1
Exhibit 13
SELECTED CONSOLIDATED FINANCIAL DATA Dollar amounts in millions, except per-share data
Year Ended June 30 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net Sales $95.2 $95.6 $92.3 $87.0 $65.5 $44.7 $36.7 $28.0 $23.2 $19.7
Net Income (1) 1.8 6.7 4.2 6.9 4.9 3.9 2.8 2.7 2.1 1.8
Net Income Per Share: (1), (2)
Primary .28 1.09 .69 1.15 .98 .86 .65 .63 .48 .41
Fully Diluted .28 1.09 .69 1.14 .97 .83 .65 .63 .48 .41
Total Assets 90.5 89.1 84.7 81.3 55.1 35.3 28.8 25.7 21.0 18.3
Long term Debt 3.5 4.0 4.6 4.9 8.4 1.3 1.8 2.3 1.5 1.6
Cash Dividends 1.0 .9 .8 .7 .5 .4 .4 .3 .2 .2
Cash Dividends
Per Share (2) .16 .15 .14 .12 .10 .09 .08 .07 .05 .04
1) 1994 amounts include income of $355,827, or $.06 per primary and fully
diluted share, representing the cumulative effect of a change in accounting for
income taxes.
2 ) Restated to reflect a 10% and 5% stock dividend declared in February 1989
and 1988, respectively.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
The following table shows the Company's results of operations as a percent of
net sales for the years indicated for certain items in the consolidated
statements of income. Dollar amounts in the following tables are in thousands.
PERCENT OF NET SALES
Year Ended June 30 1995 1994 1993
Net sales 100.00% 100.00% 100.00%
Cost of goods sold 54.80 50.03 49.76
------- ------- -------
Gross margin 45.20 49.97 50.24
Operating expenses 42.77 39.49 42.78
------- ------- -------
Operating income 2.43 10.48 7.46
Other income (expense) .57 .49 (.07)
------- ------- -------
Income before income taxes 3.00 10.97 7.39
Income taxes 1.15 4.30 2.80
------- ------- -------
Income before accounting change 1.85 6.67 4.59
Cumulative effect of change in
accounting for income taxes .37
------- ------- -------
Net income 1.85% 7.04% 4.59%
======= ======= =======
NET SALES
Year Ended June 30 1995 1994 1993
Net sales $95,156 $95,578 $92,295
Net sales for fiscal 1995 decreased $422,000 or .4 percent from the previous
fiscal year. Net sales from domestic operations decreased $8,522,000 or 12
percent to $65,158,000 while sales from the Company's European operations
increased $8,100,000 or 37 percent to $29,998,000.
The decrease in domestic sales consists of decreases in both critical
care accessories of $8,160,000 and infusion systems of $362,000. Approximately
78% of the decrease in critical care accessories (75% of the decrease in total
domestic sales) is due to a decrease in bulk/OEM sales caused by certain
customers electing to produce various products in-house versus purchasing them
from Medex. The remaining decreases occurred in the cath lab and pressure
monitoring product lines. The decrease in infusion systems is due to decreased
syringe pump sales partially offset by increased large volume pump sales. These
decreases were caused by continued pressures in the U.S. health care market and
the continuation of the sales force reorganization which began in late fiscal
1994 and was completed in fiscal 1995. Syringe pump sales were also impacted by
fewer sales to pharmaceutical companies who often use syringe pumps in drug
promotions.
The increase in sales from the Company's European operations is
primarily due to increased sales of cath lab and pressure monitoring products
which increased equally and due to the effect of increased foreign currency
translation rates. Cath lab sales increased primarily due to increased sales of
procedure packs which were introduced in fiscal 1993. The increase in pressure
monitoring products is primarily due to sales efforts being redirected into
this product line as a result of the procedure pack business being more
established. The increase in foreign currency exchange rates accounted for
$2,815,000 of the $8,100,000 increase in sales.
Net sales for fiscal 1994 increased $3,283,000 or four percent over
the previous fiscal year. Net sales from domestic operations increased
$1,206,000 or two percent to $73,680,000 while sales from the Company's
European operations increased $2,077,000 or 10 percent to $21,898,000.
Domestic sales in fiscal 1994 were affected by the uncertainty in the
United States health care market. The domestic sales increase was due to an
increase in sales of critical care accessories of $1,868,000 and a decrease in
infusion systems of $662,000. The increase in critical care accessories sales
was primarily due to increased bulk/OEM sales. Infusion systems sales decreased
as a result of decreases in sales of disposable infusion sets and ambulatory
pump products which were partially offset by an increase in syringe pump sales.
The increase in sales from the Company's European operations in fiscal
1994 was primarily due to increased sales in cath lab products which increased
primarily due to sales of procedure packs which were introduced in fiscal 1993.
3
COST OF GOODS SOLD AND GROSS MARGIN
Year Ended June 30 1995 1994 1993
Cost of goods sold $52,142 $47,820 $45,924
Gross margin $43,014 $47,758 $46,371
Gross margin as a percent of net sales for fiscal 1995 decreased over the
previous fiscal year. This decrease is entirely due to a seven percentage
point decrease in the domestic margin as the European margin remained
approximately the same as the prior year. Domestic margins have decreased
primarily due to significant unfavorable manufacturing variances attributable
to reduced production volumes caused by lower sales.
European gross margins have remained the same due to the effect of
lower per unit manufacturing costs associated with increased volume from
procedure packing and favorable purchase price variances due to foreign
currency fluctuations offset by a change in product mix to include a larger
percentage of procedure packs which generally have a lower gross margin than
the Company's other products.
