UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report - June 15, 1999
-------------------------------
(Date of earliest event reported)
MEDIQ INCORPORATED
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-8147 51-0219413
- ------------------------------- ----------- -------------------
(State or other jurisdiction of (Commission (IRS employer
incorporation or organization) file Number) identification no.)
One MEDIQ Plaza, Pennsauken, NJ 08110
(Address of principal executive offices)
(609) 662-3200
-----------------
Telephone number
<PAGE>
This amendment to the Current Report on Form 8-K dated June 15, 1999 as filed on
June 28, 1999 is to file the applicable financial statements and pro forma
financial information for the acquisition of HTD Corporation ("HTD") by MEDIQ
Incorporated ("the Company"), through its wholly owned subsidiary MEDIQ/PRN Life
Support Services, Inc., and to revise certain information previously reported
concerning the acquisition.
HTD's nonacute care business principally consisted of sales of disposable
products, rentals of moveable medical equipment and biomedical repair services
(collectively the "Nonacute Care Business"). The Nonacute Care Business of HTD
was formed on May 1, 1998 principally with the acquisitions of Triad Holdings,
Inc. ("Triad") and another company of less significance. Triad was a significant
acquiree of HTD during HTD's year ended December 31, 1998. During HTD's year
ended December 31, 1998, the Nonacute Care Business of HTD consisted principally
of Triad. As previously reported, on June 15, 1999 the Company acquired HTD and
certain of its subsidiaries (including Triad) that together represented the
Nonacute Care Business of HTD (the "Acquired Business"). Contemporaneously with
the acquisition, HTD sold to an unrelated third party its subsidiaries not
acquired by the Company.
The audited and unaudited financial statements of HTD included in Item 7(a) are
presented on a carved out basis that represent the Acquired Business. The
audited financial statements of Triad included in Item 7(a) represent the
principal Nonacute Care Business during the year ended December 31, 1998
preceding the formation of HTD's Nonacute Care Business and HTD's acquisition of
Triad during the year. The audited financial statements of HTD for the year
ended December 31, 1998 and of Triad for the four months ended April 30, 1998
contained in Item 7(a) together principally represent the Acquired Business for
the year ended December 31, 1998.
The number of shares of Series B 13.25% Cumulative Compounding Perpetual
Preferred Stock issued by the Company in the acquisition of HTD is revised to
146,303.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Audited Financial Statements of HTD Corporation and Subsidiaries, excluding the
acute care division:
Combined Statement of Net Assets as of December 31, 1998
Combined Statement of Operations for the Year Ended December 31, 1998
Combined Statement of Changes in Net Assets for the Year Ended
December 31, 1998
Combined Statement of Cash Flows for the Year Ended December 31, 1998
Audited Financial Statements of Triad Holdings, Inc. and Subsidiaries:
Consolidated Statement of Operations for the Four Months Ended
April 30, 1998
Consolidated Statement of Changes in Net Assets for the Four Months Ended
April 30, 1998
Consolidated Statement of Cash Flows for the Four Months Ended
April 30, 1998
Unaudited Financial Statements of HTD Corporation and Subsidiaries, excluding
the acute care division:
Condensed Combined Statement of Net Assets as of April 30, 1999
Combined Statement of Operations for the Four Months Ended April 30, 1999
Condensed Combined Consolidated Statement of Cash Flows for the Four Months
Ended April 30, 1999
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended September 30,1998
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine
Months Ended June 30, 1999
1
<PAGE>
A pro forma balance sheet is not presented herein as the net assets of HTD
acquired by the Company were consolidated in the Company's unaudited condensed
consolidated balance sheet at June 30, 1999 as filed in the Company's Form 10-Q
for the period ended June 30, 1999.
(c) Exhibits
Exhibit 2 - Agreement and Plan of Merger dated June 14, 1999 (1)
Exhibit 23 - Consent of Independent Public Accountants
Exhibit 99.1 - Press Release dated June 15, 1999 (1)
- ----------
(1) Previously filed with the Company's Current Report on Form 8-K dated June
15, 1999.
2
<PAGE>
MEDIQ INCORPORATED
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 30, 1999 /s/ Jay M. Kaplan
- --------------- ----------------------------
(Date) Jay M. Kaplan
Senior Vice President-Finance,
Treasurer and Chief Financial Officer
3
<PAGE>
ITEM 7(a) FINANCIAL STATEMENTS
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HTD Corporation and Subsidiaries:
We have audited the accompanying combined statement of net assets of HTD
Corporation (a Delaware corporation) and Subsidiaries excluding the acute care
division (see Notes 1 and 11) as of December 31, 1998 and the related combined
statements of operations, changes in net assets, and cash flows for the year
then ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As further described in Note 11, these financial statements have been prepared
pursuant to the Purchase Agreement between HTD Corporation and Subsidiaries and
MEDIQ/PRN Life Support Services, Inc., and is not intended to be a complete
presentation of HTD Corporation and Subsidiaries' financial statements.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined net assets of HTD Corporation and
Subsidiaries excluding the acute care division as of December 31, 1998 and the
results of their combined operations and their combined cash flows for the year
then ended, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Birmingham, Alabama
July 29, 1999
FS-1
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
COMBINED STATEMENT OF NET ASSETS
(See Note 11)
AS OF DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 154,024
Accounts receivable, less allowance for doubtful
accounts of $325,410 12,001,754
Inventory, net 4,947,623
Prepaid expenses and other current assets 530,595
Deferred income taxes 1,150,521
Refundable income taxes 629,815
-----------
Total current assets 19,414,332
PROPERTY AND EQUIPMENT, NET 655,992
RENTAL EQUIPMENT, NET 11,108,831
INTANGIBLE ASSETS, NET 18,252,669
OTHER NONCURRENT ASSETS 974,940
-----------
Total assets $50,406,764
===========
The accompanying notes are an integral part of this
combined statement of net assets.
FS-2
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
COMBINED STATEMENT OF NET ASSETS
(See Note 11)
AS OF DECEMBER 31, 1998
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Current maturities of long-term debt $ 500,000
Current maturities of capital lease obligations 455,556
Accounts payable 7,184,416
Accrued expenses 2,326,024
-----------
Total current liabilities 10,465,996
REVOLVING CREDIT LINE 8,062,164
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
NET OF CURRENT MATURITIES 14,128,325
STOCK REPURCHASE OBLIGATION 3,000,005
DEFERRED INCOME TAXES 1,411,513
OTHER LONG-TERM LIABILITIES 629,534
-----------
Total liabilities 37,697,537
COMMITMENTS AND CONTINGENCIES (NOTE 10)
NET ASSETS 12,709,227
-----------
Total liabilities and net assets $50,406,764
===========
The accompanying notes are an integral part of this
combined statement of net assets.
