<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A #1
AMENDMENT TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report -- SEPTEMBER 30, 1994
(Date of earliest event reported)
MEDIQ INCORPORATED
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
0-8147 51-0219413
DELAWARE (Commission file number) (IRS employer
(State of incorporation) identification number)
</TABLE>
ONE MEDIQ PLAZA, PENNSAUKEN, NJ 08110
(Address of principal executive offices, zip code)
(609) 665-9300
(Telephone number)
<PAGE>
The registrant hereby files the required financial statements of the
business acquired and pro forma financial information pursuant to Items 7(a) and
(b) of its Current Report on Form 8-K, dated September 30, 1994 (the 'Current
Report') as set forth herein:
Item 7. Financial Statements and Exhibits
<TABLE>
<S> <C> <C>
(a) Financial Statements of Business Acquired:
KCI MEDICAL SERVICES:
Statements of Operations Before Taxes for the Nine Months ended September 30, 1994 and 1993
(unaudited)........................................................................................
Statements of Assets Acquired and Liabilities Assumed -- September 30, 1994 and 1993 (unaudited).....
Statements of Operations Before Taxes for the Years Ended December 31, 1993, 1992 and 1991 and
Statements of Assets Acquired and Liabilities Assumed -- December 31, 1993 and 1992................
(b) Pro Forma Financial Information......................................................................
(c) Exhibits
23 Consent of KPMG Peat Marwick LLP, Independent Certified Public Accountants......................
</TABLE>
<PAGE>
Item 7: Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
KCI MEDICAL SERVICES
STATEMENTS OF OPERATIONS BEFORE TAXES
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1993 AND 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Revenue:
Rental and service....................................................................... $ 33,332 $ 35,313
Sales and other.......................................................................... 8,650 9,296
--------- ---------
Total revenue......................................................................... 41,982 44,609
Rental expense (note 4).................................................................... 28,434 29,931
Cost of goods sold......................................................................... 6,923 6,751
--------- ---------
35,357 36,682
--------- ---------
Gross margin.......................................................................... 6,625 7,927
Selling, general and administrative expenses (note 4)...................................... 5,691 7,861
--------- ---------
Operating income...................................................................... 934 66
Interest expense........................................................................... 558 310
--------- ---------
Net earnings (loss) before tax........................................................ $ 376 $ (244)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to statements of operations before taxes.
<PAGE>
KCI MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(1) BASIS OF PRESENTATION
KCI Medical Services, a division of KCI Therapeutic Services (KCITS), Inc.
which is a wholly-owned subsidiary of Kinetic Concepts, Inc. (KCI), is
engaged in the business of offering for rental and sale movable critical
care and life support equipment. KCI Medical Services also sells disposable
medical care products to hospitals and other health care providers for use
in conjunction with such equipment.
On September 30, 1994, MEDIQ/PRN Life Support Services-I, Inc., an indirect
wholly-owned subsidiary of MEDIQ Inc., entered into an Asset Purchase
Agreement with KCITS. Under the Asset Purchase Agreement dated August 23,
1994, MEDIQ acquired certain of the assets and assumed certain liabilities
of KCI Medical Services for approximately $84 million including $2 million
for an agreement not to compete. In addition to the sales price, KCI will
retain the accounts receivable of KCI Medical Services.
The accompanying statements of operations before taxes reflect the
operations of KCI Medical Services as described in the Asset Purchase
Agreement. The statements of operating results do not include charges for
income taxes since income taxes are considered to be corporate expenses.
The accompanying statements of operations before taxes have been prepared
without audit but, in the opinion of management, reflect all adjustments
necessary to a fair statement of the information presented for the
nine-month periods ended September 30, 1993 and 1994. Such adjustments are
of a normal, recurring nature. The results for the nine-month period ended
September 30, 1994 are not necessarily indicative of the results to be
expected for the full year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) REVENUE RECOGNITION
Service and rental revenue is recognized as services are rendered.
Sales and other revenue is recognized when products are shipped.
(B) DEPRECIATION
Depreciation on equipment is calculated on the straight-line method
over three to ten years which is the useful lives of the assets.
Depreciation expense was $10,396 and $10,075 for the nine months ended
September 30, 1994 and 1993, respectively.
(C) AMORTIZATION OF GOODWILL
Goodwill is amortized over fifteen to thirty-five years from the date
of acquisition using the straight-line method.
