SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): January 13, 2000
MEDIQ Incorporated
(Exact name of registrant as specified in its charter)
Delaware 1-8147 51-0219413
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(Sate of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) 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
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Not Applicable
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(Former name or former address, if changed since last report)
Exhibit Index on page 4
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Item 5. Other Events.
MEDIQ Incorporated will not file its annual report for the year ending
September 30, 1999, on its January 13th deadline for making such filing. The
facts and circumstances giving rise to such event are described in the statement
of MEDIQ Incorporated, dated January 13, 2000, which is filed as Exhibit 5.1
hereto and incorporated by reference herein.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
5.1 Statement of MEDIQ Incorporated, dated as of January 13, 2000
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
MEDIQ INCORPORATED
By: /s/ Thomas E. Carroll
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Name: Thomas E. Carroll
Title: Director, Chief Executive Officer
and President
Dated: January 13, 2000
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EXHIBIT INDEX
Exhibit No. Document Page
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5.1 Statement of MEDIQ Incorporated, dated as of 5
January 13, 2000
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Statement of MEDIQ Incorporated, dated January 13, 2000
Delay in Completing Audit
On December 29, 1999, we requested a 15 day extension for the filing of our
annual report with the SEC as a result of unforeseen delays in the collection
and review of information and documents necessary to complete our year-end
audit. We encountered such delays when our outside auditors informed our Audit
Committee that they were concerned with our treatment of certain balance sheet
items and whether they had received all material information pertinent to the
1999 audit. Based on continuing discussions with our outside auditors, we
believe we will make certain adjustments to our financial results for the second
and third quarters of 1999. It is possible that earlier periods might be
affected as well. Further, as a result of delays in completing the audit, we
will not file our annual report within the 15 day extended time period which
ends today. Within the next 30 days, however, we hope to make such filing and
to restate our financial statements for earlier periods to the extent necessary.
Our ability to make such a filing depends upon the completion of the audit by
our outside auditors.
Audit Committee Response
In mid-December 1999, our Audit Committee retained a nationally recognized law
firm to interview (with assistance from an independent, nationally recognized
accounting firm) members of our management team and accounting staff in order to
(1) gather background information on the accounting issues for use in giving
legal advice to the Audit Committee, (2) determine, based on the interviews,
whether all material information pertinent to completion of the 1999 audit was
being provided to our outside auditors, and (3) determine what remedial actions,
if any, we need to take concerning the accounting issues.
Based on discussions to date with our outside auditors, it appears that there
are three significant accounting issues. The first involves the understatement
of reserves related to accounts receivables (a portion of which resulted from a
failure to process customer credits on a timely basis) and the related improper
recognition of revenue and earnings. The remaining issues involve the reduction
of obsolete and excess inventories to net realizable value and the deferral and
capitalization of certain costs and expenses. Based on our work to date, we
believe the effect of such issues is an overstatement of revenues and an
understatement of costs and expenses in an amount now estimated, in the
aggregate, in excess of $25 million in fiscal 1999. The calculation of such
items has not yet been finalized and their actual effect on operating income for
fiscal 1999 has not yet been determined. As a result of the foregoing and other
issues, we are examining (together with our outside auditors) the
appropriateness of making an adjustment to goodwill.
The Audit Committee has identified several areas for improvement in our
accounting and financial reporting functions including the expansion of its
role. The Audit Committee has engaged Mr. Kenneth Kreider, who has held senior
finance and accounting positions with ICM Equipment
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Company LLC, Lucas Industries Plc. and Fairchild Space & Defense Corporation,
to oversee the finalization of our 1999 financial statements and the
completion of the audit. Mr. Kreider will work with the Audit Committee after
the completion of the audit to perform an organizational review of our finance
and accounting functions. We also expect to name Mr. Kreider as our interim
Chief Financial Officer effective upon the departure of our current CFO, Mr. Jay
Kaplan. Although Mr. Kaplan expressed to the Audit Commitee on December 9, 1999
his expectation that he would leave the employ of the Company, the details of
Mr. Kaplan's departure from the Company have not yet been resolved.
Effect on Debt Instruments; Effect on Liquidity and Operations
Our failure to deliver audited year-end financial statements constitutes an
event of default under our senior credit facility with a syndicate of banks led
by Banque Nationale de Paris. The credit facility allows the banks to accelerate
all amounts outstanding under the facility as a result of such event of default.
Although the banks have not yet exercised that right, there can be no assurances
that they will not do so in the future. In addition, as a result of such event
of default we are now paying interest on our senior indebtedness at a default
rate of 2% per annum in addition to the applicable rate under the credit
facility. Based on our current estimate of the extent of the potential
restatement of our financial results, we believe such restated financial results
will give rise to additional events of default including the failure to comply
with our financial covenants. Until a formal agreement relating to those
defaults and potential defaults is reached with the banks, we are unable to
access our credit facility and must fund our working capital needs through other
sources of cash. We believe we have adequate funds from working capital and
operating activities to fund our operations pending agreement with the banks.
While recent events have not given rise to any events of default under the
indentures governing our outstanding 11% Senior Subordinated Notes Due 2008 and
13% Senior Discount Debentures Due 2009, our failure to file our annual report
on time constitutes a default of certain covenants requiring us to promptly file
reports with the SEC and provide copies of such filings to the trustees and the
holders of the bonds. Upon our receipt of notice from the trustees, or holders
of at least 25% of the outstanding bonds, that we are in default of such
covenants, we will have 30 days to file our annual report and cure the default.
Our failure to cure the default within such 30 day period would give rise to an
event of default under the indentures. There would be additional events of
default under the indentures if the banks ultimately decide to accelerate the
indebtedness outstanding under the senior credit facility and such acceleration
is not rescinded within 10 days. If events of default exist under the
indentures, the trustees or the holders of at least 25% of the outstanding
bonds, in each case subject to certain rights of our senior lenders, will be
entitled to accelerate the payment of all principal and interest outstanding
under the bonds.
This filing contains forward-looking statements which are made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995, each of
which involves risks and uncertainties that may affect our business and
prospects. Such forward-looking statements include,
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without limitation, our ability to file our annual report within the timeframe
discussed above, our estimates as to the actual effects that the accounting
issues discussed above may have on our financial results and our beliefs as to
our liquidity. Investors should consult the Corporation's ongoing interim and
quarterly filings and annual reports for additional information on risks and
uncertainties relating to forward-looking statements. Investors are cautioned
not to rely on these forward-looking statements. We do not undertake to update
these forward-looking statements.
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