FS-3
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
COMBINED STATEMENT OF OPERATIONS
(see Note 11)
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUES $ 42,720,548
COST OF REVENUES 29,818,443
------------
Gross profit 12,902,105
------------
OPERATING EXPENSES:
Selling 2,341,176
General and administrative 6,531,901
Depreciation and amortization 2,072,582
------------
10,945,659
------------
Income from operations 1,956,446
OTHER INCOME (EXPENSE):
Interest income 862,591
Interest expense (1,038,189)
Other 693,416
------------
Income before provision for income taxes 2,474,264
PROVISION FOR INCOME TAXES 1,244,416
------------
Net income $ 1,229,848
============
The accompanying notes are an integral part of this
combined financial statement.
FS-4
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
COMBINED STATEMENT OF CHANGES IN NET ASSETS
(See Note 11)
FOR THE YEAR ENDED DECEMBER 31, 1998
NET ASSETS, JANUARY 1, 1998 $ (2,575,400)
Net income 1,229,848
Net proceeds from private placement
of common stock 10,791,737
Issuance of common stock
for acquisitions 14,567,524
Investment in acute care division
carved out (11,304,482)
------------
NET ASSETS, DECEMBER 31, 1998 $ 12,709,227
============
The accompanying notes are an integral part of this
combined financial statement.
FS-5
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
COMBINED STATEMENT OF CASH FLOWS
(See Note 11)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,229,848
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 2,072,582
Loss on disposal of property and equipment
and rental equipment 4,605
Provision for doubtful accounts 53,866
Provision for obsolete inventory 144,234
Amortization of debt issuance costs 113,883
Stock compensation expense 378,495
Deferred income tax provision 109,182
Increase (decrease) in operating cash flows, net of
effects from purchase of subsidiaries,
resulting from:
Accounts receivable (3,016,401)
Inventory (298,827)
Prepaid expenses and other current assets 448,220
Refundable income taxes (629,815)
Other noncurrent assets 151,304
Accounts payable and accrued expenses (2,021,228)
Other long-term liabilities 58,534
------------
Net cash used in operating activities (1,201,518)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in acute care division carved out (11,304,482)
Purchase of subsidiaries, net of cash received (5,067,770)
Additions to property and equipment and rental equipment (3,478,224)
Proceeds from disposals of property and equipment
and rental equipment 148,285
------------
Net cash used in investing activities (19,702,191)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and
capital lease obligations (7,173,370)
Borrowings on long-term debt 18,364,271
Debt issuance costs paid (908,823)
Net proceeds from private placement of common stock 10,791,737
Repurchase of common stock (135,082)
------------
Net cash provided by financing activities 20,938,733
------------
INCREASE IN CASH AND CASH EQUIVALENTS 35,024
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 119,000
------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 154,024
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 907,454
============
Income taxes $ 599,300
============
</TABLE>
The accompanying notes are an integral part of this
combined statement of net assets.
FS-6
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
1. BUSINESS AND ORGANIZATION
HTD Corporation (the "Company") was founded in April 1997 to create a national
contract sales and distribution company providing specialty medical products to
the hospital and alternate-site health care markets (including sub-acute care
facilities, home care companies, and specialty physician groups). As discussed
in Note 3, effective May 1, 1998, the Company acquired Triad Holdings, Inc.
("THI"), Healthcare Technology Delivery, Inc. ("HTD"), MegaTech Medical, Inc.
("MegaTech"), and Bimeco, Inc. ("Bimeco") together with their respective
subsidiaries. During 1998, the Company also acquired Omni Medical, Inc. ("Omni
Medical").
THI, the successor to a business founded in 1981 and headquartered in Laguna
Hills, California, represents manufacturers with product coverage principally in
the infusion therapy market. THI sells its products to alternate-site health
care providers throughout the United States from its distribution centers.
HTD, the successor to a business founded in 1977 and headquartered in Bessemer,
Alabama, represents manufacturers with product coverage in the surgical,
anesthesiology, critical care, and cardiovascular/vascular markets. HTD sells
its products primarily to hospitals in the Southeastern United States.
MegaTech was founded in 1976 and maintains its headquarters in Baltimore,
Maryland. It represents manufacturers with product coverage in the surgical and
critical care markets. MegaTech sells its products principally to hospitals in
the Northeastern United States.
Bimeco maintains its headquarters in Largo, Florida. Bimeco is a distributor of
medical equipment and related supplies. Bimeco's product line services hospitals
as well as other health care markets.
Omni Medical was founded in 1986 and maintains its headquarters in Redmond,
Washington. It represents manufacturers with product coverage in the financial,
anesthesiology, and critical care markets. Omni Medical sells its products
primarily to hospitals in the Northwestern United States.
As further discussed in Note 11, the Company was acquired by MEDIQ/PRN Life
Support Services, Inc. ("MEDIQ/PRN") on June 15, 1999. Excluded from the
accompanying financial statement presentation are the accounts of HTD, MegaTech,
Omni Medical, and the acute care operations of Bimeco, all of which form the
acute care division which was not acquired by MEDIQ/PRN. Such division was sold
to a third party unrelated to MEDIQ/PRN and the Company simultaneously with the
MEDIQ/PRN transaction described in Note 11. The accompanying combined financial
statements do not reflect an allocation of the MEDIQ/PRN purchase price.
Reference to the Company hereafter is the Company excluding the acute care
division.
FS-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements have been prepared on the accrual
basis of accounting and include the accounts of the Company and its subsidiaries
excluding the acute care division as described in Note 1. All significant
intercompany amounts and transactions have been eliminated in combination.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from sales of medical products and
supplies under distribution agreements with various manufacturers and the
renting of infusion pumps and other equipment under cancelable and noncancelable
operating leases. Revenues are recorded at the time of shipment of products or
performance of services. Revenues from the rental of infusion pumps and other
equipment under cancelable and noncancelable operating leases are recognized as
earned. Biomedical, commission, and installation revenues are recognized as the
services are provided. Cost of revenues consists primarily of product costs, net
of rebates, and freight charges. Selling expenses consist primarily of sales
commissions, salaries of sales managers, travel and entertainment expenses,
trade show expenses, and automobile allowances. General and administrative
expenses consist primarily of executive compensation and related benefits,
administrative salaries and benefits, office rent and utilities, communication
expenses, and professional fees.
CASH AND CASH EQUIVALENTS
For the purposes of the accompanying statement of net assets and statement of
cash flows, the Company considers all investments with original maturities of
three months or less to be cash equivalents.
INVENTORY
Inventories consist primarily of medical supplies and equipment. Inventories,
net of allowances of approximately $452,000, are valued at the lower of cost or
market. Cost is determined using the first-in, first-out method. At December 31,
1998, management believes the Company had incurred no material impairments to
the carrying values of its inventories, other than impairments for which
provisions had been made.
FS-8
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the applicable lease or the estimated useful life of the applicable asset.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments that extend the useful lives of
existing equipment are capitalized and depreciated. On retirement or disposition
of property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
statement of operations.