Gross margin as a percent of net sales decreased slightly in fiscal
1994 as compared to fiscal 1993. This decrease was primarily due to continued
pricing pressures, changes in product mix and increased bulk/OEM and procedure
packing sales in fiscal 1994 which generally have a lower gross margin.
OPERATING EXPENSES
Year Ended June 30 1995 1994 1993
Operating expenses $40,700 $37,743 $39,486
Operating expenses for 1995 increased over the previous year both in total
dollars and as a percent of net sales. The $2,957,000 increase in total
operating expenses is primarily due to the Company incurring $2,635,000 of
restructuring expenses related to the closing of the Company's Denver
operations. In October, 1994 the Company announced a plan to close the
Medex/Denver operations and integrate all functions and product lines into
other Company locations. Management estimates this integration plan will save
the Company approximately $2,500,000 annually, while costing approximately
$3,200,000 to implement. The savings associated with the plan primarily relate
to the elimination of 25% of the 177 positions previously existing in Denver
and the avoidance of rent and other facility costs. The physical move was
completed during April 1995 as planned; however, the Company expects to incur
the remaining $565,000 of costs, primarily related to the hiring and
relocation of personnel in the first half of fiscal 1996. See Note 2 of the
"Notes to Consolidated Financial Statements" for further information.
Excluding the effect of restructuring costs, domestic operating
expenses decreased $768,000 primarily due to lower administrative expenses.
Administrative expenses decreased primarily due to the elimination of
personnel and decreased bonuses resulting from lower domestic profit levels.
These decreases were offset by increases in European selling and
administrative expenses of $1,090,000. Virtually all of these increases are
attributable to the effects of increased foreign currency translation rates.
In fiscal 1994, operating expenses decreased both in total dollars and
as a percent of net sales. The decrease in operating expenses was primarily due
to an overall reduction in expenses resulting from cost containment programs
implemented by the Company and a reduction in research and development
expenses, predominantly outside engineering services associated with several
projects which were completed or were nearing completion. Additionally, in
fiscal 1993, the Company incurred a restructuring charge of $1.5 million
related to a series of management changes and a reorganization of the Company's
sales and marketing operations. The restructuring for which this charge was
related was completed in fiscal 1994 as planned.
OTHER INCOME (EXPENSE)
Year Ended June 30 1995 1994 1993
Other income (expense) $539 $468 $(66)
The increase in other income in fiscal 1995 as compared to fiscal 1994 is due
to an increase in foreign currency exchange gains and other miscellaneous items
partially offset by an increase in interest expense. The Company recorded a
foreign currency exchange gain of $312,000 in 1995 versus a $241,000 gain in
1994. This additional income was partially offset by an increase in interest
expense of $74,000 in fiscal 1995 over fiscal 1994. The increase in interest
expense is due to a reduction of interest capitalized related to the
construction of a new facility in Georgia which was completed in fiscal 1994.
The increase in other income in fiscal 1994 as compared to fiscal 1993
was primarily due to the Company recording a foreign currency exchange gain of
$241,000 in 1994 versus a $454,000 loss in 1993. This increase was partially
offset by a reduction in investment income and an increase in interest expense.
The increase in interest expense was due to debt incurred to finance the new
Georgia facility discussed above.
4
INCOME TAXES
Year Ended June 30 1995 1994 1993
Income taxes $1,097 $4,107 $2,583
Income taxes for fiscal 1995, 1994 and 1993 were 38.5 percent, 39.2 percent and
37.9 percent of pre-tax income, respectively. The decrease in the Company's
effective tax rate for fiscal 1995 as compared to the prior year is primarily
due to benefits received as the result of carry backs of excess foreign tax
credits, which had previously been reserved, partially offset by an increase
in foreign taxes, both in actual dollars and as a percent of total taxes,
resulting from increased foreign income in relation to total income.
In fiscal 1994, the Company's effective tax rate increased over fiscal
1993 primarily due to increases in foreign taxes resulting from increased
foreign income and due to a decrease in the tax credit for research and
development expenditures.
In fiscal 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." The cumulative effect
of adopting SFAS No. 109 on the Company's consolidated financial statements was
to increase income by $356,000, which was reported separately as the cumulative
effect of an accounting change. See Note 1 to "Notes to Consolidated Financial
Statements" for further information.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital at June 30, 1995, decreased $2,435,000 from working capital
at June 30, 1994. The current ratio at June 30, 1995 was 4.32 to 1.00,
compared to 4.52 to 1.00 at June 30, 1994.
Property additions of approximately $6,959,000 primarily relates to
the renovation of a 71,000 square foot facility acquired in Hilliard, Ohio in
fiscal 1994 and the acquisition of machinery and equipment.
Management believes that currently available cash and investments,
cash provided from future operations and debt financing options will be
sufficient to finance these and other future capital expenditures.
MANAGEMENT'S OUTLOOK
Management was disappointed with the Company's overall results for fiscal 1995.
The Company experienced a significant decline in both sales and profits from
the domestic operations which were not offset by record sales and profits from
the European operations.
In fiscal 1996, Management anticipates the Company's European
operations will continue to post increases in sales and profits over fiscal
1995 barring any material unfavorable changes in foreign currency exchange
rates. The domestic operations are expected to post improved performance over
fiscal 1995. Sales are expected to increase; however, they are expected to
continue to be impacted by the conditions of the United States health care
industry. Profits are expected to improve, particularly in the second half
of the year as the savings associated with the Denver integration are
experienced.
