-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, nZzfyYh4/zE2JVOABQvYhwOog23DTDb+FJ3k7daFQ61oPHp0rFJuulVhy1SYAXqh iqzdYJZEw7lEqqf+dcUeog== 0000950115-94-000262.txt : 19941216 0000950115-94-000262.hdr.sgml : 19941216 ACCESSION NUMBER: 0000950115-94-000262 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941214 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19941214 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIQ INC CENTRAL INDEX KEY: 0000350920 STANDARD INDUSTRIAL CLASSIFICATION: 8090 IRS NUMBER: 510219413 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08147 FILM NUMBER: 94564672 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 8-K/A 1 CURRENT REPORT AMENDMENT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K/A #1 AMENDMENT TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of Report -- SEPTEMBER 30, 1994 (Date of earliest event reported) MEDIQ INCORPORATED (Exact name of Registrant as specified in its charter) 0-8147 51-0219413 DELAWARE (Commission file number) (IRS employer (State of incorporation) identification number)
ONE MEDIQ PLAZA, PENNSAUKEN, NJ 08110 (Address of principal executive offices, zip code) (609) 665-9300 (Telephone number) The registrant hereby files the required financial statements of the business acquired and pro forma financial information pursuant to Items 7(a) and (b) of its Current Report on Form 8-K, dated September 30, 1994 (the 'Current Report') as set forth herein: Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired: KCI MEDICAL SERVICES: Statements of Operations Before Taxes for the Nine Months ended September 30, 1994 and 1993 (unaudited)........................................................................................ Statements of Assets Acquired and Liabilities Assumed -- September 30, 1994 and 1993 (unaudited)..... Statements of Operations Before Taxes for the Years Ended December 31, 1993, 1992 and 1991 and Statements of Assets Acquired and Liabilities Assumed -- December 31, 1993 and 1992................ (b) Pro Forma Financial Information...................................................................... (c) Exhibits 23 Consent of KPMG Peat Marwick LLP, Independent Certified Public Accountants......................
Item 7: Financial Statements and Exhibits (a) Financial Statements of Business Acquired. KCI MEDICAL SERVICES STATEMENTS OF OPERATIONS BEFORE TAXES FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1993 AND 1994 (DOLLARS IN THOUSANDS) (UNAUDITED)
1993 1994 --------- --------- Revenue: Rental and service....................................................................... $ 33,332 $ 35,313 Sales and other.......................................................................... 8,650 9,296 --------- --------- Total revenue......................................................................... 41,982 44,609 Rental expense (note 4).................................................................... 28,434 29,931 Cost of goods sold......................................................................... 6,923 6,751 --------- --------- 35,357 36,682 --------- --------- Gross margin.......................................................................... 6,625 7,927 Selling, general and administrative expenses (note 4)...................................... 5,691 7,861 --------- --------- Operating income...................................................................... 934 66 Interest expense........................................................................... 558 310 --------- --------- Net earnings (loss) before tax........................................................ $ 376 $ (244) --------- --------- --------- ---------
See accompanying notes to statements of operations before taxes. KCI MEDICAL SERVICES NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) (1) BASIS OF PRESENTATION KCI Medical Services, a division of KCI Therapeutic Services (KCITS), Inc. which is a wholly-owned subsidiary of Kinetic Concepts, Inc. (KCI), is engaged in the business of offering for rental and sale movable critical care and life support equipment. KCI Medical Services also sells disposable medical care products to hospitals and other health care providers for use in conjunction with such equipment. On September 30, 1994, MEDIQ/PRN Life Support Services-I, Inc., an indirect wholly-owned subsidiary of MEDIQ Inc., entered into an Asset Purchase Agreement with KCITS. Under the Asset Purchase Agreement dated August 23, 1994, MEDIQ acquired certain of the assets and assumed certain liabilities of KCI Medical Services for approximately $84 million including $2 million for an agreement not to compete. In addition to the sales price, KCI will retain the accounts receivable of KCI Medical Services. The accompanying statements of operations before taxes reflect the operations of KCI Medical Services as described in the Asset Purchase Agreement. The statements of operating results do not include charges for income taxes since income taxes are considered to be corporate expenses. The accompanying statements of operations before taxes have been prepared without audit but, in the opinion of management, reflect all adjustments necessary to a fair statement of the information presented for the nine-month periods ended September 30, 1993 and 1994. Such adjustments are of a normal, recurring nature. The results for the nine-month period ended September 30, 1994 are not necessarily indicative of the results to be expected for the full year. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) REVENUE RECOGNITION Service and rental revenue is recognized as services are rendered. Sales and other revenue is recognized when products are shipped. (B) DEPRECIATION Depreciation on equipment is calculated on the straight-line method over three to ten years which is the useful lives of the assets. Depreciation expense was $10,396 and $10,075 for the nine months ended September 30, 1994 and 1993, respectively. (C) AMORTIZATION OF GOODWILL Goodwill is amortized over fifteen to thirty-five years from the date of acquisition using the straight-line method. (D) RESEARCH AND DEVELOPMENT KCI maintains an active research and development program. Certain costs have been allocated to KCI Medical Services. See note 4. Costs of research and development projects are expensed when incurred. (3) LEASES KCI Medical Services also leases office space and various storage spaces under noncancelable operating leases which expire at various dates over the next two years. Total rental expense for operating leases was $227 and $241 for the nine months ended September 30, 1994 and 1993, respectively. Future minimum lease payments under noncancelable operating leases being assumed by MEDIQ (with initial or remaining lease terms in excess of one year) as of September 30, 1994 are as follows (in thousands): OPERATING ------------- 1994 (October 1 --December 31)................................................... $ 57 1995............................................................................. 30 ----- Total minimum lease payments..................................................... $ 87 ----- -----
(4) ALLOCATED COSTS KCI Medical Services is the medical equipment rental division of Kinetic Concepts, Inc. The accompanying statements of operating revenue and expenses include direct costs of KCI Medical Services, an allocation of shared expenses of KCI Medical Service and KCI Therapeutic Services based on revenue generated, and an allocation of certain indirect costs of Kinetic Concepts, Inc. Such allocations are based on determinations that management believes are reasonable. In connection with its overall business operations, Kinetic Concepts provides certain services including finance, legal and professional, human resource and management information services to KCI Medical Services. KCI MEDICAL SERVICES NOTES TO FINANCIAL STATEMENTS The allocated rental expenses in the accompanying statements of operations before taxes is summarized as follows:
NINE MONTHS ENDED 1993 1994 --------- --------- Commissions...................................................... $ 816 $ -- Communication.................................................... 608 -- Salaries and benefits............................................ 7,547 4,118 Travel........................................................... 1,007 349 Warehousing expense.............................................. 3,184 1,081 Taxes............................................................ 1,291 -- Office expense and other......................................... 774 8 --------- --------- $ 15,227 $ 5,556 --------- --------- --------- ---------
The allocated selling, general and administrative expenses in the accompanying statements of operations before taxes is summarized as follows:
NINE MONTHS ENDED 1993 1994 --------- --------- Payroll and benefit expenses...................................... $ 498 $ 372 Administrative expenses........................................... 283 198 Research and development.......................................... 166 144 Employee business expenses........................................ 370 224 Insurance costs................................................... 443 312 Advertising and conventions....................................... 143 113 Sales meeting and related expenses................................ 42 82 Office expenses................................................... 80 49 Other departmental expenses....................................... 110 284 Commissions....................................................... 189 -- --------- --------- $ 2,324 $ 1,778 --------- --------- --------- ---------
KCI MEDICAL SERVICES STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED SEPTEMBER 30, 1994 (DOLLARS IN THOUSANDS) ASSETS ACQUIRED Inventories........................................................................................ $ 3,502 Equipment: Rental equipment................................................................................. 74,115 Biomedical....................................................................................... 2,414 Furniture and fixtures........................................................................... 347 Computers........................................................................................ 210 Vehicles......................................................................................... 47 ---------- 77,133 Accumulated depreciation........................................................................... (42,679) ---------- Net equipment.................................................................................... 34,454 ---------- Total assets acquired......................................................................... 37,956 ---------- LIABILITIES ASSUMED Capital lease obligations, current portion......................................................... 2,304 Capital lease obligations, net of current obligations.............................................. 242 ---------- 2,546 ---------- Net assets acquired........................................................................... $ 35,410 ---------- ----------