(D) RESEARCH AND DEVELOPMENT
KCI maintains an active research and development program. Certain costs
have been allocated to KCI Medical Services. See note 4. Costs of
research and development projects are expensed when incurred.
<PAGE>
(3) LEASES
KCI Medical Services also leases office space and various storage spaces
under noncancelable operating leases which expire at various dates over the
next two years. Total rental expense for operating leases was $227 and $241
for the nine months ended September 30, 1994 and 1993, respectively. Future
minimum lease payments under noncancelable operating leases being assumed by
MEDIQ (with initial or remaining lease terms in excess of one year) as of
September 30, 1994 are as follows (in thousands):
<TABLE>
<S> <C>
OPERATING
-------------
1994 (October 1 --December 31)................................................... $ 57
1995............................................................................. 30
-----
Total minimum lease payments..................................................... $ 87
-----
-----
</TABLE>
(4) ALLOCATED COSTS
KCI Medical Services is the medical equipment rental division of Kinetic
Concepts, Inc. The accompanying statements of operating revenue and expenses
include direct costs of KCI Medical Services, an allocation of shared
expenses of KCI Medical Service and KCI Therapeutic Services based on
revenue generated, and an allocation of certain indirect costs of Kinetic
Concepts, Inc. Such allocations are based on determinations that management
believes are reasonable. In connection with its overall business operations,
Kinetic Concepts provides certain services including finance, legal and
professional, human resource and management information services to KCI
Medical Services.
<PAGE>
KCI MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
The allocated rental expenses in the accompanying statements of operations
before taxes is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1993 1994
--------- ---------
<S> <C> <C>
Commissions...................................................... $ 816 $ --
Communication.................................................... 608 --
Salaries and benefits............................................ 7,547 4,118
Travel........................................................... 1,007 349
Warehousing expense.............................................. 3,184 1,081
Taxes............................................................ 1,291 --
Office expense and other......................................... 774 8
--------- ---------
$ 15,227 $ 5,556
--------- ---------
--------- ---------
</TABLE>
The allocated selling, general and administrative expenses in the
accompanying statements of operations before taxes is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1993 1994
--------- ---------
<S> <C> <C>
Payroll and benefit expenses...................................... $ 498 $ 372
Administrative expenses........................................... 283 198
Research and development.......................................... 166 144
Employee business expenses........................................ 370 224
Insurance costs................................................... 443 312
Advertising and conventions....................................... 143 113
Sales meeting and related expenses................................ 42 82
Office expenses................................................... 80 49
Other departmental expenses....................................... 110 284
Commissions....................................................... 189 --
--------- ---------
$ 2,324 $ 1,778
--------- ---------
--------- ---------
</TABLE>
<PAGE>
KCI MEDICAL SERVICES
STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
SEPTEMBER 30, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS ACQUIRED
Inventories........................................................................................ $ 3,502
Equipment:
Rental equipment................................................................................. 74,115
Biomedical....................................................................................... 2,414
Furniture and fixtures........................................................................... 347
Computers........................................................................................ 210
Vehicles......................................................................................... 47
----------
77,133
Accumulated depreciation........................................................................... (42,679)
----------
Net equipment.................................................................................... 34,454
----------
Total assets acquired......................................................................... 37,956
----------
LIABILITIES ASSUMED
Capital lease obligations, current portion......................................................... 2,304
Capital lease obligations, net of current obligations.............................................. 242
----------
2,546
----------
Net assets acquired........................................................................... $ 35,410
----------
----------
</TABLE>
See accompanying notes to financial statement.
<PAGE>
KCI MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENT
(DOLLARS IN THOUSANDS)
(1) BASIS OF PRESENTATION
KCI Medical Services, a division of KCI Therapeutic Services (KCITS), Inc.
which is a wholly-owned subsidiary of Kinetic Concepts, Inc. (KCI), is
engaged in the business of offering for rental and sale movable critical
care and life support equipment. KCI Medical Services also sells disposable
medical care products to hospitals and other health care providers for use
in conjunction with such equipment.
