-----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, AR3fRSjnLlk8M1wK5DSU9UDC13riSeIBL0vBq+ml6WNqBLdLesojZCGdKEhGFXoB hGT2+v5wS05hhcfX9jvvww== 0000950115-99-001208.txt : 19990901 0000950115-99-001208.hdr.sgml : 19990901 ACCESSION NUMBER: 0000950115-99-001208 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990615 ITEM INFORMATION: FILED AS OF DATE: 19990831 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-08147 FILM NUMBER: 99703162 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 AMENDED CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report - June 15, 1999 ------------------------------- (Date of earliest event reported) MEDIQ INCORPORATED ------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-8147 51-0219413 - ------------------------------- ----------- ------------------- (State or other jurisdiction of (Commission (IRS employer incorporation or organization) file Number) identification no.) One MEDIQ Plaza, Pennsauken, NJ 08110 (Address of principal executive offices) (609) 662-3200 ----------------- Telephone number This amendment to the Current Report on Form 8-K dated June 15, 1999 as filed on June 28, 1999 is to file the applicable financial statements and pro forma financial information for the acquisition of HTD Corporation ("HTD") by MEDIQ Incorporated ("the Company"), through its wholly owned subsidiary MEDIQ/PRN Life Support Services, Inc., and to revise certain information previously reported concerning the acquisition. HTD's nonacute care business principally consisted of sales of disposable products, rentals of moveable medical equipment and biomedical repair services (collectively the "Nonacute Care Business"). The Nonacute Care Business of HTD was formed on May 1, 1998 principally with the acquisitions of Triad Holdings, Inc. ("Triad") and another company of less significance. Triad was a significant acquiree of HTD during HTD's year ended December 31, 1998. During HTD's year ended December 31, 1998, the Nonacute Care Business of HTD consisted principally of Triad. As previously reported, on June 15, 1999 the Company acquired HTD and certain of its subsidiaries (including Triad) that together represented the Nonacute Care Business of HTD (the "Acquired Business"). Contemporaneously with the acquisition, HTD sold to an unrelated third party its subsidiaries not acquired by the Company. The audited and unaudited financial statements of HTD included in Item 7(a) are presented on a carved out basis that represent the Acquired Business. The audited financial statements of Triad included in Item 7(a) represent the principal Nonacute Care Business during the year ended December 31, 1998 preceding the formation of HTD's Nonacute Care Business and HTD's acquisition of Triad during the year. The audited financial statements of HTD for the year ended December 31, 1998 and of Triad for the four months ended April 30, 1998 contained in Item 7(a) together principally represent the Acquired Business for the year ended December 31, 1998. The number of shares of Series B 13.25% Cumulative Compounding Perpetual Preferred Stock issued by the Company in the acquisition of HTD is revised to 146,303. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired Audited Financial Statements of HTD Corporation and Subsidiaries, excluding the acute care division: Combined Statement of Net Assets as of December 31, 1998 Combined Statement of Operations for the Year Ended December 31, 1998 Combined Statement of Changes in Net Assets for the Year Ended December 31, 1998 Combined Statement of Cash Flows for the Year Ended December 31, 1998 Audited Financial Statements of Triad Holdings, Inc. and Subsidiaries: Consolidated Statement of Operations for the Four Months Ended April 30, 1998 Consolidated Statement of Changes in Net Assets for the Four Months Ended April 30, 1998 Consolidated Statement of Cash Flows for the Four Months Ended April 30, 1998 Unaudited Financial Statements of HTD Corporation and Subsidiaries, excluding the acute care division: Condensed Combined Statement of Net Assets as of April 30, 1999 Combined Statement of Operations for the Four Months Ended April 30, 1999 Condensed Combined Consolidated Statement of Cash Flows for the Four Months Ended April 30, 1999 (b) Pro Forma Financial Information Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended September 30,1998 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended June 30, 1999 1 A pro forma balance sheet is not presented herein as the net assets of HTD acquired by the Company were consolidated in the Company's unaudited condensed consolidated balance sheet at June 30, 1999 as filed in the Company's Form 10-Q for the period ended June 30, 1999. (c) Exhibits Exhibit 2 - Agreement and Plan of Merger dated June 14, 1999 (1) Exhibit 23 - Consent of Independent Public Accountants Exhibit 99.1 - Press Release dated June 15, 1999 (1) - ---------- (1) Previously filed with the Company's Current Report on Form 8-K dated June 15, 1999. 2 MEDIQ INCORPORATED 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 30, 1999 /s/ Jay M. Kaplan - --------------- ---------------------------- (Date) Jay M. Kaplan Senior Vice President-Finance, Treasurer and Chief Financial Officer 3 ITEM 7(a) FINANCIAL STATEMENTS HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 TOGETHER WITH AUDITORS' REPORT REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To HTD Corporation and Subsidiaries: We have audited the accompanying combined statement of net assets of HTD Corporation (a Delaware corporation) and Subsidiaries excluding the acute care division (see Notes 1 and 11) as of December 31, 1998 and the related combined statements of operations, changes in net assets, and cash flows for the year then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. As further described in Note 11, these financial statements have been prepared pursuant to the Purchase Agreement between HTD Corporation and Subsidiaries and MEDIQ/PRN Life Support Services, Inc., and is not intended to be a complete presentation of HTD Corporation and Subsidiaries' financial statements. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined net assets of HTD Corporation and Subsidiaries excluding the acute care division as of December 31, 1998 and the results of their combined operations and their combined cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Birmingham, Alabama July 29, 1999 FS-1 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION COMBINED STATEMENT OF NET ASSETS (See Note 11) AS OF DECEMBER 31, 1998 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 154,024 Accounts receivable, less allowance for doubtful accounts of $325,410 12,001,754 Inventory, net 4,947,623 Prepaid expenses and other current assets 530,595 Deferred income taxes 1,150,521 Refundable income taxes 629,815 ----------- Total current assets 19,414,332 PROPERTY AND EQUIPMENT, NET 655,992 RENTAL EQUIPMENT, NET 11,108,831 INTANGIBLE ASSETS, NET 18,252,669 OTHER NONCURRENT ASSETS 974,940 ----------- Total assets $50,406,764 =========== The accompanying notes are an integral part of this combined statement of net assets. FS-2 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION COMBINED STATEMENT OF NET ASSETS (See Note 11) AS OF DECEMBER 31, 1998 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Current maturities of long-term debt $ 500,000 Current maturities of capital lease obligations 455,556 Accounts payable 7,184,416 Accrued expenses 2,326,024 ----------- Total current liabilities 10,465,996 REVOLVING CREDIT LINE 8,062,164 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT MATURITIES 14,128,325 STOCK REPURCHASE OBLIGATION 3,000,005 DEFERRED INCOME TAXES 1,411,513 OTHER LONG-TERM LIABILITIES 629,534 ----------- Total liabilities 37,697,537 COMMITMENTS AND CONTINGENCIES (NOTE 10) NET ASSETS 12,709,227 ----------- Total liabilities and net assets $50,406,764 =========== The accompanying notes are an integral part of this combined statement of net assets. FS-3 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION COMBINED STATEMENT OF OPERATIONS (see Note 11) FOR THE YEAR ENDED DECEMBER 31, 1998 REVENUES $ 42,720,548 COST OF REVENUES 29,818,443 ------------ Gross profit 12,902,105 ------------ OPERATING EXPENSES: Selling 2,341,176 General and administrative 6,531,901 Depreciation and amortization 2,072,582 ------------ 10,945,659 ------------ Income from operations 1,956,446 OTHER INCOME (EXPENSE): Interest income 862,591 Interest expense (1,038,189) Other 693,416 ------------ Income before provision for income taxes 2,474,264 PROVISION FOR INCOME TAXES 1,244,416 ------------ Net income $ 1,229,848 ============ The accompanying notes are an integral part of this combined financial statement. FS-4 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION COMBINED STATEMENT OF CHANGES IN NET ASSETS (See Note 11) FOR THE YEAR ENDED DECEMBER 31, 1998 NET ASSETS, JANUARY 1, 1998 $ (2,575,400) Net income 1,229,848 Net proceeds from private placement of common stock 10,791,737 Issuance of common stock for acquisitions 14,567,524 Investment in acute care division carved out (11,304,482) ------------ NET ASSETS, DECEMBER 31, 1998 $ 12,709,227 ============ The accompanying notes are an integral part of this combined financial statement. FS-5 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION COMBINED STATEMENT OF CASH FLOWS (See Note 11) FOR THE YEAR ENDED DECEMBER 31, 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,229,848 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 2,072,582 Loss on disposal of property and equipment and rental equipment 4,605 Provision for doubtful accounts 53,866 Provision for obsolete inventory 144,234 Amortization of debt issuance costs 113,883 Stock compensation expense 378,495 Deferred income tax provision 109,182 Increase (decrease) in operating cash flows, net of effects from purchase of subsidiaries, resulting from: Accounts receivable (3,016,401) Inventory (298,827) Prepaid expenses and other current assets 448,220 Refundable income taxes (629,815) Other noncurrent assets 151,304 Accounts payable and accrued expenses (2,021,228) Other long-term liabilities 58,534 ------------ Net cash used in operating activities (1,201,518) ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Investment in acute care division carved out (11,304,482) Purchase of subsidiaries, net of cash received (5,067,770) Additions to property and equipment and rental equipment (3,478,224) Proceeds from disposals of property and equipment and rental equipment 148,285 ------------ Net cash used in investing activities (19,702,191) ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt and capital lease obligations (7,173,370) Borrowings on long-term debt 18,364,271 Debt issuance costs paid (908,823) Net proceeds from private placement of common stock 10,791,737 Repurchase of common stock (135,082) ------------ Net cash provided by financing activities 20,938,733 ------------ INCREASE IN CASH AND CASH EQUIVALENTS 35,024 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 119,000 ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 154,024 ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $ 907,454 ============ Income taxes $ 599,300 ============
The accompanying notes are an integral part of this combined statement of net assets. FS-6 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 1. BUSINESS AND ORGANIZATION HTD Corporation (the "Company") was founded in April 1997 to create a national contract sales and distribution company providing specialty medical products to the hospital and alternate-site health care markets (including sub-acute care facilities, home care companies, and specialty physician groups). As discussed in Note 3, effective May 1, 1998, the Company acquired Triad Holdings, Inc. ("THI"), Healthcare Technology Delivery, Inc. ("HTD"), MegaTech Medical, Inc. ("MegaTech"), and Bimeco, Inc. ("Bimeco") together with their respective subsidiaries. During 1998, the Company also acquired Omni Medical, Inc. ("Omni Medical"). THI, the successor to a business founded in 1981 and headquartered in Laguna Hills, California, represents manufacturers with product coverage principally in the infusion therapy market. THI sells its products to alternate-site health care providers throughout the United States from its distribution centers. HTD, the successor to a business founded in 1977 and headquartered in Bessemer, Alabama, represents manufacturers with product coverage in the surgical, anesthesiology, critical care, and cardiovascular/vascular markets. HTD sells its products primarily to hospitals in the Southeastern United States. MegaTech was founded in 1976 and maintains its headquarters in Baltimore, Maryland. It represents manufacturers with product coverage in the surgical and critical care markets. MegaTech sells its products principally to hospitals in the Northeastern United States. Bimeco maintains its headquarters in Largo, Florida. Bimeco is a distributor of medical equipment and related supplies. Bimeco's product line services hospitals as well as other health care markets. Omni Medical was founded in 1986 and maintains its headquarters in Redmond, Washington. It represents manufacturers with product coverage in the financial, anesthesiology, and critical care markets. Omni Medical sells its products primarily to hospitals in the Northwestern United States. As further discussed in Note 11, the Company was acquired by MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN") on June 15, 1999. Excluded from the accompanying financial statement presentation are the accounts of HTD, MegaTech, Omni Medical, and the acute care operations of Bimeco, all of which form the acute care division which was not acquired by MEDIQ/PRN. Such division was sold to a third party unrelated to MEDIQ/PRN and the Company simultaneously with the MEDIQ/PRN transaction described in Note 11. The accompanying combined financial statements do not reflect an allocation of the MEDIQ/PRN purchase price. Reference to the Company hereafter is the Company excluding the acute care division. FS-7 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying combined financial statements have been prepared on the accrual basis of accounting and include the accounts of the Company and its subsidiaries excluding the acute care division as described in Note 1. All significant intercompany amounts and transactions have been eliminated in combination. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUES AND EXPENSES The Company's revenues are primarily derived from sales of medical products and supplies under distribution agreements with various manufacturers and the renting of infusion pumps and other equipment under cancelable and noncancelable operating leases. Revenues are recorded at the time of shipment of products or performance of services. Revenues from the rental of infusion pumps and other equipment under cancelable and noncancelable operating leases are recognized as earned. Biomedical, commission, and installation revenues are recognized as the services are provided. Cost of revenues consists primarily of product costs, net of rebates, and freight charges. Selling expenses consist primarily of sales commissions, salaries of sales managers, travel and entertainment expenses, trade show expenses, and automobile allowances. General and administrative expenses consist primarily of executive compensation and related benefits, administrative salaries and benefits, office rent and utilities, communication expenses, and professional fees. CASH AND CASH EQUIVALENTS For the purposes of the accompanying statement of net assets and statement of cash flows, the Company considers all investments with original maturities of three months or less to be cash equivalents. INVENTORY Inventories consist primarily of medical supplies and equipment. Inventories, net of allowances of approximately $452,000, are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. At December 31, 1998, management believes the Company had incurred no material impairments to the carrying values of its inventories, other than impairments for which provisions had been made. FS-8 PROPERTY AND EQUIPMENT Property and equipment are stated at cost, and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the applicable lease or the estimated useful life of the applicable asset. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments that extend the useful lives of existing equipment are capitalized and depreciated. On retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations. INTANGIBLE ASSETS Intangible assets originated in connection with the 1998 acquisitions (see Note 3). Intangible assets are amortized on a straight-line basis over the following applicable amortization periods: Goodwill 40 years Covenants not to compete 3-5 years Patents 17 years LONG-LIVED ASSETS The Company continually evaluates whether events and circumstances have occurred that indicate that the remaining balance of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used in the operations of the Company may be impaired and not be recoverable. In performing this evaluation, the Company uses an estimate of the related cash flows expected to result from the use of the asset and its eventual disposition. When this evaluation indicates the asset has been impaired, the Company will measure such impairment based on the asset's fair value and the amount of such impairment is charged to earnings. OTHER NONCURRENT ASSETS Other noncurrent assets include deferred debt issuance costs of approximately $909,000. This amount is being amortized over a period approximating the term of the related debt of approximately seven years. DEFERRED RENT Certain of the Company's facilities leases include scheduled rent increases and free rent periods. For financial reporting purposes, rent expense is recognized on a straight-line basis over the lease term. The difference between rent paid pursuant to the lease agreements and rent expense recognized for financial reporting purposes has been reported as deferred rent, and is included in other long-term liabilities in the accompanying combined statement of net assets. INCOME TAXES The Company applies the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets or liabilities are received or settled. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, and debt instruments. The carrying amounts of those instruments reported in the accompanying combined statement of net assets are considered to estimate their respective fair values due to the short-term nature of such FS-9 financial instruments and the current interest rate environment. The carrying amounts of the Company's long-term debt and capital lease obligations reported in the accompanying combined statement of net assets are considered to approximate their respective fair values as these long-term instruments' interest rates approximate market rates at December 31, 1998. CONCENTRATIONS OF CREDIT RISK In the normal course of business, the Company extends credit to its customers, which are primarily alternate-site health care providers. The Company regularly reviews its accounts receivable and makes provision for potentially uncollectible balances. At December 31, 1998, management believes the Company had incurred no material impairments to the carrying values of its accounts receivable, other than uncollectible amounts for which provisions had been made. 3. PRIVATE PLACEMENT AND BUSINESS COMBINATIONS On May 1, 1998, the Company (i) completed a private placement of 1,437,500 shares of the Company's common stock, at $8.00 per share and (ii) acquired in separate transactions (the "Acquisitions") four other companies (the "Founding Companies") for a total of $9.9 million in cash and 3,485,052 shares of common stock, of which 260,870 shares may be put to the Company during the 60-day period immediately following the first anniversary date of the closing of the Acquisitions in exchange for a $3.0 million subordinated promissory note of the Company. Since the shares may be put to the Company, such shares have been reported as Stock Repurchase Obligation in the accompanying combined statement of net assets. The total purchase price of the Acquisitions, as it relates to the net assets subsequently sold to MEDIQ/PRN, consisted of $5.2 million in cash and the issuance of the Company's common stock totaling $14.6 million. The total purchase price exceeded the fair value of net assets acquired by $18.4 million. The Acquisitions were accounted for under the purchase method of accounting; thus the combined financial statements reflect the operations of the Founding Companies from the date of the acquisition, exclusive of the acute care division for purposes of this presentation. For financial statement presentation purposes, HTD, one of the Founding Companies, in combination with the Company, has been identified as the accounting acquirer. Assuming the transaction had been consummated at January 1, 1998, the combined results of operations, excluding the acute care division, on a pro forma basis for the year ended December 31, 1998 would have been as follows: (unaudited) Revenues $60,337,966 Net income 1,759,994 FS-10 4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1998 consist of the following:
ESTIMATED USEFUL LIVES IN YEARS AMOUNT ------------ -------- Office equipment 5 $325,053 Machinery and equipment 5 270,508 Furniture and fixtures 5-7 196,396 Leasehold improvements 10 195,523 -------- 987,480 Less accumulated depreciation and amortization 331,488 -------- $655,992 ========
5. RENTAL EQUIPMENT Rental equipment at December 31, 1998 consists primarily of infusion pumps, which are depreciated over seven years: Rental equipment $12,515,478 Less accumulated depreciation 1,406,647 ----------- $11,108,831 =========== 6. INTANGIBLE ASSETS Intangible assets at December 31, 1998 consist of the following: Goodwill $18,375,709 Covenant not to compete 170,000 Patents 41,407 ----------- 18,587,116 Less accumulated amortization 334,447 ----------- $18,252,669 =========== 7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS During July 1998, the Company entered into a credit agreement with a financial institution consisting of a term loan, revolving credit line, and an acquisition credit facility. The $15 million revolving credit line expires on December 31, 2004 and bears interest at various rates ranging from 7.4% to 7.8% at December 31, 1998. FS-11 Such rates are based on the leverage ratio of the Company and, at the Company's option, LIBOR or the Prime rate plus an applicable margin. At December 31, 1998, $4.0 million of the revolving credit line was at 7.4%, $1.8 million was at 7.5%, and $2.3 million was at 7.8%. Amounts outstanding under the revolving credit line amounted to approximately $8.1 million at December 31, 1998. Availability under the revolving credit line at December 31, 1998 was approximately $6.9 million. The weighted average interest rate on these borrowings during 1998 was 7.5%. These borrowings are secured by the Company's assets and guaranteed by the subsidiaries. The Company's long-term debt and capital lease obligations at December 31, 1998 consist of the following: Term note payable, due in quarterly payments plus interest at the Bank's base rate plus an applicable margin rate (7.44% at December 31, 1998) through December 31, 2004, secured by the Company's assets and guaranteed by the subsidiaries $11,750,000 Acquisition loan, due in fourteen scheduled installments commencing on September 30, 2001, bearing interest at a base rate plus an applicable margin rate (7.75% at December 31, 1998), secured by the Company's assets and guaranteed by the subsidiaries 1,320,000 Note payable due in a lump sum payment on April 30, 2005 with no interest, unsecured 2,025,000 Discount on note payable (763,820) Capital lease obligations, interest at various rates, due in monthly installments through April 2000 752,701 ----------- Total long-term debt 15,083,881 Less current maturities 955,556 ----------- Total $14,128,325 ===========
