UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended: March 31, 1999 Commission File Number: 1-8147
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MEDIQ Incorporated
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (856) 662-3200
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 requirements
for the past 90 days. YES X NO
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As of May 4, 1999, there were outstanding 1,074,823 shares of Common Stock, par
value $.01.
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MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended March 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Introductory Statement 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations- 4
Three and Six Months Ended March 31, 1999 and 1998
Condensed Consolidated Balance Sheets- 5
March 31, 1999 and September 30, 1998
Condensed Consolidated Statements of Cash Flows- 6
Six Months Ended March 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of 9 - 12
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
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MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended March 31, 1999
Introductory Statement
This Form 10-Q/A is filed to amend the Form 10-Q for the quarter ended March 31,
1999 as filed on May 17, 1999. The purpose of this amended filing is to restate
certain amounts within the financial statements and to conform applicable
portions of Management's Discussion and Analysis of Financial Condition and
Results of Operations and amounts within the Financial Data Schedule to the
restated amounts. The effects of the restatement to the financial statements are
more fully described in Note B of the Notes to Condensed Consolidated Financial
Statements. All disclosures herein are as of the date of the original filing
except as amended for the effects of the restatements.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
-------- -------- -------- --------
(as restated, (as restated,
see Note B) see Note B)
<S> <C> <C> <C> <C>
Revenues:
Rental $ 42,983 $ 36,599 $ 82,618 $ 69,993
Sales 7,486 7,285 16,077 13,979
Other 2,633 2,525 5,305 5,007
-------- -------- -------- --------
53,102 46,409 104,000 88,979
Expenses of Operations:
Cost of sales 5,948 5,779 12,392 11,270
Operating 18,697 14,003 36,047 28,449
Selling 6,091 3,938 13,065 7,557
General and administrative 5,926 4,534 12,374 9,348
Merger charges - 306 - 363
Depreciation and amortization 10,380 8,294 20,298 16,586
-------- -------- -------- --------
47,042 36,854 94,176 73,573
-------- -------- -------- --------
Operating Income 6,060 9,555 9,824 15,406
Other (Charges) and Credits:
Interest expense (13,555) (3,578) (26,812) (7,235)
Other-net 286 251 392 479
-------- -------- -------- --------
(Loss) Income before Income Taxes (7,209) 6,228 (16,596) 8,650
Income Tax (Benefit) Expense (2,542) 2,799 (5,756) 3,888
-------- -------- -------- --------
Net (Loss) Income (4,667) 3,429 (10,840) 4,762
Dividends on Preferred Stock (4,486) -- (9,098) --
-------- -------- -------- --------
Net (Loss) Attributable to/Income Available
for Common Shareholders $ (9,153) $ 3,429 $(19,938) $ 4,762
======== ======== ======== ========
Basic Per Share Amount:
Net (loss) attributable to/income available for
common shareholders $ (8.51) $ .13 $ (18.55) $ .19
======== ======== ======== ========
Diluted Per Share Amount:
Net (loss) attributable to/income available for
common shareholders $ (8.51) $ .13 $ (18.55) $ .18
======== ======== ======== ========
Weighted Average Number of Common Shares Outstanding:
Basic 1,075 25,635 1,075 25,624
======== ======== ======== ========
Diluted 1,075 26,455 1,075 26,358
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---------- ------------
(Unaudited) (See note below)
(as restated,
see Note B)
Assets
<S> <C> <C>
Current Assets:
Cash $ 2,761 $ 2,411
Accounts receivable (net of allowance of $15,992 and
$11,432, respectively) 57,973 52,659
Inventories 22,258 21,820
Other current assets 11,100 9,923
-------- --------
Total Current Assets 94,092 86,813
Property, Plant and Equipment (net of accumulated depreciation
and amortization of $172,009 and $155,749, respectively) 103,786 103,917