5
MEDEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended June 30 1995 1994 1993
NET SALES $95,156,058 $95,578,046 $92,295,439
COST OF GOODS SOLD 52,142,292 47,820,332 45,924,307
----------- ----------- -----------
GROSS MARGIN 43,013,766 47,757,714 46,371,132
OPERATING EXPENSES:
Sales and marketing 21,983,891 21,682,624 21,334,004
Research and development 3,147,421 3,299,430 4,254,370
Administrative 12,934,014 12,761,107 12,397,955
Restructuring costs 2,634,630 1,500,000
----------- ----------- -----------
Total 40,699,956 37,743,161 39,486,329
----------- ----------- -----------
OPERATING INCOME 2,313,810 10,014,553 6,884,803
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Investment income 246,346 250,914 301,966
Interest expense (176,811) (102,757) (64,756)
Other net 469,539 319,458 (303,512)
----------- ----------- -----------
Total 539,074 467,615 (66,302)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 2,852,884 10,482,168 6,818,501
INCOME TAXES 1,097,000 4,107,000 2,583,000
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 1,755,884 6,375,168 4,235,501
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES (NOTE 1) 355,827
----------- ----------- -----------
NET INCOME $1,755,884 $6,730,995 $4,235,501
=========== =========== ===========
NET INCOME PER COMMON SHARE:
Income before cumulative effect
of change in accounting principle $0.28 $1.03 $0.69
Cumulative effect of change in accounting
for income taxes 0.06
----------- ----------- -----------
Net Income $0.28 $1.09 $0.69
=========== =========== ===========
Weighted average number of common
shares outstanding 6,189,508 6,181,121 6,151,898
=========== =========== ===========
See notes to consolidated financial statements.
6
MEDEX INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
June 30 1995 1994
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 4,911,074 $ 8,604,455
Investments 345,000 1,457,437
Trade receivables (less allowance for
doubtful accounts: 1995 - $714,000; 1994 - $570,000) 18,506,153 16,131,332
Inventories:
Raw materials and supplies 11,495,702 11,093,697
Work-in-process 3,626,058 3,752,113
Finished goods 7,248,231 7,599,961
----------- -----------
Total inventories 22,369,991 22,445,771
Deferred income taxes 1,633,456 1,307,931
Prepaid expenses and other 812,925 1,109,754
----------- -----------
Total current assets 48,578,599 51,056,680
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Land and land improvements 2,053,046 1,967,491
Buildings 19,504,336 15,541,850
Machinery and equipment 15,940,342 14,412,533
Dies and molds 8,226,919 7,515,263
Furniture and data processing equipment 8,285,376 7,462,920
Additions in progress 3,330,646 3,984,893
----------- -----------
Total 57,340,665 50,884,950
Less accumulated depreciation 23,028,147 19,362,173
----------- -----------
Property, plant and equipment-net 34,312,518 31,522,777
----------- -----------
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
(Net of accumulated amortization: 1995 - $997,352; 1994 - $855,020) 4,872,981 4,362,651
----------- -----------
OTHER ASSETS:
Deferred income taxes 530,872 244,258
Other 2,206,581 1,925,337
----------- -----------
Total other assets 2,737,453 2,169,595
----------- -----------
TOTAL ASSETS $90,501,551 $89,111,703
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 513,066 $ 643,143
Accounts payable (principally trade) 3,797,582 3,138,688
Accrued liabilities:
Income taxes 602,209
Compensation and profit sharing 2,873,619 4,244,975
Restructuring costs 649,983 240,000
Other 2,807,811 3,021,026
----------- -----------
Total current liabilities 11,244,270 11,287,832
----------- -----------
LONG-TERM DEBT-LESS CURRENT PORTION 3,463,232 3,975,027
----------- -----------
RESTRUCTURING COSTS - LESS CURRENT PORTION 165,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
SHAREHOLDERS' EQUITY:
Common stock - $ .01 par value; shares authorized-20,000,000; shares
outstanding: 1995 - 6,159,502; 1994 - 6,129,866 (net of treasury shares:
1995 - 150,590; 1994 - 156,650) 61,595 61,299
Additional paid-in capital 42,460,256 41,702,515
Retained earnings 33,172,136 32,398,479
Foreign currency translation adjustment 100,062 (478,449)
----------- -----------
Total shareholders' equity 75,794,049 73,683,844
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $90,501,551 $89,111,703
=========== ===========
See notes to consolidated financial statements.
