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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended:June 30, 1995 Commission File Number: 1-8147
MEDIQ INCORPORATED
(Exact name of registrant as specified in its charter)
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)
Registrant's telephone number, including area code: (609) 665-9300
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____
As of August 4, 1995, there were 17,807,520 shares of Common Stock, par value
$1.00 per share and 6,342,018 shares of Series A Preferred Stock, par value
$.50 per share, outstanding.
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MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended June 30, 1995
PART I. FINANCIAL INFORMATION:
<TABLE>
<S> <C>
Item 1. Financial Statements.
Condensed Consolidated Statements of Operations-
Three and Nine Months ended June 30, 1995 and 1994
(Unaudited) 4
Condensed Consolidated Balance Sheets-
June 30, 1995 (Unaudited) and September 30, 1994 5
Condensed Consolidated Statements of Cash Flows-
Nine Months ended June 30, 1995 and 1994
(Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11-14
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings. 15
Item 5. Other Information. 15-16
Item 6. Exhibits and Reports on Form 8-K. 16-17
</TABLE>
2
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MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended June 30, 1995
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
3
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MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 33,290 $ 24,828 $102,822 $ 78,493
Costs and expenses:
Operating 13,885 13,503 42,168 40,449
Selling and administrative 5,617 5,690 18,178 16,833
Depreciation and amortization 7,890 5,724 22,035 17,124
-------- -------- -------- --------
27,392 24,917 82,381 74,406
-------- -------- -------- --------
Operating income (loss) 5,898 (89) 20,441 4,087
Other (charges) credits:
Interest expense (7,293) (5,200) (22,170) (15,764)
Equity in earnings of unconsolidated affiliates 154 1,044 2,123 3,056
Other - net 455 376 490 3,098
-------- -------- -------- --------
Income (loss) from continuing operations before
income tax expense (benefit) (786) (3,869) 884 (5,523)
Income tax expense (benefit) 406 (1,145) 1,332 (1,421)
-------- -------- -------- --------
Loss from continuing operations (1,192) (2,724) (448) (4,102)
Income (loss) from discontinued operations -- (125) 832 165
-------- -------- -------- --------
Net income (loss) $ (1,192) $ (2,849) $ 384 $ (3,937)
======== ======== ======== ========
Earnings per share:
Loss from continuing operations $ (.05) $ (.11) $ (.02) $ (.17)
Income (loss) from discontinued operations -- (.01) .03 .01
-------- -------- -------- --------
Net income (loss) $ (.05) $ (.12) $ .01 $ (.16)
======== ======== ======== ========
Weighted average shares outstanding 24,699 24,418 24,573 24,373
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, Sept. 30,
1995 1994
----------- ----------
(Unaudited) (See Note)
<S> <C> <C>
Assets
Current assets:
Cash $ 2,702 $ 1,511
Accounts receivable - net 30,318 16,795
Investment in discontinued operations 37,022 49,397
Inventories 4,402 5,939
Deferred income taxes 4,243 3,323
Other current assets 5,832 7,865
----------- ----------
Total current assets 84,519 84,830
Investments in unconsolidated affiliates 49,794 47,730
Note receivable from MHM 10,925 11,500
Property, plant and equipment - net 137,735 149,200
Goodwill - net 63,928 65,722
Other assets 17,565 18,802
----------- ----------
Total assets $ 364,466 $ 377,784
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to financial institutions $ 10,078 $ 6,180
Accounts payable 5,342 5,952
Accrued expenses and other current liabilities 23,425 23,860
Current portion of long-term debt 38,841 23,444
----------- ----------
Total current liabilities 77,686 59,436
Senior debt 148,595 162,436
Subordinated debt 82,411 103,388
Deferred income taxes 13,085 9,808
Other liabilities 5,978 6,436
Stockholders' equity 36,711 36,280
----------- ----------
Total liabilities and stockholders' equity $ 364,466 $ 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
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MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------------
1995 1994
-------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 384 $(3,937)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities 24,689 11,672
(Increase) decrease in accounts receivable (13,305) (1,202)
(Increase) decrease in inventory 1,537 1,218
Increase (decrease) in accounts payable (962) (2,796)
Increase (decrease) in accrued expenses (553) (1,432)
Net cash provided by discontinued operations 1,844 983
Other current assets and liabilities 677 3,185
-------- ---------
Net cash provided by operating activities 14,311 7,691
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (7,076) (5,975)
Proceeds from sale of assets 6,765 3,081
Proceeds from sale of discontinued operations 6,368 --
Acquisitions -- (1,020)
Other (1,631) 1,138
-------- ---------
Net cash provided by (used in) investing activities 4,426 (2,776)
Cash Flows From Financing Activities:
Borrowings 5,088 3,847
Debt repayments (22,681) (18,315)
Dividends -- (1,921)
Proceeds from exercise of stock options 47 282
-------- ---------
Net cash used in financing activities (17,546) (16,107)
Increase (decrease) in cash 1,191 (11,192)
Cash:
Beginning balance 1,511 16,033
-------- ---------
Ending balance $ 2,702 $ 4,841
======== =========
Supplemental disclosure of cash flow information:
Interest paid $ 17,726 $13,107
======== =========
Income taxes paid (refunded) $ 122 $(2,976)
======== =========
Supplemental disclosure of non-cash investing and financing activities:
Equipment financed with debt and capital leases $ 1,328 $ 4,950
======== =========
Liabilities assumed in connection with acquisitions $ -- $ 2,627
======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
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MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of June 30, 1995, the condensed
consolidated statements of operations for the three and nine months ended June
30, 1995 and 1994, and the condensed consolidated statements of cash flows for
the nine months then ended have been prepared by the Company without audit. In
the opinion of management, all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at June 30, 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 June 30, 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.
