<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended: DECEMBER 31, 1994 Commission File Number: 1-8147
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MEDIQ INCORPORATED
(Exact name of registrant as specified in its charter)
------------------------------------
<TABLE>
<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 February 9, 1995, there were 17,746,714 shares of Common Stock, par
value $1.00 per share and 6,401,089 shares of Preferred Stock, par value $.50
per share, outstanding.
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<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED DECEMBER 31, 1994
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Statements of Operations -- Three Months Ended December 31, 1994
and 1993 (Unaudited).................................................................... 2
Condensed Consolidated Balance Sheets -- December 31, 1994 (Unaudited) and September 30,
1994.................................................................................... 3
Condensed Consolidated Statements of Cash Flows -- Three Months Ended December 31, 1994
and 1993 (Unaudited).................................................................... 4
Notes to Condensed Consolidated Financial Statements (Unaudited).......................... 5-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................................... 7-8
PART II. OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................... 9
</TABLE>
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED DECEMBER 31, 1994
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1994 1993
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<S> <C> <C>
Revenues................................................................................... $ 50,916 $ 40,473
Costs and expenses:
Operating................................................................................ 23,264 20,811
Selling and administrative............................................................... 12,637 11,626
Depreciation and amortization............................................................ 8,461 6,766
--------- ---------
44,362 39,203
--------- ---------
Operating income........................................................................... 6,554 1,270
Other (charges) credits:
Interest expense......................................................................... (8,348) (6,213)
Equity in earnings of unconsolidated affiliates.......................................... 860 865
Other -- net............................................................................. 508 2,342
--------- ---------
Loss before income tax benefit............................................................. (426) (1,736)
Income tax benefit......................................................................... (215) (474)
--------- ---------
Net loss................................................................................... $ (211) $ (1,262)
--------- ---------
--------- ---------
Earnings per share......................................................................... $ (.01) $ (.05)
--------- ---------
--------- ---------
Weighted average shares outstanding........................................................ 24,447 24,308
--------- ---------
--------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30,
1994 1994
----------- -----------
<S> <C> <C>
(UNAUDITED) (SEE NOTE)
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 1,203 $ 3,232
Accounts receivable -- net............................................................ 48,447 36,304
Inventories........................................................................... 5,187 5,995
Other current assets.................................................................. 15,450 15,408
----------- -----------
Total current assets............................................................... 70,287 60,939
Investments in unconsolidated affiliates................................................ 48,530 47,730
Note receivable from MHM................................................................ 11,308 11,500
Property, plant and equipment -- net.................................................... 168,167 173,379
Goodwill -- net......................................................................... 84,890 85,191
Other assets............................................................................ 46,832 47,654
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Total assets....................................................................... $ 430,014 $ 426,393
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to financial institutions............................................... $ 11,712 $ 10,060
Accounts payable...................................................................... 10,465 8,451
Accrued expenses...................................................................... 30,950 28,054
Other current liabilities............................................................. 2,418 1,703
Current portion of long-term debt..................................................... 38,083 27,313
----------- -----------
Total current liabilities.......................................................... 93,628 75,581
Senior debt -- recourse................................................................. 163,618 166,779
Senior debt -- nonrecourse.............................................................. 27,062 27,297
Subordinated debt....................................................................... 93,156 103,388
Deferred income taxes and other liabilities............................................. 16,481 17,068
Stockholders' equity.................................................................... 36,069 36,280
----------- -----------
Total liabilities and stockholders' equity.............................................. $ 430,014 $ 426,393
----------- -----------
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</TABLE>
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Note: The balance sheet at September 30, 1994 has been condensed from the
audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1994 1993
