---------------- ---------------- -------------- Net revenue $ 121,177,000 $ 111,272,000 $ 75,430,000 Cost of goods sold 96,092,000 86,932,000 58,097,000 ---------------- ---------------- -------------- Gross profit 25,085,000 24,340,000 17,333,000 Selling, general and administrative expenses 16,249,000 14,334,000 8,377,000 Interest expense 1,527,000 1,269,000 632,000 Interest income (215,000) (259,000) (106,000) ---------------- ---------------- -------------- Income before income tax expense 7,524,000 8,996,000 8,430,000 Income tax expense 2,168,000 2,841,000 3,114,000 ---------------- ---------------- -------------- Net income $ 5,356,000 $ 6,155,000 $ 5,316,000 ---------------- ---------------- -------------- ---------------- ---------------- -------------- Earnings per share $ .79 $ .92 $ 1.05 ---------------- ---------------- -------------- ---------------- ---------------- -------------- Weighted average shares outstanding 6,787,000 6,726,000 5,079,000 ---------------- ---------------- -------------- ---------------- ---------------- --------------
See notes to consolidated financial statements. PCI SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, ------------------------------ 1994 1993 -------------- -------------- ASSETS Current assets: Cash and cash equivalents $ 3,089,000 $ 5,626,000 Accounts receivable, less allowance for doubtful accounts of $103,000 in 1994 and $76,000 in 1993 13,858,000 14,248,000 Inventories 8,444,000 7,755,000 Deferred income taxes 621,000 -- Net assets held for sale 683,000 -- Other current assets 1,606,000 1,249,000 -------------- -------------- Total current assets 28,301,000 28,878,000 Property, plant and equipment, net 44,145,000 40,900,000 Goodwill, net of accumulated amortization of $1,930,000 in 1994 and $1,624,000 in 1993 9,857,000 9,589,000 Other assets 1,124,000 755,000 -------------- -------------- $ 83,427,000 $ 80,122,000 -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to financial institutions $ 1,553,000 $ 2,549,000 Accounts payable 6,241,000 4,706,000 Accrued payroll and related taxes 1,110,000 1,479,000 Accrued insurance 1,523,000 642,000 Accrued expenses -- other 3,203,000 3,685,000 Federal, state and foreign taxes payable 668,000 517,000 Long-term debt -- current maturities 3,408,000 2,483,000 -------------- -------------- Total current liabilities 17,706,000 16,061,000 Long-term debt, less current maturities 14,760,000 11,577,000 Deferred income taxes 2,254,000 2,426,000 Other liabilities 1,363,000 1,704,000 Stockholders' equity: Preferred stock -- $.001 par value: Authorized -- 10,000,000 shares Issued and outstanding -- none -- -- Common stock -- $.001 par value: Authorized -- 25,000,000 shares 1994: Issued -- 6,841,250, outstanding -- 6,181,250 1993: Issued and outstanding -- 6,841,250 7,000 7,000 Additional paid-in-capital 35,461,000 37,063,000 Retained earnings 16,827,000 11,471,000 Foreign currency translation adjustment 329,000 (187,000) Treasury stock, at cost -- 660,000 shares (5,280,000) -- -------------- -------------- 47,344,000 48,354,000 -------------- -------------- $ 83,427,000 $ 80,122,000 -------------- -------------- -------------- --------------
See notes to consolidated financial statements. PCI SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK FOREIGN ------------------------ CURRENCY SHARES ADDITIONAL RETAINED TRANSLATION TREASURY ISSUED AMOUNT PAID-IN-CAPITAL EARNINGS ADJUSTMENT STOCK ----------- ----------- -------------- ------------ ----------- ----------- Balance at October 1, 1991 2,875,000 $ 3,000 $ 1,914,000 $ -- $ -- $ -- Issuance of common stock -- Initial public offering 3,306,250 3,000 30,163,000 -- -- -- Dividend of PCI/Virginia -- -- (1,996,000) -- -- -- Special dividend to MEDIQ -- -- (1,890,000) -- -- -- Net income -- -- -- 5,316,000 -- -- ----------- ----------- -------------- ------------ ----------- ----------- Balance at September 30, 1992 6,181,250 6,000 28,191,000 5,316,000 -- -- Issuance of common stock -- Acquisition of Allpack 660,000 1,000 8,801,000 -- -- -- Contribution of capital -- -- 71,000 -- -- -- Foreign currency translation adjustment -- -- -- -- (187,000) -- Net income -- -- -- 6,155,000 -- -- ----------- ----------- -------------- ------------ ----------- ----------- Balance at September 30, 1993 6,841,250 7,000 37,063,000 11,471,000 (187,000) -- Acquisition of treasury stock -- -- (1,602,000) -- -- (5,280,000) Foreign currency translation adjustment -- -- -- -- 516,000 -- Net income -- -- -- 5,356,000 -- -- ----------- ----------- -------------- ------------ ----------- ----------- Balance at September 30, 1994 $ 6,841,250 $ 7,000 $ 35,461,000 $ 16,827,000 $ 329,000 $(5,280,000) ----------- ----------- -------------- ------------ ----------- ----------- ----------- ----------- -------------- ------------ ----------- -----------