7
MEDEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOREIGN
COMMON CURRENCY TOTAL
STOCK OUTSTANDING ADDITIONAL RETAINED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT PAID IN CAPITAL EARNINGS ADJUSTMENT EQUITY
BALANCE AT JUNE 30, 1992 5,954,071 $59,541 $40,197,456 $23,188,220 $ 552,521 $63,997,738
Net income 4,235,501 4,235,501
Cash dividends ($.14 per share) (842,616) (842,616)
Foreign currency translation adjustment (1,378,905) (1,378,905)
Issuance of stock under
stock option and purchase
plans (net of exchange of
20,196 treasury shares) (Note 4) 89,309 893 500,743 501,636
Tax benefit received from
exercise of stock options (Note 4) 81,622 81,622
---------- ------- ----------- ----------- -------- -----------
BALANCE AT JUNE 30, 1993 6,043,380 60,434 40,779,821 26,581,105 (826,384) 66,594,976
Net income 6,730,995 6,730,995
Cash dividends ($.15 per share) (913,621) (913,621)
Foreign currency
translation adjustment 347,935 347,935
Issuance of stock under
stock option and purchase
plans (net of exchange of
14,595 treasury shares) (Note 4) 86,486 865 880,514 881,379
Tax benefit received from
exercise of stock options (Note 4) 42,180 42,180
---------- ------- ----------- ----------- -------- -----------
BALANCE AT JUNE 30, 1994 6,129,866 61,299 41,702,515 32,398,479 (478,449) 73,683,844
Net income 1,755,884 1,755,884
Cash dividends ($.16 per share) (982,227) (982,227)
Foreign currency
translation adjustment 578,511 578,511
Issuance of stock under
stock option and purchase
plans (net of exchange of
2,163 treasury shares) (Note 4) 21,413 214 206,533 206,747
Tax benefit received from
exercise of stock options (Note 4) 463,812 463,812
Issuance of treasury shares 8,223 82 87,396 87,478
---------- ------- ----------- ----------- -------- -----------
Balance at June 30, 1995 6,159,502 $61,595 $42,460,256 $33,172,136 $100,062 $75,794,049
========== ======= =========== =========== ======== ===========
See notes to consolidated financial statements.
8
MEDEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,755,884 $6,730,995 $4,235,501
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
for income taxes (355,827)
Depreciation and amortization 4,301,592 4,473,862 4,025,815
Deferred income taxes (631,000) 1,434,000 (922,000)
Change in operating assets and liabilities net of
effects from acqusition:
Increase in trade receivables (1,640,600) (1,435,691) (584,412)
Decrease (increase) in inventories 967,346 (4,760,842) (1,618,390)
Decrease (increase) in prepaid expenses and other 55,131 147,166 (337,110)
Increase in accounts payable 325,195 69,073 290,363
Increase (decrease) in accrued
restructuring costs 244,983 (1,000,000) 1,405,000
Decrease in accrued liabilities (1,457,407) (346,351) (14,846)
Other operating items-net 238,275 127,411 (773,585)
---------- ---------- -----------
Net cash provided by operating activities 4,159,399 5,083,796 5,706,336
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (6,959,261) (8,758,708) (9,992,714)
Proceeds from sale of property 35,072 1,995 313,986
Purchase of investments (757,840) (848,460)
Proceeds from maturity of investments 1,112,437 648,258 1,400,277
Acquisition of subsidiary, net of cash acquired (330,632)
Decrease in unused proceeds of
industrial revenue bond 2,818,659 645,696
---------- ---------- -----------
Net cash used in investing activities (6,142,384) (6,047,636) (8,481,215)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations 27,831
Payment of long-term obligations (641,872) (320,470) (285,638)
Proceeds from issuance of common stock - net 206,747 881,379 501,636
Cash dividends paid (982,227) (913,621) (842,616)
---------- ---------- -----------
Net cash used by financing activities (1,417,352) (352,712) (598,787)
---------- ---------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (293,044) (197,666) 143,203
---------- ---------- -----------
NET DECREASE IN CASH AND EQUIVALENTS (3,693,381) (1,514,218) (3,230,463)
---------- ---------- -----------
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 8,604,455 10,118,673 13,349,136
---------- ---------- -----------
CASH AND EQUIVALENTS AT END OF YEAR $4,911,074 $8,604,455 $10,118,673
========== ========== ===========
Supplemental Disclosures
CASH PAID DURING THE YEAR FOR:
Interest $176,811 $102,757 $64,756
========== ========== ===========
Income taxes $1,337,617 $4,265,720 $ 3,522,525
========== ========== ===========
See notes to consolidated financial statements.
9
MEDEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1 ACCOUNTING POLICIES
The Company designs, manufactures, assembles and markets a broad range of
products for the diagnosis and treatment of patients receiving care in
hospitals, alternative health care facilities and the home health care
environment. The Company's products are used by clinicians for fluid and drug
infusion, invasive pressure monitoring, angiographic imaging and coronary
angioplasty. The Company's significant accounting policies are as follows:
Principles of Consolidation - The consolidated financial statements include the
accounts of all subsidiaries and all significant intercompany transactions and
balances have been eliminated.
Revenue Recognition - Revenue from product sales is recognized at the time
products are shipped.
Translation of Foreign Currencies - The Company has operations in three foreign
countries (see Note 7). The assets and liabilities of these foreign
subsidiaries are translated at the exchange rates in effect at the balance
sheet date. Revenues and expenses are translated at the average exchange rates
in effect during the year. Translation gains and losses are not included in
income but are accumulated and reported as a separate component of shareholders
equity. Foreign currency exchange gains (losses) arise primarily from the
translation of intercompany balances that are expected to be repaid in the
foreseeable future and from forward exchange contracts and are included in
other income (expense) in the amount of approximately $312,000, $241,000 and
$(454,000) in fiscal 1995, 1994 and 1993, respectively. The Company enters into
forward exchange contracts to hedge against foreign currency fluctuations on
certain intercompany transactions. Transactions hedged with forward exchange
contracts will come due at the approximate time that forward exchange contracts
held expire. Realized and unrealized gains and losses on these contracts are
included in net income. At June 30, 1995 and 1994 the Company had contracts of
approximately $720,000 maturing from July 26, 1995 through August 30, 1995 and
approximately $740,000 maturing from July 25, 1994 through August 30, 1994,
respectively, to exchange pounds sterling for United States dollars.
Investments - Investments consist primarily of tax-exempt interest bearing
securities with remaining maturities of less than one year. Investments are
classified as held-to-maturity and therefore are recorded at amortized cost
which approximates market value.