INTANGIBLE ASSETS
Intangible assets originated in connection with the 1998 acquisitions (see Note
3). Intangible assets are amortized on a straight-line basis over the following
applicable amortization periods:
Goodwill 40 years
Covenants not to compete 3-5 years
Patents 17 years
LONG-LIVED ASSETS
The Company continually evaluates whether events and circumstances have occurred
that indicate that the remaining balance of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used in the operations of the Company may be impaired and not be recoverable. In
performing this evaluation, the Company uses an estimate of the related cash
flows expected to result from the use of the asset and its eventual disposition.
When this evaluation indicates the asset has been impaired, the Company will
measure such impairment based on the asset's fair value and the amount of such
impairment is charged to earnings.
OTHER NONCURRENT ASSETS
Other noncurrent assets include deferred debt issuance costs of approximately
$909,000. This amount is being amortized over a period approximating the term of
the related debt of approximately seven years.
DEFERRED RENT
Certain of the Company's facilities leases include scheduled rent increases and
free rent periods. For financial reporting purposes, rent expense is recognized
on a straight-line basis over the lease term. The difference between rent paid
pursuant to the lease agreements and rent expense recognized for financial
reporting purposes has been reported as deferred rent, and is included in other
long-term liabilities in the accompanying combined statement of net assets.
INCOME TAXES
The Company applies the liability method of accounting for income taxes. Under
this method, deferred income taxes are recorded based on differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the underlying
assets or liabilities are received or settled.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables, and debt instruments. The
carrying amounts of those instruments reported in the accompanying combined
statement of net assets are considered to estimate their respective fair values
due to the short-term nature of such
FS-9
<PAGE>
financial instruments and the current interest rate environment. The carrying
amounts of the Company's long-term debt and capital lease obligations reported
in the accompanying combined statement of net assets are considered to
approximate their respective fair values as these long-term instruments'
interest rates approximate market rates at December 31, 1998.
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Company extends credit to its customers,
which are primarily alternate-site health care providers. The Company regularly
reviews its accounts receivable and makes provision for potentially
uncollectible balances. At December 31, 1998, management believes the Company
had incurred no material impairments to the carrying values of its accounts
receivable, other than uncollectible amounts for which provisions had been made.
3. PRIVATE PLACEMENT AND BUSINESS COMBINATIONS
On May 1, 1998, the Company (i) completed a private placement of 1,437,500
shares of the Company's common stock, at $8.00 per share and (ii) acquired in
separate transactions (the "Acquisitions") four other companies (the "Founding
Companies") for a total of $9.9 million in cash and 3,485,052 shares of common
stock, of which 260,870 shares may be put to the Company during the 60-day
period immediately following the first anniversary date of the closing of the
Acquisitions in exchange for a $3.0 million subordinated promissory note of the
Company. Since the shares may be put to the Company, such shares have been
reported as Stock Repurchase Obligation in the accompanying combined statement
of net assets.
The total purchase price of the Acquisitions, as it relates to the net assets
subsequently sold to MEDIQ/PRN, consisted of $5.2 million in cash and the
issuance of the Company's common stock totaling $14.6 million. The total
purchase price exceeded the fair value of net assets acquired by $18.4 million.
The Acquisitions were accounted for under the purchase method of accounting;
thus the combined financial statements reflect the operations of the Founding
Companies from the date of the acquisition, exclusive of the acute care division
for purposes of this presentation. For financial statement presentation
purposes, HTD, one of the Founding Companies, in combination with the Company,
has been identified as the accounting acquirer.
Assuming the transaction had been consummated at January 1, 1998, the combined
results of operations, excluding the acute care division, on a pro forma basis
for the year ended December 31, 1998 would have been as follows:
(unaudited)
Revenues $60,337,966
Net income 1,759,994
FS-10
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS AMOUNT
------------ --------
<S> <C> <C>
Office equipment 5 $325,053
Machinery and equipment 5 270,508
Furniture and fixtures 5-7 196,396
Leasehold improvements 10 195,523
--------
987,480
Less accumulated depreciation and amortization 331,488
--------
$655,992
========
</TABLE>
5. RENTAL EQUIPMENT
Rental equipment at December 31, 1998 consists primarily of infusion pumps,
which are depreciated over seven years:
Rental equipment $12,515,478
Less accumulated depreciation 1,406,647
-----------
$11,108,831
===========
6. INTANGIBLE ASSETS
Intangible assets at December 31, 1998 consist of the following:
Goodwill $18,375,709
Covenant not to compete 170,000
Patents 41,407
-----------
18,587,116
Less accumulated amortization 334,447
-----------
$18,252,669
===========
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
During July 1998, the Company entered into a credit agreement with a financial
institution consisting of a term loan, revolving credit line, and an acquisition
credit facility. The $15 million revolving credit line expires on December 31,
2004 and bears interest at various rates ranging from 7.4% to 7.8% at December
31, 1998.
FS-11
<PAGE>
Such rates are based on the leverage ratio of the Company and, at the Company's
option, LIBOR or the Prime rate plus an applicable margin. At December 31, 1998,
$4.0 million of the revolving credit line was at 7.4%, $1.8 million was at 7.5%,
and $2.3 million was at 7.8%. Amounts outstanding under the revolving credit
line amounted to approximately $8.1 million at December 31, 1998. Availability
under the revolving credit line at December 31, 1998 was approximately $6.9
million. The weighted average interest rate on these borrowings during 1998 was
7.5%. These borrowings are secured by the Company's assets and guaranteed by the
subsidiaries.
The Company's long-term debt and capital lease obligations at December 31, 1998
consist of the following:
<TABLE>
<S> <C>
Term note payable, due in quarterly payments plus interest at the Bank's base
rate plus an applicable margin rate (7.44% at December 31, 1998) through
December 31, 2004, secured by the Company's assets and guaranteed by the
subsidiaries $11,750,000
Acquisition loan, due in fourteen scheduled installments
commencing on September 30, 2001, bearing interest at a base
rate plus an applicable margin rate (7.75% at December 31,
1998), secured by the Company's assets and guaranteed by the
subsidiaries 1,320,000
Note payable due in a lump sum payment on April 30, 2005 with no interest,
unsecured 2,025,000
Discount on note payable (763,820)
Capital lease obligations, interest at various rates, due in monthly
installments through April 2000 752,701
-----------
Total long-term debt 15,083,881
Less current maturities 955,556
-----------
Total $14,128,325
===========
</TABLE>
The loan agreements contain various restrictive covenants generally common to
such loan agreements which, among other things, require the Company to maintain
minimum levels of equity and debt coverage ratios. At December 31, 1998, the
Company was in compliance with the financial covenants.