See accompanying notes to financial statement. KCI MEDICAL SERVICES NOTES TO FINANCIAL STATEMENT (DOLLARS IN THOUSANDS) (1) BASIS OF PRESENTATION KCI Medical Services, a division of KCI Therapeutic Services (KCITS), Inc. which is a wholly-owned subsidiary of Kinetic Concepts, Inc. (KCI), is engaged in the business of offering for rental and sale movable critical care and life support equipment. KCI Medical Services also sells disposable medical care products to hospitals and other health care providers for use in conjunction with such equipment. On September 30, 1994, MEDIQ/PRN Life Support Services-I, Inc. (MEDIQ), an indirect wholly-owned subsidiary of MEDIQ Inc., entered into an Asset Purchase Agreement with KCITS. Under the Asset Purchase Agreement dated August 23, 1994, MEDIQ acquired certain of the assets and assumed certain liabilities of KCI Medical Services as of September 30, 1994, for approximately $84 million including $2 million for an agreement not to compete. In addition to the sales price, KCI will retain the accounts receivable of KCI Medical Services. The accompanying statement of assets acquired and liabilities assumed reflects the historical cost basis of the assets acquired and the liabilities assumed by MEDIQ pursuant to the Asset Purchase Agreement. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Equipment -- Equipment is stated at cost less accumulated depreciation. Betterments which extend the useful life of the equipment are capitalized. (b) Depreciation -- Depreciation on equipment is calculated on the straight-line method over three to ten years which is the useful lives of the assets. (c) Inventory -- Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). (d) Capital Leases -- Lease obligations for equipment directly related to the KCI Medical Services business have been assumed by MEDIQ and are therefore included in the accompanying statement of assets acquired and liabilities assumed. All of these leases contain purchase options. KCI Medical Services amortizes the equipment under these capital leases over the estimated useful life of the equipment. (3) LEASES KCI Medical Services is obligated under various capital leases for rental equipment that expire at various dates during the next two years. At September 30, 1994, the gross amount of rental equipment under capital leases being assumed by MEDIQ totaled $12,080 and related accumulated amortization totaled $8,332. KCI Medical Services also leases office space and various storage spaces under noncancelable operating leases which expire at various dates over the next two years. (Continued) KCI MEDICAL SERVICES NOTES TO FINANCIAL STATEMENT Future minimum lease payments under noncancelable operating leases being assumed by MEDIQ (with initial or remaining lease terms in excess of one year) and the present value of future minimum capital lease payments being assumed as of September 30, 1994 are as follows (Dollars in thousands):
CAPITAL OPERATING --------- ----------- 1994 (October 1 -- December 31)................................. $ 732 57 1995............................................................ 1,945 30 --------- ----------- Total minimum lease payments.................................... 2,677 87 ----------- ----------- Less amount representing interest............................... 131 --------- Present value of net minimum capital lease payments............. 2,546 Less current portion............................................ 2,304 --------- Obligations under capital leases, excluding current installments.................................................. $ 242 --------- ---------
(4) COMMITMENTS AND CONTINGENT LIABILITIES Pursuant to the Asset Purchase Agreement, the accompanying statement of assets acquired and liabilities assumed does not include certain obligations which are the responsibility of Kinetic Concepts, Inc. (KCI). These obligations include the following: (a) All income tax obligations arising from the conduct of business prior to the Closing Date. (b) Any pending, threatened or unasserted litigation or product warranty or liability claims related to the period prior to the Closing Date except for the product warranty assumed by MEDIQ. (c) All lease obligations except for those assumed by and assigned to MEDIQ as discussed in note 3. (d) All disputed amounts with vendors resulting from transactions occurring prior to the Closing Date. Also, pursuant to the Asset Purchase Agreement, the accompanying statement of assets acquired and liabilities assumed does not include obligations for warranty repairs and purchase agreements being assumed by MEDIQ. (5) PLEDGED ASSETS Pursuant to KCI's notes payable and long term obligations, substantially all of the assets of KCI Medical Services are secured by first liens. Such liens were released upon acquisition of the assets by MEDIQ. INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Kinetic Concepts, Inc. and subsidiaries: We have audited the accompanying statements of assets acquired and liabilities assumed of KCI Medical Services, a division of KCI Therapeutic Services, Inc., a wholly-owned subsidiary of Kinetic Concepts, Inc., as of December 31, 1993 and 1992, and the related statements of operations before