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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 1994 Commission File Number: 1-8147
MEDIQ INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 51-0219413
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE MEDIQ PLAZA, PENNSAUKEN, NEW JERSEY 08110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (609) 665-9300
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 ________
As of August 5, 1994, there were 17,729,014 shares of Common Stock, par
value $1.00 per share and 6,417,688 shares of Preferred Stock, par
value $.50 per share, outstanding.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1994
PART I. FINANCIAL INFORMATION:
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ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Statements of Operations --
Three and Nine Months ended June 30, 1994 and 1993
(Unaudited).................................................................................. 4
Condensed Consolidated Balance Sheets --
June 30, 1994 (Unaudited) and September 30, 1993............................................. 5
Condensed Consolidated Statements of Cash Flows--
Nine Months ended June 30, 1994 and 1993
(Unaudited).................................................................................. 6
Notes to Condensed Consolidated Financial
Statements (Unaudited)....................................................................... 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................ 10-13
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PART II. OTHER INFORMATION:
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ITEM 5. OTHER INFORMATION.............................................................................. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................... 18
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2
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MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1994
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
3
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------------
1994 1993 1994 1993
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues........................................................ $ 43,043 $ 42,902 $ 128,490 $ 134,599
Costs and expenses:
Operating..................................................... 22,553 20,930 65,543 67,412
Selling and administrative.................................... 12,656 11,336 34,991 34,072
Depreciation and amortization................................. 7,091 6,112 20,875 17,942
--------- --------- ----------- -----------
42,300 38,378 121,409 119,426
--------- --------- ----------- -----------
Operating income................................................ 743 4,524 7,081 15,173
Other (charges) credits:
Interest expense.............................................. (6,077) (5,773) (18,212) (17,399)
Equity in earnings of unconsolidated subsidiaries............. 1,044 1,337 3,056 3,269
Equity participation.......................................... 63 1,073 116 3,383
Other -- net.................................................. 339 91 3,074 518
--------- --------- ----------- -----------
Income (loss) from continuing operations before income tax
expense (benefit) and extraordinary charge...................... (3,888) 1,252 (4,885) 4,944
Income tax expense (benefit).................................... (1,039) 284 (948) 1,485
--------- --------- ----------- -----------
Income (loss) from continuing operations........................ (2,849) 968 (3,937) 3,459
Income from discontinued operations............................. -- 149 -- 838
Extraordinary charge -- early retirement of debt................ -- (615) -- (953)
--------- --------- ----------- -----------
Net income (loss)............................................... $ (2,849) $ 502 $ (3,937) $ 3,344
========= ========= =========== ===========
Earnings per share:
Income (loss) from continuing operations...................... $ (.12) $ .04 $ (.16) $ .14
Income from discontinued operations........................... -- .01 -- .04
Extraordinary charge -- early retirement of debt.............. -- (.03) -- (.04)
--------- --------- ----------- -----------
Net income (loss)............................................. $ (.12) $ .02 $ (.16) $ .14
========= ========= =========== ===========
Weighted average shares outstanding............................. 24,418 24,117 24,373 24,285
========= ========= =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
JUNE 30, SEPT. 30,
1994 1993
----------- -----------
(UNAUDITED) (SEE NOTE)
ASSETS
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Current assets:
Cash and cash equivalents............................................................. $ 5,394 $ 18,123
Accounts receivable -- net............................................................ 40,325 37,152
Inventories........................................................................... 8,064 9,086
Deferred income taxes................................................................. 4,177 --
Prepaid income taxes.................................................................. -- 3,495
Other current assets.................................................................. 7,814 5,303
----------- -----------
Total current assets............................................................... 65,774 73,159
Equity investments...................................................................... 37,864 34,693
Note receivable from MHM................................................................ 11,500 11,500
Rental equipment -- net................................................................. 104,635 107,914
Property, plant and equipment -- net.................................................... 36,792 47,169
Goodwill -- net......................................................................... 42,101 36,865
Net investment in leases................................................................ 28,552 16,156