On September 30, 1994, MEDIQ/PRN Life Support Services-I, Inc. (MEDIQ), an
indirect wholly-owned subsidiary of MEDIQ Inc., entered into an Asset
Purchase Agreement with KCITS. Under the Asset Purchase Agreement dated
August 23, 1994, MEDIQ acquired certain of the assets and assumed certain
liabilities of KCI Medical Services as of September 30, 1994, for
approximately $84 million including $2 million for an agreement not to
compete. In addition to the sales price, KCI will retain the accounts
receivable of KCI Medical Services.
The accompanying statement of assets acquired and liabilities assumed
reflects the historical cost basis of the assets acquired and the
liabilities assumed by MEDIQ pursuant to the Asset Purchase Agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Equipment -- Equipment is stated at cost less accumulated depreciation.
Betterments which extend the useful life of the equipment are
capitalized.
(b) Depreciation -- Depreciation on equipment is calculated on the
straight-line method over three to ten years which is the useful lives
of the assets.
(c) Inventory -- Inventories are stated at the lower of cost (first-in,
first-out) or market (net realizable value).
(d) Capital Leases -- Lease obligations for equipment directly related to
the KCI Medical Services business have been assumed by MEDIQ and are
therefore included in the accompanying statement of assets acquired and
liabilities assumed. All of these leases contain purchase options. KCI
Medical Services amortizes the equipment under these capital leases
over the estimated useful life of the equipment.
(3) LEASES
KCI Medical Services is obligated under various capital leases for rental
equipment that expire at various dates during the next two years. At
September 30, 1994, the gross amount of rental equipment under capital
leases being assumed by MEDIQ totaled $12,080 and related accumulated
amortization totaled $8,332.
KCI Medical Services also leases office space and various storage spaces
under noncancelable operating leases which expire at various dates over the
next two years.
(Continued)
<PAGE>
KCI MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENT
Future minimum lease payments under noncancelable operating leases being
assumed by MEDIQ (with initial or remaining lease terms in excess of one
year) and the present value of future minimum capital lease payments being
assumed as of September 30, 1994 are as follows (Dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
--------- -----------
<S> <C> <C>
1994 (October 1 -- December 31)................................. $ 732 57
1995............................................................ 1,945 30
--------- -----------
Total minimum lease payments.................................... 2,677 87
-----------
-----------
Less amount representing interest............................... 131
---------
Present value of net minimum capital lease payments............. 2,546
Less current portion............................................ 2,304
---------
Obligations under capital leases, excluding current
installments.................................................. $ 242
---------
---------
</TABLE>
(4) COMMITMENTS AND CONTINGENT LIABILITIES
Pursuant to the Asset Purchase Agreement, the accompanying statement of
assets acquired and liabilities assumed does not include certain
obligations which are the responsibility of Kinetic Concepts, Inc. (KCI).
These obligations include the following:
(a) All income tax obligations arising from the conduct of business prior
to the Closing Date.
(b) Any pending, threatened or unasserted litigation or product warranty or
liability claims related to the period prior to the Closing Date except
for the product warranty assumed by MEDIQ.
(c) All lease obligations except for those assumed by and assigned to MEDIQ
as discussed in note 3.
(d) All disputed amounts with vendors resulting from transactions occurring
prior to the Closing Date.
Also, pursuant to the Asset Purchase Agreement, the accompanying statement
of assets acquired and liabilities assumed does not include obligations for
warranty repairs and purchase agreements being assumed by MEDIQ.