income taxes for each of the years in the three-year period ended December 31, 1993 pursuant to the asset purchase agreement referred to in note 1 of notes to financial statements. These financial statements are the responsibility of Kinetic Concepts, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets acquired and liabilities assumed of KCI Medical Services, at December 31, 1993 and 1992 pursuant to the asset purchase agreement referred to in note 1 of notes to financial statements, and the results of its operations before income taxes for each of the years in the three-year period ended December 31, 1993 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP San Antonio, Texas September 23, 1994 KCI MEDICAL SERVICES STATEMENTS OF ASSETS ACQUIRED AND LIABILITIES ASSUMED DECEMBER 31, 1993 AND 1992 (DOLLARS IN THOUSANDS)
1993 1992 --------- --------- ASSETS ACQUIRED Inventories................................................................................ $ 3,182 $ 2,468 Equipment (notes 3 and 7): Rental equipment......................................................................... 75,948 67,206 Biomedical............................................................................... 2,408 2,257 Furniture and fixtures................................................................... 347 277 Computers................................................................................ 214 80 Vehicles................................................................................. 23 -- --------- --------- 78,940 69,820 Accumulated depreciation................................................................. (35,063) (24,715) --------- --------- Net equipment............................................................................ 43,877 45,105 --------- --------- 47,059 47,573 --------- --------- LIABILITIES ASSUMED Current installments of capital leases (note 3)............................................ 3,090 3,195 Capital lease obligations, net of current installments (note 3)............................ 1,842 4,720 --------- --------- 4,932 7,915 --------- --------- Net assets acquired................................................................ $ 42,127 $ 39,658 --------- --------- --------- ---------
See accompanying notes to financial statements. KCI MEDICAL SERVICES STATEMENTS OF OPERATIONS BEFORE TAXES YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN THOUSANDS)
1993 1992 1991 --------- --------- --------- Revenue: Rental and service........................................................... $ 44,756 $ 42,659 $ 37,797 Sales and other.............................................................. 11,234 14,171 11,353 --------- --------- --------- Total revenue............................................................. 55,990 56,830 49,150 Rental expense (note 4)........................................................ 40,261 32,132 28,004 Cost of goods sold............................................................. 9,238 11,553 9,303 --------- --------- --------- 49,499 43,685 37,307 --------- --------- --------- Gross margin.............................................................. 6,491 13,145 11,843 Selling, general and administrative expenses (note 4).......................... 7,751 6,771 4,316 --------- --------- --------- Operating income (loss)................................................... (1,260) 6,374 7,527 Interest expense (note 4)...................................................... 702 1,108 3,379 --------- --------- --------- Income (loss) before income taxes $ (1,962) $ 5,266 $ 4,148 --------- --------- --------- --------- --------- ---------
See accompanying notes to financial statements. KCI MEDICAL SERVICES NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (1) BASIS OF PRESENTATION KCI Medical Services, a division of KCI Therapeutic Services (KCITS), Inc. which is a wholly-owned subsidiary of Kinetic Concepts, Inc. (KCI), is engaged in the business of offering for rental and sale movable critical care and life support equipment. KCI Medical Services also sells disposable medical care products to hospitals and other health care providers for use in conjunction with such equipment. On September 30, 1994, MEDIQ/PRN Life Support Services-I, Inc. (MEDIQ), an indirect wholly-owned subsidiary of MEDIQ Inc., entered into an Asset Purchase Agreement with KCITS. Under the Asset Purchase Agreement dated August 23, 1994, MEDIQ acquired certain of the assets and assumed certain liabilities of KCI Medical Services as of September 30, 1994, for approximately $84 million including $2 million for an agreement not to compete. In addition to the sales price, KCI will retain the accounts receivable of KCI Medical Services. In June, 1993, KCI acquired the operating assets of Clinical Systems, Inc. (CSI), a provider of intravenous services and supplies to the home health care market. Assets of CSI were consolidated with KCI Medical Services and subject to the Asset Purchase Agreement between KCITS and MEDIQ, therefore, CSI assets are included with the KCI Medical Services assets in the accompanying statement of assets acquired and liabilities assumed. CSI operating results from the date of acquisition to December 31, 1993 are included in the KCI Medical Services statement of operations for 1993. On July 2, 1990, KCI acquired Medirec, a Utah corporation, pursuant to an Agreement and plan of Merger dated May 30, 1990 (the Medirec Agreement). In accordance with the