<PAGE>
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: MARCH 31, 1995 Commission File Number: 1-8147
MEDIQ INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 51-0219413
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<S> <C>
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 May 5, 1995, there were 17,791,963 shares of Common Stock, par value
$1.00 per share and 6,337,910 shares of Preferred Stock, par value $.50 per
share, outstanding.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 1995
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
Condensed Consolidated Statements of Operations --
Three and Six Months ended March 31, 1995 and 1994
(Unaudited)....................................................................................... 4
Condensed Consolidated Balance Sheets --
March 31, 1995 (Unaudited) and September 30, 1994................................................. 5
Condensed Consolidated Statements of Cash Flows --
Six Months ended March 31, 1995 and 1994
(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............. 10-12
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS................................................................................. 13
ITEM 5. OTHER INFORMATION................................................................................. 13-14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................................. 14-15
</TABLE>
2
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 1995
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues........................................................... $ 37,262 $ 28,108 $ 69,532 $ 53,665
Costs and expenses:
Operating........................................................ 14,049 13,832 28,283 26,946
Selling and administrative....................................... 6,160 5,103 12,561 11,143
Depreciation and amortization.................................... 7,044 5,749 14,145 11,400
--------- --------- --------- ---------
27,253 24,684 54,989 49,489
--------- --------- --------- ---------
Operating income................................................... 10,009 3,424 14,543 4,176
Other (charges) credits:
Interest expense................................................. (7,473) (5,109) (14,877) (10,564)
Equity in earnings of unconsolidated affiliates.................. 1,109 1,147 1,969 2,012
Other -- net..................................................... (437) 405 35 2,722
--------- --------- --------- ---------
Income (loss) from continuing operations before income tax expense
(benefit)........................................................ 3,208 (133) 1,670 (1,654)
Income tax expense (benefit)....................................... 1,702 182 926 (276)
--------- --------- --------- ---------
Income (loss) from continuing operations........................... 1,506 (315) 744 (1,378)
Income from discontinued operations................................ 281 489 832 290
--------- --------- --------- ---------
Net income (loss).................................................. $ 1,787 $ 174 $ 1,576 $ (1,088)
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share:
Income (loss) from continuing operations......................... $ .06 $ (.01) $ .03 $ (.05)
Income from discontinued operations.............................. .01 .02 .03 .01
--------- --------- --------- ---------
Net income (loss)................................................ $ .07 $ .01 $ .06 $ (.04)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding................................ 24,572 24,392 24,509 24,350
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPT. 30,
1995 1994
----------- -----------
(UNAUDITED) (SEE NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................... $ 502 $ 1,511
Accounts receivable -- net......................................................... 33,107 16,795
Investment in discontinued operations.............................................. 49,624 49,397
Inventories........................................................................ 4,674 5,939
Deferred income taxes.............................................................. 3,072 3,323
Assets held for sale............................................................... 3,560 --
Other current assets............................................................... 5,826 7,865
----------- -----------
Total current assets............................................................ 100,365 84,830
Equity investments................................................................... 49,632 47,730
Note receivable from MHM............................................................. 11,117 11,500
Property, plant and equipment -- net................................................. 140,800 149,200
Goodwill -- net...................................................................... 64,691 65,722
Other assets......................................................................... 13,160 18,802
----------- -----------
Total assets......................................................................... $ 379,765 $ 377,784
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to financial institutions............................................ $ 14,192 $ 6,180
Accounts payable................................................................... 6,300 5,952
Accrued expenses................................................................... 21,675 22,891
Other current liabilities.......................................................... 617 969
Current portion of long-term debt.................................................. 32,155 23,444
----------- -----------
Total current liabilities....................................................... 74,939 59,436
Senior debt.......................................................................... 155,934 162,436
Subordinated debt.................................................................... 93,404 103,388
Deferred income taxes................................................................ 11,524 9,808
Other liabilities.................................................................... 6,106 6,436
Stockholders' equity................................................................. 37,858 36,280
----------- -----------
Total liabilities and stockholders' equity........................................... $ 379,765 $ 377,784
----------- -----------
----------- -----------
</TABLE>
Note: The balance sheet at September 30, 1994 has been condensed from
the audited financial statements at that date and restated for
discontinued operations.
