-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EI/+V5otSyddzp7QG6dD68fJSdwmX+ZXTzMyJp+9oOEVEW2AHiuEFw9CNkiGslW6 DWbL0ICanpvyLD/vCHqSig== 0000950115-96-001140.txt : 19960816 0000950115-96-001140.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950115-96-001140 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIQ INC CENTRAL INDEX KEY: 0000350920 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS EQUIPMENT RENTAL & LEASING [7350] IRS NUMBER: 510219413 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08147 FILM NUMBER: 96613349 BUSINESS ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 BUSINESS PHONE: 6096656300 MAIL ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1996 Commission File Number: 1-8147 MEDIQ INCORPORATED (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 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609) 665-9300 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 filing requirements for the past 90 days. Yes X No -- -- As of August 9, 1996, there were 18,417,965 shares of Common Stock, par value $1.00 per share and 6,311,501 shares of Preferred Stock, par value $.50 per share, outstanding. MEDIQ INCORPORATED AND SUBSIDIARIES Quarter Ended June 30, 1996 PART I. FINANCIAL INFORMATION: Item 1. Financial Statements. Condensed Consolidated Statements of Operations- Three and Nine Months ended June 30, 1996 and 1995 (Unaudited) 4 Condensed Consolidated Balance Sheets- June 30, 1996 (Unaudited) and September 30, 1995 5 Condensed Consolidated Statements of Cash Flows- Nine Months ended June 30, 1996 and 1995 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11-15 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K. 16 MEDIQ INCORPORATED AND SUBSIDIARIES Quarter Ended June 30, 1996 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. 3 MEDIQ INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended June 30, June 30, ------------------------ ------------------------ 1996 1995 1996 1995 --------- --------- --------- --------- Revenues $ 34,386 $ 33,098 $ 103,478 $ 101,976 Costs and expenses: Operating 14,821 13,445 42,988 40,870 Selling and administrative 5,183 5,458 15,999 17,689 Restructuring -- -- 2,200 -- Depreciation and amortization 7,483 7,648 22,319 21,818 --------- --------- --------- --------- 27,487 26,551 83,506 80,377 --------- --------- --------- --------- Operating income 6,899 6,547 19,972 21,599 Other (charges) credits: Interest expense (6,806) (7,358) (20,398) (22,365) Equity in earnings of unconsolidated affiliate 606 397 1,882 1,519 Interest income 340 349 1,157 1,032 Other - net 639 54 204 (749) --------- --------- --------- --------- Income (loss) from continuing operations before income taxes and extraordinary item 1,678 (11) 2,817 1,036 Income tax expense 985 225 2,379 1,006 --------- --------- --------- --------- Income (loss) from continuing operations before discontinued operations and extraordinary item 693 (236) 438 30 Discontinued operations (net of taxes) (1,914) (956) (212) 354 Extraordinary item - early retirement of debt (net of taxes) 153 -- 1,154 -- --------- --------- --------- --------- Net income (loss) $ (1,068) $ (1,192) $ 1,380 $ 384 ========= ========= ========= ========= Earnings per share: Income (loss) from continuing operations $ .03 $ (.01) $ .02 $ -- Discontinued operations (.08) (.04) (.01) .01 Extraordinary item -- -- .04 -- --------- --------- --------- --------- Net income (loss) $ (.05) $ (.05) $ .05 $ .01 ========= ========= ========= ========= Weighted average shares outstanding 25,244 24,699 24,890 24,573 ========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements. 4 MEDIQ INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, Sept. 30, 1996 1995 -------- --------- (Unaudited) (See Note) Assets Current assets: Cash $ 2,331 $ 2,966 Accounts receivable - net 32,353 27,884 Investment in discontinued operations 43,798 19,024 Inventories 6,163 4,181 Deferred income taxes 4,203 4,310 Other current assets 3,647 5,095 -------- -------- Total current assets 92,495 63,460 Investment in unconsolidated affiliate 20,479 18,598 Investment in discontinued operations 8,061 32,533 Property, plant and equipment - net 125,799 132,823 Goodwill - net 59,157 61,744 Note receivable from MHM 10,158 10,733 Other assets 16,373 14,272 -------- -------- Total assets $332,522 $334,163 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Notes payable to financial institutions $ 21,995 $ -- Accounts payable 10,573 6,694 Accrued expenses 23,359 20,691 Current portion of long-term debt 33,600 37,300 -------- -------- Total current liabilities 89,527 64,685 Senior debt 128,948 136,949 Subordinated debt 59,993 81,907 Deferred income taxes and other liabilities 19,529 19,105 Stockholders' equity 34,525 31,517 -------- -------- Total liabilities and stockholders' equity $332,522 $334,163 ======== ======== - ----------------- Note: The balance sheet at September 30, 1995 has been condensed from the audited financial statements at that date and restated for discontinued operations. See Notes to Condensed Consolidated Financial Statements. 