On June 27, 1995, the Company sold Medifac, Inc., a healthcare facility
planning, design and project management firm, and related assets to the
management of Medifac for approximately $11.0 million, consisting of $6.0
million in cash and $5.0 million in notes. The sale resulted in a net loss which
is included in the estimated net loss on the disposal of the non-core businesses
aggregating $.7 million recorded in the quarter ended March 31, 1995.
Summary operating results of discontinued operations, exclusive of the estimated
net loss on the disposal, were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 21,981 $ 18,985 $ 63,833 $ 50,766
Operating income 1,982 832 7,170 2,994
Net income (loss) 645 (125) 2,137 165
</TABLE>
Net assets of discontinued operations as of June 30, 1995 were as follows (in
thousands):
<TABLE>
<S> <C>
Current assets $ 18,722
Property, plant and equipment 13,422
Goodwill 18,727
Other assets 7,127
Current liabilities (16,458)
Long-term debt, net of current maturities ( 4,518)
--------
Net assets of discontinued operations $ 37,022
========
</TABLE>
7
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MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
The Company's efforts in this regard are continuing.
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.
8
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MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note E - Equity Investments
As of June 30, 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 Thirty-Nine Weeks Ended
---------------------------- ----------------------------
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 15,184 $ 15,399 $ 45,362 $ 40,577
Net income 857 1,185 3,206 2,957
</TABLE>
PCI Services, Inc.
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
---------------------------- ---------------------------
1995 1994 1995 1994
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $ 34,703 $ 31,427 $ 95,225 $ 89,757
Net income 1,698 1,146 3,860 3,922
</TABLE>
MMI Medical, Inc.
<TABLE>
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
----------------------------- ----------------------------
1995 1994(1) 1995 1994(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 9,632 $ 7,218 $ 31,535 $ 22,939
Net income (loss) (2,603) (33) (3,010) 691
</TABLE>
(1) The Company obtained its investment in MMI in August 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 nine months ended June 30, 1995.
9
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MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note G - Long-Term Debt
Under the terms of the 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. Based upon the Company's equity as of
June 30, 1995, the Company will be required to offer to repurchase approximately
$10.5 million of debentures on December 31, 1995. Thereafter, if stockholders'
equity continues to be less than $40 million, the Company will be required to
offer to repurchase approximately $11.25 million of debentures semi-annually
until all debentures are repurchased or stockholders' equity is more
than $40 million. As of June 30, 1995, $21.75 million of the debentures have
been classified as current obligations.
Note H - Subsequent Events
In August 1995, the Company sold the assets of MEDIQ Imaging Services, Inc.,
the Company's mobile and fixed site ultrasound and nuclear imaging business to
National Medical Care, Inc., a division of W.R. Grace, Inc., for approximately
$18 million in cash and the assumption of approximately $10 million of debt.
In July 1995, the Company settled a lawsuit filed on March 29, 1995 by Dr.
Jeffrey S. Weisman.
10
<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 June 30, 1995 and its results of operations for the three and nine months
ended June 30, 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 and nine months
ended June 30, 1995 are not necessarily indicative of the operating results for
the full year.
Results of Operations
Third Quarter 1995 Compared with Third Quarter 1994
Revenues were $33.3 million for the third quarter of 1995, as compared to
$24.8 million in the prior year quarter. MEDIQ/PRN's revenues increased to $32.7
million from $18.1 million in the third 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 approximately $5.0 million as a result of the merger of MEMS with MMI
in August 1994.
Operating income increased to $5.9 million for the third quarter of 1995,
as compared to a loss of $.1 million in the prior year quarter. The increase in
operating income was primarily attributable to MEDIQ/PRN which experienced a
$5.7 million increase in operating income to $7.2 million, reflecting additional
revenues and improved operating margins as a result of the KCI acquisition.