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)..................................................................... $ 1,576 $ (1,088)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities......................................................................... 16,209 7,641
(Increase) decrease in accounts receivable............................................ (16,590) (4,419)
(Increase) decrease in inventory...................................................... 1,283 657
Increase (decrease) in accounts payable............................................... (527) (1,888)
Increase (decrease) in accrued expenses............................................... (1,655) (3,129)
Net cash provided by discontinued operations.......................................... 605 1,390
Other current assets and liabilities.................................................. 1,303 4,188
--------- ---------
Net cash provided by operating activities............................................. 2,204 3,352
Cash Flows From Investing Activities:
Purchase of property, plant and equipment............................................. (2,721) (4,663)
Proceeds from sale of assets.......................................................... 920 2,747
Acquisitions.......................................................................... -- (1,338)
Other................................................................................. 79 431
--------- ---------
Net cash used in investing activities................................................. (1,722) (2,823)
Cash Flows From Financing Activities:
Borrowings............................................................................ 9,202 4,447
Debt repayments....................................................................... (10,693) (16,345)
Dividends............................................................................. -- (1,352)
Proceeds from exercise of stock options............................................... -- 132
--------- ---------
Net cash used in financing activities................................................. (1,491) (13,118)
--------- ---------
Decrease in cash........................................................................ (1,009) (12,589)
Cash:
Beginning balance..................................................................... 1,511 16,033
--------- ---------
Ending balance........................................................................ $ 502 $ 3,444
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Interest paid......................................................................... $ 14,347 $ 10,572
--------- ---------
--------- ---------
Income taxes paid (refunded).......................................................... $ 107 $ (2,773)
--------- ---------
--------- ---------
Supplemental disclosure of non-cash investing and financing activities:
Equipment financed with debt and capital leases....................................... $ 1,847 $ 3,574
--------- ---------
--------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 1995, the
condensed consolidated statements of operations for the three and six months
ended March 31, 1995 and 1994, and the condensed consolidated statements of cash
flows for the six 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 March 31, 1995 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, 1994 Annual Report on Form 10-K.
The results of operations for the period ended March 31, 1995 are not
necessarily indicative of the operating results for the full year.
NOTE B -- DISCONTINUED OPERATIONS
In the second quarter of fiscal 1995, the Company adopted a plan to sell
four non-core businesses, Medifac, Inc., Health Examinetics, Inc., MEDIQ Mobile
X-Ray Services, Inc. and MEDIQ Imaging Services, Inc., within twelve months.
As a result, operating results and net assets of these businesses have been
reported as discontinued operations. The Company's prior year consolidated
financial statements have been restated to report the net assets and operating
results of these businesses as discontinued operations.
Net income from discontinued operations for the three and six month periods
ended March 31, 1995 included an estimated net loss on the disposal of the
non-core businesses aggregating $.7 million. Summary operating results,
exclusive of the estimated net loss on disposal of discontinued operations
were as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.................................................. $ 23,206 $ 16,865 $ 41,852 $ 31,781
Operating profit.......................................... 3,167 1,642 5,188 2,162
Pretax income............................................. 2,238 872 3,350 657
Net income................................................ 941 489 1,492 290
</TABLE>
Net assets of discontinued operations as of March 31, 1995 were as follows
(in thousands):
<TABLE>
<S> <C>
Current assets....................................................................... $ 26,763
Property, plant and equipment........................................................ 26,588
Goodwill............................................................................. 19,560
Other assets......................................................................... 29,324
Current liabilities.................................................................. (21,449)
Long-term debt, net of current maturities............................................ (31,162)
---------
Net assets of discontinued operations................................................ $ 49,624
---------
---------
</TABLE>
7
<PAGE>
NOTE C -- RECENT DEVELOPMENTS
On January 20, 1995, the Company announced the formation of a Special
Committee of the Board of Directors for the purpose of exploring alternative
ways to maximize shareholder value. Among those matters to be considered by the
Special Committee are the possible sale of all or substantially all of the
stock or assets of the Company, its wholly-owned subsidiaries or its
equity investments to a buyer or group of buyers, which may include
members of the management of the Company and its subsidiaries. The Special
Committee retained the investment banking firm of Lazard, Freres & Co. to
act as its exclusive financial advisor to assist it in considering these
alternatives.