5 MEDIQ INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended June 30, ------------------------ 1996 1995 -------- -------- Cash Flows From Operating Activities: Net income $ 1,380 $ 384 Adjustments to reconcile net income to net cash provided by operating activities 14,528 13,481 -------- -------- Net cash provided by operating activities 15,908 13,865 Cash Flows From Investing Activities: Purchase of equipment (12,956) (7,060) Advance to joint venture (3,250) -- Repayment of advance to joint venture 3,250 -- Purchase of warrant (1,625) -- Proceeds from disposal of equipment and other assets 4,533 6,762 Proceeds from the sale of discontinued operations 1,602 6,368 Collections of MHM note receivable 575 -- Other (164) (1,265) -------- -------- Net cash provided by (used in) investing activities (8,035) 4,805 Cash Flows From Financing Activities: Borrowings 21,712 5,088 Debt repayments (31,848) (22,674) Proceeds from exercise of stock options 1,628 47 -------- -------- Net cash used in financing activities (8,508) (17,539) -------- -------- Increase (decrease) in cash (635) 1,131 Cash: Beginning balance 2,966 1,495 -------- -------- Ending balance $ 2,331 $ 2,626 ======== ======== Supplemental disclosure of cash flow information: Interest paid $ 16,357 $ 17,725 ======== ======== Supplemental disclosure of non-cash investing and financing activities: Equipment financed with debt, capital leases and accounts payable $ 1,482 $ 1,328 ======== ========
See Notes to Condensed Consolidated Financial Statements. 6 MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Condensed Consolidated Financial Statements The condensed consolidated balance sheet as of June 30, 1996, the condensed consolidated statements of operations for the three and nine months ended June 30, 1996 and 1995, and the condensed consolidated statements of cash flows for the nine months then ended 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 June 30, 1996 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, 1995 Annual Report on Form 10-K. The results of operations for the period ended June 30, 1996 are not necessarily indicative of the operating results for the full year. Reclassification of accounts - Certain reclassifications have been made to conform prior years' balances to the current year presentation Note B - Discontinued Operations On July 24, 1996, PCI Services, Inc., an entity in which the Company has a 46% equity interest, announced it agreed to be acquired by Cardinal Health, Inc. Under the terms of the agreement, shareholders of PCI will receive 0.336 shares of Cardinal Health common stock for each share of PCI owned at the time the transaction closes, subject to adjustment under certain circumstances. The transaction is anticipated to close in the first quarter of fiscal 1997. If the merger was consummated at the closing price for Cardinal Health stock on August 9, 1996, the Company would have received shares of Cardinal Health having a market value of approximately $67.1 million and would have reported an after-tax gain of approximately $24.3 million or approximately $1.00 per share. In connection with the transaction, the Company granted Cardinal Health an option to purchase all of the shares of PCI owned by the Company, exercisable upon the occurrence of certain events and has agreed to vote in favor of the transaction. Accordingly, the Company's investment in PCI, as well as its equity in the earnings of PCI, have been reported as discontinued operations. In the second quarter of fiscal 1995, the Company adopted a plan to sell four non-core businesses, Medifac, Inc., Health Examinetics, Inc., MEDIQ Mobile X-Ray Services, Inc. and MEDIQ Imaging Services, Inc. During fiscal 1995, the Company sold Medifac and MEDIQ Imaging Services. In the fourth quarter, the Company revised the plan to include the operations of HealthQuest, Inc. Discontinued operations also include the Company's equity investment in InnoServ Technologies, Inc. ("InnoServ"), which is anticipated to be distributed to the Company's shareholders during the first quarter of fiscal 1997. The Company's prior year consolidated financial statements have been restated to report the net assets and operating results of these businesses, as well as PCI, as discontinued operations. 