(5) PLEDGED ASSETS
Pursuant to KCI's notes payable and long term obligations, substantially
all of the assets of KCI Medical Services are secured by first liens. Such
liens were released upon acquisition of the assets by MEDIQ.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Kinetic Concepts, Inc. and subsidiaries:
We have audited the accompanying statements of assets acquired and liabilities
assumed of KCI Medical Services, a division of KCI Therapeutic Services, Inc., a
wholly-owned subsidiary of Kinetic Concepts, Inc., as of December 31, 1993 and
1992, and the related statements of operations before income taxes for each of
the years in the three-year period ended December 31, 1993 pursuant to the asset
purchase agreement referred to in note 1 of notes to financial statements. These
financial statements are the responsibility of Kinetic Concepts, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets acquired and liabilities assumed of KCI
Medical Services, at December 31, 1993 and 1992 pursuant to the asset purchase
agreement referred to in note 1 of notes to financial statements, and the
results of its operations before income taxes for each of the years in the
three-year period ended December 31, 1993 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
San Antonio, Texas
September 23, 1994
<PAGE>
KCI MEDICAL SERVICES
STATEMENTS OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
DECEMBER 31, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
ASSETS ACQUIRED
Inventories................................................................................ $ 3,182 $ 2,468
Equipment (notes 3 and 7):
Rental equipment......................................................................... 75,948 67,206
Biomedical............................................................................... 2,408 2,257
Furniture and fixtures................................................................... 347 277
Computers................................................................................ 214 80
Vehicles................................................................................. 23 --
--------- ---------
78,940 69,820
Accumulated depreciation................................................................. (35,063) (24,715)
--------- ---------
Net equipment............................................................................ 43,877 45,105
--------- ---------
47,059 47,573
--------- ---------
LIABILITIES ASSUMED
Current installments of capital leases (note 3)............................................ 3,090 3,195
Capital lease obligations, net of current installments (note 3)............................ 1,842 4,720
--------- ---------
4,932 7,915
--------- ---------
Net assets acquired................................................................ $ 42,127 $ 39,658
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
KCI MEDICAL SERVICES
STATEMENTS OF OPERATIONS BEFORE TAXES
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
Rental and service........................................................... $ 44,756 $ 42,659 $ 37,797
Sales and other.............................................................. 11,234 14,171 11,353
--------- --------- ---------
Total revenue............................................................. 55,990 56,830 49,150
Rental expense (note 4)........................................................ 40,261 32,132 28,004
Cost of goods sold............................................................. 9,238 11,553 9,303
--------- --------- ---------
49,499 43,685 37,307
--------- --------- ---------
Gross margin.............................................................. 6,491 13,145 11,843
Selling, general and administrative expenses (note 4).......................... 7,751 6,771 4,316
--------- --------- ---------
Operating income (loss)................................................... (1,260) 6,374 7,527
Interest expense (note 4)...................................................... 702 1,108 3,379
--------- --------- ---------
Income (loss) before income taxes $ (1,962) $ 5,266 $ 4,148
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
KCI MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) BASIS OF PRESENTATION
KCI Medical Services, a division of KCI Therapeutic Services (KCITS), Inc.
which is a wholly-owned subsidiary of Kinetic Concepts, Inc. (KCI), is
engaged in the business of offering for rental and sale movable critical
care and life support equipment. KCI Medical Services also sells disposable
medical care products to hospitals and other health care providers for use
in conjunction with such equipment.
On September 30, 1994, MEDIQ/PRN Life Support Services-I, Inc. (MEDIQ), an
indirect wholly-owned subsidiary of MEDIQ Inc., entered into an Asset
Purchase Agreement with KCITS. Under the Asset Purchase Agreement dated
August 23, 1994, MEDIQ acquired certain of the assets and assumed certain
liabilities of KCI Medical Services as of September 30, 1994, for
approximately $84 million including $2 million for an agreement not to
compete. In addition to the sales price, KCI will retain the accounts
receivable of KCI Medical Services.
In June, 1993, KCI acquired the operating assets of Clinical Systems, Inc.
(CSI), a provider of intravenous services and supplies to the home health
care market. Assets of CSI were consolidated with KCI Medical Services and
subject to the Asset Purchase Agreement between KCITS and MEDIQ, therefore,
CSI assets are included with the KCI Medical Services assets in the
accompanying statement of assets acquired and liabilities assumed. CSI
operating results from the date of acquisition to December 31, 1993 are
included in the KCI Medical Services statement of operations for 1993.
On July 2, 1990, KCI acquired Medirec, a Utah corporation, pursuant to an
Agreement and plan of Merger dated May 30, 1990 (the Medirec Agreement). In
accordance with the Medirec Agreement, KCI Acquisition Corp., a
wholly-owned subsidiary of KCI, merged with Medirec. The acquisition was
accounted for using the purchase method of accounting. Medirec was renamed
KCI Medical Services. Originally, a division of Medirec leased certain
medical equipment under long-term lease agreements which were accounted for
as direct financing leases. Upon consolidation into KCITS, this division of
Medirec was separated into KCI Financial Services. KCI Financial Services
was not included in the Asset Purchase Agreement between KCITS and
MEDIQ/PRN.