See notes to consolidated financial statements. PCI SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, ---------------------------------------------- 1994 1993 1992 -------------- -------------- -------------- Cash flows from operating activities: Net income $ 5,356,000 $ 6,155,000 $ 5,316,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,390,000 4,812,000 2,676,000 Deferred taxes (481,000) 638,000 (134,000) Other 246,000 139,000 -- Increase (decrease), net of effect of acquisitions: Accounts receivable (288,000) (738,000) (1,760,000) Inventories (968,000) 254,000 (808,000) Other current assets (336,000) (498,000) 197,000 Accounts payable 1,972,000 (649,000) (96,000) Accrued payroll and related taxes 17,000 (355,000) 778,000 Accrued expenses -- other 343,000 430,000 (140,000) Federal, state and foreign taxes payable 107,000 (301,000) 547,000 -------------- -------------- -------------- Net cash provided by operating activities 11,358,000 9,887,000 6,576,000 Cash flows from investing activities: Expenditures for property, plant and equipment (11,952,000) (5,740,000) (3,037,000) Acquisitions and contingent consideration (533,000) (1,227,000) (4,944,000) Other (407,000) 433,000 74,000 -------------- -------------- -------------- Net cash used in investing activities (12,892,000) (6,534,000) (7,907,000) Cash flows from financing activities: Borrowings 14,543,000 2,579,000 2,927,000 Debt repayments (8,404,000) (4,521,000) (5,295,000) Acquisition of treasury stock (6,882,000) -- -- Other (162,000) (380,000) -- Proceeds from issuance of common stock -- -- 30,166,000 Payment of notes payable to MEDIQ -- -- (14,190,000) Net activity -- MEDIQ -- -- (8,430,000) -------------- -------------- -------------- Net cash provided by (used in) financing activities (905,000) (2,322,000) 5,178,000 Effect of exchange rate changes on cash (98,000) (35,000) -- -------------- -------------- -------------- Net increase (decrease) in cash and cash equivalents (2,537,000) 996,000 3,847,000 Decrease in cash and cash equivalents related to dividend of PCI/Virginia -- -- (913,000) Cash and cash equivalents: Beginning of period 5,626,000 4,630,000 1,696,000 -------------- -------------- -------------- End of period $ 3,089,000 $ 5,626,000 $ 4,630,000 -------------- -------------- -------------- -------------- -------------- -------------- Supplemental disclosures of cash flow information: Interest paid $ 1,391,000 $ 1,239,000 $ 635,000 -------------- -------------- -------------- -------------- -------------- -------------- Income taxes paid $ 2,385,000 $ 2,527,000 $ 2,657,000 -------------- -------------- -------------- -------------- -------------- -------------- Supplemental disclosures of non-cash investing and financing activities: Plant and equipment financed with long-term debt $ 1,035,000 $ 4,443,000 $ 1,281,000 -------------- -------------- -------------- -------------- -------------- -------------- Issuance of stock -- acquisition of Allpack $ -- $ 8,802,000 $ -- -------------- -------------- -------------- -------------- -------------- --------------
See notes to consolidated financial statements. PCI SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation -- The consolidated financial statements include the accounts of PCI Services, Inc. and its subsidiaries (the 'Company'). In consolidation, all significant intercompany transactions and balances have been eliminated. Cash Equivalents -- Cash equivalents include all unrestricted, liquid investments purchased with maturities of three months or less. Inventories -- Inventories are stated at the lower of cost (first-in, first-out method) or market. Property, Plant and Equipment -- Property, plant and equipment are stated at cost. Capital leases are recorded at the lower of fair market value or the present value of future lease payments. The Company provides for depreciation and amortization on a straight-line basis as follows: Buildings 25 to 30 years Building improvements 15 years Machinery, equipment, furniture and fixtures 10 years
Goodwill -- The purchase price in excess of net assets acquired is amortized on a straight-line basis over forty years. Foreign Currency Translation -- In accordance with Statement of Financial Accounting Standards ('SFAS') No. 52, 'Foreign Currency Translation,' the financial statements of the Company's German subsidiary, Allpack Industrielle Lohnverpackung GmbH ('Allpack'), are translated from deutschemarks to U.S. dollars using the exchange rate at the balance sheet date for assets and liabilities, and the weighted average exchange rate during the period for results of operations and cash flows. The related translation adjustment is included as a separate component of stockholders' equity. Income Taxes -- Effective October 1, 1993, the Company adopted the provisions of SFAS No. 109, 'Accounting for Income Taxes', which supercedes SFAS No. 96. The Company adopted SFAS No. 96 in fiscal 1990. The effect of the adoption of SFAS No. 109 was not significant for the year ended September 30, 1994. Earnings Per Share -- Earnings per share computations are based upon the weighted average number of common shares outstanding. Outstanding stock options have been excluded from the calculation of weighted average shares outstanding, since the dilutive effect is less than 3%. Reclassifications -- Certain items in the prior years' financial statements have been reclassified to conform with the 1994 presentation. B. ACQUISITIONS PCI/Virginia -- In January 1993, the Company acquired PCI/Virginia, a pharmaceutical packaging operation in Virginia, from MEDIQ Incorporated ('MEDIQ'), owner of 47% of the Company's common stock, for aggregate consideration of approximately $2,300,000. (See Note K). Allpack -- In December 1992, the Company acquired Allpack, a pharmaceutical packaging operation in Germany, for 