7 MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note B - Discontinued Operations (Continued) In February 1996, the Company agreed to sell substantially all of the assets of Mobile X-Ray to a subsidiary of Long-Term Care Services, Inc. In July 1996, this agreement was terminated as a result of uncertainties relating to certain Medicare reimbursement rate adjustments. The Company is currently reviewing several new offers and believes it will sign a letter of intent in the fourth quarter of fiscal 1996 to sell substantially all of the assets of Mobile X-Ray. The Company anticipates that the disposal of Health Examinetics and HealthQuest will be completed in fiscal 1996. The estimated loss on the sale of these operations was recorded in fiscal 1995. As a result of the termination of the agreement to sell the assets of Mobile X-Ray and the current offers for these assets, as well as offers for the assets of Health Examinetics, the Company has revised its estimate of the reserve for disposal of discontinued operations and recorded an additional reserve of $7.2 million ($2.6 million, net of tax) in the third quarter of fiscal 1996. The investment in discontinued operations as of June 30, 1996 consisted of (in thousands): Current assets $39,229 Current liabilities (9,023) ------- Net current assets 30,206 Net fixed assets 5,704 Other noncurrent assets 7,888 ------- 43,798 Investment in InnoServ 8,061 ------- $51,859 ======= The investment in InnoServ, which is expected to be distributed to the Company's shareholders in the form of a dividend, is classified as a long-term asset. Note C - Inventories Inventories, which consist primarily of finished goods for sale and repair parts for rental equipment, are stated at the lower of cost (first-in, first-out method) or market. Note D - Investment in Unconsolidated Affiliate As of June 30, 1996, the Company owned 47.4% of the outstanding common stock of NutraMax Products, Inc. Summarized income statement information for NutraMax is presented below (in thousands). Thirteen Weeks Ended Thirty-Nine Weeks Ended ------------------------ ------------------------- June 29, July 1, June 29, July 1, 1996 1995 1996 1995 -------- -------- -------- -------- Net sales $ 20,071 $ 15,184 $ 58,043 $ 45,362 Gross profit 5,598 3,863 16,721 12,744 Net income 1,279 857 3,971 3,206 8 MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note E - Long-Term Debt Under the terms of the Company's 7.25% subordinated convertible debentures due 2006, the Company is required to offer to repurchase a portion of the debentures if stockholders' equity is $40 million or less at the end of two consecutive fiscal quarters. As of June 30, 1994 and subsequent thereto, the Company's stockholders' equity has been less than $40 million. During the first and third quarters of fiscal 1996, the Company repurchased an aggregate of $21.4 million of its debentures at a discount in the open market and through a private transaction, which resulted in a pretax gain of $1.7 million, or $1.2 million net of taxes. This gain was recorded as an extraordinary item in the Company's Condensed Consolidated Statement of Operations. In July 1996, the Company, through a Special Mandatory Redemption Obligation Offer made to all bond holders of record on June 28, 1996, repurchased an additional $1.1 million of debentures representing the remaining balance of its obligation to purchase $11.25 million of debentures by June 30, 1996. The Company is required to offer to repurchase $11.25 million of debentures prior to December 31, 1996 and semi-annually thereafter until all of the debentures are repurchased unless stockholders' equity exceeds $40 million as of September 30, 1996 or any subsequent quarter. As of June 30, 1996, $23.6 million of the debentures have been classified as a current liability. In December 1995, the Company's $13.4 million revolving credit facility was extended to December 1996 and increased to $15.0 million with interest reduced to the prime rate plus 1/2%. In addition, as amended, the facility will be reduced by an amount equal to 50% of the net cash proceeds from the sale of certain discontinued operations and certain other assets. As of June 30, 1996, $13.1 million was outstanding under this facility which was included in Notes Payable to Financial Institutions in the Condensed Consolidated Balance Sheet. In July 1996, the Company executed a commitment letter with two financial institutions to refinance substantially all of the Company's senior debt and working capital facilities and a portion of the Company's subordinated debt. The commitment provides for two term loans aggregating $135 million, a $25 million line of credit, and, under certain circumstances, a $100 million revolving credit facility. The interest rate on these facilities will be based upon prime or LIBOR, at the Company's discretion, with a spread based upon the Company's leverage ratio. The interest rate should initially