11
<PAGE>
Interest expense increased 40% to $7.3 million for the third quarter of
1995 from $5.2 million as a result of increased borrowings associated with the
KCI acquisition.
Equity in earnings of unconsolidated affiliates decreased to $.2 million
for the third quarter of 1995 from $1.0 million in the prior year quarter
primarily as a result of the Company's equity in the net loss of MMI of $1.0
million. MMI reported a net loss of $2.6 million in its fourth quarter of
fiscal 1995 which reflected reserves associated with equipment, inventories
and the planned relocation of its corporate headquarters.
The pretax loss from continuing operations was $.8 million for the third
quarter of 1995, as compared to a pretax loss of $3.9 million in the prior year
quarter.
Revenues and operating income from discontinued operations increased to
$22.0 million and $2.0 million, respectively, as compared to $19.0 million and
$.8 million in the prior year quarter. 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 of 1995. The Company sold Medifac, Inc., a
healthcare facility planning, design and project management firm, and related
assets to the management of Medifac for approximately $11.0 million, consisting
of $6.0 million in cash and $5.0 million in notes. The sale resulted in a net
loss which is included in the estimated net loss on disposal of the non-core
businesses.
Nine Months Ended June 30, 1995 Compared with Nine Months Ended June 30, 1994
Revenues were $102.8 million for the nine months ended June 30, 1995, as
compared to $78.5 million in the prior year period. MEDIQ/PRN's revenues were
$99.2 million, an increase of $41.3 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 approximately $14.0 million as a result of
the merger of MEMS with MMI in August 1994.
Operating income increased to $20.4 million, or 20% of revenues, for the
current period, as compared to $4.1 million, or 5% 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
$.7 million.
Interest expense increased 41% to $22.2 million for the current period from
$15.8 million as a result of increased borrowings associated with the KCI
acquisition.
The Company's equity in earnings of its unconsolidated affiliates was $2.1
million as compared to $3.1 million in the prior year period. The decrease was
primarily attributable to the Company's equity in the net loss of MMI of
$1.2 million.
Pretax income from continuing operations was $.9 million for the nine
months ended June 30, 1995, as compared to a pretax loss of $5.5 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.
12
<PAGE>
Revenues and operating income from discontinued operations increased to
$63.8 million and $7.2 million, respectively, from $50.8 million and $3.0
million in the prior year period. Net income from discontinued operations was
$.8 million for the nine months ended June 30, 1995 (net of a reserve for the
estimated net loss on disposal of $.7 million), as compared to $.2 million in
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, earnings of the Company's
equity investments and the non-recognition of certain operating losses for state
income tax purposes.
Recent Events
In August 1995, the Company sold the assets of MEDIQ Imaging Services,
Inc., the Company's mobile and fixed site ultrasound and nuclear imaging
business to National Medical Care, Inc., a division of W.R. Grace, Inc., for
approximately $18 million in cash and the assumption of approximately
$10 million of debt.
In July 1995, the Company settled a lawsuit filed on March 29, 1995 by Dr.
Jeffrey S. Weisman.
Liquidity and Capital Resources
Cash provided by operating activities was $14.3 million for the nine months
ended June 30, 1995, as compared to $7.7 million in the prior year period. The
increase in cash flow from operations was attributable to MEDIQ/PRN's improved
operating results as a result of the KCI acquisition.
Net cash provided by investing activities was $4.4 million for the nine
months ended June 30, 1995. Proceeds from the sale of assets were $13.1 million,
including $6.4 million from the sale of Medifac. Capital expenditures were $8.4
million, of which $1.3 million were financed with long-term debt.
Net cash used in financing activities was $17.6 million for the nine months
ended June 30, 1995, and consisted of repayments of notes payable and long-term
debt of $22.7 million, partially offset by borrowings of $5.1 million.
Under the terms of the 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. Based upon the Company's equity as of
June 30, 1995, the Company will be required to offer to repurchase approximately
$10.5 million of debentures on December 31, 1995. Thereafter, if stockholders'
equity continues to be less than $40 million, the Company will be required to
offer to repurchase approximately $11.25 million of debentures semi-annually
until all debentures are repurchased or stockholders' equity is more than $40
million. As of June 30, 1995, $21.75 million of the debentures have been
classified as current obligations.
The Company believes that its existing working capital, anticipated funds
to be generated from operations, and anticipated proceeds from the disposal of
discontinued operations, 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.