Goodwill (net of accumulated amortization of
$19,349 and $16,658, respectively) 115,923 91,121
Deferred Financing Costs (net of accumulated amortization
of $2,040 and $862, respectively) 19,154 20,013
Other Assets 7,848 7,354
-------- --------
Total Assets $340,803 $309,218
======== ========
Liabilities and Stockholders' Deficiency
Current Liabilities:
Accounts payable $ 12,399 $ 14,152
Accrued expenses 20,473 20,569
Other current liabilities 212 281
Current portion of long term debt 2,176 2,037
-------- --------
Total Current Liabilities 35,260 37,039
Senior Debt 327,765 277,490
Subordinated Debt 190,514 190,514
Deferred Income Taxes 8,263 14,019
Other Liabilities 4,145 2,472
Mandatorily Redeemable Preferred Stock 120,147 113,037
Stockholders' Deficiency (345,291) (325,353)
-------- --------
Total Liabilities and Stockholders' Deficiency $340,803 $309,218
======== ========
</TABLE>
Note: The balance sheet at September 30, 1998 has been condensed from the
audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements
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MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended March 31,
1999 1998
--------- ----------
(as restated,
see Note B)
<S> <C> <C>
Cash Flows From Operating Activities
Net (loss) income $(10,840) $ 4,762
Adjustments to reconcile net (loss) income to net cash
provided by operating activities 11,865 9,969
-------- --------
Net cash provided by operating activities 1,025 14,731
Cash Flows From Investing Activities
Purchases of equipment (13,345) (15,275)
Acquisitions (32,641) --
Collection of notes receivable -- 2,250
Other 468 384
-------- --------
Net cash used in investing activities (45,518) (12,641)
Cash Flows From Financing Activities
Borrowings 46,300 11,000
Debt repayments (1,138) (12,934)
Other (319) 130
-------- --------
Net cash provided by (used in) financing activities 44,843 (1,804)
-------- --------
Increase in cash 350 286
Cash:
Beginning balance 2,411 3,639
-------- --------
Ending balance $ 2,761 $ 3,925
======== ========
</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 March 31, 1999 and the condensed
consolidated statements of operations and cash flows for the three and six
months ended March 31, 1999 and 1998 have been prepared by the Company, without
audit. In the opinion of management, all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at March 31, 1999 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, 1998 Annual Report on Form 10-K.
The results of operations for the period ended March 31, 1999 are not
necessarily indicative of the operating results for the full year.
Certain reclassifications have been made to conform prior year balances to the
current year presentation.
Note B - Restatement
Subsequent to the issuance of the financial statements for the periods ended
March 31, 1999, the Company performed an extensive review of the adequacy of the
reserves for doubtful accounts. The Company also reviewed the capitalization of
accessories for its medical equipment. As a result of these reviews, the Company
determined that certain adjustments should have been made. These adjustments in
the aggregate for the three and six month periods ended March 31, 1999,
respectively, increased the net loss attributable to common shareholders by $5.1
million, net of tax of $2.7 million, or $4.71 per share and $6.7 million, net of
tax of $3.6 million, or $6.21 per share. The restatement on a pretax basis for
the respective periods consisted of charges of $6.8 million and $8.9 million in
additional provisions for doubtful accounts and $1.0 million and $1.4 million
for the write off of accessory costs previously capitalized. Additional
restatement effects on the financial statements were: statement of operations
for the three and six month periods ended March 31, 1999, respectively - rental
revenues reduced by $3.0 million and $4.5 million, operating expenses increased
by $4.8 million and $5.8 million; balance sheet at March 31, 1999 - allowance
for doubtful accounts increased and accounts receivable decreased by $8.9
million, property, plant and equipment decreased by $1.4 million, deferred
income tax liability decreased by $3.6 million.