The loan agreements contain various restrictive covenants generally common to such loan agreements which, among other things, require the Company to maintain minimum levels of equity and debt coverage ratios. At December 31, 1998, the Company was in compliance with the financial covenants. As of December 31, 1998, future minimum lease payments under capital lease obligations and maturities of debt are as follows: CAPITAL LEASES DEBT -------- ----------- 1999 $493,534 $ 500,000 2000 322,463 1,000,000 2001 0 1,750,000 2002 0 3,695,000 2003 0 2,875,000 Thereafter 0 5,275,000 -------- ----------- Total minimum lease payments and maturities 815,997 15,095,000 =========== Less amounts representing interest 63,296 -------- Present value of minimum lease payments $752,701 ======== FS-12 8. EQUIPMENT RENTALS TO CUSTOMERS As discussed in Note 2, the Company rents biomedical equipment to various customers under noncancelable operating leases. Aggregate future minimum rentals to be received under noncancelable leases in effect at December 31, 1998 are as follows: Year ending December 31, 1999 $34,435 2000 21,964 2001 17,384 ------- $73,783 ======= 9. INCOME TAXES The provision for federal and state income taxes at December 31, 1998 follows: Federal: Current $ 989,691 Deferred 95,184 ---------- 1,084,875 ---------- State: Current 145,543 Deferred 13,998 ---------- 159,541 ---------- $1,244,416 ========== Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate tax rate of 34% to income before income taxes as follows: Provision at the statutory rate $ 841,250 Increase resulting from: State income tax, net of federal benefit 105,297 Amortization 125,915 Other 171,954 ---------- $1,244,416 ========== FS-13 The tax effects of temporary differences representing deferred tax assets and liabilities result primarily from the following at December 31, 1998: Deferred tax benefits: Accrued expenses $ 688,873 Inventory 242,791 Allowance for doubtful accounts 151,391 Deferred rent 67,466 ---------- 1,150,521 ---------- Deferred tax liabilities: Depreciation 1,318,393 Other 93,120 ---------- 1,411,513 ---------- Net deferred tax liabilities $ 260,992 ========== At December 31, 1998, the Company had net operating loss carryforwards totalling approximately $3 million. The Company provided a valuation allowance equal to the deferred tax asset arising from the net operating loss carryforwards as future realization is uncertain. 10. COMMITMENTS AND CONTINGENCIES LEASES The Company leases space for its warehouses and corporate office from third parties. Rent expense under these arrangements totaled approximately $1 million for the year ended December 31, 1998. The leases require the Company to pay taxes, maintenance, insurance, and certain other operating costs of the leased property. Future minimum lease payments required under noncancelable operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 1998 are as follows: Year ending December 31, 1999 $1,062,808 2000 855,696 2001 775,028 2002 411,658 2003 148,921 ---------- $3,254,111 ========== INSURANCE The Company carries a broad range of insurance coverage, including general and business auto liability, commercial property, workers' compensation, and a general umbrella policy. The Company has not incurred significant claims or losses under any of its insurance policies. The sale, distribution, rental, and repair of medical products involve a risk of product liability claims. The Company maintains product liability insurance coverage in amounts that it considers adequate. FS-14 SALES TAX CONSIDERATIONS Various states are increasingly seeking to impose sales or use taxes on interstate sales made into their state by out-of-state companies. Complex legal issues arise in these areas relating to, among other things, the required nexus of a business with a particular state, which may permit the state to require a business to collect such taxes. Although the Company believes that it has adequately provided for sales taxes on its sales, there can be no assurance as to the effect of actions state tax authorities may take on the Company's combined financial condition or the combined results of its operations. LITIGATION The Company is a party to certain legal proceedings arising in the ordinary course of business. Management believes the outcome of such legal proceedings will not have a material adverse effect on the Company's combined financial condition or combined results of operations. 11. SUBSEQUENT EVENT (UNAUDITED) On June 15, 1999, all of the Company's issued and outstanding common stock along with THI and its subsidiaries representing the nonacute care business were acquired by MEDIQ/PRN pursuant to an Agreement and Plan of Merger dated June 14, 1999. Total consideration paid by MEDIQ/PRN was approximately $59.7 million, comprising $49.7 million in cash and $10.0 million aggregate value of capital stock of MEDIQ Incorporated, the parent company of MEDIQ/PRN. Following the acquisition, the Company, THI, and THI's subisidiaries were merged into MEDIQ/PRN. Contemporaneously with MEDIQ/PRN's acquisition of the Company, the Company sold to a third party unrelated to MEDIQ/PRN and the Company its subsidiaries representing the acute care division not acquired by MEDIQ/PRN for a purchase price of $17 million. In contemplation of the MEDIQ/PRN transaction, Bimeco's assets, liabilities, and operations related to its nonacute care business were transferred to THI in a nonmonetary transfer effective June 14, 1999. FS-15 TRIAD HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE FOUR MONTHS ENDED APRIL 30, 1998 TOGETHER WITH AUDITORS' REPORT FS-16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Triad Holdings, Inc. and Subsidiaries: We have audited the accompanying consolidated statements of operations, changes in net assets, and cash flows for the four months ended April 30, 1998 of Triad Holdings, Inc. (a Delaware corporation) and Subsidiaries. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of their consolidated operations and their consolidated cash flows for the four months ended April 30, 1998 of Triad Holdings, Inc. and Subsidiaries in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Birmingham, Alabama July 29, 1999 FS-17 TRIAD HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FOUR MONTHS ENDED APRIL 30, 1998 REVENUES $15,535,062 COST OF REVENUES 11,519,922 ----------- Gross profit 4,015,140 ----------- OPERATING EXPENSES: Selling 1,217,032 General and administrative 2,129,852 Depreciation and amortization 491,239 ----------- 3,838,123 ----------- Income from operations 177,017 OTHER INCOME (EXPENSE): Interest income 28,296 Interest expense (201,546) Other, net (227,289) ----------- Loss before credit for income taxes (223,522) CREDIT FOR INCOME TAXES (64,800) ----------- Net loss $ (158,722) =========== The accompanying notes are an integral part of this consolidated financial statement. FS-18 TRIAD HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS FOR THE FOUR MONTHS ENDED APRIL 30, 1998