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<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (211) $ (1,262)
Adjustments to reconcile net loss to net cash provided by operating activities...... 1,317 5,219
--------- ---------
Cash provided by operating activities............................................... 1,106 3,957
Cash flows from investing activities:
Proceeds from sale of assets........................................................ 469 536
Acquisitions........................................................................ (116) (1,633)
Purchases of property, plant and equipment.......................................... (516) (2,793)
Other............................................................................... (189) (52)
--------- ---------
Net cash used in investing activities............................................... (352) (3,942)
Cash flows from financing activities:
Borrowings.......................................................................... 2,612 2,948
Debt repayments..................................................................... (5,395) (4,182)
Dividends........................................................................... -- (638)
--------- ---------
Net cash used in financing activities............................................... (2,783) (1,872)
--------- ---------
Decrease in cash and cash equivalents................................................. (2,029) (1,857)
Cash and cash equivalents:
Beginning balance................................................................... 3,232 18,123
--------- ---------
Ending balance...................................................................... $ 1,203 $ 16,266
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Interest paid....................................................................... $ 5,320 $ 3,887
--------- ---------
--------- ---------
Income taxes paid................................................................... $ 22 $ 63
--------- ---------
--------- ---------
Supplemental disclosure of non-cash investing and financing activities:
Equipment financed with long-term debt and capital leases........................... $ 2,147 $ 2,978
--------- ---------
--------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<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 December 31, 1994 and the
condensed consolidated statements of operations and cash flows for the three
months ended December 31, 1994 and 1993 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 December 31, 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, 1994 Annual Report on Form 10-K.
The results of operations for the period ended December 31, 1994 are not
necessarily indicative of the operating results for the full year.
NOTE B -- INVENTORIES
Inventories, which consist primarily of repair parts for rental equipment
and finished goods held for sale, are stated at the lower of cost (first-in,
first-out method) or market.
NOTE C -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES
As of December 31, 1994, the Company's ownership interests in NutraMax
Products, Inc., PCI Services, Inc. and MMI Medical, Inc. were 47.4%, 46.9% and
40.0%, respectively.
Summarized income statement information for NutraMax, PCI and MMI is
presented below.
NutraMax Products, Inc.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------
DEC. 31, JAN. 1,
1994 1994
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<S> <C> <C>
Net sales............................................. $ 15,123,000 $ 10,201,000
Gross profit.......................................... 4,602,000 3,260,000
Net income............................................ 1,238,000 662,000
</TABLE>
PCI Services, Inc.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
------------------------------
1994 1993
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<S> <C> <C>
Net revenue........................................... $ 28,610,000 $ 27,917,000
Gross profit.......................................... 6,024,000 5,614,000
Net income............................................ 1,041,000 1,305,000
</TABLE>
5
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE C -- INVESTMENTS IN UNCONSOLIDATED AFFILIATES (CONTINUED)
MMI Medical, Inc.
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
------------------------------
1994 1993(1)
-------------- --------------
<S> <C> <C>
Net revenue........................................... $ 11,311,000 $ 7,952,000
Gross profit (loss)................................... (616,000) 544,000
Net income (loss)..................................... (528,000) 303,000
</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 D -- 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. For
the quarters ended June 30, 1994, September 30, 1994 and December 31, 1994 the
Company's stockholders' equity was less than $40 million. The requirement to
repurchase debentures at December 31, 1994 and the potential requirement to
repurchase debentures at June 30, 1995 are 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 December 31, 1994, $10.5 million of the debentures have
been classified as a current obligation.
NOTE E -- SUBSEQUENT EVENT
On January 20, 1995, the Company announced that its Board of Directors
formed a Special Committee 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 interests in its
partially-owned subsidiaries to a buyer or group of buyers, which may include
members of the management of the Company and its subsidiaries. The Special
Committee has retained the investment banking firm of Lazard Freres & Co. to
act as its exclusive financial advisor to assist it in considering these
alternatives. The Company has not made a decision to sell any specific asset
or subsidiary at this time.
6
<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 December 31, 1994 and results of operations for the three month periods
ended December 31, 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 12-18) to which the reader is directed for
additional information.
On September 30, 1994, the Company acquired the critical care and life
support rental equipment inventory 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.
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.