On March 14, 1995, the Company announced that it had received an offer from
members of the Company's management to acquire all of the outstanding common and
preferred stock and repay or assume all debt of the Company and its subsidiaries
in a transaction valued at approximately $437 million. The offer was referred to
the Special Committee for review. The offer proposed to pay stockholders $6.87
per share of common and preferred stock consisting of $4.00 in cash and $2.87,
representing the current market value, as of that date, on a per share basis of
the Company's publicly-traded equity interests and the face value of the note
receivable from Mental Health Management, Inc.
On March 17, 1995, the Company announced that the Special Committee
reviewed the offer that was made March 14, 1995 by the Company's management and
recommended that the Board of Directors reject the offer as inadequate.
On April 13, 1995, the Company announced that its Board of Directors
accepted the recommendation of its Special Committee rejecting management's
offer to acquire the Company as being inadequate. In accepting the Special
Committee recommendation, the Board of Directors consulted with its investment
banker, Lazard, Freres & Co. The Company also stated that it will continue to
solicit offers for the Company and its wholly-owned subsidiaries including
MEDIQ/PRN and has directed Lazard, Freres & Co. to continue its efforts in
this regard. In addition, the Company announced that it entered into an
agreement to sell Medifac, Inc., the Company's healthcare facility planning,
design and project management subsidiary, and certain real estate, to the
management group of Medifac for an aggregate sale price of $11.8 million.
The Company also announced that it is focusing on the sale of its non-core
businesses including Health Examinetics, Inc., MEDIQ Mobile X-Ray Services,
Inc. and MEDIQ Imaging Services, Inc.
8
<PAGE>
NOTE D -- INVENTORIES
Inventories, which consist primarily of parts and supplies, are stated
at the lower of cost (first-in, first-out method) or market.
NOTE E -- EQUITY INVESTMENTS
As of March 31, 1995, the Company's ownership interest in NutraMax
Products, Inc., PCI Services, Inc. and MMI Medical, Inc. was 47.4%, 46.9% and
40.1%, respectively.
Summarized income statement information for NutraMax, PCI and MMI is
presented below (in thousands).
NutraMax Products, Inc.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------------ ------------------------------
APRIL 1, APRIL 2, APRIL 1, APRIL 2,
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales............................. $ 15,055 $ 14,977 $ 30,178 $ 25,178
Net income............................ 1,111 1,110 2,349 1,772
</TABLE>
PCI Services, Inc.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
------------------------------ ------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenue........................... $ 31,912 $ 30,413 $ 60,522 $ 58,330
Net income............................ 1,121 1,471 2,162 2,776
</TABLE>
MMI Medical, Inc.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31, SIX MONTHS ENDED JANUARY 31,
------------------------------ ------------------------------
1995 1994(1) 1995 1994(1)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues.............................. $ 10,592 $ 7,769 $ 21,903 $ 15,721
Net income (loss)..................... 121 421 (407) 724
</TABLE>
(1) The Company obtained its investment in MMI in the fourth quarter of 1994 in
connection with the merger of MEDIQ Equipment and Maintenance Services, Inc.
with MMI.
NOTE F -- SALE OF ASSETS
In April 1995, the Company sold its investments in New West common stock
and preferred stock for an aggregate consideration of $3.0 million resulting in
a pretax loss of $1.1 million ($.7 million, or $.03 per share, net of taxes).
The loss is reflected in the Company's Condensed Consolidated Statements of
Operations for the three and six months ended March 31, 1995.
NOTE G -- LONG-TERM DEBT
Under the terms of its 7.25% convertible debentures due 2006, the Company
is required to offer to repurchase a portion of the debentures if stockholders'
equity is $40 million or less at the end of two consecutive fiscal quarters.
Since June 30, 1994, the Company's stockholders' equity has been less than $40
million. The requirement to repurchase debentures at December 31, 1994 and June
30, 1995 has been satisfied through the Company's previous acquisition of $23.3
million principal amount of debentures. If stockholders' equity continues to be
less than $40 million, the Company will be required to repurchase approximately
$10.5 million of debentures on December 31, 1995 and $11.25 million of
debentures semi-annually thereafter until all debentures are repurchased or
stockholders' equity is more than $40 million. As of March 31, 1995, $10.5
million of the debentures have been classified as a current obligation.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion addresses the financial condition of the Company
as of March 31, 1995 and its results of operations for the three and six months
ended March 31, 1995, compared with the same periods last year. This discussion
should be read in conjunction with the Management's Discussion and Analysis
section (pages 12-18) for the fiscal year ended September 30, 1994 included in
the Company's Annual Report on Form 10-K.