13
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended June 30, 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 sought status as a class action on behalf of all of the Company's
stockholders, alleged 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 sought
an injunction to prevent the proposed transaction from being pursued, as well as
compensatory damages and attorney's fees. This suit was voluntarily withdrawn
by the shareholders because the offer submitted by the management group was
rejected by the Board of Directors and 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 alleged 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 alleged that the defendants retaliated against the
plaintiff for questioning alleged fraudulent practices involving the Medicare
system by a subsidiary of the Company. The suit sought compensatory damages and
punitive damages, as well as attorney's fees and other remedies. The suit was
settled in July 1995 and has been dismissed with prejudice.
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 proposed
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.
14
<PAGE>
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 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.
The Company's efforts in this regard are continuing. The Company also announced
that it is focusing on the sale of its non-core businesses including Medifac,
Inc., Health Examinetics, Inc., MEDIQ Mobile X-Ray Services, Inc. and MEDIQ
Imaging Services, Inc.
On June 27, 1995, the Company sold Medifac, Inc., a healthcare facility
planning, design and project management firm, and related assets to
the management of Medifac for approximately $11.0 million,
consisting of $6.0 million in cash and $5.0 million in notes. The sale
resulted in a net loss which was included in the estimated net loss on
the disposal of the non-core businesses.
On August 11, 1995, the Company sold the assets of MEDIQ Imaging Services,
Inc., the Company's mobile and fixed site ultrasound and nuclear imaging
business to National Medical Care, Inc., a division of W.R. Grace, Inc., for
approximately $18 million in cash and the assumption of approximately $10
million of debt.
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 during the quarter
ended June 30,1995:
Date of Earliest Event Requiring Report: March 17, 1995
Date of Filing: April 5, 1995
Items Reported: Item 5
Subject: Special Committee recommended rejection of offer from management
group; action filed in Delaware against the Company and Board of
Directors alleging breaches of fiduciary duties; 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.
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.; continuing to focus on the sale of
non-core businesses including Health Examinetics, Inc., MEDIQ Mobile
X-Ray Services, Inc, and MEDIQ Imaging Services, Inc.
15
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended June 30, 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)
August 14, 1995
---------------
(Date) /s/ Michael F. Sandler
----------------------------------
Michael F. Sandler
Senior Vice President - Finance
and Chief Financial Officer
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 Nine Months Ended
June 30, June 30,
----------------------- ----------------------
1995 1994 1995 1994
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Computation of Primary Earnings Per Share:
Net income (loss) $ (1,192) $ (2,849) $ 384 $ (3,937)
======== ========= ======= ========
Weighted average of primary shares:
Common stock 17,786 17,698 17,758 17,541
Preferred stock 6,385 6,441 6,411 6,448
Assumed conversion of options 528 279 404 384
-------- ---------- ------- --------
Total 24,699 24,418 24,573 24,373
======== ========== ======= ========
Primary Earnings (Loss) Per Share $ (.05) $ (.12) $ .01 $ (.16)
======== ========== ======= ========
Computation of Fully Diluted Earnings Per Share (1):
Net income (loss) $ (1,192) $ (2,849) $ 384 $ (3,937)
Interest and amortization of deferred costs on
convertible debentures - net of tax 579 $ 579 $ 1,738 $ 1,738
-------- ---------- ------- --------
Total $ (613) $ (2,270) $ 2,122 $ (2,199)
======== ========== ======= ========
Weighted average of fully diluted shares:
Common stock 17,786 17,698 17,758 17,541
Preferred stock 6,385 6,441 6,411 6,448
Assumed conversion of options 531 279 423 384
Assumed conversion of convertible debentures 6,897 6,897 6,897 6,897
-------- --------- ------- --------
Total 31,599 31,315 31,489 31,270
======== ========= ======= ========
Fully Diluted Earnings Per Share $ (.02) $ (.07) $ .07 $ (.07)
======== ========= ======= ========
</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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,702
<SECURITIES> 0
<RECEIVABLES> 32,595
<ALLOWANCES> 2,277
<INVENTORY> 4,402
<CURRENT-ASSETS> 84,519
<PP&E> 232,442
<DEPRECIATION> 94,707
<TOTAL-ASSETS> 364,466
<CURRENT-LIABILITIES> 77,686
<BONDS> 231,006
<COMMON> 19,126
0
3,377
<OTHER-SE> 14,208
<TOTAL-LIABILITY-AND-EQUITY> 364,466
<SALES> 0
<TOTAL-REVENUES> 102,822
<CGS> 0
<TOTAL-COSTS> 82,381
<OTHER-EXPENSES> (2,613)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,170
<INCOME-PRETAX> 884
<INCOME-TAX> 1,332
<INCOME-CONTINUING> (448)
<DISCONTINUED> 832
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384
<EPS-PRIMARY> .01
<EPS-DILUTED> .07
</TABLE>