approximate LIBOR plus 3%. The Company expects to finalize the negotiations on the credit agreement shortly and consummate the refinancing by September 30, 1996. Note F - Stock Options In the first quarter of fiscal 1996, the Company granted stock options to acquire 100,000 and 980,000 shares of common stock at $4.00 per share and $4.53 per share, respectively, to 35 officers and managers of the Company and certain subsidiaries, including 250,000 options to Mr. Thomas E. Carroll, the Company's President and Chief Executive Officer. Note G - Restructuring Charge In the first quarter of fiscal 1996, the Company recorded a restructuring charge of $2.2 million for employee severance costs incurred in connection with a plan approved by the Board of Directors to downsize corporate functions and consolidate certain activities with the operations of MEDIQ/PRN. The plan resulted in the termination of employment for 27 employees. The Company anticipates reductions in corporate expenses of approximately $2.0 million in 1996 and $2.5 million annually thereafter as a result of the downsizing and consolidation of corporate activities. 9 MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note H - Acquisition On January 31, 1996, SpectraCair, a 50% owned joint venture of MEDIQ/PRN, acquired certain rental assets from Bio Clinic Corporation, a subsidiary of Sunrise Medical, Inc. The Company advanced $3.3 million to the joint venture to fund this acquisition. SpectraCair repaid the advance with interest at the prime rate plus 2% in April 1996. This acquisition expanded the joint venture's business of renting air therapy mattress systems throughout the United States. Note I - Purchase of Warrant In February 1996, the Company purchased a warrant issued by MEDIQ/PRN Life Support Services, Inc. in 1992 to a lender in connection with a financing for an acquisition. The warrant provided for the purchase of up to 2.5% of the common stock of MEDIQ/PRN Life Support Services, Inc. for a period of seven years for nominal consideration. The purchase price of the warrant was $1.6 million. The excess of the purchase price over the carrying value of the warrant resulted in a net charge to income in the second quarter of 1996 of $.6 million, or $.03 per share. This charge is reflected in other charges in the Company's Condensed Consolidated Statement of Operations for the nine months ended June 30, 1996. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The following discussion addresses the financial condition of the Company as of June 30, 1996 and results of operations for the three and nine month periods ended June 30, 1996 and 1995. 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 September 30, 1995 Annual Report on Form 10-K to which the reader is directed for additional information. Some of the information presented herein constitutes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 assurances that actual results will not differ materially from its expectations. For cautionary statements, see the Company's Form 8-K filed on June 12, 1996. Discontinued Operations On July 24, 1996, PCI Services, Inc., an entity in which the Company has a 46% equity interest, announced it agreed to be acquired by Cardinal Health, Inc. Under the terms of the agreement, shareholders of PCI will receive 0.336 shares of Cardinal Health common stock for each share of PCI owned at the time the transaction closes, subject to adjustment under certain circumstances. The transaction is anticipated to close in the first quarter of fiscal 1997. If the merger was consummated at the closing price for Cardinal Health stock on August 9, 1996, the Company would have received shares of Cardinal Health having a market value of approximately $67.1 million and would have reported an after-tax gain of approximately $24.3 million or approximately $1.00 per share. In connection with the transaction, the Company granted Cardinal Health an option to purchase all of the shares of PCI owned by the Company, exercisable upon the occurrence of certain events and has agreed to vote in favor of the transaction. Accordingly, the Company's investment in PCI as well as its equity in the earnings of PCI have been reported as discontinued operations. In the second quarter of fiscal 1995, the Company adopted a plan to sell its non-core businesses: MEDIQ Mobile X-Ray Services, Inc., MEDIQ Imaging Services, Inc., Medifac, Inc., and Health Examinetics, Inc. In the fourth quarter of fiscal 1995, the Company expanded its plan to include the operations of HealthQuest, Inc. These operations, in addition to the Company's equity investment in InnoServ Technologies, Inc., which is anticipated to be distributed to the Company's shareholders in the first quarter of fiscal 1997, are reported as