Inventories - The Company values its inventories at lower of cost or market
using the first-in, first-out method.
Research and Development - Research and development expenditures are charged to
operations in the year incurred.
Advertising Costs - Advertising costs primarily relate to product catalogues and
product literature. The cost of product catalogues is capitalized and amortized
over the period in which future benefits are expected. The cost of product
literature is expensed as incurred. Total advertising expenses were $712,000,
$1,112,000, and $1,241,000 in 1995, 1994 and 1993, respectively.
Depreciation - Property, plant, and equipment are depreciated using the
straight-line method based on estimated useful lives as follows:
ESTIMATED USEFUL
ASSETS LIVES (YEARS)
Land improvements 20
Buildings 20-40
Machinery and equipment 2-10
Dies and molds 5
Furniture and data
processing equipment 2-10
Depreciation expense for fiscal years 1995, 1994 and 1993 was $4,159,000,
$4,293,000 and $3,807,000, respectively.
Interest Capitalization - The Company capitalizes interest costs associated with
the construction of plant and equipment. During fiscal years 1995, 1994 and
1993, the Company incurred total interest costs of approximately $306,000,
$335,000 and $282,000 of which approximately $129,000, $232,000 and $217,000
were capitalized, respectively.
Cost in Excess of Fair Value of Net Assets Acquired - The cost in excess of fair
value of tangible net assets acquired is being amortized on a straight-line
basis over lives ranging from 20 to 40 years. The Company evaluates the
carrying value of these intangible assets for possible impairment by assessing
whether the undiscounted forecasted net operating cash flows of the business
acquired over the remaining life of the assets is adequate to recover the
carrying value of the assets.
Major Customer - The Company had sales to a domestic distributor in fiscal 1995,
1994 and 1993 which represent approximately 12%, 11% and 11% of the Company's
total net sales, respectively.
Income Taxes - Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
on a prospective basis. Accordingly, deferred income taxes are provided for the
temporary differences between the financial reporting and the tax basis of the
Company's assets and liabilities by applying enacted statutory tax rates
applicable to future years to the book tax basis differences. In fiscal 1993,
income taxes were provided under Accounting Principles Board Opinion No. 11.
10
Net Income Per Common Share - Net income per common share is based on the
weighted average number of common and common equivalent shares outstanding
during the year. Common share equivalents represent the dilutive effect of the
assumed exercise of certain outstanding stock options.
Cash and Equivalents - The Company considers all highly liquid investments
with original maturities of three months or less at the date of purchase to
be cash equivalents. Cash equivalents at June 30, 1995 and 1994 consist of
tax-exempt mutual funds and commercial paper.
Reclassifications - Certain reclassifications have been made to prior years
amounts to conform with the classifications of such amounts for fiscal 1995.
2 RESTRUCTURING COSTS
Restructuring costs recorded in fiscal 1995 represent the costs associated with
closing the Company's Denver operations and integrating all functions and
product lines into other company locations. The Company originally estimated
that the restructuring costs would be approximately $3,200,000 consisting
primarily of employee severance costs and other exit costs. At June 30, 1995
approximately $2,635,000 of restructuring costs have been recognized and the
Company estimates that the remaining costs to be recognized in fiscal 1996 will
be $565,000. Of the $2,635,000 of costs recognized at June 30, 1995, $480,000
remains to be paid and is included in accrued restructuring cost. The amounts
included in accrued restructuring cost along with costs to be recognized in
fiscal 1996 will be funded with available cash and investments on hand and cash
generated from operations during fiscal 1996.
Severance of 177 employees at the Denver operations resulted in $896,000 of
restructuring costs, all of which has been paid at June 30, 1995. The
difference between the original severance accrual of $942,000 and actual
severance costs incurred was recognized in restructuring costs in the fourth
quarter of fiscal 1995. The remaining restructuring costs of $1,739,000
represent exit costs consisting primarily of noncancellable lease costs net
of estimated sub-lease payments, costs of hiring, training and relocating
personnel, travel costs, costs of moving equipment and inventory, and facility
shutdown costs.
The restructuring costs incurred in fiscal 1993 represent the costs associated
with a series of management changes and a reorganization of the Company's sales
and marketing operations. A portion of the costs are being paid over a three
year period.
3 LONG-TERM DEBT, BANK NOTES, AND LEASES
Long-term debt consists of the following:
June 30 1995 1994
MORTGAGES PAYABLE:
Industrial Revenue Bond, average interest rate of
6.09%, due in variable yearly principal installments
through June 2002, secured by a $3,400,000
bank letter of credit $3,150,000 $3,500,000
9% Industrial Revenue Bond, due in monthly
installments of $13,500 (including interest) through
November 2001, collateralized by first mortgage on
land and buildings and security interest in certain
equipment with an approximate net book
value of $1,700,000 778,679 866,271
2% Ohio Development Financing Commission Loan,
due in monthly installments of $2,705 (including
interest) through October 1996, collateralized by
second mortgage on land and buildings 37,397 68,768
Capital leases and other, 8.4% to 11.9%, due in
monthly installments through March 1996 and
collateralized by certain equipment 10,222 183,131
---------- ----------
Total 3,976,298 4,618,170
Less current portion 513,066 643,143
---------- ----------
Long-term debt $3,463,232 $3,975,027
========== ==========
11
Long-term debt as of June 30, 1995 matures as follows:
June 30
1996 $ 513,066
1997 510,222
1998 539,664
1999 575,420
2000 607,185
Thereafter 1,230,741
----------
Total $3,976,298
==========
At June 30, 1995, the Company had available a $5,000,000 line of credit and a
$3,400,000 letter of credit. The line of credit bears interest at LIBOR plus
one half percent and expires in May, 1996. The letter of credit can only be
used to pay principal and interest on the Industrial Revenue Bond maturing in
2002. Any borrowings made under the letter of credit bear interest at the
bank's prime rate plus two percent and are secured by land and buildings with
an approximate net book value of $3,500,000. The letter of credit agreement
automatically renews every month through the maturity of the bond, subject to a
13-month notification from the issuer of their intention not to renew the
letter. No borrowings were made from the line of credit or the letter of credit
during fiscal 1995.