Other assets............................................................................ 18,914 23,805
----------- -----------
Total assets............................................................................ $ 346,132 $ 351,261
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to financial institutions............................................... $ 5,067 $ 1,434
Accounts payable...................................................................... 8,496 8,757
Accrued expenses...................................................................... 23,460 22,326
Other current liabilities............................................................. 1,087 2,781
Current portion of long-term debt..................................................... 12,072 22,217
----------- -----------
Total current liabilities.......................................................... 50,182 57,515
Senior debt -- recourse................................................................. 124,280 120,162
Senior debt -- nonrecourse.............................................................. 26,699 25,382
Subordinated debt....................................................................... 86,229 86,229
Deferred income taxes................................................................. 11,425 9,225
Other liabilities..................................................................... 7,619 8,174
Stockholders' equity.................................................................... 39,698 44,574
----------- -----------
Total liabilities and stockholders' equity.............................................. $ 346,132 $ 351,261
=========== ===========
</TABLE>
Note: The balance sheet at September 30, 1993 has been condensed from the
audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements
5
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MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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NINE MONTHS ENDED
JUNE 30,
--------------------
1994 1993
--------- ---------
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Cash Flows From Operating Activities:
Net income (loss)........................................................................ $ (3,937) $ 3,344
Adjustments to reconcile net income (loss) to net cash provided by operating
activities............................................................................ 13,729 10,267
--------- ---------
Net cash provided by operating activities................................................ 9,792 13,611
Cash Flows From Investing Activities:
Proceeds from sale of subsidiaries and assets............................................ 1,089 9,575
Acquisitions............................................................................. (3,808) (1,413)
Purchase of rental equipment............................................................. (5,415) (8,239)
Purchase of property, plant and equipment................................................ (1,126) (4,486)
Proceeds from sale of investments........................................................ 1,948 --
Other.................................................................................... 1,243 1,037
--------- ---------
Net cash used in investing activities.................................................... (6,069) (3,526)
Cash Flows From Financing Activities:
Borrowings............................................................................... 11,369 148
Debt repayments.......................................................................... (26,298) (12,203)
Dividends................................................................................ (1,921) (1,267)
Proceeds from exercise of stock options.................................................. 398 366
--------- ---------
Net cash used in financing activities.................................................... (16,452) (12,956)
--------- ---------
Decrease in cash and cash equivalents...................................................... (12,729) (2,871)
Cash and Cash Equivalents:
Beginning balance........................................................................ 18,123 7,025
--------- ---------
Ending balance........................................................................... $ 5,394 $ 4,154
========= =========
Supplemental disclosure of cash flow information:
Interest paid............................................................................ $ 15,555 $ 16,362
========= =========
Income taxes refunded.................................................................... $ 2,715 $ 943
========= =========
Supplemental disclosure of non-cash investing and financing activities:
Equipment financed with debt and capital leases.......................................... $ 8,563 $ 16,590
========= =========
Liabilities assumed/incurred in connection with acquisitions............................. $ 7,663 $ --
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
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MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1994, the condensed
consolidated statements of operations for the three and nine months ended June
30, 1994 and 1993, and the condensed consolidated statements of cash flows for
the nine months then ended have been prepared by the Company, without audit. In
the opinion of management, all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at June 30, 1994 and for all periods presented have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's September 30, 1993 Annual Report on Form 10-K.
The results of operations for the period ended June 30, 1994 are not necessarily
indicative of the operating results for the full year.
NOTE B -- INVENTORIES
Inventories which consist primarily of parts and supplies are stated at the
lower of cost (first-in, first-out method) or market.
NOTE C -- INCOME TAXES
Effective October 1, 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 three and nine month periods ended June 30,
1994.