discontinued operations. In June 1995, the Company sold Medifac and related assets to the management of Medifac for approximately $11 million, consisting of $6 million in cash and $5 million in notes, and the assumption of $26.9 million of non-recourse debt. In August 1995, the Company sold the assets of MEDIQ Imaging to NMC Diagnostic Services, Inc., a division of W.R. Grace & Co., for approximately $17 million in cash and the assumption of $9.7 million of debt. 11 In February 1996, the Company agreed to sell substantially all of the assets of Mobile X-Ray to a subsidiary of Long-Term Care Services, Inc. In July 1996, this agreement was terminated as a result of uncertainties relating to certain Medicare reimbursement rate adjustments. The Company is currently reviewing several new offers and believes it will sign a letter of intent in the fourth quarter of fiscal 1996. The Company anticipates that the disposal of Health Examinetics and HealthQuest will be completed in fiscal 1996. Results of Operations Third Quarter 1996 Compared with Third Quarter 1995 Revenues were $34.4 million for the third quarter of 1996, as compared to $33.1 million in the prior year quarter. Revenue growth attributable to disposable products, outsource services and sales of equipment was partially offset by lower equipment rentals as a result of softness in the rental market. Operating income was $6.9 million, or 20% of revenues for the third quarter of 1996 as compared to $6.5 million, or 20% of revenues in the prior year quarter. Operating income was favorably affected by reductions in corporate overhead in the amount of $363,000 primarily as a result of the reduction in corporate personnel in connection with the corporate restructuring in the first quarter of 1996. The Company expects this trend of decreased corporate overhead to continue throughout fiscal 1996. Interest expense decreased 8% to $6.8 million for the third quarter of 1996 from $7.4 million, primarily as a result of a net reduction in indebtedness. This decrease was partially offset by an increase in the interest rate of MEDIQ/PRN's $100 million senior secured notes from 11 1/8% to 12 1/8% effective October 1, 1995. The Company's equity in earnings of its unconsolidated affiliate was $.3 million, which was consistent with the prior year period. The Company revised its estimate of the net loss on the disposal of discontinued operations in connection with the termination of the agreement to sell the assets of Mobile X-Ray Services to a subsidiary of Long-Term Care Services, Inc. and the current offer for the assets of Health Examinetics. The additional reserve of $7.2 million, or $2.6 million, net of tax, represents a reduction in the carrying value of discontinued operations to estimated net realizable value. Discontinued operations also reflects equity in the earnings of PCI Services, Inc. of $1.1 million pretax, or $.7 million, net of tax. PCI announced on July 24, 1996 that it agreed to be acquired by Cardinal Health, Inc. in a pooling of interests transaction anticipated to close in the first quarter of fiscal 1997. Nine Months Ended June 30, 1996 Compared with Nine Months Ended June 30, 1995 Revenues were $103.5 million for the nine months ended June 30, 1996, as compared to $102.0 million in the prior year period. Revenue growth attributable to disposable products, outsource services and sales of equipment was partially offset by lower equipment rentals as a result of the lack of a sustained flu season and a general softness in the rental market. 12 Operating income decreased to $20.0 million, or 19% of revenues, for the current period, as compared to $21.6 million, or 21% of revenues, in the prior year period. The decrease in operating income was primarily attributable to a restructuring charge of $2.2 million, recorded in the first quarter of fiscal 1996, for employee severance costs incurred in connection with a plan approved by the Board of Directors to downsize corporate functions and consolidate certain activities with the operations of MEDIQ/PRN. Operating income was also adversely affected by lower margins associated with the increase in sales of disposable products and equipment and increased depreciation expense related to an increase in rental equipment. This decrease was offset by reductions in corporate overhead of $1.6 million primarily as a result of the reduction in corporate personnel in connection with the corporate restructuring plan discussed above. The Company expects this trend of decreased corporate overhead to continue throughout fiscal 1996. Interest expense decreased 9% to $20.4 million for the current period from $22.4 million, primarily as a result of a net reduction in indebtedness. This decrease was partially offset by an increase in