COMMON STOCK -------------------------------------------- CLASS A CLASS B ADDITIONAL TOTAL -------------------- ------------------- PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY --------- ------- --------- ------- ---------- ---------- ---------- BALANCE DECEMBER 31, 1997 1,362,190 $13,621 1,054,345 $10,543 $6,627,987 $1,222,033 $7,874,184 Stock options exercised 0 0 11,134 111 16,630 0 16,741 Net loss 0 0 0 0 0 (158,722) (158,722) --------- ------- --------- ------- ---------- ---------- ---------- BALANCE, APRIL 30, 1998 1,362,190 $13,621 1,065,479 $10,654 $6,644,617 $1,063,311 $7,732,203 ========= ======= ========= ======= ========== ========== ==========
The accompanying notes are an integral part of this consolidated financial statement. FS-19 TRIAD HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FOUR MONTHS ENDED APRIL 30, 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (158,722) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 491,239 Gain on disposal of property and equipment and rental equipment (11,129) Provision for doubtful accounts 20,000 Increase (decrease) in operating cash flows resulting from: Accounts receivable (227,621) Inventories (504,661) Prepaid expenses and other current assets 480,918 Other noncurrent assets (2,263) Accounts payable and accrued expenses 1,598,440 Other long-term liabilities (176) ----------- Net cash provided by operating activities 1,686,025 ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment and rental equipment (699,926) Proceeds from disposals of property and equipment and rental equipment 68,574 ----------- Net cash used in investing activities (631,352) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on long-term debt 486,900 Principal payments on long-term debt and capital lease obligations (527,814) Net repayment of line of credit (1,101,287) Payments on notes payable to stockholder (8,628) Proceeds from exercise of stock options 16,741 ----------- Net cash used in financing activities (1,134,088) ----------- DECREASE IN CASH AND CASH EQUIVALENTS (79,415) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 229,445 ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 150,030 =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $ 201,546 =========== Income taxes $ 0 =========== SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Rental equipment acquired under capital lease arrangements $ 455,359 ===========
The accompanying notes are an integral part of this consolidated financial statement. FS-20 TRIAD HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FOUR MONTHS ENDED APRIL 30, 1998 1. BUSINESS AND ORGANIZATION Triad Holdings, Inc. (the "Company") conducts business through its operating subsidiaries, Triad Medical, Inc. ("TMI"), which was incorporated in June 1980, and Triad Infusion Products, Inc. ("TIPI"), which was incorporated in October 1996. The Company is primarily engaged in the contract sale and distribution of medical supplies, devices, drugs, and durable equipment to home infusion health care providers throughout the United States. Additionally, the Company rents and services infusion pumps and leases biomedical equipment. The Company became a wholly owned subsidiary of HTD Corporation subsequent to April 30, 1998. (See Note 7) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared on the accrual basis of accounting and include the accounts of the Company and its subsidiaries as described in Note 1. All significant intercompany amounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management in determining the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUES AND EXPENSES The Company's revenues are primarily derived from sales of medical products and supplies under distribution agreements with various manufacturers and the renting of infusion pumps and other equipment under cancelable and noncancelable operating leases. Revenues are recorded at the time of shipment of products or performance of services. Revenues from the rental of infusion pumps and other equipment under cancelable and noncancelable operating leases are recognized as earned. Biomedical, commission, and installation revenues are recognized as the services are provided. Cost of revenues consists primarily of product costs, net of rebates, and freight charges. Selling expenses consist primarily of sales commissions, salaries of sales managers, travel and entertainment expenses, trade show expenses, and automobile allowances. General and administrative expenses consist primarily of executive compensation and related benefits, administrative salaries and benefits, office rent and utilities, communication expenses, and professional fees. CASH AND CASH EQUIVALENTS The Company considers all investments with original maturities of three months or less to be cash or cash equivalents. FS-21 PROPERTY AND EQUIPMENT Expenditures for repairs and maintenance are charged to expense when incurred. On retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations. DEFERRED RENT Certain of the Company's facilities leases include scheduled rent increases and free rent periods. For financial reporting purposes, rent expense is recognized on a straight-line basis over the lease term. INCOME TAXES The Company applies the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets or liabilities are received or settled. STOCK-BASED COMPENSATION In accordance with Statement of Financial Accounting Standards ("SFAS") No. 123, the Company accounts for stock option grants in accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and has adopted the "disclosure only" alternative allowed under SFAS No. 123. CONCENTRATIONS OF CREDIT RISK In the normal course of business, the Company extends credit to its customers which are primarily home infusion health care providers. The Company regularly reviews its accounts receivable and makes provision for potentially uncollectible balances. At December 31, 1998, management believes the Company had incurred no material impairments to the carrying values of its accounts receivable, other than uncollectible amounts for which provisions had been made. FS-22 3. INCOME TAXES The credit for federal and state income taxes is as follows: Federal: Current $(55,080) Deferred 0 -------- (55,080) -------- State: Current (9,720) Deferred 0 -------- (9,720) -------- $(64,800) ======== The actual income tax credit differs from the income tax credit computed by applying the U.S. federal statutory corporate tax rate of 34% to income before income taxes because of state taxes and other miscellaneous items. 4. SIGNIFICANT SUPPLIERS Purchases from two vendors accounted for 40% of total purchases in the four-month period ended April 30, 1998. Although there are a limited number of suppliers, management believes that other suppliers could provide similar products on comparable terms. A change in suppliers, however, could cause a delay in product sales and a possible loss in revenues, which could affect operating results adversely. 