660,000 shares of common stock. The excess of the purchase price over the estimated fair values of the net assets acquired, $820,000, has been recorded as goodwill, and is amortized over forty years. The acquisition agreement provided for additional consideration for any shortfall between the market value of the shares issued and $15 per share after the third anniversary of closing. In settlement of this contingent obligation, the Company purchased on August 31, 1994, the PCI SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) B. ACQUISITIONS--(CONTINUED) 660,000 shares at an aggregate price of $7,458,000. The purchase price was allocated $5,280,000 to treasury stock, $1,602,000 to additional paid-in capital, and $576,000 to a modification of the lease on Allpack's manufacturing facility, which is leased from the former shareholders of Allpack. C. INVENTORIES
SEPTEMBER 30, ------------------------------ 1994 1993 -------------- -------------- Raw materials $ 5,077,000 $ 4,484,000 Work in process 1,760,000 1,235,000 Finished goods 1,607,000 2,036,000 -------------- -------------- $ 8,444,000 $ 7,755,000 -------------- -------------- -------------- --------------
D. PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, ------------------------------ 1994 1993 -------------- -------------- Land $ 1,388,000 $ 1,736,000 Building and improvements 12,289,000 13,094,000 Machinery, equipment, furniture and fixtures 48,768,000 40,173,000 Equipment under capital lease 3,667,000 3,886,000 Deposits on equipment 916,000 356,000 -------------- -------------- 67,028,000 59,245,000 Less: accumulated depreciation and amortization 22,883,000 18,345,000 -------------- -------------- $ 44,145,000 $ 40,900,000 -------------- -------------- -------------- --------------
Depreciation and amortization expense related to property, plant and equipment for fiscal years 1994, 1993 and 1992 was $5,037,000, $4,472,000 and $2,448,000, respectively. E. NOTES PAYABLE TO FINANCIAL INSTITUTIONS At September 30, 1994, the Company had $381,000 available under an unsecured line of credit with a financial institution with $1,553,000 outstanding, bearing interest at 5.125%. The average amount outstanding under lines of credit in fiscal year 1994 was $1,966,000, including a portion converted to a term loan in February 1994, and the weighted average interest rate computed on the quarterly outstanding balance was 5.5%. F. LONG-TERM DEBT
SEPTEMBER 30, ------------------------------ 1994 1993 -------------- -------------- Revolving credit facility, maturing March 31, 1996, with interest at the prime rate (7.75% at September 30, 1994) $ 2,802,000 $ -- Term loans with interest rates of prime and fixed rates of 7.0% to 10.0% maturing through 2002 12,070,000 5,276,000 Mortgages with interest rates ranging from a fixed rate of 7.8% to prime plus 0.5% maturing through 2011 2,352,000 6,913,000 Capital lease obligations with interest rates ranging from 8.5% to 13% maturing through 1996 944,000 1,871,000 -------------- -------------- 18,168,000 14,060,000 Less: current maturities 3,408,000 2,483,000 -------------- -------------- $ 14,760,000 $ 11,577,000 -------------- -------------- -------------- --------------
PCI SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) F. LONG-TERM DEBT--(CONTINUED) Maturities of long-term debt are as follows:
YEAR ENDING SEPTEMBER 30, - ------------------------- 1995 $ 3,408,000 1996 7,231,000 1997 3,336,000 1998 1,952,000 1999 1,758,000 Thereafter 483,000 -------------- $ 18,168,000 -------------- --------------
In August 1994, the Company entered into an agreement with a commercial lender for a $5,000,000 revolving credit facility and two term notes of $7,500,000 and $983,000. The revolving credit facility expires on March 31, 1996 and bears interest, at the Company's option, at the prime rate or LIBOR plus 2%. Draws under this facility for equipment purchases aggregating $1,000,000 or more will be converted to term notes, payable over a maximum of 60 months. At September 30, 1994, $2,802,000 was outstanding under this facility, with $2,198,000 available for additional borrowing. The $7,500,000 term note was utilized to purchase 660,000 shares of the Company's common stock from the former shareholders of Allpack (see Note B) and is payable in monthly installments of $125,000 through August 1999 with interest at the prime rate plus .25%. The $983,000 term note is payable in monthly installments of $17,000 through May 1999 plus interest at the prime rate. The revolving credit facility and certain term loans and mortgages require the maintenance of specific balance sheet and operating ratios and impose other financial and dividend limitations. The most restrictive of these provisions limits cash dividends to no more than 50% of net income in any one year. At September 30, 1994, the Company either complied with or obtained the necessary waivers from its lenders regarding these ratios and limitations. The net carrying value of assets pledged as collateral under long-term debt agreements was $59,584,000 as of September 30, 1994. G. LEASES The Company leases certain manufacturing and warehouse facilities and equipment. Rental expense for operating leases was $1,452,000, $1,286,000 and $425,000 for fiscal years 1994, 1993 and 1992, respectively. At September 30, 1994 equipment under capitalized lease obligations was $3,667,000, less accumulated amortization of $1,606,000. Future minimum payments under capital leases and noncancelable operating leases are as follows:
CAPITAL OPERATING YEAR ENDING SEPTEMBER 30, LEASES LEASES - ------------------------ ------------- ------------- 1995 $ 918,000 $ 1,044,000 1996 99,000 779,000 1997 6,000 297,000 1998 -- 102,000 1999 -- 49,000 ------------- ------------- Total minimum lease payments 1,023,000 $ 2,271,000 ------------- ------------- Amount representing interest 79,000 ------------- Present value of minimum lease payments $ 944,000 ------------- -------------
PCI SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) H. INCOME TAXES Effective October 1, 1993, the Company adopted SFAS No. 109, 'Accounting for Income Taxes.' Financial statements for prior years have not been restated and the effect of the adoption of SFAS No. 109 was not significant. Income tax expense consisted of the following:
YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1994 1993 1992 ------------- ------------- ------------- Current: Federal $ 1,793,000 $ 1,799,000 $ 2,428,000 State 629,000 404,000 820,000 Foreign 227,000 -- -- ------------- ------------- ------------- 2,649,000 2,203,000 3,248,000 ------------- ------------- ------------- Deferred: Federal 10,000 (86,000) (96,000) State (230,000) 12,000 (38,000) Foreign (261,000) 712,000 -- ------------- ------------- ------------- (481,000) 638,000 (134,000) ------------- ------------- ------------- Total income tax expense $ 2,168,000 $ 2,841,000 $ 3,114,000 ------------- ------------- ------------- ------------- ------------- -------------
The differences between the Company's provision for income taxes and the income taxes computed using the U.S. federal income tax rate were as follows:
YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1994 1993 1992 ------------- ------------- ------------- Statutory expense $ 2,558,000 $ 3,059,000 $ 2,866,000 Goodwill amortization 91,000 86,000 76,000 State tax, net of federal benefit 311,000 268,000 562,000 Puerto Rico operations (813,000) (657,000) (414,000) Other 21,000 85,000 24,000 ------------- ------------- ------------- Total income tax expense $ 2,168,000 $ 2,841,000 $ 3,114,000 ------------- ------------- ------------- ------------- ------------- -------------
PCI SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) H. INCOME TAXES--(CONTINUED) Significant components of the Company's deferred tax assets and liabilities as of September 30, 1994 were as follows: LIABILITIES Depreciation expense $ 3,079,000 Deferred acquisition costs 179,000 Amortization of goodwill 161,000 Other 231,000 ------------- 3,650,000 ASSETS Foreign net operating losses 770,000 State net operating losses 317,000 Inventory capitalization 178,000 Insurance accruals 534,000 Other 295,000 ------------- 2,094,000 Valuation allowance (77,000) ------------- 2,017,000 ------------- Net deferred tax liability $ 1,633,000 ------------- -------------
Under the provisions of SFAS No. 96, the deferred tax provision for fiscal year 1993 of $638,000 resulted principally from depreciation of $432,000 and the net tax effect of the German net operating loss of $597,000, partially offset by insurance accruals of $271,000. The deferred tax benefit of $134,000 for fiscal year 1992 resulted principally from depreciation of $55,000 and inventory capitalization of $40,000. At September 30, 1994, the Company had state net operating loss carryforwards of approximately $5,900,000, expiring through 2009, and German net operating loss carryforwards of $1,926,000, which can be carried forward indefinitely. At September 30, 1994, the balance of undistributed earnings of foreign subsidiaries was $747,000. It is presumed that ultimately these earnings will be distributed to the Company. The tax effect of this presumption was evaluated by assuming that these earning were remitted to the Company in the period in which they were earned and that the Company received the benefit of all available tax planning alternatives and available tax credits and deductions. PCI SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) I. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for fiscal years 1994 and 1993 is as follows:
FIRST SECOND THIRD FOURTH 1994 QUARTER QUARTER QUARTER QUARTER - ----------------------------------------------- -------------- -------------- -------------- -------------- Net revenue $ 27,917,000 $ 30,413,000 $ 31,427,000 $ 31,420,000 Gross profit 5,614,000 5,993,000 6,364,000 7,114,000 Net income 1,305,000 1,471,000 1,146,000 1,434,000 Earnings per share .19 .22 .17 .22 Weighted average shares outstanding 6,841,000 6,841,000 6,841,000 6,626,000 1993 - ----------------------------------------------- Net revenue $ 21,574,000 $ 29,784,000 $ 29,026,000 $ 30,888,000 Gross profit 4,156,000 6,121,000 6,566,000 7,497,000 Net income 884,000 1,504,000 1,883,000 1,884,000 Earnings per share .14 .22 .28 .28 Weighted average shares outstanding 6,382,000 6,841,000 6,841,000 6,841,000
J. GEOGRAPHIC SEGMENT DATA The Company operates in the United States (including Puerto Rico) and Europe. The following table presents operating results for fiscal years 1994 and 1993 and identifiable assets of the Company as of September 30, 1994 and 1993, by geographic area.