Note C - Inventory
March 31, September 30,
1999 1998
--------- -------------
(in thousands)
Raw materials $ 1,716 $ 2,791
Finished goods 20,542 19,029
-------- ---------
$ 22,258 $ 21,820
======== ========
Note D - (Loss) Earnings Per Share
Options and warrants to purchase shares of the Company's Common Stock were
excluded from the computation of diluted earnings per share ("EPS") for the
three and six months ended March 31, 1999 because they were antidilutive. The
number of options and warrants outstanding at March 31, 1999 were 51,557 and
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91,209, respectively. The weighted average number of common shares outstanding
for diluted EPS for the three and six months ended March 31, 1998 included
820,000 and 734,000, respectively, incremental shares for the assumed exercise
of stock options outstanding during the respective periods. The disparity in per
share amounts for the respective periods presented in the Condensed Consolidated
Statements of Operations was attributable to the Company's recapitalization in
connection with its merger that occurred on May 29, 1998.
Note E - Long Term Debt
On January 31, 1999, the Company borrowed $27.8 million under its acquisition
facility to fund two acquisitions. (see Note F) The weighted average variable
interest rate incurred on this borrowing during the three months ended March 31,
1999 was 7.61%, and the rate at March 31, 1999 was 7.31%.
Note F - Acquisitions
The Company purchased the assets of one business in the first quarter and
acquired two businesses in the second quarter of fiscal 1999. The aggregate
purchase price and associated goodwill were $32.5 million and $24.4 million,
respectively. The assets and businesses acquired principally relate to medical
equipment and support surface rentals. The acquisitions were accounted for by
the purchase method and, accordingly, the purchase prices were allocated to the
assets acquired based on their estimated fair values on the dates of purchase.
The aggregate excess of purchase prices over estimated fair values of net assets
acquired was recorded as goodwill amortizable on a straight line basis over 20
years. Operations of the acquired assets and businesses have been included in
the Company's results of operations from the respective acquisition dates.
Proforma results of operations of the Company giving effect to the acquisitions
are not presented because the acquisitions in the aggregate were not material.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company as of
March 31, 1999 and results of operations for the three and six month periods
ended March 31, 1999 and 1998, and addresses other circumstances through, or
that could be reasonably expected at, May 17, 1999. This discussion should be
read in conjunction with the financial statements included elsewhere herein and
the Management's Discussion and Analysis and financial statement sections of the
Company's Annual Report on Form 10-K for the year ended September 30, 1998. This
discussion has been revised to conform to the restatements discussed in Note B
of the Notes to Condensed Consolidated Financial Statements.
The following information contains forward looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, that are
subject to risks and uncertainties. Unless otherwise specified, the forward
looking statements contained herein were made at May 17, 1999. Although the
Company believes that its expectations are based on reasonable assumptions
within the bounds of its knowledge of its business and operations as existed, or
that could be reasonably expected, at May 17, 1999, there can be no assurance
that actual results will not differ materially from its expectations. Readers
are cautioned not to place undue reliance on these forward looking statements,
which only address the circumstances that existed, or that could be reasonably
expected, at May 17, 1999.
Seasonality
In the past, the Company's rentals have been somewhat seasonal, with demand
historically peaking during periods of increased hospital census, which
generally occur in the winter months during the Company's second fiscal quarter.
Restatement of Quarterly Financial Information
Subsequent to the issuance of the financial statements for the periods ended
March 31, 1999, the Company performed an extensive review of the adequacy of the
reserves for doubtful accounts. The Company also reviewed the capitalization of
accessories for its medical equipment. As a result of these reviews, the Company
determined that certain adjustments should have been made. These adjustments in
the aggregate for the three and six month periods ended March 31, 1999,
respectively, increased the net loss attributable to common shareholders by $5.1
million, net of tax of $2.7 million, or $4.71 per share and $6.7 million, net of
tax of $3.6 million, or $6.21 per share. The restatement on a pretax basis for
the respective periods consisted of charges of $6.8 million and $8.9 million in
additional provisions for doubtful accounts and $1.0 million and $1.4 million
for the write off of accessory costs previously capitalized. Additional
restatement effects on the financial statements were: statement of operations
for the three and six month periods ended March 31, 1999, respectively - rental
revenues reduced by $3.0 million and $4.5 million, operating expenses increased
by $4.8 million and $5.8 million; balance sheet at March 31, 1999 - allowance
for doubtful accounts increased and accounts receivable decreased by $8.9
million, property, plant and equipment decreased by $1.4 million, deferred
income tax liability decreased by $3.6 million.