NOTE D -- RENTAL EQUIPMENT AND PROPERTY, PLANT AND EQUIPMENT
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JUNE 30, SEPTEMBER 30,
1994 1993
----------- -------------
(IN THOUSANDS)
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Rental equipment.................................................... $ 171,255 $ 161,707
Less accumulated depreciation and amortization...................... 66,620 53,793
----------- -------------
$ 104,635 $ 107,914
Property, plant and equipment:
Machinery and equipment........................................... $ 45,907 $ 41,369
Building and improvements......................................... 20,028 31,296
Land.............................................................. 2,200 2,200
----------- -------------
68,135 74,865
Less accumulated depreciation and amortization...................... 31,343 27,696
----------- -------------
$ 36,792 $ 47,169
=========== ============
</TABLE>
Depreciation and amortization expense related to rental equipment for the
nine months ended June 30, 1994 and 1993 was $13,630,000 and $11,282,000,
respectively. Depreciation and amortization expense related to property, plant
and equipment for the nine months ended June 30, 1994 and 1993 was $4,898,000
and $4,804,000, respectively.
7
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MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE E -- EQUITY INVESTMENTS
As of June 30, 1994, the Company's ownership interest in NutraMax Products,
Inc. and PCI Services, Inc. was 47.4% and 42%, respectively.
Summarized income statement information for NutraMax and PCI is presented
below.
NUTRAMAX PRODUCTS, INC.
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THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------ ------------------------------
JULY 2, JUNE 30, JULY 2, JUNE 30,
1994 1993 1994 1993
-------------- -------------- -------------- --------------
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Net sales.......................... $ 15,399,000 $ 7,608,000 $ 40,577,000 $ 22,480,000
Gross profit....................... 4,808,000 2,958,000 12,696,000 9,182,000
Net income......................... 1,185,000 1,121,000 2,957,000 2,928,000
Company's share of net income...... 562,000 546,000 1,409,000 1,442,000
</TABLE>
PCI SERVICES, INC.
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<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1994 1993 1994 1993
-------------- -------------- -------------- --------------
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Net revenue........................ $ 31,427,000 $ 29,026,000 $ 89,757,000 $ 80,384,000
Gross profit....................... 6,364,000 6,566,000 17,971,000 16,843,000
Net income......................... 1,146,000 1,883,000 3,922,000 4,271,000
Company's share of net income...... 482,000 791,000 1,647,000 1,827,000
</TABLE>
NOTE F -- LONG TERM DEBT
In January 1994, the Company retired $11.6 million of its 6% convertible
subordinated debentures representing the remaining outstanding balance.
The indenture pursuant to which the Company's 7 1/4% Convertible
Subordinated Debentures due 2006 were issued contains a provision requiring
the Company to offer to repurchase 15% of the outstanding debentures if the
Company's 'net worth' (as defined in the indenture), as of the last day of
two consecutive fiscal quarters, is $40.0 million or less. The Company's net
worth as of June 30, 1994 was $39.7 million. Should the Company's net worth
not exceed $40.0 million at September 30, 1994, the Company would be required
to make an offer to repurchase 15%, or $11.3 million of the debentures.
Under the terms of the indenture, the repurchase obligation which would
otherwise be required is deemed to be satisfied to the extent of debentures
previously retired by the Company. In fiscal 1988, the Company repurchased
and retired $23.3 million principal amount of debentures. In addition,
based upon anticipated results of operations and asset sales, the Company
does not anticipate that the Company's net worth will be less than $40.0
million as of September 30, 1994.
8
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MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE G -- SALE OF ASSETS
In December 1993, the Company recorded a pretax gain of $1.9 million ($1.4
million net of taxes), which is included in 'Other credits', as a result of the
sale of a portion of its investment in New West Eyeworks, Inc. which completed
an initial public offering in December 1993. In connection with such offering,
the Company received cash in the amount of $1.9 million and stock with a fair
market value of $1.0 million.
NOTE H -- SUBSEQUENT EVENT
On August 4, 1994, the Company completed the merger of its subsidiary,
MEDIQ Equipment and Maintenance Services, Inc. and a subsidiary of MMI Medical,
Inc. ('MMI') (NASDAQ:MMIM). Under the terms of the merger agreement, the
Company received 2,050,000 shares of MMI common stock, representing
approximately a 40% equity interest in MMI, and warrants to purchase at $6.25
per share an additional 325,000 shares of MMI common stock. It is anticipated
that the Company will distribute the 2,050,000 shares of MMI common stock to
its shareholders in the future.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion addresses the financial condition of the Company
as of June 30, 1994 compared with September 30, 1993 and its results of
operations for the three and nine months ended June 30, 1994 and 1993. This
discussion should be read in conjunction with the Management's Discussion and
Analysis section included in the Company's Annual Report on Form 10-K (pages
11-17) to which the reader is directed for additional information.