YEAR ENDED SEPTEMBER 30, ---------------------------------- 1994 1993 ---------------- ---------------- Revenues: United States $ 96,449,000 $ 88,244,000 Europe 24,728,000 23,028,000 ---------------- ---------------- $ 121,177,000 $ 111,272,000 ---------------- ---------------- ---------------- ---------------- Pre-tax income (loss): United States $ 7,630,000 $ 6,751,000 Europe (106,000) 2,245,000 ---------------- ---------------- $ 7,524,000 $ 8,996,000 ---------------- ---------------- ---------------- ---------------- YEAR ENDED SEPTEMBER 30, ---------------------------------- 1994 1993 ---------------- ---------------- Identifiable assets: United States $ 72,987,000 $ 66,521,000 Europe 18,696,000 23,227,000 Intersegment eliminations (8,256,000) (9,626,000) ---------------- ---------------- $ 83,427,000 $ 80,122,000 ---------------- ---------------- ---------------- ----------------
K. RELATED PARTY TRANSACTIONS PCI/Virginia -- Effective October 1, 1991, the Company transferred by dividend to MEDIQ all of the capital stock of PCI/Virginia, resulting in a reduction of stockholders' equity of $1,996,000. In January 1993, the Company exercised its purchase option and acquired PCI/Virginia from MEDIQ for aggregate consideration equal to MEDIQ's net book value of approximately $2,300,000. In addition, MEDIQ assigned to the Company a purchase option to acquire the real estate leased by PCI/Virginia, in consideration for which the Company reimbursed MEDIQ for a $1,010,000 deposit previously made PCI SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) K. RELATED PARTY TRANSACTIONS--(CONTINUED) on the purchase. For the periods in which PCI/Virginia was owned by MEDIQ, the Company provided senior management services to PCI/Virginia and recognized management fee income of $97,000 and $280,000 for 1993 and 1992, respectively. Pennsauken Facility -- Effective February 25, 1994, the asset and related mortgage obligation related to the Pennsauken, New Jersey facility were transferred from MEDIQ to the Company. Prior to such date, in anticipation of this transfer, the asset, the related mortgage obligation and all costs related to the ownership and operation of the facility, were reflected in the Company's financial statements. Insurance -- The Company obtains certain insurance coverages through insurance programs administered by MEDIQ, including worker's compensation coverage through June 1, 1992. As of September 30, 1994, the Company had outstanding letters of credit in the amount of $1,017,000 to secure the Company's obligations under such programs. Insurance expense related to such insurance programs was $681,000, $471,000 and $1,012,000 for fiscal years 1994, 1993 and 1992, respectively. Services Agreement -- In connection with the Company's initial public offering, effective October 1, 1991, the Company entered into a services agreement pursuant to which the Company obtains certain legal, accounting, tax and risk management services from MEDIQ. Costs for such services were $100,000 for each of the fiscal years 1994, 1993 and 1992, and are included in selling, general and administrative expenses. The Company believes that the terms of the services agreement and MEDIQ's charges for such services are on terms no less favorable than those that could be obtained from unaffiliated third parties for comparable services. Inventory Purchases -- The Company purchases certain packaging materials from a company owned by one of its directors, totalling $1,486,000, $1,073,000 and $1,314,000 for fiscal years 1994, 1993 and 1992, respectively. Amounts due to this company were $168,000 and $117,000 as of September 30, 1994 and 1993, respectively. Special Dividends -- In September 1991 and December 1991, the Company declared special dividends on its common stock in the form of four notes payable to MEDIQ aggregating $14,190,000. In fiscal year 1992, all notes payable in connection with the special dividends were paid with proceeds from the initial public offering. Pledge of Stock -- A portion of the shares of the Company's stock owned by MEDIQ secures certain MEDIQ indebtedness. L. MAJOR CUSTOMERS Eight separate divisions or affiliates of Johnson & Johnson accounted for an aggregate of 21%, 22% and 30%, of net revenue for fiscal years 1994, 1993 and 1992, respectively. M. STOCK OPTION PLAN In September 1991, the Company's Board of Directors adopted a stock option plan under which 600,000 shares have been reserved for stock options. These options may be granted to directors, officers and key employees of the Company and its subsidiaries. No option may be granted under the plan for a term in excess of ten years from the date of grant. As of September 30, 1994, 415,000 shares PCI SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) M. STOCK OPTION PLAN--(CONTINUED) are outstanding and had been granted at option prices ranging from $10 to $12.25 per share, representing the fair market value at dates of grant and 365,000 stock options were exercisable under the plan. N. EMPLOYEE BENEFIT PLANS The Company maintains and administers a money purchase pension plan and a profit sharing plan for substantially all of its employees other than those covered by collective bargaining agreements or compensated solely on a commission basis. The benefits accruing under these plans are funded by contributions made by the Company and earnings thereon. Under the money purchase pension plan, the Company contributes in each year an amount equal to 4% of each participant's earnings up to the Social Security taxable wage tax base for the year and an additional amount equal to 8% of each participant's earnings in excess of the taxable wage base. Under the profit sharing plan, the Company contributes an annual amount determined at the discretion of the Company's Board of Directors. The Company also participates in multi-employer plans which provide defined benefits to employees covered by collective bargaining agreements. Expenses related to these plans were as follows:
YEAR ENDED SEPTEMBER 30, ----------------------------------------- 1994 1993 1992 ------------- ------------- ----------- Money purchase pension plan $ 495,000 $ 462,000 $ 323,000 Profit sharing plan 374,000 315,000 217,000 Multi-employer plans 432,000 361,000 344,000 ------------- ------------- ----------- $ 1,301,000 $ 1,138,000 $ 884,000 ------------- ------------- ----------- ------------- ------------- -----------
O. SUBSEQUENT EVENT In November 1994, the Company completed the sale of its ownership interest in KR-Verpackungen GmbH ('KR') of Muggensturm, Germany, a 70% owned subsidiary of Allpack, and its manufacturing facility to the management of KR for $5,201,000, including the assumption of debt. The following table summarizes the net assets of KR including the manufacturing facility as of September 30, 1994: Cash $ 217,000 Acccounts receivable 873,000 Inventories 393,000 Other current assets 60,000 Property, plant and equipment 5,253,000 Accounts payable (598,000) Accrued expenses -- other (687,000) Long term debt (4,446,000) Deferred income taxes (136,000) Other liabilities (246,000) ------------- Net assets held for sale $ 683,000 ------------- -------------
The net assets of KR and the manufacturing facility have been classified as a current asset in the accompanying balance sheet as of September 30, 1994. The sale of KR and the manufacturing facility resulted in a pre-tax gain of approximately $90,000 which will be recorded in fiscal 1995. Total revenues and the Company's share of net income from KR for fiscal 1994 was $6,700,000 and $152,000, respectively. PART III The information required to be included herein has been incorporated herein by reference to the Registrant's proxy statement relating to the Annual Meeting of Stockholders scheduled to be held March 1995. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) (1) The response to this portion of Item 14 is submitted as a separate section of this report commencing on page 12. (A) (2) FINANCIAL STATEMENT SCHEDULES Schedule V Property, plant and equipment Schedule VI Accumulated depreciation, depletion and amortization of property, plant and equipment Schedule VIII Valuation and qualifying accounts and reserves Schedule IX Short-term borrowings Schedule X Supplementary income statement information
Other schedules are omitted because of the absence of conditions under which they are required. (A) (3) EXHIBITS. The exhibits are listed on the Index to Exhibits appearing below. (B) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of fiscal 1994. (C) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
EXHIBIT NUMBER DESCRIPTION AND METHOD OF FILING - ---------- ------------------------------------------------------------------------------------------------------ 3(a) Certificate of Incorporation of the Registrant (1) 3(b) By-Laws of the Registrant (1) 10(a) Stock Option Plan of the Registrant (1) 10(b) Amendment No. 1 to Stock Option Plan of the Registrant (2) 10(c) Profit Sharing Plan of Packaging Coordinators, Inc. (1) 10(d) Profit Sharing Trust Agreement of Packaging Coordinators, Inc. (1) 10(e) Money Purchase Pension Plan of Packaging Coordinators, Inc. (1) 10(f) Money Purchase Pension Plan Trust of Packaging Coordinators, Inc. (1) 10(g) Services Agreement, dated September 20, 1991, between the Registrant and MEDIQ Incorporated (1) 10(h) Tax Allocation/Sharing Agreement, dated September 20, 1991, between the Registrant and MEDIQ Incorporated (1) 10(i) Registration Rights Agreement, dated September 20, 1991, between the Registrant, MEDIQ incorporated and MEDIQ Investment Services, Inc. (1) 10(j) Lease dated November 20, 1990 between Packaging Coordinators, Inc. and D.D. Williamson (PR), Ltd. (1)
EXHIBIT NUMBER DESCRIPTION AND METHOD OF FILING - ---------- ------------------------------------------------------------------------------------------------------ 10(k) Reimbursement Agreement, dated September 27, 1991, between Packaging Coordinators, Inc. and MEDIQ Incorporated (1) 10(l) Real Estate Agreement, dated September 27, 1991, between Packaging Coordinators, Inc. and MEDIQ Incorporated (1) 10(m) Purchase and Sale Agreement, dated July 30, 1990 and amended on December 14, 1990 and September 20, 1991, between P.C. Realty, Inc. and PCI of Virginia, Inc. (1) 10(n) Annual Incentive Compensation Plan (1) 10(o) Employment Agreement dated August 27, 1991 between Packaging Coordinators, Inc. and Daniel F. Gerner (1) 10(p) Letter Agreement dated July 22, 1992 between Packaging Coordinators, Inc. and McNeil Consumer Products Company (1) 10(q) Right of First Refusal and Purchase Option dated October 1, 1991 by and between Packaging Coordinators, Inc. and MEDIQ Investment Services, Inc. (1) 10(r) Management Services Agreement dated October 1, 1991 by and between Packaging Coordinators, Inc. and PCI of Virginia, Inc. (1) 10(s) Insurance Program Agreement dated October 1, 1991 by and between the Registrant and MEDIQ Incorporated (1) 10(t) English translation of