In the second quarter of fiscal 1995, the Company adopted a plan to sell
four non-core businesses, Medifac, Inc., Health Examinetics, Inc., MEDIQ Mobile
X-Ray Services, Inc. and MEDIQ Imaging Services, Inc., within twelve months.
As a result, operating results of these businesses have been reported as
discontinued operations in the current and prior year periods.
On September 30, 1994, the Company acquired the critical care and life
support medical rental equipment inventory and certain other assets of Kinetic
Concepts, Inc. ('KCI'), a competitor of MEDIQ/PRN, for a purchase price of
approximately $88 million, including transaction costs and the assumption of
certain capital lease obligations. MEDIQ/PRN accounted for 96% of revenues
from continuing operations in the current periods.
In August 1994, the Company merged its MEDIQ Equipment and Maintenance
Services, Inc. ('MEMS') subsidiary with MMI Medical, Inc. ('MMI'), and the
Company received approximately 40% of the outstanding shares of MMI common
stock. The Company accounts for its investment in MMI under the equity method of
accounting.
SEASONALITY
MEDIQ/PRN's business is seasonal, with demand historically peaking in
the winter months or the Company's second fiscal quarter. Accordingly, the
Company's operating results from continuing operations for the quarter ended
March 31, 1995 are not indicative of the operating results for the full year.
RESULTS OF OPERATIONS
Second Quarter 1995 Compared with Second Quarter 1994
Revenues were $37.3 million for the second quarter of 1995, as compared to
$28.1 million in the prior year quarter. MEDIQ/PRN's revenues increased to $35.9
million from $20.9 million in the second quarter of 1994 as a result of the
KCI acquisition, which resulted in increased rental volume to existing customers
and an expanded customer base. MEDIQ/PRN's revenues were also affected by
increases in certain rental prices. Revenues from the Company's other operating
activities decreased to $1.5 million in the current quarter, as compared to $7.1
million in the prior year quarter, which included $5.0 million of revenues from
MEMS, which was merged with MMI in August 1994.
Operating income increased to $10.0 million, or 27% of revenues for the
second quarter of 1995, as compared to $3.4 million, or 12% of revenues in the
prior year quarter. The increase in operating income was primarily attributable
to MEDIQ/PRN which experienced a $7.8 million increase in operating income to
$11.8 million, reflecting additional revenues and improved operating margins
as a result of the KCI acquisition. This increase was partially offset by a
decrease in operating income from the Company's other operating activities
of $.4 million.
10
<PAGE>
Interest expense increased 47% to $7.5 million for the second quarter of
1995 from $5.1 million as a result of increased borrowings associated with the
expansion of MEDIQ/PRN.
The Company's equity in earnings of its unconsolidated affiliates of $1.1
million in 1995 was consistent with the prior year quarter.
Pretax income from continuing operations was $3.2 million for the second
quarter of 1995, as compared to a pretax loss of $.1 million in the prior year
quarter. The current period reflects a pretax loss of $1.1 million related to
the Company's investments in New West common stock and preferred stock which
were sold in April 1995 for aggregate consideration of $3.0 million.
Revenues and operating income from discontinued operations increased to
$23.2 million and $3.2 million, respectively, as compared to $16.9 million and
$1.6 million in the prior year period. Net income from discontinued operations
was $.3 million for the current quarter (net of a reserve for the estimated net
loss on disposal of $.7 million), as compared to $.5 million in the prior year
quarter. The Company anticipates selling these operations within twelve months.
Estimated operating results from discontinued operations for the period
April 1, 1995 through the expected date of disposal are reflected in the
estimated loss on disposal of $.7 million recognized in the second quarter.
Six Months Ended March 31, 1995 Compared with Six Months Ended March 31, 1994
Revenues were $69.5 million for the six months ended March 31, 1995, as
compared to $53.7 million in the prior year period. MEDIQ/PRN's revenues were
$66.6 million, an increase of $26.7 million from the prior year period,
primarily attributable to the KCI acquisition. MEDIQ/PRN's revenues were
also affected by increases in certain rental prices. Revenues from the Company's
other operating activities decreased to $3.0 million in the current period,
as compared to $13.7 million in the prior year period, which included
revenues of $9.6 million from MEMS, which was merged with MMI in August 1994.