Medirec Agreement, KCI Acquisition Corp., a wholly-owned subsidiary of KCI, merged with Medirec. The acquisition was accounted for using the purchase method of accounting. Medirec was renamed KCI Medical Services. Originally, a division of Medirec leased certain medical equipment under long-term lease agreements which were accounted for as direct financing leases. Upon consolidation into KCITS, this division of Medirec was separated into KCI Financial Services. KCI Financial Services was not included in the Asset Purchase Agreement between KCITS and MEDIQ/PRN. The accompanying statements of assets acquired and liabilities assumed reflect the historical cost basis of the assets acquired and the liabilities assumed by MEDIQ pursuant to the Asset Purchase Agreement. The accompanying statements of operating revenue and expenses reflect the operations of KCI Medical Services as described in the Asset Purchase Agreement. The statements of operating results do not include charges for income taxes since income taxes are considered to be corporate expenses. (Continued) KCI MEDICAL SERVICES NOTES TO FINANCIAL STATEMENTS (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Revenue recognition -- Service and rental revenue is recognized as services are rendered. Sales and other revenue are recognized when products are shipped. (b) Equipment -- Equipment is stated at cost less accumulated depreciation. Betterments which extend the useful life of the equipment are capitalized. (c) Depreciation -- Depreciation on equipment is calculated on the straight-line method over three to ten years which is the useful lives of the assets. Depreciation expense was $14,145, $12,002 and $11,202 for the years ended December 31, 1993, 1992 and 1991, respectively. (d) Inventory -- Inventories of $3,182 and $2,468 at December 31, 1993 and 1992, respectively, are stated at the lower of cost (first-in, first-out) or market (net realizable value). (e) Capital Leases -- Lease obligations for equipment directly related to the KCI Medical Services business have been assumed by MEDIQ and are therefore included in the accompanying statement of assets acquired and liabilities assumed. All of these leases contain purchase options. KCI Medical Services amortizes equipment under these capital leases over the estimated useful life of the equipment. (f) Amortization of Goodwill -- Goodwill, related to the acquisitions of Medirec and CSI, is amortized over thirty-five years and fifteen years, respectively, from the date of acquisition using the straight-line method. (g) Research and Development -- KCI maintains an active research and development program. Certain costs have been allocated to KCI Medical Services. See note 4. Costs of research and development projects are expensed when incurred. (3) LEASES KCI Medical Services is obligated under various capital leases for rental equipment that expire at various dates during the next two years. At December 31, 1993 and 1992, the gross amount of rental equipment under capital leases being acquired by MEDIQ totaled $12,338 and $12,996 and related accumulated amortization totaled $7,265 and $5,468 respectively. (Continued) KCI MEDICAL SERVICES NOTES TO FINANCIAL STATEMENTS KCI Medical Services also leases office space and various storage spaces under noncancelable operating leases which expire at various dates over the next two years. Total rental expense for operating leases was $322, $330 and $170 for the years ended December 31, 1993, 1992 and 1991, respectively. Future minimum lease payments under noncancelable operating leases being assumed by MEDIQ (with initial or remaining lease terms in excess of one year) and the present value of future minimum capital lease payments being assumed as of December 31, 1993 are as follows (Dollars in thousands):
CAPITAL OPERATING --------- --------- 1994...................................................... $ 3,438 $ 284 1995...................................................... 1,829 30 --------- --------- Total minimum lease payments.............................. 5,267 314 --------- --------- Less amount representing interest......................... 335 --------- Present value of net minimum capital lease payments....... 4,932 Less current portion...................................... 3,090 --------- Obligations under capital leases, excluding current installments............................................ $ 1,842 --------- ---------
(4) ALLOCATED COSTS The accompanying statements of operating revenue and expenses include direct costs of KCI Medical Services and an allocation of shared expenses of KCI Medical Services and KCITS based on revenue generated. The expenses allocated by KCITS to KCI Medical Services include direct expenses of KCITS and costs allocated to KCITS from KCI for services provided by KCI for KCITS and KCI Medical Services. These costs are allocated by KCI to KCITS based upon usage, effort or activities. Such allocations are based on determinations that management believes are reasonable. The allocated rental expenses in the accompanying statements of operations before income taxes are summarized as follows:
1993 1992 --------- --------- Commissions............................................... $ 1,086 $ 1,066 Communication............................................. 795 739 Salaries and benefits..................................... 10,887 10,302 Travel.................................................... 1,323 1,240 Warehousing expense....................................... 4,424 3,721 Taxes..................................................... 286 280 Office expense and other.................................. 959 1,049 Parts and accessories..................................... -- 1,733 --------- --------- $ 19,760 $ 20,130 --------- --------- --------- ---------