Prior year segment information has been restated to conform to the present
year presentation.
RESULTS OF OPERATIONS
On August 4, 1994, the Company completed the merger of its subsidiary,
MEDIQ Equipment and Maintenance Services, Inc. ('MEMS') and a subsidiary of MMI
Medical, Inc. ('MMI'). Under the terms of the merger agreement, the
Company received 2,050,000 shares of MMI common stock, representing
approximately a 40% equity interest in MMI, and warrants to purchase at $6.25
per share an additional 325,000 shares of MMI common stock. It is anticipated
that the Company will distribute the 2,050,000 shares of MMI common stock to
MEDIQ stockholders in the future. From the date of the merger, the operations
of MEMS will not be included in the Company's results of operations. Instead,
the Company will include its 40% share of MMI's earnings as part of the
Company's equity in the earnings of unconsolidated subsidiaries in the
Company's results of operations. The merger of MEMS and MMI is not anticipated
to have a material impact on the Company's results of operations or cash flows.
Third Quarter 1994 Compared with Third Quarter 1993
Revenues were $43.0 million for the third quarter of fiscal 1994, as
compared to $42.9 million in the prior year quarter. MEDIQ/PRN's revenues were
$18.1 million, as compared to 1993 revenues of $18.9 million. MEDIQ/PRN
continued expansion into the home healthcare, nursing home and alternative care
markets resulting in higher revenues from these activities which were offset by
decreased revenues from acute care hospitals as a result of softness in that
sector of the industry. Revenues from the Diagnostic Imaging Services Group
increased to $12.8 million, as compared to $12.1 million in the prior year
quarter. This segment experienced an increase in procedures, particularly
ultrasound and nuclear imaging services, as a result of geographic expansion
through acquisitions, while reductions in third party reimbursement rates
adversely impacted revenues for the quarter. Revenues from MEMS increased 7%
to $4.5 million as a result of continued growth in its Asset Management
Program and new services for MRI equipment. Revenues from the Company's other
operating activities were consistent with the prior year quarter at $7.0
million.
Operating income decreased to $.7 million, or 2% of revenues for the third
quarter of fiscal 1994, as compared to $4.5 million, or 11% of revenues in the
prior year quarter. The decrease in operating income was primarily attributable
to the Diagnostic Imaging Services Group and MEDIQ/PRN. The Diagnostic Imaging
Services Group's operating income decreased $2.2 million reflecting additional
bad debt reserves and additional costs associated with increased volume
combined with reductions in reimbursement rates. The Company has taken steps
to offset the decrease in operating margins by expanding into new geographic
areas, entering new market segments and adding to its product line. MEDIQ/PRN's
operating income decreased $1.8 million as a result of lower revenues from
acute care hospitals and increased operating and depreciation expenses.
The operating loss from MEMS decreased to $.2 million, as compared to $.3
million in the prior year quarter, as a result of increased revenues associated
with its Asset Management Program and new services for MRI equipment. Operating
income increased by $.3 million as a result of reductions in parent company
overhead.
Interest expense increased 5% to $6.1 million for the third quarter of
fiscal 1994 from $5.8 million as a result of increased borrowings associated
with the expansion of MEDIQ/PRN and the Diagnostic Imaging Services Group.
10
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The pretax loss from continuing operations was $3.9 million for the third
quarter of fiscal 1994, as compared to income of $1.3 million in the prior year
quarter. The prior year quarter included $1.1 million of income related to the
issuance of common stock by NutraMax in connection with an acquisition in June
1993.
The Company's equity in earnings of its unconsolidated subsidiaries, PCI
and NutraMax, decreased to $1.0 million from $1.3 million in the prior year
quarter.
Nine Months Ended June 30, 1994 Compared with Nine Months Ended June 30, 1993
Revenues were $128.5 million for the nine months ended June 30, 1994, as
compared to $134.6 million in the prior year period. MEDIQ/PRN's revenues were
$57.9 million, a decrease of $1.6 million from the corresponding period in 1993.