The accompanying statements of assets acquired and liabilities assumed
reflect the historical cost basis of the assets acquired and the
liabilities assumed by MEDIQ pursuant to the Asset Purchase Agreement. The
accompanying statements of operating revenue and expenses reflect the
operations of KCI Medical Services as described in the Asset Purchase
Agreement. The statements of operating results do not include charges for
income taxes since income taxes are considered to be corporate expenses.
(Continued)
<PAGE>
KCI MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue recognition -- Service and rental revenue is recognized as
services are rendered. Sales and other revenue are recognized when
products are shipped.
(b) Equipment -- Equipment is stated at cost less accumulated depreciation.
Betterments which extend the useful life of the equipment are
capitalized.
(c) Depreciation -- Depreciation on equipment is calculated on the
straight-line method over three to ten years which is the useful lives
of the assets. Depreciation expense was $14,145, $12,002 and $11,202
for the years ended December 31, 1993, 1992 and 1991, respectively.
(d) Inventory -- Inventories of $3,182 and $2,468 at December 31, 1993 and
1992, respectively, are stated at the lower of cost (first-in,
first-out) or market (net realizable value).
(e) Capital Leases -- Lease obligations for equipment directly related to
the KCI Medical Services business have been assumed by MEDIQ and are
therefore included in the accompanying statement of assets acquired and
liabilities assumed. All of these leases contain purchase options. KCI
Medical Services amortizes equipment under these capital leases over
the estimated useful life of the equipment.
(f) Amortization of Goodwill -- Goodwill, related to the acquisitions of
Medirec and CSI, is amortized over thirty-five years and fifteen years,
respectively, from the date of acquisition using the straight-line
method.
(g) Research and Development -- KCI maintains an active research and
development program. Certain costs have been allocated to KCI Medical
Services. See note 4. Costs of research and development projects are
expensed when incurred.
(3) LEASES
KCI Medical Services is obligated under various capital leases for rental
equipment that expire at various dates during the next two years. At
December 31, 1993 and 1992, the gross amount of rental equipment under
capital leases being acquired by MEDIQ totaled $12,338 and $12,996 and
related accumulated amortization totaled $7,265 and $5,468 respectively.
(Continued)
<PAGE>
KCI MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
KCI Medical Services also leases office space and various storage spaces
under noncancelable operating leases which expire at various dates over the
next two years. Total rental expense for operating leases was $322, $330
and $170 for the years ended December 31, 1993, 1992 and 1991,
respectively.
Future minimum lease payments under noncancelable operating leases being
assumed by MEDIQ (with initial or remaining lease terms in excess of one
year) and the present value of future minimum capital lease payments being
assumed as of December 31, 1993 are as follows (Dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
--------- ---------
<S> <C> <C>
1994...................................................... $ 3,438 $ 284
1995...................................................... 1,829 30
--------- ---------
Total minimum lease payments.............................. 5,267 314
---------
---------
Less amount representing interest......................... 335
---------
Present value of net minimum capital lease payments....... 4,932
Less current portion...................................... 3,090
---------
Obligations under capital leases, excluding current
installments............................................ $ 1,842
---------
---------
</TABLE>
(4) ALLOCATED COSTS
The accompanying statements of operating revenue and expenses include
direct costs of KCI Medical Services and an allocation of shared expenses
of KCI Medical Services and KCITS based on revenue generated. The expenses
allocated by KCITS to KCI Medical Services include direct expenses of KCITS
and costs allocated to KCITS from KCI for services provided by KCI for
KCITS and KCI Medical Services. These costs are allocated by KCI to KCITS
based upon usage, effort or activities. Such allocations are based on
determinations that management believes are reasonable.
The allocated rental expenses in the accompanying statements of operations
before income taxes are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Commissions............................................... $ 1,086 $ 1,066
Communication............................................. 795 739
Salaries and benefits..................................... 10,887 10,302
Travel.................................................... 1,323 1,240
Warehousing expense....................................... 4,424 3,721
Taxes..................................................... 286 280
Office expense and other.................................. 959 1,049
Parts and accessories..................................... -- 1,733
--------- ---------
$ 19,760 $ 20,130
--------- ---------
--------- ---------
</TABLE>
(Continued)
<PAGE>
KCI MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
The allocated selling, general and administrative expenses in the
accompanying statements of operations before income taxes is summarized as
follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Payroll and benefit expenses................................ $ 704 $ 480
Administrative expenses..................................... 375 366
Research and development.................................... 272 108
Employee business expenses.................................. 424 390
Insurance costs............................................. 591 471
Advertising and conventions................................. 214 295
Sales meeting and related expenses.......................... 156 259
Office expenses............................................. 93 80
Other departmental expenses................................. 166 165
Commissions................................................. 238 355
Legal....................................................... -- 23
--------- ---------
$ 3,233 $ 2,992
--------- ---------
--------- ---------
</TABLE>
No selling, general and administrative or rental expenses were allocated to
KCI Medical Services for the year ended December 31, 1991 as all such costs
were paid and accounted for directly by KCI Medical Services.