(Continued) KCI MEDICAL SERVICES NOTES TO FINANCIAL STATEMENTS The allocated selling, general and administrative expenses in the accompanying statements of operations before income taxes is summarized as follows:
1993 1992 --------- --------- Payroll and benefit expenses................................ $ 704 $ 480 Administrative expenses..................................... 375 366 Research and development.................................... 272 108 Employee business expenses.................................. 424 390 Insurance costs............................................. 591 471 Advertising and conventions................................. 214 295 Sales meeting and related expenses.......................... 156 259 Office expenses............................................. 93 80 Other departmental expenses................................. 166 165 Commissions................................................. 238 355 Legal....................................................... -- 23 --------- --------- $ 3,233 $ 2,992 --------- --------- --------- ---------
No selling, general and administrative or rental expenses were allocated to KCI Medical Services for the year ended December 31, 1991 as all such costs were paid and accounted for directly by KCI Medical Services. For the year ended December 31, 1991, KCI Medical Services paid interest charges of $2,054 to Kinetic Concepts, Inc. No such interest charges were paid to KCI or allocated to KCI Medical Services by KCITS in 1993 or 1992. (5) COMMITMENTS AND CONTINGENT LIABILITIES Pursuant to the Asset Purchase Agreement, the accompanying statements of assets acquired and liabilities assumed do not include certain obligations which are the responsibility of Kinetic Concepts, Inc. (KCI). These obligations include the following: (a) All income tax obligations arising from the conduct of business prior to the Closing Date. (b) Any pending, threatened or unasserted litigation or product warranty or liability claims related to the period prior to the Closing Date except for the product warranty assumed by MEDIQ. (c) All lease obligations except for those assumed by and assigned to MEDIQ as discussed in note 3. (d) All disputed amounts with vendors resulting from transactions occurring prior to the Closing Date. (Continued) KCI MEDICAL SERVICES NOTES TO FINANCIAL STATEMENTS Also, pursuant to the Asset Purchase Agreement, the accompanying statement of assets acquired and liabilities assumed does not include obligations for warranty repairs and purchase agreements being assumed by MEDIQ. (6) PLEDGED ASSETS Pursuant to KCI's notes payable and long term obligations, substantially all of the assets of KCI Medical Services are secured by first liens. Such liens were released upon acquisition of the assets by MEDIQ. (7) RENTAL ASSET WRITE-DOWN Included in rental expense in 1993 are rental asset write-downs of approximately $1.6 million. The rental assets written down were assets that had, in the judgment of management, no or limited future use. (b) Pro Forma Financial Information. On September 30, 1994, MEDIQ Incorporated (the 'Company') acquired, through wholly-owned subsidiaries, certain assets used by the medical equipment rental division of Kinetic Concepts, Inc. ('KCI') for a purchase price of approximately $65.3 million in cash and $18.8 million principal amount of notes payable to KCI (the 'Acquisition'). The following pro forma condensed consolidated statements of operations for the nine months ended June 30, 1994 and the year ended September 30, 1993 give effect to the Acquisition and the financing thereof as if such transaction had occurred at the beginning of fiscal 1993. The pro forma condensed consolidated balance sheet as of June 30, 1994 gives effect to the Acquisition and the financing thereof as if such transactions had occurred as of that date. The Acquisition was accounted for pursuant to the purchase method of accounting. The pro forma financial data presented herein is based on management's estimate of the effects of the Acquisition and financing thereof. The pro forma financial data is based upon current available information and certain assumptions that the Company believes are reasonable. The Company does not expect the receipt of additional information to have a material adverse affect on the pro forma financial data. The pro forma condensed consolidated statements of operations for the nine months ended June 30, 1994 and the year ended September 30, 1993 and and the pro forma condensed consolidated balance sheet as of June 30, 1994 are unaudited, but in the opinion of the Company include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations and financial position for the periods presented. The historical financial data of the Company included in the pro forma statements is as of the periods presented. The historical financial data of KCI included in the pro forma condensed consolidated statements of operations for the nine months ended June 30, 1994 and the year ended September 30, 1993 are for the nine months ended September 30, 1994 (unaudited), and the year ended December 31, 1993 (audited), respectively. The