As of December 31, 1998, future minimum lease payments under capital lease
obligations and maturities of debt are as follows:
CAPITAL
LEASES DEBT
-------- -----------
1999 $493,534 $ 500,000
2000 322,463 1,000,000
2001 0 1,750,000
2002 0 3,695,000
2003 0 2,875,000
Thereafter 0 5,275,000
-------- -----------
Total minimum lease payments and maturities 815,997 15,095,000
===========
Less amounts representing interest 63,296
--------
Present value of minimum lease payments $752,701
========
FS-12
<PAGE>
8. EQUIPMENT RENTALS TO CUSTOMERS
As discussed in Note 2, the Company rents biomedical equipment to various
customers under noncancelable operating leases. Aggregate future minimum rentals
to be received under noncancelable leases in effect at December 31, 1998 are as
follows:
Year ending December 31,
1999 $34,435
2000 21,964
2001 17,384
-------
$73,783
=======
9. INCOME TAXES
The provision for federal and state income taxes at December 31, 1998 follows:
Federal:
Current $ 989,691
Deferred 95,184
----------
1,084,875
----------
State:
Current 145,543
Deferred 13,998
----------
159,541
----------
$1,244,416
==========
Actual income tax expense differs from income tax expense computed by applying
the U.S. federal statutory corporate tax rate of 34% to income before income
taxes as follows:
Provision at the statutory rate $ 841,250
Increase resulting from:
State income tax, net of federal benefit 105,297
Amortization 125,915
Other 171,954
----------
$1,244,416
==========
FS-13
<PAGE>
The tax effects of temporary differences representing deferred tax assets and
liabilities result primarily from the following at December 31, 1998:
Deferred tax benefits:
Accrued expenses $ 688,873
Inventory 242,791
Allowance for doubtful accounts 151,391
Deferred rent 67,466
----------
1,150,521
----------
Deferred tax liabilities:
Depreciation 1,318,393
Other 93,120
----------
1,411,513
----------
Net deferred tax liabilities $ 260,992
==========
At December 31, 1998, the Company had net operating loss carryforwards
totalling approximately $3 million. The Company provided a valuation allowance
equal to the deferred tax asset arising from the net operating loss
carryforwards as future realization is uncertain.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases space for its warehouses and corporate office from third
parties. Rent expense under these arrangements totaled approximately $1 million
for the year ended December 31, 1998. The leases require the Company to pay
taxes, maintenance, insurance, and certain other operating costs of the leased
property.
Future minimum lease payments required under noncancelable operating leases
that have initial or remaining noncancelable lease terms in excess of one year
at December 31, 1998 are as follows:
Year ending December 31,
1999 $1,062,808
2000 855,696
2001 775,028
2002 411,658
2003 148,921
----------
$3,254,111
==========
INSURANCE
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation, and a
general umbrella policy. The Company has not incurred significant claims or
losses under any of its insurance policies.
The sale, distribution, rental, and repair of medical products involve a risk of
product liability claims. The Company maintains product liability insurance
coverage in amounts that it considers adequate.
FS-14
<PAGE>
SALES TAX CONSIDERATIONS
Various states are increasingly seeking to impose sales or use taxes on
interstate sales made into their state by out-of-state companies. Complex legal
issues arise in these areas relating to, among other things, the required nexus
of a business with a particular state, which may permit the state to require a
business to collect such taxes. Although the Company believes that it has
adequately provided for sales taxes on its sales, there can be no assurance as
to the effect of actions state tax authorities may take on the Company's
combined financial condition or the combined results of its operations.
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes the outcome of such legal proceedings
will not have a material adverse effect on the Company's combined financial
condition or combined results of operations.
11. SUBSEQUENT EVENT (UNAUDITED)
On June 15, 1999, all of the Company's issued and outstanding common stock along
with THI and its subsidiaries representing the nonacute care business were
acquired by MEDIQ/PRN pursuant to an Agreement and Plan of Merger dated June 14,
1999. Total consideration paid by MEDIQ/PRN was approximately $59.7 million,
comprising $49.7 million in cash and $10.0 million aggregate value of capital
stock of MEDIQ Incorporated, the parent company of MEDIQ/PRN. Following the
acquisition, the Company, THI, and THI's subisidiaries were merged into
MEDIQ/PRN. Contemporaneously with MEDIQ/PRN's acquisition of the Company, the
Company sold to a third party unrelated to MEDIQ/PRN and the Company its
subsidiaries representing the acute care division not acquired by MEDIQ/PRN for
a purchase price of $17 million.
In contemplation of the MEDIQ/PRN transaction, Bimeco's assets, liabilities, and
operations related to its nonacute care business were transferred to THI in a
nonmonetary transfer effective June 14, 1999.
FS-15
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
TOGETHER WITH
AUDITORS' REPORT
FS-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Triad Holdings, Inc. and Subsidiaries:
We have audited the accompanying consolidated statements of operations, changes
in net assets, and cash flows for the four months ended April 30, 1998 of Triad
Holdings, Inc. (a Delaware corporation) and Subsidiaries. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of their consolidated operations
and their consolidated cash flows for the four months ended April 30, 1998 of
Triad Holdings, Inc. and Subsidiaries in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Birmingham, Alabama
July 29, 1999
FS-17
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
REVENUES $15,535,062
COST OF REVENUES 11,519,922
-----------
Gross profit 4,015,140
-----------
OPERATING EXPENSES:
Selling 1,217,032
General and administrative 2,129,852
Depreciation and amortization 491,239
-----------
3,838,123
-----------
Income from operations 177,017
OTHER INCOME (EXPENSE):
Interest income 28,296
Interest expense (201,546)
Other, net (227,289)
-----------
Loss before credit for income taxes (223,522)
CREDIT FOR INCOME TAXES (64,800)
-----------
Net loss $ (158,722)
===========
The accompanying notes are an integral part of this
consolidated financial statement.
FS-18
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
-------------------- ------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- --------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 1,362,190 $13,621 1,054,345 $10,543 $6,627,987 $1,222,033 $7,874,184
Stock options exercised 0 0 11,134 111 16,630 0 16,741
Net loss 0 0 0 0 0 (158,722) (158,722)
--------- ------- --------- ------- ---------- ---------- ----------
BALANCE, APRIL 30, 1998 1,362,190 $13,621 1,065,479 $10,654 $6,644,617 $1,063,311 $7,732,203
========= ======= ========= ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this
consolidated financial statement.
FS-19
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (158,722)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 491,239
Gain on disposal of property and equipment and rental equipment (11,129)
Provision for doubtful accounts 20,000
Increase (decrease) in operating cash flows resulting from:
Accounts receivable (227,621)
Inventories (504,661)
Prepaid expenses and other current assets 480,918
Other noncurrent assets (2,263)
Accounts payable and accrued expenses 1,598,440
Other long-term liabilities (176)
-----------
Net cash provided by operating activities 1,686,025
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment and rental equipment (699,926)
Proceeds from disposals of property and equipment and rental equipment 68,574
-----------
Net cash used in investing activities (631,352)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt 486,900
Principal payments on long-term debt and capital lease obligations (527,814)
Net repayment of line of credit (1,101,287)
Payments on notes payable to stockholder (8,628)
Proceeds from exercise of stock options 16,741
-----------
Net cash used in financing activities (1,134,088)
-----------
DECREASE IN CASH AND CASH EQUIVALENTS (79,415)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 229,445
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 150,030
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 201,546
===========
Income taxes $ 0
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Rental equipment acquired under capital lease arrangements $ 455,359
===========
</TABLE>
The accompanying notes are an integral part of this
consolidated financial statement.