For the year ended December 31, 1991, KCI Medical Services paid interest
charges of $2,054 to Kinetic Concepts, Inc. No such interest charges were
paid to KCI or allocated to KCI Medical Services by KCITS in 1993 or 1992.
(5) COMMITMENTS AND CONTINGENT LIABILITIES
Pursuant to the Asset Purchase Agreement, the accompanying statements of
assets acquired and liabilities assumed do not include certain obligations
which are the responsibility of Kinetic Concepts, Inc. (KCI). These
obligations include the following:
(a) All income tax obligations arising from the conduct of business prior
to the Closing Date.
(b) Any pending, threatened or unasserted litigation or product warranty or
liability claims related to the period prior to the Closing Date except
for the product warranty assumed by MEDIQ.
(c) All lease obligations except for those assumed by and assigned to MEDIQ
as discussed in note 3.
(d) All disputed amounts with vendors resulting from transactions occurring
prior to the Closing Date.
(Continued)
<PAGE>
KCI MEDICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
Also, pursuant to the Asset Purchase Agreement, the accompanying statement
of assets acquired and liabilities assumed does not include obligations for
warranty repairs and purchase agreements being assumed by MEDIQ.
(6) PLEDGED ASSETS
Pursuant to KCI's notes payable and long term obligations, substantially
all of the assets of KCI Medical Services are secured by first liens. Such
liens were released upon acquisition of the assets by MEDIQ.
(7) RENTAL ASSET WRITE-DOWN
Included in rental expense in 1993 are rental asset write-downs of
approximately $1.6 million. The rental assets written down were assets that
had, in the judgment of management, no or limited future use.
<PAGE>
(b) Pro Forma Financial Information.
On September 30, 1994, MEDIQ Incorporated (the 'Company') acquired, through
wholly-owned subsidiaries, certain assets used by the medical equipment rental
division of Kinetic Concepts, Inc. ('KCI') for a purchase price of approximately
$65.3 million in cash and $18.8 million principal amount of notes payable to KCI
(the 'Acquisition').
The following pro forma condensed consolidated statements of operations for
the nine months ended June 30, 1994 and the year ended September 30, 1993 give
effect to the Acquisition and the financing thereof as if such transaction had
occurred at the beginning of fiscal 1993. The pro forma condensed consolidated
balance sheet as of June 30, 1994 gives effect to the Acquisition and the
financing thereof as if such transactions had occurred as of that date. The
Acquisition was accounted for pursuant to the purchase method of accounting.
The pro forma financial data presented herein is based on management's
estimate of the effects of the Acquisition and financing thereof. The pro forma
financial data is based upon current available information and certain
assumptions that the Company believes are reasonable. The Company does not
expect the receipt of additional information to have a material adverse affect
on the pro forma financial data. The pro forma condensed consolidated
statements of operations for the nine months ended June 30, 1994 and the year
ended September 30, 1993 and and the pro forma condensed consolidated balance
sheet as of June 30, 1994 are unaudited, but in the opinion of the Company
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the results of operations and financial position
for the periods presented.
The historical financial data of the Company included in the pro forma
statements is as of the periods presented. The historical financial data of KCI
included in the pro forma condensed consolidated statements of operations for
the nine months ended June 30, 1994 and the year ended September 30, 1993 are
for the nine months ended September 30, 1994 (unaudited), and the year ended
December 31, 1993 (audited), respectively. The historical financial data of KCI
included in the pro forma condensed consolidated balance sheet is as of
September 30, 1994 (unaudited).