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
Total revenues increased in the three months and six months ended March 31, 1999
by $6.7 million, or 14.4%, and $15.0 million, or 16.9%, respectively. These
increases were attributed to increases in rental revenues of $6.4 million, or
17.4%, and $12.6 million, or 18.0%. The increases in rentals were primarily
related to incremental revenues from acquisitions made since May 1998 of four
businesses specializing in rentals of support surfaces and one business
specializing in rentals of both medical equipment and support surfaces. Rentals
of support surfaces increased by $8.0 million in the three months to $10.5
million and $16.6 million in the six months ended to $21.6 million principally
due to acquisitions, partially offset by increased charges for reserves for
doubtful accounts. Rentals of medical equipment decreased by $1.6 million in the
three months to $32.5 million and $4.0 million in the six months ended to $61.0
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million principally as a result of increased charges for reserves for doubtful
accounts, pricing concessions granted to a large national account and decreased
volume with the Company's largest revenue share arrangement, partially offset by
increased volume of 3.2% and 2.5% in the respective periods in total average
units on rent, increased revenues from other revenue share arrangements and
incremental revenues from an acquisition. The Company's largest revenue share
arrangement is scheduled to terminate in June 1999. The Company experienced
pricing pressures as a result of increased competition from other rental
providers, and expects this pressure to continue for the remainder of fiscal
1999. The increase in sales for the three and six months ended reflected
increased sales of parts and disposables due to greater volume provided by
product expansion, and the increase for the six months ended also reflected
increased sales of equipment primarily in the first quarter fiscal 1999.
The Company completed two acquisitions in the second quarter and one in the
first quarter of fiscal 1999 that are expected to contribute combined annual
revenues of approximately $11.0 million, based on the most recent annual
revenues available for each acquisition.
The increase in cost of sales in each current year period was consistent with
the related increase in sales. The sales margin was 20.5% for the three months
ended fiscal 1999 compared to 20.7% for the three months ended fiscal 1998. The
sales margin for the six months ended fiscal 1999 was 22.9% compared to 19.4%
for the six months ended fiscal 1998, reflecting more sales of equipment in the
current year that have higher margins. Selling expenses increased $2.2 million,
or 54.7%, in the three months ended and $5.5 million, or 72.9%, in the six
months ended. These increases were due to increased sales support on a national
basis for the Company's expanded support surfaces business. Operating and
general and administrative expenses are viewed together because each covers a
broad spectrum of expenses that crosses functions within the Company. These
expenses increased by $6.1 million, or 32.8%, in the three months ended and
$10.6 million, or 28.1%, in the six months ended. These increases were primarily
due to: (i) increased infrastructure and employee costs associated with larger
and expanded operations primarily related to the growth in the support surfaces
business; (ii) increased service and repair and maintenance requirements
associated with a larger and expanded equipment and product inventory; (iii) $.4
million and $.6 million in each respective period for management fees initiated
in May 1998; (iv) increased provisions for bad debts of $.9 million and $1.4
million in each respective period; and (v) write off of accessory costs of $1.0
million and 1.4 million in each respective period. Depreciation and amortization
increased in the three months by $2.1 million, or 25.2%, and in the six months
by $3.7 million, or 22.4%. These increases resulted from additional depreciable
equipment purchased and obtained in acquisitions and increased amortization of
goodwill due to additional amounts incurred in acquisitions made since May 1998.
Interest expense increased by $10.0 million, or 278.8%, in the three months and
$19.6 million, or 270.6%, in the six months principally due to the substantially
higher level of debt incurred in connection with the Company's recapitalization
and acquisitions. The cash portion of this interest expense was $10.3 million
and $20.2 million for the three and six months ended March 31, 1999,
respectively. The remaining interest expense represented noncash accretion of
the Company's 13% Senior Discount Debentures and amortization of deferred debt
issuance costs.
