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: March 31, 1999 Commission File Number: 1-11286
MEDIQ/PRN Life Support Services, Inc.
(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 May 4, 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 March 31, 1999
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations- 4
Three and Six Months Ended March 31, 1999 and 1998
(Unaudited)
Condensed Consolidated Balance Sheets- 5
March 31, 1999 (Unaudited) and
September 30, 1998
Condensed Consolidated Statements of Cash Flows- 6
Six Months Ended March 31, 1999 and 1998
(Unaudited)
Notes to Condensed Consolidated Financial 7
Statements (Unaudited)
Item 2. Management's Narrative Analysis of 8 - 9
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
2
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
Quarter Ended March 31, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
3
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 45,954 $ 36,599 $ 87,141 $ 69,993
Sales 7,486 7,285 16,077 13,979
Other 2,633 2,589 5,305 5,145
--------- --------- --------- ---------
56,073 46,473 108,523 89,117
Costs and Expenses:
Cost of sales 5,948 5,779 12,392 11,270
Operating 13,835 14,003 30,295 28,449
Selling 6,091 3,938 13,065 7,557
General and administrative 5,926 4,729 12,374 9,765
Merger charges -- 306 -- 363
Depreciation and amortization 10,380 8,294 20,298 16,586
--------- --------- --------- ---------
42,180 37,049 88,424 73,990
--------- --------- --------- ---------
Operating Income 13,893 9,424 20,099 15,127
Other (Charges) and Credits:
Interest expense (10,810) (3,330) (21,491) (6,739)
Other-net 285 251 391 479
--------- --------- --------- ---------
Income (Loss) before Income Taxes 3,368 6,345 (1,001) 8,867
Income Tax Expense (Benefit) 1,153 2,839 (349) 3,962
--------- --------- --------- ---------
Net Income (Loss) $ 2,215 $ 3,506 $ (652) $ 4,905
========= ========= ========= =========
</TABLE>
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>
March 31, September 30,
1999 1998
---------- --------------
(Unaudited) (See note below)
Assets
<S> <C> <C>
Current Assets:
Cash $ 2,577 $ 2,227
Accounts receivable (net of allowance of $8,153 and
$11,432, respectively) 66,847 52,659
Inventories 22,258 21,820
Other current assets 10,050 6,643
--------- ---------
Total Current Assets 101,732 83,349
Property, Plant and Equipment (net of accumulated depreciation
and amortization of $172,009 and $155,749, respectively) 105,187 103,917
Goodwill (net of accumulated amortization of $19,349
and $16,658, respectively) 115,923 91,121
Deferred Financing Costs (net of accumulated amortization
of $1,654 and $664, respectively) 15,400 16,146
Other Assets 7,848 7,354
--------- ---------
Total Assets $ 346,090 $ 301,887
========= =========
Liabilities and Stockholder's Deficiency
Current Liabilities:
Accounts payable $ 12,399 $ 14,152
Accrued expenses 18,549 17,597
Other current liabilities 198 281
Current portion of long term debt 2,176 2,037
--------- ---------
Total Current Liabilities 33,322 34,067
Senior Debt 245,144 199,928
Subordinated Debt 190,000 190,000
Deferred Income Taxes 16,637 16,986
Other Liabilities 179 504
Stockholder's Deficiency (139,192) (139,598)
--------- ---------
Total Liabilities and Stockholder's Deficiency $ 346,090 $ 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)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended March 31,
1999 1998
------- --------
<S> <C> <C>
Cash Flows From Operating Activities
Net (loss) income $ (652) $ 4,905
Adjustments to reconcile net (loss) income to net cash
provided by operating activities 1,957 2,633
-------- --------
Net cash provided by operating activities 1,305 7,538
Cash Flows From Investing Activities
Purchases of equipment (14,746) (15,275)
Acquisitions (32,641) --
Other 456 2,603
-------- --------
Net cash used in investing activities (46,931) (12,672)
Cash Flows From Financing Activities
Borrowings 46,300 11,000
Debt repayments (1,138) (12,934)
Deferred financing fees (244) --
Advances from MEDIQ-net 1,058 7,442
-------- --------
Net cash provided by financing activities 45,976 5,508
-------- --------
Increase in cash 350 374
Cash:
Beginning balance 2,227 3,472
-------- --------
Ending balance $ 2,577 $ 3,846
======== ========
</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 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.
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
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 C - Long Term Debt
On January 31, 1999, the Company borrowed $27.8 million under its acquisition
loan facility to fund two acquisitions. (see Note D) 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 D - Acquisitions
The Company acquired two businesses in the second quarter of fiscal 1999. The
assets and businesses acquired principally 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 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.
7
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF 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. 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
Fiscal 1999 Compared to Fiscal 1998
Total revenues increased in the second quarter of fiscal 1999 by $9.6 million,
or 20.7%, to $56.1 million. This growth was primarily attributable to an
increase in rental revenues of $9.4 million, or 25.6%. Total revenues increased
in the six months ended March 31, 1999 by $19.4 million, or 21.8%, to $108.5
million. This growth was primarily attributable to an increase in rental
revenues of $17.1 million, or 24.5%. These rental revenue increases were
principally due to the Company's acquisitions since May 1998 of five equipment
rental businesses that specialized in the rental of support surfaces.