Operating income increased to $14.5 million, or 21% of revenues, for the
current period, as compared to $4.2 million, or 8% of revenues, in the prior
year period. The increase in operating income was attributable to MEDIQ/PRN
which continued to experience additional revenues and improved operating
margins in connection with the KCI acquisition. This increase was partially
offset by a decrease in operating income from the Company's other operating
activities of $.8 million.
Interest expense increased 41% to $14.9 million for the current period from
$10.6 million as a result of increased borrowings associated with the expansion
of MEDIQ/PRN.
The Company's equity in earnings of its unconsolidated affiliates of $2.0
million was consistent with the prior year period.
Pretax income from continuing operations was $1.7 million for the six
months ended March 31, 1995 as compared to a pretax loss of $1.7 million in
the prior year period. The current period reflects a pretax loss of $1.1
million related to the Company's investments in New West common stock and
preferred stock which were sold in April 1995. The prior year period included
a pretax gain of $1.9 million relating primarily to its investment in New West
which completed an initial public offering in December 1993.
Revenues and operating income from discontinued operations increased to
$41.9 million and $5.2 million, respectively, from $31.8 million and $2.2
million in the prior year period. Net income from discontinued operations was
$.8 million for the six months ended March 31, 1995 (net of a reserve for the
estimated net loss on disposal of $.7 million), as compared to $.3 million in
the prior year period.
INCOME TAXES
The Company's effective tax rate was disproportionate 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $2.2 million for the six months
ended March 31, 1995, as compared to $3.4 million in the prior year period.
Cash flows from operating activities were adversely affected by an increase
in accounts receivables of $16.6 million from September 30, 1994
to March 31, 1995, which resulted primarily from the increase in MEDIQ/PRN's
revenues of approximately $27 million. Cash flows from operating activities for
the remainder of the fiscal year are anticipated to improve as the growth in
accounts receivable stabilizes.
Net cash used in investing activities was $1.7 million for the six months
ended March 31, 1995. Capital expenditures totalled $4.6 million, of which
$1.8 million were financed with long-term debt.
11
<PAGE>
Net cash used in financing activities was $1.5 million for the six months
ended March 31, 1995, and consisted of repayments of notes payable and
long-term debt of $10.7 million, partially offset by borrowings of $9.2 million.
Under the terms of its 7.25% convertible debentures due 2006, the Company
is required to offer to repurchase a portion of the debentures if stockholders'
equity is $40 million or less at the end of two consecutive fiscal quarters.
Since June 30, 1994, the Company's stockholders' equity has been less than $40
million. The requirement to repurchase debentures at December 31, 1994 and June
30, 1995 has been satisfied through the Company's previous acquisition of $23.3
million principal amount of debentures. If stockholders' equity continues to be
less than $40 million, the Company will be required to repurchase approximately
$10.5 million of debentures on December 31, 1995 and $11.25 million of
debentures semi-annually thereafter until all debentures are repurchased or
stockholders' equity is more than $40 million. As of March 31, 1995, $10.5
million of the debentures have been classified as a current obligation.
The Company believes that its existing working capital, anticipated funds
to be generated from operations, and anticipated proceeds from the disposal
of discontinued operations and other assets, together with existing
credit facilities, will be sufficient to meet anticipated operating and capital
needs. Proceeds from the sale of discontinued operations are anticipated
to be used for working capital purposes and reductions of current and long-term
debt. Depending upon future growth of MEDIQ/PRN, additional financing may be
required.
12
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 1995
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 14, 1995, an action was filed in the Court of Chancery of the
State of Delaware by two stockholders against the Company and its directors. The
suit, which seeks status as a class action on behalf of all of the Company's
stockholders, alleges breaches of the fiduciary duties of the directors and the
Company in connection with the proposal submitted to the Board of Directors by a
management group for the purchase of all of the outstanding shares of common and
preferred stock of the Company (see Item 5 below). The class action suit seeks
an injunction to prevent the proposed transaction from being pursued, as well
as compensatory damages and attorney's fees. The Company believes that this suit
is without merit, and is moot because the offer submitted by the management
group was rejected by the Board of Directors and has expired.