the interest rate of MEDIQ/PRN's $100 million senior secured notes from 11 1/8% to 12 1/8% effective October 1, 1995. The Company's equity in earnings of its unconsolidated affiliate was $1.9 million as compared with $1.5 million in the prior year period. The increase was primarily attributable to the improved operating results of NutraMax. In February 1996, the Company purchased a warrant issued by MEDIQ/PRN Life Support Services, Inc. in 1992 to a lender in connection with a financing for an acquisition. The warrant provided for the purchase of up to 2.5% of the common stock of MEDIQ/PRN Life Support Services, Inc. for a period of seven years for nominal consideration. The purchase price of the warrant was $1.6 million. The excess of the purchase price over the carrying value of the warrant resulted in a net charge to income in the second quarter of 1996 of $.6 million, or $.03 per share. This charge is reflected in other charges in the Company's Condensed Consolidated Statement of Operations for the nine months ended June 30, 1996. The net loss from discontinued operations was $.2 million, as compared to net income of $.4 million in the prior year period. The current period reflects the equity in earnings of PCI Services, Inc. of $3.6 million pretax, or $2.4 million, net of tax and the additional reserve for the disposal of discontinued operations discussed above. During the first and third quarters of fiscal 1996, the Company repurchased an aggregate of $21.4 million of its debentures at a discount in the open market and through a private transaction, which resulted in a pretax gain of $1.7 million, or $1.2 million net of tax. This gain was recorded as an extraordinary item in the Company's Condensed Consolidated Statement of Operations. Income Taxes The Company's effective tax rate was disproportionate compared to the statutory rate as a result of goodwill amortization, earnings of the Company's equity investment and the non-recognition of certain operating losses for state income tax purposes. 13 Liquidity and Capital Resources Cash provided by operating activities was $15.9 million for the nine months ended June 30, 1996, as compared to $13.9 million in the prior year period. The increase in cash flows from operating activities was primarily attributable to a higher level of collections of accounts receivable in the current period, partially offset by other working capital fluctuations. Cash flows from operations in the prior year were adversely affected by the increase in accounts receivable attributable to the growth in MEDIQ/PRN's business as a result of the KCI acquisition. As of June 30, 1996, the Company had cash of $2.3 million and working capital of $3.0 million. Current liabilities as of June 30, 1996 include $23.6 million representing the portion of the 7.25% subordinated convertible debentures expected to be repurchased by June 30, 1997. Net cash used in investing activities consisted principally of capital expenditures for equipment of $13.0 million and the purchase of the MEDIQ/PRN warrant for $1.6 million. Cash provided by investing activities included proceeds from the disposal of equipment of $4.5 million, collections on a note receivable from the sale of discontinued operations of $1.6 million and collections on the MHM note receivable of $.6 million. Net cash used in financing activities resulted from debt repayments of $31.8 million partially offset by borrowings of $21.7 million and proceeds from the exercise of stock options of $1.6 million. Under the terms of the Company's 7.25% convertible debentures due 2006, the Company is required to offer to repurchase a portion of the debentures if stockholders' equity is $40 million or less at the end of two consecutive fiscal quarters. As of June 30, 1994 and subsequent thereto, the Company's stockholders' equity has been less than $40 million. During the first and third quarters of fiscal 1996, the Company repurchased an aggregate of $21.4 million of its debentures at a discount in the open market and through a private transaction. In July 1996, the Company, through a Special Mandatory Redemption Obligation Offer made to all bond holders of record on June 28, 1996, repurchased an additional $1.1 million of debentures representing the remaining balance of its obligation to purchase $11.25 million of debentures by June 30, 1996. The Company is required to offer to repurchase $11.25 million of debentures prior to December 31, 1996 and semi-annually thereafter until all debentures are repurchased unless stockholders' equity exceeds $40 million as of September 30, 1996 or any subsequent quarter. As of June 30, 1996, $23.6 million of the debentures have been classified as a current liability. In December 1995, the Company's $13.4 million revolving credit facility was extended to December 1996 and increased to $15.0 million with interest reduced to the prime rate plus 1/2%. In addition, as amended, the facility will be reduced by an amount equal to 50% of the net cash proceeds from the sale of certain discontinued operations and certain other assets. As of June 30, 1996, $13.1 million was outstanding under this facility. In addition, the Company has $8.9 million outstanding under an additional revolving credit facility and a line of credit aggregating $16.0 million. The amount of available credit on the additional revolving credit facility fluctuates based upon the amount of eligible accounts receivable. 