The Company completed two acquisitions in the second quarter of fiscal 1999 that
are expected to contribute combined annual revenues of approximately $9.0
million, based on the most recent annual revenues available for each
acquisition.
Total costs and expenses, exclusive of depreciation and amortization, increased
in the second quarter of fiscal 1999 by $3.0 million to $31.8 million, and
increased in the six months ended March 31, 1999 by $10.7 million to $68.1
million. Included in both current year periods is a reduction of expense from a
recovery of $3.0 million from a settlement of disputed items related to an
acquisition that had been reserved for by the Company last fiscal year. Included
in the second quarter of fiscal 1998 and six months ended March 31, 1998 are non
recurring merger related charges of $.3 million and $.4 million, respectively.
Exclusive of the settlement recovery and non recurring merger charges, the
increase in total costs and expenses in the second quarter of fiscal 1999 was
$6.3 million, or 22.3%, and the increase in the six months ended March 31, 1999
was $14.1 million, or 24.7%. These increases were broad based and associated
with the increased operational requirements of the Company as a result of both
actual growth in business and further growth that is anticipated. Selling
expenses in the second quarter of fiscal 1999 increased $2.2 million, or 54.7%,
to $6.1 million, and in the six months ended March 31, 1999 increased $5.5
million, or 72.9%, to $13.1 million. The increase in each period was due to
increased sales support on a national basis related to the Company's expanding
equipment rental operations related to support surfaces rentals. In total,
operating expenses, exclusive of the settlement recovery, and general and
administrative expenses increased in the second quarter of fiscal 1999 by $4.0
million, or 21.5%, to $22.8 million, and increased in the six months ended March
31, 1999 by $7.5 million, or 19.5%, to $45.7 million. These increases were
primarily due to: (i) employee related costs associated with a larger work force
employed to meet the increased operational requirements and
8
<PAGE>
further growth needs of the Company; (ii) increased equipment service
requirements associated with a larger and expanded product fleet and (iii)
management fees resulting from the Company's merger.
Depreciation and amortization increased in the second quarter of fiscal 1999 by
$2.1 million, or 25.2%, to $10.4 million, and increased in the six months ended
March 31, 1999 by $3.7 million, or 22.4%, to $20.3 million. These increases
resulted from additional depreciable equipment purchased and obtained in
acquisitions and increased goodwill associated with the Company's acquisitions
since May 1998.
Operating margin, exclusive of the settlement recovery in the current year and
non recurring merger charges in the prior year, decreased in the second quarter
of fiscal 1999 to 19.4% from 20.9% in the corresponding prior year quarter, and
decreased in the six months ended March 31, 1999 to 15.8% from 17.4% in the
corresponding six months ended of the prior year. These decreases were primarily
due to the increased infrastructure costs in support of actual business growth
and the further anticipated growth, and increased depreciation and amortization,
partially offset by the increase in the higher margin rental activities of the
Company. Earnings before interest, taxes, depreciation, amortization and other
charges and credits ("EBITDA"), exclusive of the settlement recovery and non
recurring merger charges, were $21.3 million for the second quarter of fiscal
1999 compared to $18.0 million for the corresponding prior year quarter, and
$37.4 million for the six months ended March 31, 1999 compared to $32.1 million
for the corresponding prior year period. Although EBITDA is a widely accepted
financial indicator of a company's ability to service indebtedness, it 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.
Interest expense increased by $7.5 million in the second quarter of fiscal 1999
to $10.8 million and increased by $14.8 million in the six months ended March
31, 1999 to $21.5 million from their respective prior year periods, 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 non
cash amortization of deferred debt issuance costs.
The effective income tax rate for the second quarter of fiscal 1999 was 34.2%
and 34.9% for the six months ended March 31, 1999, compared to 44.7% 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.
9
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
Quarter Ended March 31, 1999
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 March 31,
1999.
10
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. 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/PRN Life Support, Services, Inc.
--------------------------------------
(Registrant)
May 17, 1999 /s/ Jay M. Kaplan
- ------------ --------------------
(Date) Jay M. Kaplan
Senior Vice President-Finance,
Treasurer and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,577
<SECURITIES> 0
<RECEIVABLES> 66,847
<ALLOWANCES> 8,153
<INVENTORY> 22,258
<CURRENT-ASSETS> 101,732
<PP&E> 105,187
<DEPRECIATION> 172,009
<TOTAL-ASSETS> 346,090
<CURRENT-LIABILITIES> 33,322
<BONDS> 435,144
0
0
<COMMON> 0
<OTHER-SE> (139,192)
<TOTAL-LIABILITY-AND-EQUITY> 346,090
<SALES> 16,077
<TOTAL-REVENUES> 108,523
<CGS> 12,392
<TOTAL-COSTS> 88,424
<OTHER-EXPENSES> (391)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,491
<INCOME-PRETAX> (1,001)
<INCOME-TAX> (349)
<INCOME-CONTINUING> (652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (652)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