FS-20
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998
1. BUSINESS AND ORGANIZATION
Triad Holdings, Inc. (the "Company") conducts business through its operating
subsidiaries, Triad Medical, Inc. ("TMI"), which was incorporated in June 1980,
and Triad Infusion Products, Inc. ("TIPI"), which was incorporated in October
1996. The Company is primarily engaged in the contract sale and distribution of
medical supplies, devices, drugs, and durable equipment to home infusion health
care providers throughout the United States. Additionally, the Company rents and
services infusion pumps and leases biomedical equipment. The Company became a
wholly owned subsidiary of HTD Corporation subsequent to April 30, 1998. (See
Note 7)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting and include the accounts of the Company and its
subsidiaries as described in Note 1. All significant intercompany amounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from sales of medical products and
supplies under distribution agreements with various manufacturers and the
renting of infusion pumps and other equipment under cancelable and noncancelable
operating leases. Revenues are recorded at the time of shipment of products or
performance of services. Revenues from the rental of infusion pumps and other
equipment under cancelable and noncancelable operating leases are recognized as
earned. Biomedical, commission, and installation revenues are recognized as the
services are provided. Cost of revenues consists primarily of product costs, net
of rebates, and freight charges. Selling expenses consist primarily of sales
commissions, salaries of sales managers, travel and entertainment expenses,
trade show expenses, and automobile allowances. General and administrative
expenses consist primarily of executive compensation and related benefits,
administrative salaries and benefits, office rent and utilities, communication
expenses, and professional fees.
CASH AND CASH EQUIVALENTS
The Company considers all investments with original maturities of three
months or less to be cash or cash equivalents.
FS-21
<PAGE>
PROPERTY AND EQUIPMENT
Expenditures for repairs and maintenance are charged to expense when
incurred. On retirement or disposition of property and equipment, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in the statement of operations.
DEFERRED RENT
Certain of the Company's facilities leases include scheduled rent increases
and free rent periods. For financial reporting purposes, rent expense is
recognized on a straight-line basis over the lease term.
INCOME TAXES
The Company applies the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
STOCK-BASED COMPENSATION
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 123,
the Company accounts for stock option grants in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and has adopted the "disclosure only" alternative allowed under SFAS
No. 123.
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Company extends credit to its customers
which are primarily home infusion health care providers. The Company regularly
reviews its accounts receivable and makes provision for potentially
uncollectible balances. At December 31, 1998, management believes the Company
had incurred no material impairments to the carrying values of its accounts
receivable, other than uncollectible amounts for which provisions had been made.
FS-22
<PAGE>
3. INCOME TAXES
The credit for federal and state income taxes is as follows:
Federal:
Current $(55,080)
Deferred 0
--------
(55,080)
--------
State:
Current (9,720)
Deferred 0
--------
(9,720)
--------
$(64,800)
========
The actual income tax credit differs from the income tax credit computed by
applying the U.S. federal statutory corporate tax rate of 34% to income before
income taxes because of state taxes and other miscellaneous items.
4. SIGNIFICANT SUPPLIERS
Purchases from two vendors accounted for 40% of total purchases in the
four-month period ended April 30, 1998. Although there are a limited number of
suppliers, management believes that other suppliers could provide similar
products on comparable terms. A change in suppliers, however, could cause a
delay in product sales and a possible loss in revenues, which could affect
operating results adversely.
5. STOCKHOLDERS' EQUITY
COMMON STOCK CLASSES
At April 30, 1998 and December 31, 1997, the Company had two classes of
Common Stock: Class A convertible Common Stock (Class A Common Stock) and Class
B Common Stock.
Holders of shares of Class A Common Stock may convert their shares into
Class B Common Stock on a share-for-share basis at any time. The Class A Common
Stock will be automatically converted into shares of Class B Common Stock upon
the consummation of a qualified public offering that occurs before May 2000, or
after May 2000 but only if the current holders of shares of Class A Common Stock
shall have previously distributed their Class A Common Stock to certain third
parties. Should the Company meet certain profitability objectives, the holders
of shares of Class A Common Stock will be required to return 106,465 of the
previously issued shares back to the Company.
Holders of shares of Class A Common Stock vote as a class with the holders
of shares of Class B Common Stock on the basis of one vote per share. Holders of
shares of Class A Common Stock are entitled to dividends or other distributions
declared or paid on each share of Class A Common Stock when and in the same
amount as any dividend or other distribution is declared or paid on each share
of Class B Common Stock.
FS-23
<PAGE>
STOCKHOLDERS' AGREEMENT
Under an agreement between the Company and the holders of Class B Common
Stock, (i) the Company's prior written consent is required for certain transfers
and assignments of shares of Class B Common Stock, (ii) the Company has a right
of first refusal on any sales of Class B Common Stock, and (iii) if a holder of
shares of Class B Common Stock dies, the Company is obligated to repurchase the
deceased holder's shares of Class B Common Stock for the greater of the
estimated fair value of the shares, as determined annually by the Company's
board of directors, or the insurance proceeds received by the Company on the
death of the holder.
STOCK OPTIONS
A 1992 Company stock option plan (the "Plan") provides for the grant of
options to purchase shares of the Company's common stock to employees, officers,
consultants, and directors of the Company. The timing of exercise for individual
option grants is at the discretion of the Plan's administrator. Each option
expires no later than 10 years after the date the option is granted (five years
if the option is granted to a 10% stockholder) and generally vests over a
three-year period.
An option granted to an employee will expire (i) one year after the
employee's employment by the Company terminates because of death or a permanent
disability or (ii) 90 days after the employee's termination of employment for
any other reason.
Market price is generally calculated by taking a factor of earnings before
interest, taxes, depreciation, and amortization. As the exercise price on the
date of grant equaled the market price, no compensation expense is recognized in
the consolidated financial statements pursuant to APB Opinion No. 25.
Stock option activity under the Plan is as follows:
WEIGHTED
SHARES AVERAGE
SUBJECT TO EXERCISE EXERCISE
OPTIONS PRICE PRICE
---------- ------------ --------
Balance, December 31, 1997 151,624 $1.50--$8.64 $5.42
Exercised 11,134 1.50--5.51 1.51
Cancelled/forfeited 2,500 5.51 5.51
-------
Balance, April 30, 1998 137,990 $1.50--$8.64 $5.73
=======
At April 30, 1998, options to purchase 32,490 shares of common stock at a
weighted average price of $4.31 per share were exercisable. The weighted average
remaining contractual life for all options outstanding at April 30, 1998 is 8.1
years.