The decrease was primarily attributable to decreased revenues from acute care
hospitals as a result of softness in that sector of the industry, which has been
mitigated by continued expansion into the home healthcare, nursing home and
alternative care markets. Revenues from the Diagnostic Imaging Services Group
increased $.9 million to $35.0 million. This segment experienced an increase in
procedures, particularly ultrasound and nuclear imaging services, as a result of
geographic expansion through acquisitions, while reductions in third party
reimbursement rates adversely impacted revenues. Revenues from MEMS increased
13% to $14.0 million as a result of continued growth in its Asset Management
Program and new services for MRI equipment, partially offset by decreased CT
revenues. Revenues from the Company's other operating activities decreased to
$19.7 million in the current period, as compared to $26.6 million in the prior
year period, primarily attributable to divestitures in 1993.
Operating income decreased to $7.1 million, or 6% of revenues, for the
current period, as compared to $15.2 million, or 11% of revenues, in the prior
year period. The decrease in operating income was primarily attributable to the
Diagnostic Imaging Services Group and MEDIQ/PRN. Operating income from the
Diagnostic Imaging Services Group decreased $5.8 million reflecting additional
bad debt reserves and additional costs associated with increased volume
combined with reductions in reimbursement rates. MEDIQ/PRN's operating income
decreased $4.3 million as a result of lower revenues from acute care hospitals
and increased operating and depreciation expenses. The operating loss from MEMS
decreased $.9 million to $.1 million, as a result of increased revenues
associated with its Asset Management Program and new services for MRI
equipment. Operating income from other operating activities decreased to $.7
million primarily as a result of delays in the start of several new development
projects at Medifac partially offset by the elimination of losses associated
with operations sold in 1993. Operating income increased by $.5 million as a
result of reductions in parent company overhead.
Interest expense increased 5% to $18.2 million for the current period from
$17.4 million as a result of increased borrowings associated with the expansion
of MEDIQ/PRN and the Diagnostic Imaging Services Group.
The pretax loss from continuing operations was $4.9 million for the nine
months ended June 30, 1994, as compared to income of $4.9 million in the prior
year period. In December 1993, the Company recorded a pretax gain of $1.9
million ($1.4 million net of taxes) as a result of the sale of a portion of
its investment in New West Eyeworks, Inc. which completed an initial public
offering in December 1993. In connection with such offering, the Company
received cash in the amount of $1.9 million and stock with a fair market value
of $1.0 million. Pretax income in the prior year included income of $3.4
million, representing an equity participation related to the issuance of common
stock by PCI in December 1992 and NutraMax in June 1993.
The Company's equity in earnings of its unconsolidated subsidiaries, PCI
and NutraMax, was $3.1 million, as compared to $3.3 million in the prior period.
11
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INCOME TAXES
The Company's effective tax rate was disproportionate as compared to the
statutory rate as a result of goodwill amortization, earnings of the Company's
equity investments and the non-recognition of certain operating losses for state
income tax purposes.
Effective October 1, 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 three and nine month periods ended June 30,
1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $9.8 million for the nine months
ended June 30, 1994, as compared to $13.6 million in the prior year period. The
decrease was primarily a result of lower earnings in the current period. As of
June 30, 1994, working capital was $15.6 million, including cash and cash
equivalents of $5.4 million, and availability under lines of credit totalled
approximately $9 million.
Net cash used in investing activities was $6.1 million for the nine months
ended June 30, 1994. Expenditures for acquisitions totalled $3.8 million, of
which $2.8 million related to expansion of the Diagnostic Imaging Services Group
with the balance attributable to an acquisition by MEDIQ/PRN. Capital
expenditures totalled $15.1 million, of which $8.6 million were financed with
long-term debt and capital leases.
Net cash used in financing activities was $16.5 million for the nine months
ended June 30, 1994, and consisted of borrowings of $11.4 million, offset by
repayments of notes payable and long-term debt of $26.3 million, including $11.8
million of 6% convertible subordinated debentures representing the principal
balance outstanding as of their maturity in January 1994 and accrued interest.