Share Purchase Agreement, dated as of November 30, 1993 (3) 10(u) English translation of Letter Agreement, dated December 4, 1992, amending the Share Purchase Agreement (3) 10(v) English translation of Agreement, dated August 1994, between the Company and the Hofliger family (4) 10(w) English translations of Share Transfer Agreement and Real Estate Purchase Agreement, dated October 20, 1994, between Allpack, Raimund Merkel, Renate-Hasenohr-Merkel and KR-Verpackungen GmbH (4) 10(x) Loan Agreement, dated January 23, 1986, between MEDIQ and Fidelity Bank (4) 10(y) Amendment, Assignment, Assumption and Release Agreement, dated as of February 25, 1994, among MEDIQ, Packaging Coordinators, Inc. and First Fidelity Bank, National Association (4) 10(z) Mortgage Modification and Assumption Agreement, dated as of February 25, 1994, among MEDIQ, Packaging Coordinators, Inc. and First Fidelity Bank, National Association (4) 10(aa) Amended and Restated Promissory Note, dated February 25, 1994 in the principal amount of $2,490,000(4) 10(bb) Loan Agreement, dated as of August 30, 1994, between the Company, Packaging Coordinators, Inc., PCI of Virginia, Inc., PCI/Delvco, Inc., PCI/Tri-Line (USA), Inc. and Meridian Bank (4) 10(cc) Revolving Credit Note, dated August 30, 1994, in the principal amount of $5,000,000 (4) 10(dd) First Term Loan Note, dated August 30, 1994, in the principal amount of $7,500,000 (4) 10(ee) Second Term Loan Note, dated August 30, 1994, in the principal amount of $983,250 (4) 10(ff) Agreement of Sale, dated July 28, 1994, between Interco, Incorporated and Packaging Coordinators, Inc., as amended on September 19, 1994 (4) 10(gg) Acquisition Agreement, dated September 19, 1994, between PIDC Financing Corporation and Packaging Coordinators, Inc. (4) 21 Subsidiaries of the Registrant (4)
- ------------------ (1) Incorporated by reference to Registration Statement on Form S-1 filed September 25, 1991 as amended. (2) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended September 30, 1992. (3) Incorporated by reference to Current Report on Form 8-K, dated December 4, 1992. (4) Filed herewith. SIGNATURES Pursuant to requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 19, 1994 PCI SERVICES, INC. By: /s/ RICHARD S. SAUTER Richard S. Sauter Chief Executive Officer By: /s/ MICHAEL F. SANDLER Michael F. Sandler Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, which include at least a majority of the Board of Directors on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------------------ ----------------------- /s/ BERNARD J. KORMAN Chairman of the Board of Directors December 19, 1994 Bernard J. Korman /s/ RICHARD S. SAUTER Vice Chairman of the Board of Directors December 19, 1994 Richard S. Sauter and Chief Executive Officer /s/ LAWRENCE CHIMERINE Director December 19, 1994 Lawrence Chimerine /s/ HERBERT LOTMAN Director December 19, 1994 Herbert Lotman /s/ Director Robert Purcell /s/ THEODORE H. SEIDENBERG Director December 19, 1994 Theodore H. Seidenberg
PCI SERVICES, INC. AND SUBSIDIARIES SCHEDULE V PROPERTY, PLANT AND EQUIPMENT YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- COL. A. COL. B. COL. C. COL. D. COL. E. COL. F. - --------------------------------------------------------------------------------------------------------------------- BALANCE AT OTHER BALANCE AT BEGINNING OF ADDITIONS CHANGES-ADD END OF DESCRIPTION PERIOD AT COST RETIREMENTS (DEDUCT) PERIOD - --------------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, 1994 Land $ 1,736 $ 873 $ -- $ (1,221) $ 1,388 Buildings and improvements 13,094 2,552 -- (3,357) 12,289 Machinery, equipment, furniture and fixtures 40,173 9,001 (760) 354 48,768 Equipment under capital lease 3,886 -- -- (219) 3,667 Deposits on equipment 356 -- -- 560 916 ------------ ----------- ----------- ------------- ----------- $ 59,245 $ 12,426 $ (760) $ (3,883)(1) $ 67,028 ------------ ----------- ----------- ------------- ----------- ------------ ----------- ----------- ------------- ----------- SEPTEMBER 30, 1993 Land $ 351 $ 1,400 $ -- $ (15) $ 1,736 Buildings and improvements 6,790 6,343 -- (39) 13,094 Machinery, equipment, furniture and fixtures 24,323 16,226 (136) (240) 40,173 Equipment under capital lease 1,005 2,186 (43) 738 3,886 Deposits on equipment 414 -- -- (58) 356 ------------ ----------- ----------- ------------- ----------- $ 32,883 $ 26,155(2) $ (179) $ 386(3) $ 59,245 ------------ ----------- ----------- ------------- ----------- ------------ ----------- ----------- ------------- ----------- SEPTEMBER 30, 1992 Land $ 515 $ -- $ (164) $ -- $ 351 Buildings and improvements 8,011 960 (2,181) -- 6,790 Machinery, equipment, furniture and fixtures 12,682 5,043 (237) 6,835(6) 24,323 Equipment under capital lease 9,031 1,005 (2,196) (6,835)(6) 1,005 Deposits on equipment 490 -- -- (76) 414 ------------ ----------- ----------- ------------- ----------- $ 30,729 $ 7,008(4) $ (4,778)(5) $ (76) $ 32,883 ------------ ----------- ----------- ------------- ----------- ------------ ----------- ----------- ------------- -----------