Pursuant to SFAS 123, the fair value of each option granted to employees
and directors is estimated using the Black-Scholes option-pricing model on the
date of grant using assumptions for: (i) dividend yield, (ii) volatility factor,
(iii) weighted-average risk-free interest rate, and (iv) expected life of
option.
FS-24
<PAGE>
As discussed in Note 2, the Company has elected the "disclosure only"
alternative allowed under SFAS No. 123. Accordingly, the Company is required to
disclose pro forma net income (loss) over the vesting period of the options.
However, the pro forma effect for the four months ended April 30, 1998 is
immaterial.
6. COMMITMENTS AND CONTINGENCIES
INSURANCE
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation, and a
general umbrella policy. The Company has not incurred significant claims of
losses under any of its insurance policies.
The sale, distribution, rental, and repair of medical products involve a risk of
product liability claims. The Company maintains product liability insurance
coverage in amounts that it considers adequate.
SALES TAX CONSIDERATIONS
Various states are increasingly seeking to impose sales or use taxes on
interstate sales made into their states by out-of-state companies. Complex legal
issues arise in these areas relating to, among other things, the required nexus
of a business with a particular state, which may permit the state to require a
business to collect such taxes. Although the Company believes that it has
adequately provided for sales taxes on its sales, there can be no assurance as
to the effect of actions state tax authorities may take on the Company's
consolidated financial condition or the consolidated results of operations.
LITIGATION
The Company is party to certain legal proceedings arising in the ordinary course
of business. Management believes the outcome of such legal proceedings will not
have a material adverse effect on the Company's consolidated financial position
or consolidated results of operations.
7. SUBSEQUENT EVENT (UNAUDITED)
On May 1, 1998, all of the Company's issued and outstanding common stock was
acquired by HTD Corporation. Total consideration paid by HTD Corporation was
$13.2 million, comprising $3.0 million in cash and $10.2 million aggregate value
of the capital stock of HTD Corporation.
On June 15, 1999, all of the issued and outstanding common stock of HTD
Corporation, the Company, and the Company's subsidiaries were acquired by
MEDIQ/PRN pursuant to an Agreement and Plan of Merger dated June 14, 1999. Total
consideration paid by MEDIQ/PRN was approximately $59.7 million, comprising
$49.7 million in cash and $10.0 million aggregate value of capital stock of
MEDIQ Incorporated, the parent company of MEDIQ/PRN. Following the acquisition,
HTD Corporation along with the Company and its subsidiaries were merged into
MEDIQ/PRN.
In contemplation of the MEDIQ/PRN transaction, the assets, liabilities, and
operations of Bimeco, Inc., a wholly owned subsidiary of HTD Corporation,
related to its nonacute care business were transferred to the Company in a
nonmonetary transfer effective June 14, 1999.
FS-25
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
CONDENSED COMBINED FINANCIAL STATEMENTS
FOR THE FOUR MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
FS-26
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
CONDENSED COMBINED STATEMENTS OF NET ASSETS
(SEE NOTE 2)
<TABLE>
<CAPTION>
April 30, December 31,
1999 1998
----------- ---------------
(Unaudited) (See note below)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 961,716 $ 154,024
Accounts receivable, less allowance of
$337,226 and $325,410, respectively 11,987,973 12,001,754
Inventory, net 4,436,886 4,947,623
Prepaid expenses and other current assets 1,657,026 2,310,931
----------- -----------
Total current assets 19,043,601 19,414,332
PROPERTY AND EQUIPMENT (including Rental),
net of accumulated depreciation and amortization
of $2,806,356 and $1,738,095, respectively 11,849,954 11,764,823
INTANGIBLE ASSETS, net of accumulated amortization
of $593,185 and $334,447, respectively 17,993,931 18,252,669
OTHER NONCURRENT ASSETS 890,207 974,940
----------- -----------
Total assets $49,777,693 $50,406,764
=========== ===========
</TABLE>
Note: The statement of net assets at December 31, 1998 has been condensed from
the audited financial statements at that date.
The accompanying notes are an integral part of this condensed combined statement
of net assets.
FS-27
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
CONDENSED COMBINED STATEMENTS OF NET ASSETS
(SEE NOTE 2)
<TABLE>
<CAPTION>
April 30, December 31,
1999 1998
----------- ---------------
(Unaudited) (See note below)
<S> <C> <C>
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Current maturities of long-term debt and
capital lease obligations $ 821,333 $ 955,556
Accounts payable 5,396,478 7,184,416
Accrued expenses 2,851,059 2,326,024
----------- -----------
Total current liabilities 9,068,870 10,465,996
REVOLVING CREDIT LINE 9,571,387 8,062,164
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current maturities 14,019,863 14,128,325
STOCK REPURCHASE OBLIGATION 3,000,005 3,000,005
OTHER LONG-TERM LIABILITIES 2,036,023 2,041,047
----------- -----------
Total liabilities 37,696,148 37,697,537
NET ASSETS 12,081,545 12,709,227
----------- -----------
Total liabilities and net assets $49,777,693 $50,406,764
=========== ===========
</TABLE>
Note: The statement of net assets at December 31, 1998 has been condensed from
the audited financial statements at that date.
The accompanying notes are an integral part of this condensed combined statement
of net assets.
FS-28
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
COMBINED STATEMENT OF OPERATIONS
(SEE NOTE 2)
FOR THE FOUR MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
REVENUES $ 23,797,711
COST OF REVENUES 16,532,815
------------
Gross profit 7,264,896
------------
OPERATING EXPENSES:
Selling 787,763
General and administrative 2,680,141
Depreciation and amortization 1,326,999
------------
4,794,903
Income from operations 2,469,993
OTHER INCOME (EXPENSE):
Interest income 26,971
Interest expense (680,647)
Other (142,293)
------------
Income before provision for income taxes 1,674,024
PROVISION FOR INCOME TAXES 781,503
------------
Net income $ 892,521
============
The accompanying notes are an integral part of this condensed
combined financial statement.
FS-29
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
CONDENSED COMBINED STATEMENT OF CASH FLOWS
(SEE NOTE 2)
FOR THE FOUR MONTHS ENDED APRIL 30, 1999
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 892,521
Adjustments to reconcile net income to net cash
provided by operating activities, net 1,354,055
-----------
Net cash provided by operating activities 2,246,576
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
(1,153,392)
-----------
Net cash used in investing activities (1,153,392)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and
capital lease obligations (454,472)
Borrowings on long-term debt 179,960
Net borrowings on revolving credit line 1,509,223
Other (1,520,203)
-----------
Net cash used in financing activities (285,492)
-----------
INCREASE IN CASH 807,692
CASH AND CASH EQUIVALENTS, beginning of period 154,024
-----------
CASH AND CASH EQUIVALENTS, end of period $ 961,716
===========
The accompanying notes are an integral part of this condensed
combined financial statement.