On March 29, 1995, an action was filed in the U.S. District Court for the
Eastern District of Pennsylvania by Dr. Jeffrey S. Weisman against the Company,
two wholly-owned subsidiaries of the Company and two employees of the
subsidiaries. The suit alleges that the defendants committed fraudulent
practices and violated the Racketeer Influenced and Corrupt Organization Act and
the so-called 'whistleblower' provisions of the False Claims Act in connection
with the purchase by a subsidiary of the Company of a business formerly owned by
the plaintiff. The suit also alleges that the defendants retaliated against the
plaintiff for questioning alleged fraudulent practices involving the Medicare
system by a subsidiary of the Company. The suit seeks compensatory damages and
punitive damages aggregating in excess of $12,000,000, as well as attorney's
fees and other remedies. The Company intends to vigorously defend this suit.
ITEM 5. OTHER INFORMATION
On January 20, 1995, the Company announced the formation of a Special
Committee of the Board of Directors for the purpose of exploring alternative
ways to maximize shareholder value. Among those matters to be considered by the
Special Committee are the possible sale of all or substantially all the stock or
assets of the Company, its wholly-owned subsidiaries or its equity investments
to a buyer or group of buyers, which may include members of the management of
the Company and its subsidiaries. The Special Committee retained the
investment banking firm of Lazard, Freres & Co. to act as its exclusive
financial advisor to assist it in considering these alternatives.
On March 14, 1995, the Company announced that it had received an offer from
members of the Company's management to acquire all of the outstanding common and
preferred stock and repay or assume all debt of the Company and its subsidiaries
in a transaction valued at $437 million. The offer was referred to the Special
Committee for review. The offer proposed to pay stockholders $6.87 per share of
common and preferred stock consisting of $4.00 in cash and $2.87, representing
the current market value, as of that date, on a per share basis of the Company's
publicly-traded equity interests in MMI, NutraMax and PCI, and the face value
of the note receivable from Mental Health Management, Inc. The offer proposes
distributing the equity interests and note either directly to stockholders of
the Company or to a liquidating trust for the benefit of the stockholders of the
Company. The offer was conditioned upon negotiating and executing a mutually
acceptable merger agreement by April 14, 1995, and was subject to certain other
customary conditions including financing, and, among other matters, specifically
encouraged the Special Committee to continue to solicit other acquisition
proposals from interested parties.
On March 17, 1995, the Company announced that the Special Committee
reviewed the offer that was made March 14, 1995 by MEDIQ Acquisition Corp.
to acquire the Company, and recommended that the Board of Directors
reject the offer as inadequate. In determining to recommend
13
<PAGE>
that the Board reject the offer, the Special Committee consulted with its
investment bankers, Lazard, Freres & Co. The Special Committee has undertaken a
process to solicit offers for the Company, its wholly-owned subsidiaries,
including MEDIQ/PRN, and its equity investments. The Special Committee advised
MEDIQ Acquisition Corp. that it could submit an improved offer as part of that
process.
On April 13, 1995, the Company announced that its Board of Directors
accepted the recommendation of its Special Committee rejecting the offer of
MEDIQ Acquisition Corp. to acquire the Company. In accepting the Special
Committee recommendation, the Board of Directors consulted with its investment
bankers, Lazard, Freres & Co. The Company also stated that it will continue to
solicit offers for the Company and its wholly-owned subsidiaries including
MEDIQ/PRN, and has directed Lazard, Freres & Co. to continue its efforts in
this regard. In addition, the Company announced that it entered into an
agreement to sell Medifac, Inc., the Company's healthcare facility planning,
design and project management subsidiary, and certain real estate, to the
management group of Medifac, headed up by James W. Eastwood, President and
Chief Executive Officer, for an aggregate sale price of $11.8 million. The
Company also announced that it is focusing on the sale of its non-core
businesses including Health Examinetics, Inc., MEDIQ Mobile X-Ray Services,
Inc. and MEDIQ Imaging Services, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 -- Computation of Net Income Per Share appears on page 17.
Exhibit 27 -- Financial Data Schedule appears on page 18.
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K:
Date of Earliest Event Requiring Report: January 20, 1995
Date of Filing: January 26, 1995
Items Reported: Item 5
Subject: Formation of Special Committee of the Board of Directors to
explore alternative ways to maximize shareholder value; retention of Lazard,
Freres & Co. as financial advisor.