The Company leases buildings, equipment, furniture and automobiles in the
United States and Europe under operating leases. Future minimum rental
payments required under such leases that have initial or remaining
noncancellable lease terms in excess of one year as of June 30, 1995 are as
follows:
June 30
1996 $1,477,070
1997 1,311,853
1998 915,941
1999 282,184
2000 195,975
Thereafter 1,547,215
----------
Total $5,730,238
==========
Total rental expense was approximately $2,097,323, $1,906,000 and $1,413,000
for fiscal 1995, 1994 and 1993, respectively.
4 STOCK OPTIONS
Incentive Stock Option Plan - Pursuant to an incentive stock option plan, as
previously approved by the shareholders, the Company reserved 1,050,000 shares
of common stock for issuance to qualified key employees. Under the plan,
options may be granted at a price equal to the fair market value at the date of
grant. Options expire after five years and are exercisable at date of grant.
Expiration dates on options outstanding at June 30, 1995 range from August 1995
to February 1999.
Employees Stock Purchase Plan - Pursuant to an employees stock purchase plan,
as amended and approved by the shareholders in fiscal 1995, the Company
reserved 160,000 shares of common stock for issuance to qualified employees.
Under this plan, qualified employees may request options to purchase shares of
common stock, subject to certain limitations contained in the plan, at a price
equal to 87.5% of the fair market value at the date of grant. Options expire
after twenty-seven months and are exercisable at date of grant subject to
certain limitations. Expiration dates on options outstanding at June 30, 1995
range from August 1995 to August 1997.
Non-Employee Director Restricted Stock Option Plans - Pursuant to Non-Employee
Director Restricted Stock Option Plans, as previously approved by the
shareholders, the Company reserved 384,315 shares of common stock for issuance
to directors and directors emeritus not otherwise employed by the Company.
These plans provide for one-time grants of options to purchase shares of common
stock at a price equal to the fair market value at the date of grant. Options
are exercisable at the date of grant subject to certain restrictions contained
in the plan and expire after ten years; however, the options shall be exercised
by the optionee only while serving as a director or director emeritus of the
Company or a limited time thereafter. Expiration dates on options outstanding
range from May 1997 to August 2003.
12
Key Employee Nonstatutory Stock Option Plan - Pursuant to a key employee stock
option plan, as previously approved by the shareholders, the Company reserved
1,000,000 shares for issuance to certain key employees. Under this plan,
options may be granted at a price equal to the fair market value at the date of
grant. The options shall be exercised by the optionee only while employed by
the Company or a limited time thereafter. Additionally, no options shall be
exercised until one year after the date of grant. At the end of one year from
the date of grant, 20 percent of the options granted, and each year thereafter
an additional 20 percent, shall be eligible to be exercised, subject to certain
vesting requirements. Each year the stock option committee of the Company's
Board of Directors shall set achievement goals for the Company and its
operating divisions. To the extent that these goals are not met, certain
options otherwise exercisable shall not vest and shall become forfeited.
Additionally, all options expire after ten years from the date of grant if not
previously exercised or forfeited. At June 30, 1995, expiration dates on
options outstanding range from December 2001 to November 2003.
Executive Stock Option Plan - Pursuant to an executive stock option plan
approved by the shareholders in fiscal 1995, the Company reserved 300,000
shares for issuance to certain key employees. Under this plan, options may be
granted at prices equal to the fair market value at the date of grant. Options
expire after five years and are exercisable six months after the date of grant.
At June 30, 1995, expiration dates on options outstanding range from August
1999 to February 2000.
The following summarizes stock option transactions for all effective
plans during the three years ended June 30, 1995:
OPTION PRICE
NUMBER OF ------------------------------------
OPTIONS SHARES PER SHARE TOTAL
Outstanding at June 30, 1992 1,012,224 $5.63 -- $33.00 $22,163,459
Granted 175,325 $13.28 -- $24.00 2,946,049
Exercised (109,505) $5.63 -- $29.70 (895,902)
Forfeited (158,455) $14.85 -- $33.00 (4,573,111)
--------- ----------
Outstanding at June 30, 1993 919,589 $5.63 -- $33.00 19,640,495
Granted 327,378 $10.58 -- $19.13 4,160,053
Exercised (101,081) $8.86 -- $29.70 (1,055,331)
Forfeited (195,650) $10.35 -- $33.00 (5,395,631)
--------- ----------
Outstanding at June 30, 1994 950,236 $5.63 -- $33.00 17,349,586
Granted 134,271 $8.75 -- $13.75 1,586,760
Exercised (23,576) $7.63 -- $29.70 (230,409)
Forfeited (181,640) $10.35 -- $33.00 (4,497,393)
--------- ----------
Outstanding at June 30, 1995 879,291 $5.63 -- $33.00 $14,208,544
========= ==========
13
The following summarizes the status of shares reserved and options outstanding
as of June 30, 1995:
Shares presently exercisable 685,891
Shares not presently exercisable 193,400
--------
Total options outstanding 879,291
Available for future grants 1,326,667
---------
Shares reserved for exercise
of options 2,205,958
=========
In 1995, 1994 and 1993, certain employees of the Company exchanged,
2,163, 14,595 and 20,196 common shares outstanding and owned by the employees
for 2,600, 17,430 and 70,291 shares issued related to stock options exercisable
under the incentive stock option plan. Stock issued is included as outstanding
shares, while stock received in the exchange is included as treasury shares.