historical financial data of KCI included in the pro forma condensed consolidated balance sheet is as of September 30, 1994 (unaudited). The pro forma condensed consolidated statements of operations for the nine months ended June 30, 1994 and the year ended September 30, 1993, and the pro forma condensed consolidated balance sheet as of June 30, 1994 are not necessarily indicative of the results of operations or financial position that actually would have been achieved had the transactions described been consummated as of the dates indicated, or that may be achieved in the future. MEDIQ INCORPORATED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1994 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) MEDIQ KCI PRO FORMA MEDIQ HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ----------- --------- ----------- ----------- Revenues................................................... $ 128,490 $ 44,609 $ 173,099 Costs and expenses: Cost of sales............................................ -- 6,751 6,751 Operating................................................ 65,543 19,535 (7,071)(1) 78,007 Selling and administrative............................... 34,991 7,209 (3,676)(1) 38,524 Depreciation and amortization............................ 20,875 11,048 (6,279)(2) 25,644 ----------- --------- ----------- 121,409 44,543 148,926 ----------- --------- ----------- Operating income........................................... 7,081 66 24,173 Other (Charges) Credits: Interest expense......................................... (18,212) (310) (5,621)(3) (24,143) Equity participation..................................... 116 -- 116 Equity in earnings of unconsilidated subsidiaries.......................................... 3,056 -- 3,056 Other.................................................... 3,074 -- 3,074 ----------- --------- ----------- Income (loss) from continuing operations before income tax expense (benefit)........................................ (4,885) (244) 6,276 Income tax expense (benefit)............................... (948) -- 4,464 (4) 3,516 ----------- --------- ----------- Income (loss) from continuing operations................... $ (3,937) $ (244) $ 2,760 ----------- --------- ----------- ----------- --------- ----------- Earnings per share......................................... $ (0.16) $ 0.11 ----------- ----------- ----------- ----------- Weighted average shares outstanding........................ 24,373 24,373 ----------- ----------- ----------- -----------
- - ------------------ (1) Represents elimination of KCI's corporate charges and cost savings related to duplicate functions partially offset by increases in the Company's personnel and other costs due to the expansion of the Company's business as a result of the Acquisition. (2) Represents depreciation savings related to the application of the Company's historical depreciation policies to the assets acquired partially offset by increased depreciation expense related to the fair market value adjustments to rental equipment and the amortization of goodwill related to the Acquisition. (3) Represents increased interest expense related to indebtedness incurred to complete the Acquisition and amortization of related deferred financing fees. (4) Represents the tax effects of the historical pre-tax loss of KCI and the pro forma adjustments at the combined federal and state statutory rate of 40%. MEDIQ INCORPORATED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA) MEDIQ KCI PRO FORMA MEDIQ HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ----------- --------- ----------- ----------- Revenues................................................... $ 174,834 $ 55,990 $ 230,824 Costs and expenses: Cost of sales............................................ -- 9,238 9,238 Operating................................................ 88,158 24,535(A) (8,007)(1) 104,686 Selling and administrative............................... 46,231 6,882 (2,198)(1) 50,915 Depreciation and amortization............................ 24,979 16,595 (8,528)(2) 33,046 ----------- --------- ----------- 159,368 57,250 197,885 ----------- --------- ----------- Operating Income........................................... 15,466 (1,260) 32,939 Other (charges) credits: Interest expense......................................... (23,347) (702) (8,468)(3) (32,517) Equity participation..................................... 3,519 -- 3,519 Equity in earnings of unconsolidated subsidiaries.......................................... 4,343 -- 4,343 Other.................................................... 2,009 -- 2,009 ----------- --------- ----------- Income (loss) from continuing operations before income tax expense (benefit)................................. 1,990 (1,962) 10,293 Income tax expense (benefit)............................. (1,624) -- 3,321 (4) 1,697 ----------- --------- ----------- Income (loss) from continuing operations................. $ 3,614 $ (1,962) $ 8,596 ----------- --------- ----------- ----------- --------- ----------- Earnings per share......................................... $ 0.15 $ 0.35 ----------- ----------- ----------- ----------- Weighted average shares outstanding........................ 24,366 24,366 ----------- ----------- ----------- -----------