The effective income tax rate for the three months ended March 31, 1999 was
35.3% and 34.7% for the six months ended March 31, 1999, compared to 44.9% in
each of the corresponding prior year periods. The rates in the current year
periods were lower primarily due to losses for state income tax purposes,
whereas there was taxable income for state tax purposes in the prior year
periods.
Accreted but unpaid dividends on preferred stock for the three and six months
ended March 31, 1999 were $4.5 million and $9.1 million, respectively, compared
to none in the corresponding prior year periods. These amounts reflected
accretion of dividends on the three cumulative preferred stock series issued in
connection with the Company's recapitalization in May 1998.
For the six months ended March 31, 1999, there was a loss attributable to common
shareholders of $19.9 million. Due to the amount of cash and noncash interest
and preferred stock dividend requirements combined with noncash depreciation and
amortization expected to be incurred in the future, it is likely that the
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Company will continue to report a net loss attributable to common shareholders
for the foreseeable future.
The disparity in the weighted average number of common shares used in the
earnings per share computations for each period resulted from the Company's
merger and recapitalization in May 1998.
Liquidity and Capital Resources
Net cash provided by operating activities in the six months ended March 31, 1999
was $1.0 million compared to $14.7 million in the six months ended March 31,
1998. This variance was principally due to interest payments in the current year
exceeding those in the prior year because of substantially greater amounts of
indebtedness outstanding.
The Company used its acquisition facility to fund $27.8 million of acquisitions
and its revolving credit facility to fund $4.8 million for acquisitions, certain
purchases of equipment and general corporate purposes. At March 31, 1999,
borrowings outstanding under the acquisition and revolving credit facilities
were $27.8 million and $18.5 million, respectively. At March 31, 1999,
availability under the revolving credit facility was $17.7 million and $22.2
million under the acquisition facility. The weighted average interest rate on
the term facility at March 31, 1999 was 7.88% compared to 8.50% at September 30,
1998. The term rate became fixed at 7.88% on December 10, 1998 and will remain
fixed at this rate until June 10, 1999, at which time the rate will be subject
to adjustment. The weighted average variable interest rate on the revolving
credit facility incurred in the second quarter of fiscal 1999 was 8.00%, and the
rate at March 31, 1999 was 7.57% compared to 8.15% at December 31, 1998 and
9.00% at September 30, 1998. The weighted average variable interest rate on the
acquisition facility incurred in the second quarter of fiscal 1999 was 7.61%,
and the rate at March 31, 1999 was 7.31%. No amount was outstanding under the
acquisition facility until January 31, 1999. Decreases in the current year's
weighted average variable interest rates are due to the Company's ability to
take partial advantage of incrementally lower LIBOR rates as opposed to more
stable higher prime rates.
Year 2000
The Company continues to evaluate the risks associated with its operations as a
result of Year 2000 compliance issues. The Company has evaluated these risks on
three levels: internal and existing computer programs and applications; rental
equipment and customers and suppliers. In evaluating these risks, the Company
considered the material implications of each of these items on its operations on
and subsequent to January 1, 2000. The Company's internal business information
systems have been analyzed for Year 2000 compliance and the Company believes
that these systems are Year 2000 compliant. The Company commenced testing of the
compliance readiness of the internal business information systems in January
1999, and will continue testing on an ongoing basis. The Company utilizes
certain third party network equipment and software products, which may or may
not be Year 2000 compliant. While delays in the implementation of the Year 2000
solutions for such systems which may not be Year 2000 compliant could adversely
effect the Company's operations, at this time, the Company believes that
resolution of this Year 2000 issue will not have a material adverse effect on
the Company's operations or results of operations.