For certain stock options, the Company is permitted a tax deduction
equal to the difference between the option price on the date of grant and the
fair market value of the stock on the date an employee exercises such stock
option. In 1995, 1994 and 1993 the Company received a tax benefit of $6,280,
$42,180 and $81,622, respectively, related to such sales, and the benefit was
recorded as a credit to additional paid-in capital. In 1995 the Company amended
prior years Federal income tax returns to correct deductions originally filed
related to such sales. The tax benefit of $457,532 related to the amended
returns was recognized in fiscal 1995 and recorded as a credit to additional
paid-in capital.
5 PROFIT SHARING AND RETIREMENT PLANS
The Company has a deferred profit sharing plan and a 401(k) savings plan
covering substantially all of its domestic employees. Contributions to the
deferred profit sharing plan are determined at the discretion of the Board of
Directors, and are funded annually. Contributions to the 401(k) savings plan
are determined based upon a percentage of the employees' elective contributions
up to specified levels.
Total profit sharing and 401(k) expense for fiscal 1995, 1994 and 1993
was approximately $152,000, $726,000 and $645,000, respectively. The profit
sharing and 401(k) amounts unpaid and included in accrued liabilities at June
30, 1995, 1994 and 1993 were approximately $11,000, $593,000 and $515,000,
respectively.
6 INCOME TAXES
The provisions for income taxes are as follows:
Year Ended June 30 1995 1994 1993
CURRENT EXPENSE:
United States Federal $ 147,000 $ 1,959,000 $ 2,938,000
Foreign 1,505,000 399,000 142,000
State and local 76,000 315,000 425,000
----------- ----------- -----------
Total 1,728,000 2,673,000 3,505,000
----------- ----------- -----------
DEFERRED EXPENSE (BENEFIT):
United States Federal (575,000) 1,280,000 (967,000)
Foreign (35,000) 82,000 154,000
State and local (21,000) 72,000 (109,000)
----------- ------------ -----------
Total (631,000) 1,434,000 (922,000)
----------- ------------ -----------
Total provision $ 1,097,000 $ 4,107,000 $ 2,583,000
=========== ============ ===========
The sources of income (loss) before income taxes and cumulative effect of
change in accounting principle are as follows:
Year Ended June 30 1995 1994 1993
United States $ (770,174) $ 9,401,486 $6,322,042
Foreign 3,623,058 1,080,682 496,459
---------- ---------- ----------
Total $2,852,884 $10,482,168 $6,818,501
========== ========== ==========
14
The differences between the Company's effective tax rate and the statutory
Federal income tax rate are as follows:
Year Ended June 30 1995 1994 1993
Amount based on statutory rate $ 970,000 $ 3,569,000 $ 2,318,000
State and local taxes, net of Federal benefit 36,000 255,000 209,000
Foreign Taxes 1,470,000 481,000 296,000
Foreign tax credit including tax rate differential (1,414,000) (268,000) (143,000)
Other 35,000 70,000 (97,000)
---------- ---------- ----------
Total $1,097,000 $4,107,000 $2,583,000
========== ========== ==========
Effective tax rate 38.5% 39.2% 37.9%
========== ========== ==========
The significant components of the Company's net deferred tax asset at June 30,
1995 and 1994 are as follows:
DEFERRED TAX ASSETS: 1995 1994
Net operating loss carryforward $ 1,682,660 $ 1,745,252
Foreign tax credit carryforward 1,147,817 780,022
Uniform inventory capitalization 539,221 357,511
Excess foreign tax credits
utilized for books 415,696 332,350
Vacation accrual 201,670 249,948
Trade receivable allowances 225,577 196,663
Restructuring costs 267,699 137,700
Sales returns and allowances 224,210 179,270
Other 604,944 498,482
---------- ----------
Total 5,309,494 4,477,198
Less valuation allowance (966,819) (1,040,651)
---------- ----------
Deferred tax assets 4,342,675 3,436,547
---------- ----------
DEFERRED TAX LIABILITIES:
Accelerated depreciation 1,265,648 1,048,602
Other 912,699 835,756
---------- ----------
Deferred tax liabilities 2,178,347 1,884,358
---------- ----------
NET DEFERRED TAX ASSET $ 2,164,328 $ 1,552,189
========== ==========
The Company has Federal net operating loss carryforwards of approximately
$4,949,000 that expire from fiscal 1998 through fiscal 2005 and foreign tax
credit carryforwards for Federal income tax purposes that expire from fiscal
1998 through fiscal 2000.
The valuation allowance decreased during fiscal 1995 by $73,832 primarily due to
the identification of additional foreign source income which will be used to
realize foreign tax credit carrybacks which had previously been reserved. During
fiscal 1994 the valuation allowance was reduced by $2,208,332 due to the
Company's adoption of a plan to legally combine the domestic based subsidiaries
which will allow the Company to utilize net operating loss carryforwards to
reduce future Federal tax liabilities of the combined entity. Since the net
operating loss carryforwards were acquired as a part of a previous acquisition,
the Company recorded a corresponding reduction in cost in excess of fair value
of net assets acquired for the same amount.
