Executive Summary

McGAW I.V. SOLUTIONS AND SET BUSINESS TOTALED $135.5 MIL. IN 1992, according to figures in McGaw's Jan. 26 preliminary prospectus for an initial public offering. Sales of intravenous solutions and sets accounted for 43.8% of total 1992 revenues of $309.4 mil., the prospectus says. McGaw provides its intravenous solutions and related equipment "to over 3,600 hospitals and over 1,500 alternate site health care providers in the United States," the company said. Nutrition solutions contributed another 22.3% ($69 mil.) of the company's business in 1992, the prospectus states. The balance of revenues came form infusion pumps and other equipment, and from "other pharmacy products" such as premixed antibiotics and the HyperFormer computerized compounding and filling system. McGaw also operates a pharmacy admixture service, which was piloted in 1991. The business did not contribute significantly to 1992 revenues and incurred $9.2 mil. in operating losses during the year. The firm anticipates that the service also will not be profitable in 1993. McGaw is going public to help cut back the long-term debt from its 1990 emergence from Kendall. The company's objective is to reduce debt of $198.6 mil. to $100.3 mil. McGaw is selling 10 mil. shares at an estimated price of $11.50 per share. An additional 1.3 mil. shares are to be sold by certain stockholders of McGaw. The bulk of McGaw's debt is the result of the acquisition of the firm in October 1990 from the Kendall Company for approximately $210 mil in cash by an investor group led by Caremark founder James Sweeney and backed by Alex. Brown and Donaldson, Lufkin and Jenrette Securities ("The Pink Sheet" Aug. 6, 1990, T&G-12). Last spring, the company issued $150 mil. in notes, primarily to refinance debt resulting from the acquisition. The public offering and subsequent debt reduction should help McGaw improve its bottom line by lessening interest expense. For the year ended Dec. 31, the company had interest expense of $22.2 mil. and a net loss of $18 mil. The loss, which compares to net income of $1.2 mil. in 1991, also includes $7.6 mil. of deferred financing costs related to the April refinancing of acquisition debt and the write-off of $4.6 mil. of intangible assets recorded at the time of the acquisition. Hospital sales accounted for 76.1% of McGaw's business in 1992, the prospectus notes. One key hospital contract, with the Veterans Affairs Department, accounted for 10% of McGaw's 1992 revenues. The contract expires in October and will be subject to competitive bidding. McGaw has entered into "alliances with other companies to obtain or develop new products for marketing and sale through McGaw's domestic distribution network and to gain greater access to international markets." DuPont Merck is one of the companies participating in an agreement with McGaw.