UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: December 31, 1998 Commission File Number: 1-11286
MEDIQ/PRN Life Support Services, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 95-3692387
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One MEDIQ Plaza, Pennsauken, New Jersey 08110
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 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
--- ---
As of February 2, 1999, there were 1,000 shares of Common Stock, par value $10
outstanding and owned by MEDIQ Incorporated.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE
FORMAT.
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
Quarter Ended December 31, 1998
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -- 4
Three Months Ended December 31, 1998 and 1997
(Unaudited)
Condensed Consolidated Balance Sheets -- 5
December 31, 1998 (Unaudited) and September 30, 1998
Condensed Consolidated Statements of Cash Flows -- 6
Three Months Ended December 31, 1998 and 1997 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Narrative Analysis of Results of Operations 8 - 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
2
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MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
Quarter Ended December 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
3
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
1998 1997
-------- --------
(in thousands)
Revenues:
Rental $ 41,187 $ 33,395
Sales 8,591 6,694
Other 2,672 2,555
-------- --------
52,450 42,644
Costs and Expenses:
Cost of sales 6,444 5,491
Operating 16,459 14,446
Selling 6,974 3,619
General and administrative 6,449 5,093
Depreciation and amortization 9,919 8,292
-------- --------
46,245 36,941
-------- --------
Operating Income 6,205 5,703
Other (Charges) and Credits:
Interest expense (10,681) (3,409)
Other - net 107 228
-------- --------
(Loss) Income before Income Taxes (4,369) 2,522
Income Tax (Benefit) Expense (1,502) 1,123
-------- --------
Net (Loss) Income $ (2,867) $ 1,399
======== ========
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
(Unaudited) (See note below)
<S> <C> <C>
Assets
Current Assets:
Cash $ 1,282 $ 2,227
Accounts receivable (net of allowance of $12,173 and
$11,432, respectively) 61,528 52,659
Inventories 22,906 21,820
Other current assets 9,368 6,643
--------- ---------
Total Current Assets 95,084 83,349
Property, Plant and Equipment (net of accumulated depreciation
and amortization of $163,689 and $155,749, respectively) 101,373 103,917
Goodwill (net of accumulated amortization of $18,012
and $16,658, respectively) 93,224 91,121
Deferred Financing Costs (net of accumulated amortization
of $1,136 and $664, respectively) 15,893 16,146
Other Assets 7,585 7,354
--------- ---------
Total Assets $ 313,159 $ 301,887
========= =========
Liabilities and Stockholders' Deficiency
Current Liabilities:
Accounts payable $ 12,814 $ 14,152
Accrued expenses 12,382 17,597
Other current liabilities 233 281
Current portion of long term debt 2,259 2,037
--------- ---------
Total Current Liabilities 27,688 34,067
Senior Debt 222,269 199,928
Subordinated Debt 190,000 190,000
Deferred Income Taxes 15,484 16,986
Other Liabilities 321 504
Stockholders' Deficiency (142,603) (139,598)
--------- ---------
Total Liabilities and Stockholders' Deficiency $ 313,159 $ 301,887
========= =========
</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
5
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Net (loss) income $ (2,867) $ 1,399
Adjustments to reconcile net (loss) income to net cash
used in operating activities (10,228) (1,860)
-------- -------
Net cash used in operating activities (13,095) (461)
Cash Flows From Investing Activities
Purchases of equipment (4,823) (8,280)
Acquisition (5,000) --
Other (233) 2,573
-------- -------
Net cash used in investing activities (10,056) (5,707)
Cash Flows From Financing Activities
Borrowings 23,000 8,000
Debt repayments (437) (2,034)
Deferred financing fees (219) --
Advances (to) from MEDIQ - net (138) 1,217
-------- -------
Net cash provided by financing activities 22,206 7,183
-------- -------
(Decrease) increase in cash (945) 1,015
Cash:
Beginning balance 2,227 3,472
-------- -------
Ending balance $ 1,282 $ 4,487
======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of December 31, 1998 and the
condensed consolidated statements of operations and cash flows for the three
months ended December 31, 1998 and 1997 have been prepared by the Company,
without audit. In the opinion of management, all adjustments (consisting only of
normal, recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at December 31, 1998 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 December 31, 1998 are not
necessarily indicative of the operating results for the full year.
The Company is a wholly owned subsidiary of MEDIQ Incorporated ("MEDIQ").
Certain reclassifications have been made to conform prior year balances to the
current year presentation.
Note B - Inventory
December 31, September 30,
1998 1998
------------ -------------
(in thousands)
Raw materials $ 2,696 $ 2,791
Finished goods 20,210 19,029
------- -------
$22,906 $21,820
======= =======
Note C - Long Term Debt
At December 31, 1998, the amount outstanding under the revolving credit facility
was $23.0 million at a weighted average interest rate of 8.15%, compared to no
amount outstanding at September 30, 1998. The weighted average interest rate
incurred on borrowings under this facility during the three months ended
December 31, 1998 was 8.20%. Amounts borrowed were used primarily for interest
payments, equipment purchases, working capital and other corporate purposes.