FS-30
<PAGE>
HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
As further discussed in Note 2, HTD Corporation (the "Company") along with its
wholly owned subsidiary Triad Holdings, Inc. ("Triad") and its subsidiaries were
acquired by MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN") on June 15,
1999. MEDIQ/PRN is a wholly owned subsidiary of MEDIQ Incorporated ("MEDIQ").
The net assets acquired by MEDIQ/PRN represented the Company's nonacute care
business, which principally consisted of sales of disposable products, rentals
of moveable medical equipment, and biomedical repair services. The other
subsidiaries of the Company - Healthcare Technology Delivery, Inc., MegaTech
Medical, Inc., Bimeco, Inc. ("Bimeco"), and Omni Medical, Inc. - represented the
acute care division and were sold to a third party unrelated to MEDIQ/PRN and
the Company simultaneously with the MEDIQ/PRN transaction as further described
in Note 2. The combined financial statements presented herein are on a carved
out basis that represent only the nonacute care business of the Company acquired
by MEDIQ/PRN. The accompanying combined financial statements do not reflect an
allocation of the MEDIQ/PRN purchase price.
The condensed combined statement of net assets as of April 30, 1999 and the
combined statement of operations and condensed combined statement of cash flows
for the four months ended April 30, 1999 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 net assets,
results of operations, and cash flows presented have been made. In preparing the
financial statements presented on a carved out basis, the Company made certain
estimates and allocations deemed reasonable under the circumstances.
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 combined financial statements
should be read in conjunction with the audited financial statements and notes
thereto of the Company and Triad included elsewhere in this Form 8-K/A filing of
MEDIQ of which these condensed combined financial statements are a part.
The statements of operations and cash flows of the Company presented herein do
not include the corresponding period of the prior fiscal year because such a
comparison is not meaningful. During the four months ended April 30, 1998, the
Company was a holding company without any significant assets or operations. The
Company's nonacute care business, subsequently acquired by MEDIQ/PRN as
discussed above and further in Note 2, was not formed until May 1, 1998 with the
Company's acquisition of Triad and Bimeco. Triad was a significant acquiree of
the Company during the year ended December 31, 1998. Triad's results of
operations and cash flows for the four months ended April 30, 1998 represent the
principal predecessor nonacute care business of the Company. Readers are
directed to the separate financial statements of Triad for the four months ended
April 30, 1998 included elsewhere within this Form 8-K/A of MEDIQ of which these
condensed combined financial statements are a part.
FS-31
<PAGE>
2. SUBSEQUENT EVENT
On June 15, 1999, all of the Company's issued and outstanding common stock along
with Triad and its subsidiaries representing the nonacute care business were
acquired by MEDIQ/PRN pursuant to an Agreement and Plan of Merger dated June 14,
1999. Total consideration paid by MEDIQ/PRN was approximately $59.7 million,
comprising $49.7 million in cash and $10.0 million aggregate value of capital
stock of MEDIQ. Following the acquisition, the Company and Triad and its
subsidiaries were merged into MEDIQ/PRN. Contemporaneously with MEDIQ/PRN's
acquisition of the Company, the Company sold to a third party unrelated to
MEDIQ/PRN and the Company its subsidiaries representing the acute care division
not acquired by MEDIQ/PRN as listed in Note 1 for a purchase price of $17
million.
In contemplation of the MEDIQ/PRN transaction, Bimeco's assets, liabilities, and
operations related to its nonacute care business were transferred to Triad in a
nonmonetary transfer effective June 14, 1999.
FS-32
<PAGE>
ITEM 7(b) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated statements of
operations are based on the historical results of operations of the Company, the
Acquired Business and the Nonacute Care Business of entities related to HTD
preceding the formation of the Nonacute Care Business on May 1, 1998 (the
"Related Predecessor Entities") as applicable. The Related Predecessor Entities
include Triad and other entities related to HTD of less significance. The
Company acquired HTD on June 15, 1999. For accounting purposes, the acquisition
was effective May 28, 1999. Accordingly, the Company's historical results of
operations include the results of operations of the Acquired Business beginning
May 28, 1999. The unaudited pro forma condensed consolidated statements of
operations for the year ended September 30, 1998 and the nine months ended June
30, 1999 give effect to the Acquired Business as if the acquisition was
consummated on October 1, 1997. All pro forma adjustments are described in the
accompanying notes to the unaudited pro forma condensed consolidated statements
of operations. The Company expects that certain synergies and cost savings will
occur as a result of the acquisition. However, such cost savings are not
reflected in the unaudited pro forma condensed consolidated statements of
operations, and there can be no assurance that such synergies or cost savings
will occur. The unaudited pro forma condensed consolidated statements of
operations should be read in conjunction with the separate historical financial
statements and the notes thereto of HTD and Triad included elsewhere herein and
of the Company.
The Acquired Business had been conducted as an integral part of the overall
operations of HTD and the Related Predecessor Entities. Separate statements of
operations for the Acquired Business had not been previously prepared. The
Company has been advised by HTD that the results of operations of the Acquired
Business were prepared from historical accounting records and include various
allocations for costs and expenses. Therefore, the statements of operations of
the Acquired Business may not be indicative of the results of operations that
would have resulted if it had operated on a stand alone basis. The Company has
been advised by HTD that all of the allocations and estimates reflected in the
results of operations for the Acquired Business are based on assumptions that
are believed to be reasonable under the circumstances.
The unaudited pro forma condensed consolidated statements of operations are
presented for informational purposes only and do not purport to be indicative of
the results of operations that actually would have been achieved had the
acquisition been consummated on the date and for the periods indicated, and do
not purport to be indicative of the results of operations for future periods.
The acquisition was accounted for by the purchase method and, accordingly,
the cost of the acquisition was allocated to the assets acquired and liabilities
assumed based on their estimated fair values on May 28, 1999. The initial
allocation of the cost of the acquisition and the associated goodwill was
estimated based on information currently available. The final allocation of the
acquisition cost is contingent upon determinations and valuations not yet
completed. The Company is unable to predict at this time whether any adjustments
that may occur will have a material effect on the allocation.