The pro forma condensed consolidated statements of operations for the nine
months ended June 30, 1994 and the year ended September 30, 1993, and the pro
forma condensed consolidated balance sheet as of June 30, 1994 are not
necessarily indicative of the results of operations or financial position that
actually would have been achieved had the transactions described been
consummated as of the dates indicated, or that may be achieved in the future.
<PAGE>
MEDIQ INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
MEDIQ KCI PRO FORMA MEDIQ
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
Revenues................................................... $ 128,490 $ 44,609 $ 173,099
Costs and expenses:
Cost of sales............................................ -- 6,751 6,751
Operating................................................ 65,543 19,535 (7,071)(1) 78,007
Selling and administrative............................... 34,991 7,209 (3,676)(1) 38,524
Depreciation and amortization............................ 20,875 11,048 (6,279)(2) 25,644
----------- --------- -----------
121,409 44,543 148,926
----------- --------- -----------
Operating income........................................... 7,081 66 24,173
Other (Charges) Credits:
Interest expense......................................... (18,212) (310) (5,621)(3) (24,143)
Equity participation..................................... 116 -- 116
Equity in earnings of unconsilidated
subsidiaries.......................................... 3,056 -- 3,056
Other.................................................... 3,074 -- 3,074
----------- --------- -----------
Income (loss) from continuing operations before income tax
expense (benefit)........................................ (4,885) (244) 6,276
Income tax expense (benefit)............................... (948) -- 4,464 (4) 3,516
----------- --------- -----------
Income (loss) from continuing operations................... $ (3,937) $ (244) $ 2,760
----------- --------- -----------
----------- --------- -----------
Earnings per share......................................... $ (0.16) $ 0.11
----------- -----------
----------- -----------
Weighted average shares outstanding........................ 24,373 24,373
----------- -----------
----------- -----------
</TABLE>
- - ------------------
(1) Represents elimination of KCI's corporate charges and cost savings related
to duplicate functions partially offset by increases in the Company's
personnel and other costs due to the expansion of the Company's business as
a result of the Acquisition.
(2) Represents depreciation savings related to the application of the Company's
historical depreciation policies to the assets acquired partially offset by
increased depreciation expense related to the fair market value adjustments
to rental equipment and the amortization of goodwill related to the
Acquisition.
(3) Represents increased interest expense related to indebtedness incurred to
complete the Acquisition and amortization of related deferred financing
fees.
(4) Represents the tax effects of the historical pre-tax loss of KCI and the pro
forma adjustments at the combined federal and state statutory rate of 40%.
<PAGE>
MEDIQ INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C> <C> <C> <C>
MEDIQ KCI PRO FORMA MEDIQ
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
Revenues................................................... $ 174,834 $ 55,990 $ 230,824
Costs and expenses:
Cost of sales............................................ -- 9,238 9,238
Operating................................................ 88,158 24,535(A) (8,007)(1) 104,686
Selling and administrative............................... 46,231 6,882 (2,198)(1) 50,915
Depreciation and amortization............................ 24,979 16,595 (8,528)(2) 33,046
----------- --------- -----------
159,368 57,250 197,885
----------- --------- -----------
Operating Income........................................... 15,466 (1,260) 32,939
Other (charges) credits:
Interest expense......................................... (23,347) (702) (8,468)(3) (32,517)
Equity participation..................................... 3,519 -- 3,519
Equity in earnings of unconsolidated
subsidiaries.......................................... 4,343 -- 4,343
Other.................................................... 2,009 -- 2,009
----------- --------- -----------
Income (loss) from continuing operations before income
tax expense (benefit)................................. 1,990 (1,962) 10,293
Income tax expense (benefit)............................. (1,624) -- 3,321 (4) 1,697
----------- --------- -----------
Income (loss) from continuing operations................. $ 3,614 $ (1,962) $ 8,596
----------- --------- -----------
----------- --------- -----------
Earnings per share......................................... $ 0.15 $ 0.35
----------- -----------
----------- -----------
Weighted average shares outstanding........................ 24,366 24,366
----------- -----------
----------- -----------
</TABLE>
Note: (A) Includes a non-recurring charge of $1.6 million related to the
write-down of fixed assets.
- - ------------------
(1) Represents elimination of KCI's corporate charges and cost savings related
to duplicate functions partially offset by increases in the Company's
personnel and other costs due to the expansion of the Company's business as
a result of the Acquisition.