5. STOCKHOLDERS' EQUITY COMMON STOCK CLASSES At April 30, 1998 and December 31, 1997, the Company had two classes of Common Stock: Class A convertible Common Stock (Class A Common Stock) and Class B Common Stock. Holders of shares of Class A Common Stock may convert their shares into Class B Common Stock on a share-for-share basis at any time. The Class A Common Stock will be automatically converted into shares of Class B Common Stock upon the consummation of a qualified public offering that occurs before May 2000, or after May 2000 but only if the current holders of shares of Class A Common Stock shall have previously distributed their Class A Common Stock to certain third parties. Should the Company meet certain profitability objectives, the holders of shares of Class A Common Stock will be required to return 106,465 of the previously issued shares back to the Company. Holders of shares of Class A Common Stock vote as a class with the holders of shares of Class B Common Stock on the basis of one vote per share. Holders of shares of Class A Common Stock are entitled to dividends or other distributions declared or paid on each share of Class A Common Stock when and in the same amount as any dividend or other distribution is declared or paid on each share of Class B Common Stock. FS-23 STOCKHOLDERS' AGREEMENT Under an agreement between the Company and the holders of Class B Common Stock, (i) the Company's prior written consent is required for certain transfers and assignments of shares of Class B Common Stock, (ii) the Company has a right of first refusal on any sales of Class B Common Stock, and (iii) if a holder of shares of Class B Common Stock dies, the Company is obligated to repurchase the deceased holder's shares of Class B Common Stock for the greater of the estimated fair value of the shares, as determined annually by the Company's board of directors, or the insurance proceeds received by the Company on the death of the holder. STOCK OPTIONS A 1992 Company stock option plan (the "Plan") provides for the grant of options to purchase shares of the Company's common stock to employees, officers, consultants, and directors of the Company. The timing of exercise for individual option grants is at the discretion of the Plan's administrator. Each option expires no later than 10 years after the date the option is granted (five years if the option is granted to a 10% stockholder) and generally vests over a three-year period. An option granted to an employee will expire (i) one year after the employee's employment by the Company terminates because of death or a permanent disability or (ii) 90 days after the employee's termination of employment for any other reason. Market price is generally calculated by taking a factor of earnings before interest, taxes, depreciation, and amortization. As the exercise price on the date of grant equaled the market price, no compensation expense is recognized in the consolidated financial statements pursuant to APB Opinion No. 25. Stock option activity under the Plan is as follows: WEIGHTED SHARES AVERAGE SUBJECT TO EXERCISE EXERCISE OPTIONS PRICE PRICE ---------- ------------ -------- Balance, December 31, 1997 151,624 $1.50--$8.64 $5.42 Exercised 11,134 1.50--5.51 1.51 Cancelled/forfeited 2,500 5.51 5.51 ------- Balance, April 30, 1998 137,990 $1.50--$8.64 $5.73 ======= At April 30, 1998, options to purchase 32,490 shares of common stock at a weighted average price of $4.31 per share were exercisable. The weighted average remaining contractual life for all options outstanding at April 30, 1998 is 8.1 years. Pursuant to SFAS 123, the fair value of each option granted to employees and directors is estimated using the Black-Scholes option-pricing model on the date of grant using assumptions for: (i) dividend yield, (ii) volatility factor, (iii) weighted-average risk-free interest rate, and (iv) expected life of option. FS-24 As discussed in Note 2, the Company has elected the "disclosure only" alternative allowed under SFAS No. 123. Accordingly, the Company is required to disclose pro forma net income (loss) over the vesting period of the options. However, the pro forma effect for the four months ended April 30, 1998 is immaterial. 6. COMMITMENTS AND CONTINGENCIES INSURANCE The Company carries a broad range of insurance coverage, including general and business auto liability, commercial property, workers' compensation, and a general umbrella policy. The Company has not incurred significant claims of losses under any of its insurance policies. The sale, distribution, rental, and repair of medical products involve a risk of product liability claims. The Company maintains product liability insurance coverage in amounts that it considers adequate. SALES TAX CONSIDERATIONS Various states are increasingly seeking to impose sales or use taxes on interstate sales made into their states by out-of-state companies. Complex legal issues arise in these areas relating to, among other things, the required nexus of a business with a particular state, which may permit the state to require a business to collect such taxes. Although the Company believes that it has adequately provided for sales taxes on its sales, there can be no assurance as to the effect of actions state tax authorities may take on the Company's consolidated financial condition or the consolidated results of operations. LITIGATION The Company is party to certain legal proceedings arising in the ordinary course of business. Management believes the outcome of such legal proceedings will not have a material adverse effect on the Company's consolidated financial position or consolidated results of operations. 7. SUBSEQUENT EVENT (UNAUDITED) On May 1, 1998, all of the Company's issued and outstanding common stock was acquired by HTD Corporation. Total consideration paid by HTD Corporation was $13.2 million, comprising $3.0 million in cash and $10.2 million aggregate value of the capital stock of HTD Corporation. On June 15, 1999, all of the issued and outstanding common stock of HTD Corporation, the Company, and the Company's subsidiaries were acquired by MEDIQ/PRN pursuant to an Agreement and Plan of Merger dated June 14, 1999. Total consideration paid by MEDIQ/PRN was approximately $59.7 million, comprising $49.7 million in cash and $10.0 million aggregate value of capital stock of MEDIQ Incorporated, the parent company of MEDIQ/PRN. Following the acquisition, HTD Corporation along with the Company and its subsidiaries were merged into MEDIQ/PRN. In contemplation of the MEDIQ/PRN transaction, the assets, liabilities, and operations of Bimeco, Inc., a wholly owned subsidiary of HTD Corporation, related to its nonacute care business were transferred to the Company in a nonmonetary transfer effective June 14, 1999. FS-25 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION CONDENSED COMBINED FINANCIAL STATEMENTS FOR THE FOUR MONTHS ENDED APRIL 30, 1999 (UNAUDITED) FS-26 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION CONDENSED COMBINED STATEMENTS OF NET ASSETS (SEE NOTE 2)
April 30, December 31, 1999 1998 ----------- --------------- (Unaudited) (See note below) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 961,716 $ 154,024 Accounts receivable, less allowance of $337,226 and $325,410, respectively 11,987,973 12,001,754 Inventory, net 4,436,886 4,947,623 Prepaid expenses and other current assets 1,657,026 2,310,931 ----------- ----------- Total current assets 19,043,601 19,414,332 PROPERTY AND EQUIPMENT (including Rental), net of accumulated depreciation and amortization of $2,806,356 and $1,738,095, respectively 11,849,954 11,764,823 INTANGIBLE ASSETS, net of accumulated amortization of $593,185 and $334,447, respectively 17,993,931 18,252,669 OTHER NONCURRENT ASSETS 890,207 974,940 ----------- ----------- Total assets $49,777,693 $50,406,764 =========== ===========
Note: The statement of net assets at December 31, 1998 has been condensed from the audited financial statements at that date. The accompanying notes are an integral part of this condensed combined statement of net assets. FS-27 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION CONDENSED COMBINED STATEMENTS OF NET ASSETS (SEE NOTE 2)
April 30, December 31, 1999 1998 ----------- --------------- (Unaudited) (See note below) LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Current maturities of long-term debt and capital lease obligations $ 821,333 $ 955,556 Accounts payable 5,396,478 7,184,416 Accrued expenses 2,851,059 2,326,024 ----------- ----------- Total current liabilities 9,068,870 10,465,996 REVOLVING CREDIT LINE 9,571,387 8,062,164 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current maturities 14,019,863 14,128,325 STOCK REPURCHASE OBLIGATION 3,000,005 3,000,005 OTHER LONG-TERM LIABILITIES 2,036,023 2,041,047 ----------- ----------- Total liabilities 37,696,148 37,697,537 NET ASSETS 12,081,545 12,709,227 ----------- ----------- Total liabilities and net assets $49,777,693 $50,406,764 =========== ===========