RESULTS OF OPERATIONS
Revenues were $50.9 million for the first quarter of 1995, as compared to
$40.5 million in the prior year period. MEDIQ/PRN's revenues for the first
quarter of 1995 increased 62%, to $30.7 million, as compared to 1994 revenues of
$18.9 million. This increase was primarily attributable to an expanded customer
base as a result of the acquisition of KCI. Revenues from the Diagnostic Imaging
Services Group for the first quarter of 1995 were $12.9 million, as compared to
$10.2 million in the prior year period. This segment experienced an increase in
procedures as a result of geographic expansion, primarily through acquisitions,
while reductions in third party reimbursement rates continued to adversely
impact revenues. Revenues from the Company's other operating activities were
$6.6 million in the current quarter, as compared to $6.2 million in the prior
year period, after excluding $4.6 million of revenues from MEMS.
Operating income increased to $6.6 million, or 13% of revenues, for the
first quarter of 1995, as compared to $1.3 million, or 3% of revenues, in the
prior year period. The increase in operating income was primarily attributable
to MEDIQ/PRN and the Diagnostic Imaging Services Group. MEDIQ/PRN's operating
income increased $4.1 million, and was primarily attributable to additional
revenue and economies of scale experienced as a result of the acquisition of
KCI. Operating income from the Diagnostic Imaging Services Group increased
$.7 million as a result of increased volume and reduced overhead, partially
offset by reductions in reimbursement rates. Operating income from other
operating activities increased $.3 million.
Interest expense increased 33% to $8.3 million for the first quarter of
1995 from $6.2 million as a result of increased borrowings associated with the
expansion of MEDIQ/PRN and the Diagnostic Imaging Services Group and increases
in the prime lending rate.
The pretax loss was $.4 million for the first quarter of 1995, as compared
to $1.7 million in the prior year period. The Company recorded income of $1.2
million in the first quarter of 1994 relating to the Company's investment in New
West Eyeworks, Inc., which completed an initial public offering in December
1993.
The Company's equity in the earnings of its unconsolidated affiliates
was consistent with the prior year period.
INCOME TAXES
The Company's effective tax rates were disproportionate compared to the
statutory rate as a result of goodwill amortization and the non-recognition of
certain operating losses for state income tax purposes.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $1.1 million in the current
quarter, as compared to $4.0 million in the prior year period. While the
Company experienced significant improvements in operating income, cash
flows from operations were affected in the current period by the increase
in accounts receivable attributable to the growth in MEDIQ/PRN's business.
The Company anticipates significant improvements in future cash flows as
MEDIQ/PRN takes advantage of its significant economies of scale and market
share. As of December 31, 1994, the Company had cash and cash equivalents
of $1.2 million and a working capital deficit of $23.3 million. Current
liabilities include $10.5 million representing the portion of the 7.25%
convertible debentures expected to be repurchased December 31, 1995.
Net cash used in investing activities consisted principally of capital
expenditures for equipment of $.5 million.
Net cash used in financing activities consisted of borrowings of $2.6
million and debt repayments of $5.4 million. As of December 31, 1994, the
Company had $11.7 million outstanding under available lines of credit
aggregating $18.0 million. The amount of available credit fluctuates based upon
the amount of eligible accounts receivable. Based upon management's analysis of
eligible accounts receivable, approximately $4.8 million of credit was available
at December 31, 1994.
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. For
the quarters ended June 30, 1994, September 30, 1994 and December 31, 1994 the
Company's stockholders' equity was less than $40 million. The requirement to
repurchase debentures at December 31, 1994 and the potential requirement to
repurchase debentures at June 30, 1995 are 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 December 31, 1994, $10.5 million of the debentures have
been classified as a current obligation.
The Company expects that its primary sources of liquidity for operating
activities will be generated through internal cash flows from consolidated
subsidiaries and proceeds from the sale of assets. The Company's ability to
obtain cash from MEDIQ/PRN is limited by provisions in certain of MEDIQ/PRN's
debt agreements. For the first quarter of 1995, such provisions did not permit
MEDIQ/PRN to pay any dividends to the Company. As a result of increased revenues
and operating income related to the acquisition of equipment from KCI, it is
anticipated that the Company will be able to obtain a portion of its cash
requirements from MEDIQ/PRN. Accordingly, the Company believes that sufficient
funds will be available from operating cash flows and the sale of assets to meet
the Company's anticipated corporate and subsidiary operating and capital
requirements. The Company is continuing its program to maximize shareholder
value and as a result may divest certain subsidiaries or assets in the future.