In addition, the Company paid quarterly cash dividends totalling $1.9 million
for the nine months ended June 30, 1994.
The indenture pursuant to which the Company's 7 1/4% Convertible
Subordinated Debentures due 2006 were issued contains a provision requiring
the Company to offer to repurchase 15% of the outstanding debentures if the
Company's 'net worth' (as defined in the indenture), as of the last day of
two consecutive fiscal quarters, is $40.0 million or less. The Company's net
worth as of June 30, 1994 was $39.7 million. Should the Company's net worth
not exceed $40.0 million at September 30, 1994, the Company would be required
to make an offer to repurchase 15%, or $11.3 million of the debentures.
Under the terms of the indenture, the repurchase obligation which would
otherwise be required is deemed to be satisfied to the extent of debentures
previously retired by the Company. In fiscal 1988, the Company repurchased
and retired $23.3 million principal amount of debentures. In addition,
based upon anticipated results of operations and asset sales, the Company
does not anticipate that the Company's net worth will be less than $40.0
million as of September 30, 1994.
The Company believes that its existing working capital, anticipated funds
to be generated from operations and the sale of assets, together with existing
credit facilities will be sufficient to meet anticipated operating and capital
needs. Depending upon future growth of the Company's core businesses, additional
financing may be required.
12
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MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1994
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 4, 1994, the Company completed the merger of its subsidiary,
MEDIQ Equipment and Maintenance Services, Inc. ('MEMS') and a subsidiary of MMI
Medical, Inc. ('MMI'). Under the terms of the merger agreement, the Company
received 2,050,000 shares of MMI common stock, representing approximately a
40% equity interest in MMI, and warrants to purchase at $6.25 per share an
additional 325,000 shares of MMI common stock. It is anticipated that the
Company will distribute the 2,050,000 shares of MMI common stock to MEDIQ
stockholders in the future. From the date of the merger, the Company will
include its 40% share of MMI's earnings as part of the Company's equity in the
earnings of unconsolidated subsidiaries in the Company's results of operations.
The undersigned registrant hereby files the required pro forma financial
information pursuant to Item 7(b) of its Form 8-K requirements as related to
the merger of its subsidiary.
The following unaudited pro forma condensed consolidated statements of
operations of the Company for the nine month period ended June 30, 1994 and the
year ended September 30, 1993 give effect to the merger of MEMS and MMI as if it
occurred at the beginning of fiscal 1993. The pro forma condensed consolidated
balance sheet of the Company as of June 30, 1994 gives effect to the merger as
if it occurred on that date.
The pro forma financial information does not necessarily reflect the
results of operations or the financial position of the Company which would have
actually resulted had the event referred to above, or in the notes to the pro
forma financial information, been consummated as of the dates indicated.
13
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MEDIQ INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1994
(in thousands)
<TABLE>
<CAPTION>
MEDIQ LESS: PRO FORMA MEDIQ
HISTORICAL MEMS(3) ADJUSTMENTS PRO FORMA
----------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 128,490 $ 14,008 $ 114,482
Costs and expenses:
Operating................................................... 65,543 11,355 54,188
Selling and administrative.................................. 34,991 1,650 33,341
Depreciation and amortization............................... 20,875 1,114 19,761
----------- --------- -----------
121,409 14,119 107,290
----------- --------- -----------
Operating income.............................................. 7,081 (111) 7,192
Other (charges) credits:
Interest expense............................................ (18,212) (166) (18,046)
Equity in earnings of unconsolidated subsidiaries........... 3,056 -- 200(1) 3,256
Equity participation........................................ 116 -- 116
Other -- net................................................ 3,074 -- 3,074
----------- --------- -----------
Income (loss) from continuing operations before income tax
expense (benefit)........................................... (4,885) (277) (4,408)
Income taxes (benefit)........................................ (948) (86) 14(2) (848)
----------- --------- -----------
Income (Loss) from continuing operations...................... $ (3,937) $ (191) $ (3,560)
=========== ========= ===========
Earnings (Loss) per share from continuing operations.......... $ (0.16) $ (0.15)
=========== ===========
Weighted average shares outstanding........................... 24,373 24,373
=========== ===========
</TABLE>
Notes to Pro Forma Adjustments:
(1) Represents the Company's 40% equity in earnings of MMI. MMI's earnings
were based on unaudited information for the nine months ended April 1994,
adjusted to include MEMS' net loss of $191.000. Anticipated reductions
in expenses derived by economies of scale were not reflected in the
Company's 40% equity interest in MMI.