Note: (A) Includes a non-recurring charge of $1.6 million related to the write-down of fixed assets. - - ------------------ (1) Represents elimination of KCI's corporate charges and cost savings related to duplicate functions partially offset by increases in the Company's personnel and other costs due to the expansion of the Company's business as a result of the Acquisition. (2) Represents depreciation savings related to application of the Company's historical depreciation policies to the assets acquired partially offset by increased depreciation expense related to the fair market value adjustments to rental equipment and the amortization of goodwill related to the Acquisition. (3) Represents increased interest expense related to indebtedness incurred to complete the Acquisition and amortization of related deferred financing fees. (4) Represents the tax effects of the historical pre-tax loss of KCI and the pro forma adjustments at the combined federal and state statutory rate of 40%. MEDIQ INCORPORATED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 1994 (UNAUDITED) (IN THOUSANDS) MEDIQ KCI PRO FORMA MEDIQ HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ----------- ---------- ----------- ----------- ASSETS Current Assets: Cash and cash equivalents................................ $ 5,394 $ 700 (1) $ 6,094 Accounts receivable-net.................................. 40,325 40,325 Inventories.............................................. 8,064 $ 3,502 (327)(2) 11,239 Deferred income taxes.................................... 4,177 4,177 Other current assets..................................... 7,814 1,600 (2) 9,414 ----------- --------- ----------- Total current assets.................................. 65,774 3,502 71,249 Equity Investments......................................... 37,864 37,864 Note receivable from MHM................................... 11,500 11,500 Rental equipment-net....................................... 104,635 33,856 1,276 (2) 139,767 Property, plant and equipment-net.......................... 36,792 598 37,390 Goodwill-net............................................... 42,101 42,759 (2) 84,860 Net investment in leases................................... 28,552 28,552 Other assets............................................... 18,914 3,027 (2) 1,525 (4) 23,466 ----------- --------- ----------- Total assets............................................... $ 346,132 $ 37,956 $ 434,648 ----------- --------- ----------- ----------- --------- ----------- LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Notes payable to financial institutions.................. $ 5,067 9,600 (3) $ 14,667 Accounts payable......................................... 8,496 8,496 Accrued expenses......................................... 23,460 2,654 (2) 26,114 Other current liabilities................................ 1,087 1,087 Current portion of long-term debt........................ 12,072 2,304 13,885 (3) 28,261 ----------- --------- ----------- Total current liabilities............................. 50,182 2,304 78,625 Senior debt -- recourse.................................... 124,280 242 42,625 (3) 167,147 Senior debt -- nonrecourse................................. 26,699 26,699 Subordinated debt.......................................... 86,229 18,612 (3) 104,841 Deferred income taxes...................................... 11,425 (2,931)(2) 8,494 Other liabilities.......................................... 7,619 1,525 (4) 9,144 Stockholders' equity....................................... 39,698 39,698 ----------- --------- ----------- Total liabilities and stockholders' equity................. $ 346,132 $ 2,546 $ 434,648 ----------- --------- ----------- ----------- --------- -----------
- - ------------------ (1) Represents the excess proceeds of the debt incurred to finance the Acquisition. (2) Represents inventory reserve, the net write-up of rental equipment to fair market value, the excess of the purchase price over net assets acquired, transaction costs and related accural deferred taxes. (3) Represents debt incurred to finance the Acquisition. (4) Represents value of warrants issued in connection with the financing of the Acquisition. SIGNATURES 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 here unto duly authorized. MEDIQ Incorporated By: /s/ Michael F. Sandler -------------------------- Michael F. Sandler, Senior Vice President-Finance, Chief Financial Officer and Treasurer Date: December 13, 1994 EX-23 2 CONSENT OF EXPERTS AND COUNSEL ACCOUNTANTS' CONSENT The Board of Directors and Stockholders Kinetic Concepts, Inc.: We consent to the incorporation by reference, in the registration statements listed below, of our report dated September 23, 1994, with respect to the statements of assets acquired and liabilities assumed of KCI Medical Services, a division of KCI Therapeutic Services, Inc., a wholly-owned subsidiary of Kinetic Concepts, Inc., as of December 31, 1993 and 1992, and the related statements of operations before income taxes for each of the years in the three-year period ended December 31, 1993 pursuant to the asset purchase agreement, which report appears in the Form 8-K/A of MEDIQ Incorporated and subsidiaries dated December 14, 1994. Registration Statement No. 33-13122 on Form S-8 Registration Statement No. 33-11042 on Form S-8 Registration Statement No. 33-10208 on Form S-4 Registration Statement No. 33-09746 on Form S-4 Registration Statement No. 33-16802 on Form S-8 Registration Statement No. 33-5089 on Form S-2 Registration Statement No. 33-47416 on Form S-8 KPMG Peat Marwick LLP San Antonio, Texas December 14, 1994 -----END PRIVACY-ENHANCED MESSAGE-----