Date of Earliest Event Requiring Report: March 14, 1995
Date of Filing: March 15, 1995
Items Reported: Item 5
Subject: Offer received from management group to acquire outstanding shares in
transaction valued at $437 million.
Date of Earliest Event Requiring Report: March 17, 1995
Date of Filing: April 5, 1995
Items Reported: Item 5
Subject: Special Committee recommends rejection of offer from management group;
action filed in Delaware against the Company and Board of Directors alleging
breaches of fiduciary duties in connection with offer from management group
seeking an injunction to prevent the proposed transaction from being pursued;
action filed in Federal District Court against the Company, two subsidiaries and
two employees of a subsidiary alleging fraudulent practices, RICO violations,
whistleblower violations and retaliation, seeking compensatory and punitive
damages in excess of $12,000,000 and other remedies.
Date of Earliest Event Requiring Report: April 13, 1995
Date of Filing: April 19, 1995
Items Reported: Item 5
Subject: Board of Directors rejects offer from management group; agreement
signed to sell Medifac, Inc., the Company's healthcare facility planning, design
and project management subsidiary, to the management group of Medifac for $11.8
million; continuing to focus on the sale of non-core
14
<PAGE>
businesses including Health Examinetics, Inc., MEDIQ Mobile X-Ray Services, Inc.
and MEDIQ Imaging Services, Inc.
15
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 1995
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.
MEDIQ Incorporated
(Registrant)
________/s_/__MICHAEL F. SANDLER_______
Michael F. Sandler
Senior Vice President -- Finance
and Chief Financial Officer
May 15, 1995
(Date)
16
<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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Computation of Primary Earnings Per Share:
Net Income (loss).......................................... $ 1,787 $ 174 $ 1,576 $ (1,088)
======== ======== ======== ========
Weighted average of primary shares:
Common stock............................................... 17,747 17,517 17,743 17,463
Preferred stock............................................ 6,420 6,448 6,424 6,452
Assumed conversion of options.............................. 405 427 342 435
-------- -------- -------- --------
Total................................................... 24,572 24,392 24,509 24,350
======== ======== ======== ========
Primary Earnings (Loss) Per Share............................ $ .07 $ .01 $ .06 $ (.04)
======== ======== ======== ========
Computation of Fully Diluted Earnings Per Share (1):
Net Income (loss).......................................... $ 1,787 $ 174 $ 1,576 $ (1,088)
Interest and amortization of deferred costs on convertible
debentures -- net of tax................................ 580 579 1,159 1,159
-------- -------- -------- --------
Total................................................... $ 2,367 $ 753 $ 2,735 $ 71
======== ======== ======== ========
Weighted average of fully diluted shares:
Common stock............................................... 17,747 17,517 17,743 17,463
Preferred stock............................................ 6,420 6,448 6,424 6,452
Assumed conversion of options.............................. 444 429 369 436
Assumed conversion of convertible debentures............... 6,897 6,897 6,897 6,897
-------- -------- -------- --------
Total................................................... 31,508 31,291 31,433 31,248
======== ======== ======== ========
Fully Diluted Earnings Per Share............................. $ .08 $ .02 $ .09 $ .00
======== ======== ======== ========
</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%.
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
MEDIQ INCORPORATED AND SUBSIDIARIES
Financial Data Schedule
(Unaudited)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 502
<SECURITIES> 0
<RECEIVABLES> 35,703
<ALLOWANCES> 2,596
<INVENTORY> 4,674
<CURRENT-ASSETS> 100,365
<PP&E> 230,168
<DEPRECIATION> 89,368
<TOTAL-ASSETS> 379,765
<CURRENT-LIABILITIES> 74,939
<BONDS> 249,338
<COMMON> 19,082
0
3,399
<OTHER-SE> 15,377
<TOTAL-LIABILITY-AND-EQUITY> 379,765
<SALES> 0
<TOTAL-REVENUES> 69,532
<CGS> 0
<TOTAL-COSTS> 54,989
<OTHER-EXPENSES> (2,004)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,877
<INCOME-PRETAX> 1,670
<INCOME-TAX> 926
<INCOME-CONTINUING> 744
<DISCONTINUED> 832
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,576
<EPS-PRIMARY> .06
<EPS-DILUTED> .09
</TABLE>