Note: The statement of net assets at December 31, 1998 has been condensed from the audited financial statements at that date. The accompanying notes are an integral part of this condensed combined statement of net assets. FS-28 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION COMBINED STATEMENT OF OPERATIONS (SEE NOTE 2) FOR THE FOUR MONTHS ENDED APRIL 30, 1999 (UNAUDITED) REVENUES $ 23,797,711 COST OF REVENUES 16,532,815 ------------ Gross profit 7,264,896 ------------ OPERATING EXPENSES: Selling 787,763 General and administrative 2,680,141 Depreciation and amortization 1,326,999 ------------ 4,794,903 Income from operations 2,469,993 OTHER INCOME (EXPENSE): Interest income 26,971 Interest expense (680,647) Other (142,293) ------------ Income before provision for income taxes 1,674,024 PROVISION FOR INCOME TAXES 781,503 ------------ Net income $ 892,521 ============ The accompanying notes are an integral part of this condensed combined financial statement. FS-29 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION CONDENSED COMBINED STATEMENT OF CASH FLOWS (SEE NOTE 2) FOR THE FOUR MONTHS ENDED APRIL 30, 1999 (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 892,521 Adjustments to reconcile net income to net cash provided by operating activities, net 1,354,055 ----------- Net cash provided by operating activities 2,246,576 ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,153,392) ----------- Net cash used in investing activities (1,153,392) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt and capital lease obligations (454,472) Borrowings on long-term debt 179,960 Net borrowings on revolving credit line 1,509,223 Other (1,520,203) ----------- Net cash used in financing activities (285,492) ----------- INCREASE IN CASH 807,692 CASH AND CASH EQUIVALENTS, beginning of period 154,024 ----------- CASH AND CASH EQUIVALENTS, end of period $ 961,716 =========== The accompanying notes are an integral part of this condensed combined financial statement. FS-30 HTD CORPORATION AND SUBSIDIARIES, EXCLUDING THE ACUTE CARE DIVISION NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION As further discussed in Note 2, HTD Corporation (the "Company") along with its wholly owned subsidiary Triad Holdings, Inc. ("Triad") and its subsidiaries were acquired by MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN") on June 15, 1999. MEDIQ/PRN is a wholly owned subsidiary of MEDIQ Incorporated ("MEDIQ"). The net assets acquired by MEDIQ/PRN represented the Company's nonacute care business, which principally consisted of sales of disposable products, rentals of moveable medical equipment, and biomedical repair services. The other subsidiaries of the Company - Healthcare Technology Delivery, Inc., MegaTech Medical, Inc., Bimeco, Inc. ("Bimeco"), and Omni Medical, Inc. - represented the acute care division and were sold to a third party unrelated to MEDIQ/PRN and the Company simultaneously with the MEDIQ/PRN transaction as further described in Note 2. The combined financial statements presented herein are on a carved out basis that represent only the nonacute care business of the Company acquired by MEDIQ/PRN. The accompanying combined financial statements do not reflect an allocation of the MEDIQ/PRN purchase price. The condensed combined statement of net assets as of April 30, 1999 and the combined statement of operations and condensed combined statement of cash flows for the four months ended April 30, 1999 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 net assets, results of operations, and cash flows presented have been made. In preparing the financial statements presented on a carved out basis, the Company made certain estimates and allocations deemed reasonable under the circumstances. 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 combined financial statements should be read in conjunction with the audited financial statements and notes thereto of the Company and Triad included elsewhere in this Form 8-K/A filing of MEDIQ of which these condensed combined financial statements are a part. The statements of operations and cash flows of the Company presented herein do not include the corresponding period of the prior fiscal year because such a comparison is not meaningful. During the four months ended April 30, 1998, the Company was a holding company without any significant assets or operations. The Company's nonacute care business, subsequently acquired by MEDIQ/PRN as discussed above and further in Note 2, was not formed until May 1, 1998 with the Company's acquisition of Triad and Bimeco. Triad was a significant acquiree of the Company during the year ended December 31, 1998. Triad's results of operations and cash flows for the four months ended April 30, 1998 represent the principal predecessor nonacute care business of the Company. Readers are directed to the separate financial statements of Triad for the four months ended April 30, 1998 included elsewhere within this Form 8-K/A of MEDIQ of which these condensed combined financial statements are a part. FS-31 2. SUBSEQUENT EVENT On June 15, 1999, all of the Company's issued and outstanding common stock along with Triad and its subsidiaries representing the nonacute care business were acquired by MEDIQ/PRN pursuant to an Agreement and Plan of Merger dated June 14, 1999. Total consideration paid by MEDIQ/PRN was approximately $59.7 million, comprising $49.7 million in cash and $10.0 million aggregate value of capital stock of MEDIQ. Following the acquisition, the Company and Triad and its subsidiaries were merged into MEDIQ/PRN. Contemporaneously with MEDIQ/PRN's acquisition of the Company, the Company sold to a third party unrelated to MEDIQ/PRN and the Company its subsidiaries representing the acute care division not acquired by MEDIQ/PRN as listed in Note 1 for a purchase price of $17 million. In contemplation of the MEDIQ/PRN transaction, Bimeco's assets, liabilities, and operations related to its nonacute care business were transferred to Triad in a nonmonetary transfer effective June 14, 1999. FS-32 ITEM 7(b) PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma condensed consolidated statements of operations are based on the historical results of operations of the Company, the Acquired Business and the Nonacute Care Business of entities related to HTD preceding the formation of the Nonacute Care Business on May 1, 1998 (the "Related Predecessor Entities") as applicable. The Related Predecessor Entities include Triad and other entities related to HTD of less significance. The Company acquired HTD on June 15, 1999. For accounting purposes, the acquisition was effective May 28, 1999. Accordingly, the Company's historical results of operations include the results of operations of the Acquired Business beginning May 28, 1999. The unaudited pro forma condensed consolidated statements of operations for the year ended September 30, 1998 and the nine months ended June 30, 1999 give effect to the Acquired Business as if the acquisition was consummated on October 1, 1997. All pro forma adjustments are described in the accompanying notes to the unaudited pro forma condensed consolidated statements of operations. The Company expects that certain synergies and cost savings will occur as a result of the acquisition. However, such cost savings are not reflected in the unaudited pro forma condensed consolidated statements of operations, and there can be no assurance that such synergies or cost savings will occur. The unaudited pro forma condensed consolidated statements of operations should be read in conjunction with