At June 30, 1995, no provision for Federal income taxes was recorded for
approximately $784,000 of undistributed earnings of certain foreign subsidiaries
as remittance of the earnings would be treated as a tax-free liquidation or
would be substantially offset by foreign tax credits.
15
7 FOREIGN OPERATIONS
The Company's operations include assembly and distribution centers in the
United Kingdom and distribution centers in Germany and France. Information
about the Company's operations in different geographic areas is presented
below, with the United Kingdom, Germany and France operations collectively
shown as Europe:
FISCAL 1995 UNITED STATES EUROPE ELIMINATIONS TOTAL
Sales:
Unaffiliated customers $ 65,158,275 $ 29,997,783 $ 95,156,058
Between geographic areas 5,693,820 $(5,693,820)
------------ ------------ ----------- ------------
Net sales $ 70,852,095 $ 29,997,783 $(5,693,820) $ 95,156,058
============ ============ ============ ============
Net income (loss) $ (176,432) $ 1,932,316 $ 1,755,884
============ ============ ============
Identifiable assets at year-end $ 71,331,370 $ 19,170,181 $ 90,501,551
============ ============ ============
FISCAL 1994
Sales:
Unaffiliated customers $ 73,679,731 $ 21,898,315 $ 95,578,046
Between geographic areas 5,434,972 $(5,434,972)
------------ ------------ ------------ ------------
Net sales $ 79,114,703 $ 21,898,315 $(5,434,972) $ 95,578,046
============ ============ ============ ============
Net income $ 6,164,093 $ 566,902 $ 6,730,995
============ ============ ============
Identifiable assets at year-end $ 73,780,255 $ 15,331,448 $ 89,111,703
============ ============ ============
FISCAL 1993
Sales:
Unaffiliated customers $72,473,943 $19,821,496 $ 92,295,439
Between geographic areas 4,879,053 $(4,879,053)
------------ ------------ ------------ ------------
Net sales $77,352,996 $19,821,496 $(4,879,053) $ 92,295,439
============ ============ ============ ============
Net income (loss) $ 4,430,182 $ (194,681) $ 4,235,501
============ ============ ============
Identifiable assets at year-end $71,791,369 $12,892,058 $ 84,683,427
============ ============ ============
Substantially all the sales between geographic areas are based on manufacturing
cost plus allowances for freight, other expenses, and a reasonable profit to
the seller.
Export sales included in the United States sales approximated 5% of
total net sales in fiscal 1995, 1994 and 1993. The majority of such sales were
to Canada.
8 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value because of the short term maturity of
these instruments. The fair value and carrying amounts of long-term debt at
June 30, 1995 was $4,100,000 and $3,976,000, respectively. Fair values are
based on current quoted interest rates of similar financial instruments with
like maturities.
9 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
For Fiscal Year Ended: 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FULL YEAR
June 30, 1995
Net sales $23,082,139 $22,376,351 $24,647,101 $25,050,467 $95,156,058
Gross margin 10,703,468 9,678,676 11,852,125 10,779,497 43,013,766
Net income (loss) 1,317,662 (648,418) 1,073,679 12,961 1,755,884
Earnings per share data-
net income $0.21 ($0.10) $0.17 $0.00 $0.28
June 30, 1994
Net sales $22,750,705 $23,668,259 $24,884,939 $24,274,143 $95,578,046
Gross margin 10,833,490 12,116,375 12,809,550 11,998,299 47,757,714
Income before cumulative effect
of change in accounting principle 1,246,976 1,503,216 1,798,757 1,826,219 6,375,168
Net income 1,602,803 1,503,216 1,798,757 1,826,219 6,730,995
Earnings per share data:
Income before cumulative effect
of change in accounting principle $0.20 $0.24 $0.29 $0.30 $1.03
Net income $0.26 $0.24 $0.29 $0.30 $1.09
16
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND DIRECTORS OF MEDEX, INC.:
We have audited the accompanying consolidated balance sheets of Medex, Inc.
and subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Medex, Inc. and
subsidiaries as of June 30, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 1 of the Notes to Consolidated Financial Statements,
effective July 1, 1993, the Company changed its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
/s/ Deloitte & Touche LLP
Columbus, Ohio
August 10, 1995
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
1995 Stock Price 1994 Stock Price
High Low High Low
First Quarter $14.25 $11.25 $14.25 $11.13
Second Quarter 17.75 12.25 17.25 11.25
Third Quarter 13.75 10.00 19.63 16.00
Fourth Quarter 12.75 9.50 17.25 11.25
The common shares of the Company are traded in the over-the-counter market and
are identified by the NASDAQ symbol "MDEX."
The source of the stock price information is NASDAQ and represents the high
and low last transaction price as reported by the NASDAQ National Market System.
The Company paid cash dividends in fiscal years 1995 and 1994 of $982,227
($.16 per share) and $913,621 ($.15 per share), respectively. There were
approximately 1,375 shareholders of record as of August 8, 1995. The Company
intends to continue to pay cash dividends on its common stock, subject to the
Company's earnings, financial condition, capital requirements and such other
factors as the Board of Directors deems relevant. It is currently intended that
the amount of cash dividends will continue as a low percentage of earnings, and
that the Company will continue its policy of retaining the major portion of
earnings for use in the Company's business.