(2) Represents depreciation savings related to application of the Company's
historical depreciation policies to the assets acquired partially offset by
increased depreciation expense related to the fair market value adjustments
to rental equipment and the amortization of goodwill related to the
Acquisition.
(3) Represents increased interest expense related to indebtedness incurred to
complete the Acquisition and amortization of related deferred financing
fees.
(4) Represents the tax effects of the historical pre-tax loss of KCI and the pro
forma adjustments at the combined federal and state statutory rate of 40%.
<PAGE>
MEDIQ INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1994
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C>
MEDIQ KCI PRO FORMA MEDIQ
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 5,394 $ 700 (1) $ 6,094
Accounts receivable-net.................................. 40,325 40,325
Inventories.............................................. 8,064 $ 3,502 (327)(2) 11,239
Deferred income taxes.................................... 4,177 4,177
Other current assets..................................... 7,814 1,600 (2) 9,414
----------- --------- -----------
Total current assets.................................. 65,774 3,502 71,249
Equity Investments......................................... 37,864 37,864
Note receivable from MHM................................... 11,500 11,500
Rental equipment-net....................................... 104,635 33,856 1,276 (2) 139,767
Property, plant and equipment-net.......................... 36,792 598 37,390
Goodwill-net............................................... 42,101 42,759 (2) 84,860
Net investment in leases................................... 28,552 28,552
Other assets............................................... 18,914 3,027 (2)
1,525 (4) 23,466
----------- --------- -----------
Total assets............................................... $ 346,132 $ 37,956 $ 434,648
----------- --------- -----------
----------- --------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable to financial institutions.................. $ 5,067 9,600 (3) $ 14,667
Accounts payable......................................... 8,496 8,496
Accrued expenses......................................... 23,460 2,654 (2) 26,114
Other current liabilities................................ 1,087 1,087
Current portion of long-term debt........................ 12,072 2,304 13,885 (3) 28,261
----------- --------- -----------
Total current liabilities............................. 50,182 2,304 78,625
Senior debt -- recourse.................................... 124,280 242 42,625 (3) 167,147
Senior debt -- nonrecourse................................. 26,699 26,699
Subordinated debt.......................................... 86,229 18,612 (3) 104,841
Deferred income taxes...................................... 11,425 (2,931)(2) 8,494
Other liabilities.......................................... 7,619 1,525 (4) 9,144
Stockholders' equity....................................... 39,698 39,698
----------- --------- -----------
Total liabilities and stockholders' equity................. $ 346,132 $ 2,546 $ 434,648
----------- --------- -----------
----------- --------- -----------
</TABLE>
- - ------------------
(1) Represents the excess proceeds of the debt incurred to finance the
Acquisition.
(2) Represents inventory reserve, the net write-up of rental equipment
to fair market value, the excess of the purchase price over net
assets acquired, transaction costs and related accural deferred
taxes.
(3) Represents debt incurred to finance the Acquisition.
(4) Represents value of warrants issued in connection with the financing
of the Acquisition.
<PAGE>
SIGNATURES
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 here unto duly authorized.
MEDIQ Incorporated
By: /s/ Michael F. Sandler
--------------------------
Michael F. Sandler, Senior Vice
President-Finance, Chief Financial
Officer and Treasurer
Date: December 13, 1994
<PAGE>
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
Kinetic Concepts, Inc.:
We consent to the incorporation by reference, in the registration statements
listed below, of our report dated September 23, 1994, with respect to the
statements of assets acquired and liabilities assumed of KCI Medical Services, a
division of KCI Therapeutic Services, Inc., a wholly-owned subsidiary of Kinetic
Concepts, Inc., as of December 31, 1993 and 1992, and the related statements of
operations before income taxes for each of the years in the three-year period
ended December 31, 1993 pursuant to the asset purchase agreement, which report
appears in the Form 8-K/A of MEDIQ Incorporated and subsidiaries dated December
14, 1994.
Registration Statement No. 33-13122 on Form S-8
Registration Statement No. 33-11042 on Form S-8
Registration Statement No. 33-10208 on Form S-4
Registration Statement No. 33-09746 on Form S-4
Registration Statement No. 33-16802 on Form S-8
Registration Statement No. 33-5089 on Form S-2
Registration Statement No. 33-47416 on Form S-8
KPMG Peat Marwick LLP
San Antonio, Texas
December 14, 1994