(2) Represents the tax provision related to the Company's equity in
earnings of MMI.
(3) Obtained from MEMS' unaudited interim financial statements.
14
<PAGE>
MEDIQ INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1993
(in thousands)
<TABLE>
<CAPTION>
MEDIQ LESS: PRO FORMA MEDIQ
HISTORICAL MEMS(3) ADJUSTMENTS PRO FORMA
----------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 174,834 $ 16,875 $ 157,959
Costs and expenses:
Operating................................................... 88,158 14,561 73,597
Selling and administrative.................................. 46,231 2,370 43,861
Depreciation and amortization............................... 24,979 1,224 23,755
----------- --------- -----------
159,368 18,155 141,213
----------- --------- -----------
Operating income.............................................. 15,466 (1,280) 16,746
Other (charges) credits:
Interest expense............................................ (23,347) (264) (23,083)
Equity in earnings of unconsolidated subsidiaries........... 4,343 -- 655(1) 4,998
Equity participation........................................ 3,519 -- 3,519
Other -- net................................................ 2,009 -- 2,009
----------- --------- -----------
Income (loss) from continuing operations before income tax
expense (benefit)............................................. 1,990 (1,544) 4,189
Income taxes (benefit)........................................ (1,624) (506) 45(2) (1,073)
----------- --------- -----------
Income (Loss) from continuing operations...................... $ 3,614 $ (1,038) $ 5,262
=========== ========= ===========
Earnings per share from continuing operations................. $ 0.15 $ 0.22
=========== ===========
Weighted average shares outstanding........................... 24,366 24,366
=========== ===========
</TABLE>
Notes to Pro Forma Adjustments:
(1) Represents the Company's 40% equity in earnings of MMI. MMI's earnings
were based on unaudited information for the twelve months ended July 1993,
adjusted to include MEMS' net loss of $1,038,000. Anticipated reductions
in expenses derived by economies of scale were not reflected in the
Company's 40% equity interest in MMI.
(2) Represents the tax provision related to the Company's equity in
earnings of MMI.
(3) Obtained from MEMS' audited financial statements.
15
<PAGE>
MEDIQ INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1994
(in thousands)
<TABLE>
<CAPTION>
MEDIQ LESS PRO FORMA MEDIQ
HISTORICAL MEMS(2) ADJUSTMENTS PRO FORMA
----------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Assets:
Current Assets
Cash and cash equivalents................................... $ 5,394 $ 550 $ 4,844
Accounts receivable -- net.................................. 40,325 1,630 38,695
Inventories................................................. 8,064 5,871 2,193
Deferred income taxes....................................... 4,177 825 3,352
Other current assets........................................ 7,814 152 7,662
----------- --------- -----------
Total current assets..................................... 65,774 9,028 56,746
Equity investments............................................ 37,864 -- 9,517(1) 47,381
Note receivable from MHM...................................... 11,500 -- 11,500
Rental equipment -- net....................................... 104,635 -- 104,635
Property, plant and equipment -- net.......................... 36,792 3,469 33,323
Goodwill -- net............................................... 42,101 1,097 41,004
Net investment in leases...................................... 28,552 -- 28,552
Other assets.................................................. 18,914 1,011 17,903
----------- --------- -----------
Total Assets.................................................. $ 346,132 $ 14,605 $ 341,044
=========== ========= ===========
Liabilities and Stockholders' Equity:
Current Liabilities
Notes payable to financial institutions..................... $ 5,067 -- $ 5,067
Accounts payable............................................ 8,496 1,405 7,091
Accrued expenses............................................ 23,460 1,109 22,351
Other current liabilities................................... 1,087 160 927
Current portion of long term debt........................... 12,072 801 11,271
----------- --------- -----------
Total current liabilities................................ 50,182 3,475 46,707
Senior debt -- recourse....................................... 124,280 1,308 122,972
Senior debt -- nonrecourse.................................... 26,699 -- 26,699
Subordinated debt............................................. 86,229 -- 86,229
Deferred income taxes......................................... 11,425 305 11,120
Other liabilities............................................. 7,619 -- 7,619
Stockholders' equity.......................................... 39,698 9,517 9,517(1) 39,698
----------- --------- -----------
Total liabilities and stockholders' equity.................... $ 346,132 $ 14,605 $ 341,044
=========== ========= ===========
</TABLE>
Notes to Pro Forma Adjustments:
(1) Reflects the investment in MMI common stock and warrants.