Note D - Acquisitions
The Company purchased the assets of one business in November 1998 and acquired
individually two separate businesses, one each in January and February 1999. The
assets and businesses acquired primarily relate to equipment 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 were included in the Company's results of operations from
the respective dates of acquisition. Proforma results of operations of the
Company giving effect to the acquisitions are not presented because the
acquisitions in the aggregate are not material.
7
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company as of
December 31, 1998 and results of operations for the three month periods ended
December 31, 1998 and 1997. 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, to which the reader
is directed for additional information.
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. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, 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 speak only
as of the date of this report.
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.
Results of Operations
Revenues for the first quarter fiscal 1999 were $52.5 million compared to $42.6
million for the first quarter fiscal 1998, an increase of 23.2%, or $9.9
million. This revenue growth was attributed to an increase in rental revenue of
23.3%, or $7.8 million, an increase in sales of 28.3%, or $1.9 million, and an
increase in other revenue of 4.6%, or $.1 million. The increase in rental
revenue was attributable to an increase in support surfaces rentals, principally
due to acquisitions in May and June 1998 of businesses specializing in the
rental of support surfaces. The increase in sales resulted from increased sales
of disposables of $.9 million, or 17.6%, and equipment of $.9 million. These
increases resulted from increased volume due to product expansion and the
positive impacts of an acquisition in May 1998.
The Company completed one acquisition in November 1998 and two acquisitions in
the second 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.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") was
$16.1 million for the first quarter fiscal 1999 compared to $14.0 million for
the first quarter fiscal 1998. The increased revenues discussed above were
partially offset by increased costs and expenses, exclusive of depreciation and
amortization, of $7.7 million, or 26.8%. This increased level of costs and
expenses was broad based and associated with the increased operational needs of
the organization due to the overall business growth experienced and anticipated
by the Company. Cost of sales increased $1.0 million, or 17.4%, and was directly
related to the increased sales. The profit margin on sales improved to 25.0% in
the first quarter fiscal 1999 compared to 18.0% in the first quarter fiscal
1998, reflecting greater weighting of sales of higher margin support surfaces.
Selling expense increased $3.4 million due to increased sales support on a
national basis for the expanded support surfaces business. The increased level
of operating and general and administrative expenses were primarily due to
employee costs associated with a larger work force employed to meet the
increased operational needs related to the Company's growth, increased service
requirements associated with a larger and expanded product fleet, additional
occupancy costs associated with 17 new branch offices opened in fiscal 1998 to
support the expanded support surfaces business and management fees incurred as a
result of MEDIQ's merger in May 1998. EBITDA is a widely accepted financial
indicator of a company's ability to service indebtedness. However, EBITDA should
not be considered as an alternative to income from operations or to cash flows
from operating activities and should not be construed as an indication of a
company's performance or as a measure of liquidity.
8
<PAGE>
Operating income for the first quarter fiscal 1999 was $6.2 million compared to
$5.7 million for the first quarter fiscal 1998, an increase of 8.8%.
Depreciation and amortization increased by $1.6 million, or 19.6%, due to added
capital equipment purchased and acquired and increased goodwill related to the
Company's acquisitions.
Interest expense increased by $7.3 million in the first quarter fiscal 1999
compared to the first quarter fiscal 1998 principally due to the substantially
higher level of debt incurred in connection with MEDIQ's merger and
acquisitions.
An income tax benefit was associated with the reported pretax loss in the first
quarter fiscal 1999 compared to the income tax expense associated with the
reported pretax income in the first quarter fiscal 1998. The effective income
tax rate was lower for the first quarter fiscal 1999 compared to the first
quarter fiscal 1998 because no state income tax benefit was recognized on the
reported first quarter fiscal 1999 pretax loss compared to state income tax
expense recognized on the reported first quarter fiscal 1998 pretax income.
There was a net loss of $2.9 million for the first quarter fiscal 1999 compared
to net income of $1.4 million for the first quarter fiscal 1998. The Company
expects that it will continue to report a net loss due to the substantial
interest requirements, combined with noncash depreciation and amortization.
9
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
Quarter Ended December 31, 1998
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule appears on page 12.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
10
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
Quarter Ended December 31, 1998
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/PRN Life Support, Services, Inc.
--------------------------------------
(Registrant)
February 16, 1999 /s/ Jay M. Kaplan
- ----------------- -------------------------------------
Date) Jay M. Kaplan
Senior Vice President-Finance,
Treasurer and Chief Financial Officer
11
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<ARTICLE> 5
<NAME> MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
AND SUBSIDIARIES
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 1,282
<SECURITIES> 0
<RECEIVABLES> 73,701
<ALLOWANCES> 12,173
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<BONDS> 412,269
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