14 In July 1996, the Company executed a commitment letter with two financial institutions to refinance substantially all of the Company's senior debt and working capital facilities and a portion of the Company's subordinated debt. The commitment provides for two term loans aggregating $135 million, a $25 million line of credit, and, under certain circumstances, a $100 million revolving credit facility. The interest rate on these facilities will be based upon prime or LIBOR, at the Company's discretion, with a spread based upon the Company's leverage ratio. The interest rate should initially approximate LIBOR plus 3%. The Company expects to finalize the negotiations on the credit agreement shortly and consummate the refinancing by September 30, 1996. The Company believes that its primary source of liquidity for operating activities will continue to be generated through cash flows from MEDIQ/PRN, the refinancing discussed above and the sale of discontinued operations and miscellaneous assets. The Company believes that sufficient funds will be available from operating cash flows and the sale of assets to meet the Company's anticipated operating and capital requirements, including obligations to repurchase a portion of the 7.25% subordinated convertible debentures. 15 MEDIQ INCORPORATED AND SUBSIDIARIES Quarter Ended June 30, 1996 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 11 - Computation of Net Income Per Share appears on page 18. Exhibit 27 - Financial Data Schedule appears on page 19. (b) Reports on Form 8-K. The Company filed the following reports on Form 8-K during the quarter ended June 30, 1996: Date of Earliest Event Requiring Report: June 12, 1996 Date of Filing: June 12, 1996 Items Reported: Item 5 Subject: Cautionary statements for purposes of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. 16 MEDIQ INCORPORATED AND SUBSIDIARIES Quarter Ended June 30, 1996 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 14, 1996 - --------------- (Date) /s/ Michael F. Sandler ------------------------------------ Michael F. Sandler Senior Vice President - Finance and Chief Financial Office 17 EX-11 2 COMPUTATION OF NET INCOME PER SHARE EXHIBIT 11 MEDIQ INCORPORATED AND SUBSIDIARIES Computation of Net Income Per Share (in thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended June 30, June 30, ----------------------- ---------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Computation of Primary Earnings Per Share: Net Income (loss) $ (1,068) $ (1,192) $ 1,380 $ 384 ======== ======== ======== ======== Weighted average of primary shares: Common stock 18,391 17,786 18,173 17,758 Preferred stock 6,337 6,385 6,354 6,411 Assumed conversion of options 516 528 363 404 -------- -------- -------- --------- Total 25,244 24,699 24,890 24,573 ======== ======== ======== ======== Primary Earnings (Loss) Per Share $ (.05) $ (.05) $ .05 $ .01 ======== ======== ======== ======== Computation of Fully Diluted Earnings Per Share (1): Net Income (loss) $ (1,068) $ (1,192) $ 1,380 $ 384 Interest and amortization of deferred costs on convertible debentures - net of tax 456 579 1,367 1,738 -------- -------- -------- -------- Total $ (612) $ (613) $ 2,747 $ 2,122 ======== ======== ======== ======== Weighted average of fully diluted shares: Common stock 18,391 17,786 18,173 17,758 Preferred stock 6,337 6,385 6,354 6,411 Assumed conversion of options 519 531 408 423 Assumed conversion of convertible debentures 5,397 6,897 5,397 6,897 -------- -------- -------- -------- Total 30,644 31,599 30,322 31,489 ======== ======== ======== ======== Fully Diluted Earnings Per Share $ (.02) $ (.02) $ .09 $ .07 ======== ======== ======== ========
- -------------- (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB opinion No. 15, because it is anti-dilutive or results in dilution of less than 3%. EX-27 3 FDS --
5 1,000 9-MOS SEP-30-1996 JUN-30-1996 2,331 0 33,934 1,581 6,163 92,495 228,673 102,874 332,522 89,527 188,941 0 3,367 19,145 12,013 332,522 0 103,478 0 83,506 0 0 20,398 2,817 2,379 438 (212) 1,154 0 1,380 .05 .09
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