Proceeds from any such divestitures will be used to reduce debt and/or for
general corporate purposes.
RECENT DEVELOPMENTS
On January 20, 1995, the Company announced that its Board of Directors
formed a Special Committee 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 interests in its
partially-owned subsidiaries to a buyer or group of buyers, which may include
members of the management of the Company and its subsidiaries. The Special
Committee has retained the investment banking firm of Lazard Freres & Co. to
act as its exclusive financial advisor to assist it in considering these
alternatives. The Company has not made a decision to sell any specific
asset or subsidiary at this time.
8
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED DECEMBER 31, 1994
PART II. OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 -- Computation of Net Income Per Share.........................................
Exhibit 27 -- Financial Data Schedule.....................................................
(b) Reports on Form 8-K
A report on Form 8-K pursuant to Item 2 was filed in October 1994 in connection with the
Company's acquisition of KCI.
A report on Form 8-K/A pursuant to Item 7 was filed in December 1994 to file the audited
financial statements of KCI and the required pro forma financial information.
</TABLE>
9
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MEDIQ INCORPORATED AND SUBSIDIARIES
QUARTER ENDED DECEMBER 31, 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>
MEDIQ Incorporated
(Registrant)
February 14, 1995 /s/ Michael F. Sandler
(Date) Michael F. Sandler
Senior Vice President -- Finance
and Chief Financial Officer
</TABLE>
10
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EXHIBIT 11
MEDIQ INCORPORATED AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1994 1993
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<S> <C> <C>
COMPUTATION OF PRIMARY EARNINGS PER SHARE:
Net Loss................................................................................... $ (211) $ (1,262)
--------- ---------
--------- ---------
Weighted average of primary shares:
Common stock............................................................................. 17,740 17,408
Preferred stock.......................................................................... 6,427 6,456
Assumed conversion of options............................................................ 280 444
--------- ---------
Total................................................................................. 24,447 24,308
--------- ---------
--------- ---------
Primary Earnings Per Share................................................................. $ (.01) $ (.05)
--------- ---------
--------- ---------
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (1):
Net Loss................................................................................... $ (211) $ (1,262)
Interest and amortization of deferred costs on convertible debentures -- net of tax........ 579 690
--------- ---------
Total................................................................................. $ 368 $ (572)
--------- ---------
--------- ---------
Weighted average of fully diluted shares:
Common stock............................................................................. 17,740 17,408
Preferred stock.......................................................................... 6,427 6,456
Assumed conversion of options............................................................ 295 444
Assumed conversion of convertible debentures............................................. 6,897 8,373
--------- ---------
Total................................................................................. 31,359 32,681
--------- ---------
--------- ---------
Fully Diluted Earnings Per Share........................................................... $ .01 $ (.02)
--------- ---------
--------- ---------
</TABLE>
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(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%.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 1,203
<SECURITIES> 0
<RECEIVABLES> 56,842
<ALLOWANCES> 8,395
<INVENTORY> 5,187
<CURRENT-ASSETS> 70,287
<PP&E> 275,017
<DEPRECIATION> 106,850
<TOTAL-ASSETS> 430,014
<CURRENT-LIABILITIES> 93,628
<BONDS> 283,836
<COMMON> 19,080
0
3,400
<OTHER-SE> 13,589
<TOTAL-LIABILITY-AND-EQUITY> 430,014
<SALES> 0
<TOTAL-REVENUES> 50,916
<CGS> 0
<TOTAL-COSTS> 44,362
<OTHER-EXPENSES> (1,368)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,348
<INCOME-PRETAX> (426)
<INCOME-TAX> (215)
<INCOME-CONTINUING> (211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