- ------------------ (1) Other changes include the reclassification of assets held for sale ($4,990,000) and the currency translation of Allpack's property, plant and equipment. (2) Additions include assets acquired in connection with the acquisition of Allpack ($10,873,000) and PCI/Virginia ($5,041,000). (3) Other changes include the consolidation of a 60% owned subsidiary, PCI/Arlington ($769,000), and the currency translation of Allpack's property, plant and equipment. (4) Additions include assets acquired in connection with the acquisition of Delvco ($784,000) and Tri-Line ($1,982,000). (5) Retirements include the dividend of PCI/Virginia ($138,000) and PC Realty ($4,525,000). (6) Equipment under capital lease was purchased with proceeds from the Offering. PCI SERVICES, INC. AND SUBSIDIARIES SCHEDULE VI ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- COL. A. COL. B. COL. C. COL. D. COL. E. COL. F. - ----------------------------------------------------------------------------------------------------------------------- ADDITIONS BALANCE AT CHARGED TO OTHER BALANCE AT BEGINNING OF COSTS AND CHANGES-ADD END OF DESCRIPTION PERIOD EXPENSES RETIREMENTS (DEDUCT) PERIOD - ----------------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, 1994 Buildings and improvements $ 2,796 $ 665 $ -- $ (162) $ 3,299 Machinery, equipment, furniture and fixtures 14,256 3,921 (364) 165 17,978 Equipment under capital lease 1,293 451 -- (138) 1,606 ------------ ----------- ------ ------------- ----------- $ 18,345 $ 5,037 $ (364) $ (135)(1) $ 22,883 ------------ ----------- ------ ------------- ----------- ------------ ----------- ------ ------------- ----------- SEPTEMBER 30, 1993 Buildings and improvements $ 2,069 $ 551 $ $ 176 $ 2,796 Machinery, equipment, furniture and fixtures 10,759 3,570 (92) 19 14,256 Equipment under capital lease 182 351 (32) 792 1,293 ------------ ----------- ------ ------------- ----------- $ 13,010 $ 4,472 $ (124) $ 987 (2) $ 18,345 ------------ ----------- ------ ------------- ----------- ------------ ----------- ------ ------------- ----------- SEPTEMBER 30, 1992 Buildings and improvements $ 1,831 $ 324 $ (86) $ -- $ 2,069 Machinery, equipment, furniture and fixtures 6,947 1,959 (123) 1,976 (4) 10,759 Equipment under capital lease 2,249 165 (256) (1,976)(4) 182 ------------ ----------- ------ ------------- ----------- $ 11,027 $ 2,448 $ (465)(3) $ -- $ 13,010 ------------ ----------- ------ ------------- ----------- ------------ ----------- ------ ------------- -----------
- ------------------ (1) Other changes include the reclassification of assets held for sale ($260,000) and the currency translation of Allpack's accumulated depreciation. (2) Other changes include the contribution of PC Realty ($697,000), the consolidation of a 60% owned subsidiary, PCI/Arlington ($281,000) and the currency translation of Allpack's accumulated depreciation. (3) Retirements include the dividend of PCI/Virginia ($8,000) and PC Realty ($341,000). (4) Equipment under capital lease was purchased with proceeds from the Offering. PCI SERVICES, INC. AND SUBSIDIARIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ COL. A. COL. B. COL. C. COL. D. COL. E. - ------------------------------------------------------------------------------------------------------ ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND (1) END OF DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD - ------------------------------------------------------------------------------------------------------ YEAR ENDED SEPTEMBER 30, 1994 Allowance for doubtful accounts $ 76 $ 27 $ -- $ 103 ------ ----- ------ ------ ------ ----- ------ ------ YEAR ENDED SEPTEMBER 30, 1993 Allowance for doubtful accounts $ 139 $ 30 $ (93) $ 76 ------ ----- ------ ------ ------ ----- ------ ------ YEAR ENDED SEPTEMBER 30, 1992 Allowance for doubtful accounts $ 140 $ -- $ (1) $ 139 ------ ----- ------ ------ ------ ----- ------ ------
- ------------------ (1) Represents accounts directly written-off net of recoveries. PCI SERVICES, INC. AND SUBSIDIARIES SCHEDULE IX SHORT-TERM BORROWINGS YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (IN THOUSANDS, EXCEPT INTEREST RATE DATA)
- ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- COL. A. COL. B. COL. C. COL. D. COL. E. COL. F. - ---------------------------------------------------------------------------------------------------------------------- MAXIMUM AVERAGE WEIGHTED WEIGHTED AMOUNT AMOUNT AVERAGE BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD(1) PERIOD(2) - ---------------------------------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, 1994: Notes Payable to Banks $ 1,553 5.125% $ 2,710 $ 1,966 9.5% ----------- ----------- ----------- ----------- --- ----------- ----------- ----------- ----------- --- YEAR ENDED SEPTEMBER 30, 1993: Notes Payable to Banks $ 2,549 6.900% $ 2,549 $ 2,182 6.9% ----------- ----------- ----------- ----------- --- ----------- ----------- ----------- ----------- --- YEAR ENDED SEPTEMBER 30, 1992: Notes Payable to Banks $ -- --% $ -- $ -- --% ----------- ----------- ----------- ----------- --- ----------- ----------- ----------- ----------- ---
- ------------------ (1) The average borrowings were determined based on the amounts outstanding at each quarter-end. (2) Weighted average interest rate was computed on the quarterly outstanding loan balances. PCI SERVICES, INC. AND SUBSIDIARIES SCHEDULE X SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (IN THOUSANDS)
- --------------------------------------------------------------- - --------------------------------------------------------------- COL. A. COL. B. - --------------------------------------------------------------- CHARGED TO COSTS AND EXPENSES - --------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1993 1992 --------- --------- --------- Maintenance and Repairs $ 3,173 $ 2,908 $ 1,652
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