(2) Obtained from unaudited interim financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
PAGE
NUMBER
-----------
<S> <C> <C>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 -- Computation of Net Income Per Share 19
Exhibit 27 -- Financial Data Schedule 20
(b) Reports on Form 8-K
A report on Form 8-K, dated pursuant to Item 5 was filed in May 1994 to announce the
executions of the merger agreement for the merger of MEMS and a subsidiary of MMI as
described elsewhere herein.
</TABLE>
17
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1994
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
Dated: August 15, 1994 __________MEDIQ Incorporated__________
(Registrant)
_______/s/ Michael F. Sandler_______
Michael F. Sandler
Senior Vice President-Finance
and Chief Financial Officer
</TABLE>
18
<PAGE>
EXHIBIT 11
MEDIQ INCORPORATED AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
COMPUTATION OF PRIMARY EARNINGS PER SHARE:
Net Income (loss).................................................. $ (2,849) $ 502 $ (3,937) $ 3,344
========= ========= ========= =========
Weighted average of primary shares:
Common stock..................................................... 17,698 17,275 17,541 17,133
Preferred stock.................................................. 6,441 6,514 6,448 6,614
Assumed conversion of options.................................... 279 328 384 538
--------- --------- --------- ---------
Total............................................................ 24,418 24,117 24,373 24,285
========= ========= ========= =========
Primary Earnings (Loss) Per Share.................................. $ (.12) $ .02 $ (.16) $ .14
========= ========= ========= =========
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (1):
Net Income (loss).................................................. $ (2,849) $ 502 $ (3,937) $ 3,344
Weighted average of fully diluted shares:
Common stock..................................................... 17,698 17,275 17,541 17,133
Preferred stock.................................................. 6,441 6,514 6,448 6,614
Assumed conversion of options.................................... 279 328 384 574
--------- --------- --------- ---------
Total............................................................ 24,418 24,117 24,373 24,321
========= ========= ========= =========
Fully Diluted Earnings (Loss) Per Share............................ $ (.12) $ .02 $ (.16) $ .14
========= ========= ========= =========
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
opinion No. 15, because it is anti-dilutive or results in dilution of less
than 3%. Paragraph 40 of APB opinion No. 15 states that computations of
fully diluted earnings per share for each period should exclude those
securities whose conversion, exercise or other contingent issuance would
have the effect of increasing the earnings per share amount or decreasing
the loss per share amount for such period.
1
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 5,394
<SECURITIES> 0
<RECEIVABLES> 50,219
<ALLOWANCES> (9,894)
<INVENTORY> 8,064
<CURRENT-ASSETS> 65,774
<PP&E> 239,390
<DEPRECIATION> 97,963
<TOTAL-ASSETS> 346,132
<CURRENT-LIABILITIES> 50,182
<BONDS> 237,208
<COMMON> 19,062
0
3,409
<OTHER-SE> 17,227
<TOTAL-LIABILITY-AND-EQUITY> 346,132
<SALES> 0
<TOTAL-REVENUES> 128,490
<CGS> 0
<TOTAL-COSTS> 121,409
<OTHER-EXPENSES> (6,246)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,212
<INCOME-PRETAX> (4,885)
<INCOME-TAX> 948
<INCOME-CONTINUING> (3,937)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,937)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
<PAGE>
</TABLE>