A significant portion of the Company's revenues and operating income is directly
related to the Company's ability to rent its equipment. Should a material
portion of such equipment not be Year 2000 compliant and, therefore, not
suitable for its designed purpose, there could be a material adverse effect on
the Company's results of operations. The Company believes that support surfaces
rental equipment that has been manufactured by the Company is fully Year 2000
compliant. The Company has initiated formal communications with the equipment
manufacturers for products the Company maintains in its inventory to determine
the extent to which the Company's purchased rental equipment may be vulnerable
to Year 2000 issues. To date, approximately 94% of the equipment manufacturers
have responded to the Company's requests. As of March 31, 1999, based on the
responses received by manufacturers of the related equipment, approximately 86%
of the Company's rental fleet is fully Year 2000 compliant, as represented by
the manufacturers. The Company has no means to validate these representations
and must rely on the statements made by the manufacturers. For manufacturers
that have not yet responded, the Company has a formal follow up plan that is
currently being executed. The Company expects to complete the evaluation process
of its rental fleet by July 31, 1999. To date, based on responses from the
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equipment manufacturers, the Company believes it would need to spend
approximately $4.0 million to bring its entire rental fleet into Year 2000
compliance, should the Company decide to do so. The Company anticipates that all
known modifications to make its entire rental fleet Year 2000 compliant could be
completed by October 31, 1999. The Company may decide not to modify its entire
rental fleet, based on yet to be determined anticipated utilization of compliant
equipment. Such determination would impact the amount expended on modifications
and the timing of completion thereof. Currently, the Company is not able to
estimate the costs associated with Year 2000 issues for rental equipment whose
manufacturers have not yet replied. Percentages and anticipated timetables
mentioned above have been adjusted from those contained in previous disclosures
as a result of additional equipment obtained with recent acquisitions by the
Company and to conform to the pace of compliance efforts of certain suppliers to
the Company. The status of compliance is subject to further adjustment in
accordance with future changing circumstances that cannot now be reliably known
or anticipated.
Although the Company has significant relationships with certain of its customers
and suppliers, the Company has determined that no one individual customer or
supplier could create a material adverse effect for the Company as a result of
not being Year 2000 compliant. However, should a number of individual customers
and/or suppliers be noncompliant, there could be a material adverse effect on
the Company's operations and results of operations. The Company cannot predict
the extent or dollar amount, if any, of such effect.
Should a material portion of the Company's rental fleet not be Year 2000
compliant and, therefore, not suitable for its designed purpose, an interruption
in or a failure of certain normal business activities or operations could occur.
There can be no assurance that the systems of other companies on which the
Company relies will be Year 2000 compliant and, therefore, not have a material
adverse effect on the Company. The Company cannot predict the extent or dollar
amount, if any, of such effect.
The cost of compliance and the date on which the compliance will be completed
are based on estimates, which were derived utilizing numerous assumptions of
future events including the continued availability of certain resources and
other factors. However, there can be no assurance that these estimates will be
achieved. Actual results could differ materially from the projections. Specific
factors that might cause a material change include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to obtain
all necessary components or upgrade parts and similar uncertainties.
The Company has investigated developing contingency plans for dealing with worst
case scenarios regarding its rental fleet and overall operations. With respect
to its equipment rentals, the Company believes that it is not necessary or
practical to implement contingency measures; however, the Company will make
available all of its Year 2000 compliant equipment to customers that desire to
have sufficient back up units on hand for their own contingency plans.
Concerning its internal systems, the Company performs ongoing testing of these
and believes them to be Year 2000 compliant, so the Company believes that a
contingency plan for their operation is not necessary. With respect to other
operational aspects, the Company believes that developing a contingency plan for
a worst case scenario is not feasible, and based on representations made by
external service providers to the Company (for example, electricity and
telecommunications), circumstances creating such an event are considered by the
Company to be remote. Nevertheless, the absence of a contingency plan could have
a material adverse effect on the Company's operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no changes during the three and six months ended March 31, 1999 in
the way the Company managed its interest rate risk. At March 31, 1999, the
Company's aggregate weighted average variable interest rate was 7.79% compared
to 8.50% at September 30, 1998. The decrease in this rate was due to the
Company's ability to take advantage of incrementally lower LIBOR rates
concerning its term loan, revolving credit and acquisition loan facilities.
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PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule appears on page 15.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1999.
</TABLE>
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MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended March 31, 1999
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)
July 20, 2000 /s/ Kenneth K. Kreider
------------- ---------------------------
(Date) Kenneth K. Kreider
Senior Vice President
and Chief Financial Officer
14