PF-1
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
Historical Acquired Pro Forma Pro Forma
Company Business (1) Adjustments Company
------- -------- ----------- -------
<S> <C> <C> <C> <C>
Revenues:
Rental $142,736 $10,099 $152,835
Sales 27,928 43,568 71,496
Other 10,252 6,671 16,923
-------- ------- --------
180,916 60,338 241,254
Costs and Expenses:
Cost of sales 22,659 41,530 64,189
Operating 63,072 63,072
Selling 16,590 3,703 20,293
General and administrative 20,586 8,480 29,066
Merger and acquisition charges (2) 35,021 35,021
Depreciation and amortization 41,692 3,371 $ 1,180 (3) 46,243
-------- ------- ------- --------
199,620 57,084 1,180 257,884
-------- ------- ------- --------
Operating (Loss) Income (18,704) 3,254 (1,180) (16,630)
Other (Charges) and Credits:
Interest expense (27,894) (1,297) (4,487) (4) (33,678)
Other-net 5,072 1,100 6,172
-------- ------- ------- --------
(Loss) Income from Continuing
Operations before Income Taxes (41,526) 3,057 (5,667) (44,136)
Income Tax (Benefit) Expense (12,455) 1,501 (2,284) (5) (13,238)
-------- ------- ------- --------
(Loss) Income from Continuing
Operations $(29,071) $ 1,556 $(3,383) $(30,898)
======== ======= ======= ========
Loss from Continuing Operations
per Share $ (1.69) $ (1.79)
======== ========
Weighted Average Number of
Common Shares Outstanding 17,205 17,249 (6)
======== ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Operations
PF-2
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
Historical Acquired Pro Forma Pro Forma
Company Business (1) Adjustments Company
------- -------- ----------- -------
<S> <C> <C> <C> <C>
Revenues:
Rental $128,743 $ 7,084 $135,827
Sales 28,925 36,437 65,362
Other 9,311 4,455 13,766
-------- ------- --------
166,979 47,976 214,955
Costs and Expenses:
Cost of sales 22,589 33,638 56,227
Operating 48,117 48,117
Selling 20,128 1,898 22,026
General and administrative 18,380 5,815 24,195
Depreciation and amortization 31,600 2,427 $ 607 (3) 34,634
-------- ------- ------- --------
140,814 43,778 607 185,199
-------- ------- ------- --------
Operating Income 26,165 4,198 (607) 29,756
Other (Charges) and Credits:
Interest expense (40,768) (1,569) (2,497) (4) (44,834)
Other-net 465 1,050 1,515
-------- ------- ------- --------
(Loss) Income from Continuing
Operations before Income Taxes (14,138) 3,679 (3,104) (13,563)
Income Tax (Benefit) Expense (3,784) 2,968 (2,814) (5) (3,630)
-------- ------- ------- --------
(Loss) Income from Continuing
Operations $(10,354) $ 711 $ (290) $ (9,933)
======== ======= ======= ========
Loss from Continuing Operations
per Share $ (9.61) $ (8.88)
======== ========
Weighted Average Number of
Common Shares Outstanding 1,077 1,119 (6)
======== ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Operations
PF-3
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Historical results of operations of the Acquired Business for its 12 months
ended December 31, 1998 are combined with the Company's historical results
of operations for the year ended September 30, 1998. The historical results
of operations of the Acquired Business for its 12 months ended December 31,
1998 consist of the results of operations of: (i) HTD and its Nonacute Care
Business for the year ended December 31, 1998; (ii) Triad for the four
months ended April 30, 1998 and (iii) Related Predecessor Entities other
than Triad for four months ended April 30, 1998. Historical results of
operations of the Acquired Business for its eight months ended May 27, 1999
are combined with the Company's historical results of operations for the
nine months ended June 30, 1999. The Company's historical results of
operations for the nine months ended June 30, 1999 include one month of
actual results of the Acquired Business. Historical results of operations
of the Acquired Business for its three months ended December 31, 1998 are
included in its 12 months ended December 31, 1998 and its eight months
ended May 27, 1999. Reclassifications have been made to certain amounts
within the Acquired Business to conform to the Company's classifications.
(2) Represents nonrecurring charges related to the Company's merger on May 28,
1998 and the concurrent acquisition of the medical business of CH
Industries, Inc.
(3) Reflects incremental depreciation and amortization expense from the
allocation of a portion of the acquisition cost price of $59.7 million to
rental equipment and other depreciable assets acquired and intangible
assets, including goodwill, recognized in the acquisition. Depreciation of
rental equipment is estimated to be over five years. Intangibles, primarily
consisting of covenants not to compete, are amortized over five years.
Other assets, primarily consisting of office equipment, furniture and
fixtures and machinery and equipment, are amortized over three years.
Goodwill in the amount of $41.5 million is amortized over 20 years.
Incremental depreciation and amortization is as follows:
Year Ended Nine Months Ended
September 30, 1998 June 30, 1999
------------------ -----------------
(in thousands)
Rental equipment $2,151 $1,434
Other assets 204 136
Goodwill 2,073 1,382
Other intangibles 123 82
------ ------
4,551 3,034
Less historical of Acquired Business 3,371 2,427
------ ------
$1,180 $ 607
====== ======
(4) Incremental interest expense connected with the acquisition is as follows:
Year Ended Nine Months Ended
September 30, 1998 June 30, 1999
------------------ -----------------
(in thousands)
Revolving credit facility $2,473 $1,443
Acquisition loan facility 1,856 949
Amortization of amendment fee 158 105
------ ------
$4,487 $2,497
====== ======
To fund the cash portion of the acquisition of HTD, the Company borrowed
$27.5 million under its revolving credit facility and $22.5 million under
its acquisition loan facility. These borrowings are assumed to be
outstanding at the beginning of each period presented. The assumed rate of
interest on the borrowings under the revolving credit facility is a
weighted average variable rate of 9.04% for the year ended September 30,
1998 and
PF-4
<PAGE>
7.92% for the nine months ended June 30, 1999. The assumed rate of interest
on the borrowings under the acquisition loan facility is a weighted average
variable rate of 9.04% for the year ended September 30, 1998 and 7.48% for
the nine months ended June 30, 1999. The assumed rates of interest are the
rates actually incurred by the Company within each period and include
applicable margins. Commitment fees of the Company were adjusted to reflect
the additional amounts borrowed and no longer subject to commitment fees.
In connection with the acquisition of HTD, the credit agreement governing
the revolving credit and acquisition loan facilities was amended. The fee
to effect this amendment of approximately $1.0 million is assumed to be
amortized over the remaining term of the facilities of approximately six
years.
(5) Income taxes on the pro forma adjustments at the Company's effective income
tax rate for the period plus an adjustment to historical income taxes of
the Acquired Business to reflect the Company's historical effective tax
rate for the period. The relationship that the Company's historical income
taxes have with the Company's historical loss from continuing operations
before taxes is representative for pro forma purposes.
(6) The Company funded a portion of the acquisition of HTD with the issuance of
44,225 shares of the Company's Common Stock. These shares are assumed to be
issued and outstanding at the beginning of each period presented. Basic and
diluted per share amounts are the same as no effect is given to warrants
and options to purchase the Company's Common Stock that are outstanding
during the periods because they are antidilutive.
PF-5
<PAGE>
ITEM 7(c) EXHIBITS
EXHIBIT 23 - CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated July 29, 1999 on the financial statements of HTD Corporation and
Subsidiaries, excluding the acute care division, and Triad Holdings, Inc. and
Subsidiaries, included in this Form 8-K/A, into MEDIQ Incorporated's previously
filed Registration Statement File Numbers 33-61724, 333-46233, 333-58933, and
333-58935.
/s/ Arthur Andersen LLP
August 30, 1999