the separate historical financial statements and the notes thereto of HTD and Triad included elsewhere herein and of the Company. The Acquired Business had been conducted as an integral part of the overall operations of HTD and the Related Predecessor Entities. Separate statements of operations for the Acquired Business had not been previously prepared. The Company has been advised by HTD that the results of operations of the Acquired Business were prepared from historical accounting records and include various allocations for costs and expenses. Therefore, the statements of operations of the Acquired Business may not be indicative of the results of operations that would have resulted if it had operated on a stand alone basis. The Company has been advised by HTD that all of the allocations and estimates reflected in the results of operations for the Acquired Business are based on assumptions that are believed to be reasonable under the circumstances. The unaudited pro forma condensed consolidated statements of operations are presented for informational purposes only and do not purport to be indicative of the results of operations that actually would have been achieved had the acquisition been consummated on the date and for the periods indicated, and do not purport to be indicative of the results of operations for future periods. The acquisition was accounted for by the purchase method and, accordingly, the cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair values on May 28, 1999. The initial allocation of the cost of the acquisition and the associated goodwill was estimated based on information currently available. The final allocation of the acquisition cost is contingent upon determinations and valuations not yet completed. The Company is unable to predict at this time whether any adjustments that may occur will have a material effect on the allocation. PF-1 MEDIQ INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1998 (UNAUDITED) (in thousands, except per share amounts)
Historical Historical Acquired Pro Forma Pro Forma Company Business (1) Adjustments Company ------- -------- ----------- ------- Revenues: Rental $142,736 $10,099 $152,835 Sales 27,928 43,568 71,496 Other 10,252 6,671 16,923 -------- ------- -------- 180,916 60,338 241,254 Costs and Expenses: Cost of sales 22,659 41,530 64,189 Operating 63,072 63,072 Selling 16,590 3,703 20,293 General and administrative 20,586 8,480 29,066 Merger and acquisition charges (2) 35,021 35,021 Depreciation and amortization 41,692 3,371 $ 1,180 (3) 46,243 -------- ------- ------- -------- 199,620 57,084 1,180 257,884 -------- ------- ------- -------- Operating (Loss) Income (18,704) 3,254 (1,180) (16,630) Other (Charges) and Credits: Interest expense (27,894) (1,297) (4,487) (4) (33,678) Other-net 5,072 1,100 6,172 -------- ------- ------- -------- (Loss) Income from Continuing Operations before Income Taxes (41,526) 3,057 (5,667) (44,136) Income Tax (Benefit) Expense (12,455) 1,501 (2,284) (5) (13,238) -------- ------- ------- -------- (Loss) Income from Continuing Operations $(29,071) $ 1,556 $(3,383) $(30,898) ======== ======= ======= ======== Loss from Continuing Operations per Share $ (1.69) $ (1.79) ======== ======== Weighted Average Number of Common Shares Outstanding 17,205 17,249 (6) ======== ========
See Notes to Pro Forma Condensed Consolidated Statements of Operations PF-2 MEDIQ INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1999 (UNAUDITED) (in thousands, except per share amounts)
Historical Historical Acquired Pro Forma Pro Forma Company Business (1) Adjustments Company ------- -------- ----------- ------- Revenues: Rental $128,743 $ 7,084 $135,827 Sales 28,925 36,437 65,362 Other 9,311 4,455 13,766 -------- ------- -------- 166,979 47,976 214,955 Costs and Expenses: Cost of sales 22,589 33,638 56,227 Operating 48,117 48,117 Selling 20,128 1,898 22,026 General and administrative 18,380 5,815 24,195 Depreciation and amortization 31,600 2,427 $ 607 (3) 34,634 -------- ------- ------- -------- 140,814 43,778 607 185,199 -------- ------- ------- -------- Operating Income 26,165 4,198 (607) 29,756 Other (Charges) and Credits: Interest expense (40,768) (1,569) (2,497) (4) (44,834) Other-net 465 1,050 1,515 -------- ------- ------- -------- (Loss) Income from Continuing Operations before Income Taxes (14,138) 3,679 (3,104) (13,563) Income Tax (Benefit) Expense (3,784) 2,968 (2,814) (5) (3,630) -------- ------- ------- -------- (Loss) Income from Continuing Operations $(10,354) $ 711 $ (290) $ (9,933) ======== ======= ======= ======== Loss from Continuing Operations per Share $ (9.61) $ (8.88) ======== ======== Weighted Average Number of Common Shares Outstanding 1,077 1,119 (6) ======== ========
See Notes to Pro Forma Condensed Consolidated Statements of Operations PF-3 MEDIQ INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) Historical results of operations of the Acquired Business for its 12 months ended December 31, 1998 are combined with the Company's historical results of operations for the year ended September 30, 1998. The historical results of operations of the Acquired Business for its 12 months ended December 31, 1998 consist of the results of operations of: (i) HTD and its Nonacute Care Business for the year ended December 31, 1998; (ii) Triad for the four months ended April 30, 1998 and (iii) Related Predecessor Entities other than Triad for four months ended April 30, 1998. Historical results of operations of the Acquired Business for its eight months ended May 27, 1999 are combined with the Company's historical results of operations for the nine months ended June 30, 1999. The Company's historical results of operations for the nine months ended June 30, 1999 include one month of actual results of the Acquired Business. Historical results of operations of the Acquired Business for its three months ended December 31, 1998 are included in its 12 months ended December 31, 1998 and its eight months ended May 27, 1999. Reclassifications have been made to certain amounts within the Acquired Business to conform to the Company's classifications. (2) Represents nonrecurring charges related to the Company's merger on May 28, 1998 and the concurrent acquisition of the medical business of CH Industries, Inc. (3) Reflects incremental depreciation and amortization expense from the allocation of a portion of the acquisition cost price of $59.7 million to rental equipment and other depreciable assets acquired and intangible assets, including goodwill, recognized in the acquisition. Depreciation of rental equipment is estimated to be over five years. Intangibles, primarily consisting of covenants not to compete, are amortized over five years. Other assets, primarily consisting of office equipment, furniture and fixtures and machinery and equipment, are amortized over three years. Goodwill in the amount of $41.5 million is amortized over 20 years. Incremental depreciation and amortization is as follows: Year Ended Nine Months Ended September 30, 1998 June 30, 1999 ------------------ ----------------- (in thousands) Rental equipment $2,151 $1,434 Other assets 204 136 Goodwill 2,073 1,382 Other intangibles 123 82 ------ ------ 4,551 3,034 Less historical of Acquired Business 3,371 2,427 ------ ------ $1,180 $ 607 ====== ====== (4) Incremental interest expense connected with the acquisition is as follows: Year Ended Nine Months Ended September 30, 1998 June 30, 1999 ------------------ ----------------- (in thousands) Revolving credit facility $2,473 $1,443 Acquisition loan facility 1,856 949 Amortization of amendment fee 158 105 ------ ------ $4,487 $2,497 ====== ====== To fund the cash portion of the acquisition of HTD, the Company borrowed $27.5 million under its revolving credit facility and $22.5 million under its acquisition loan facility. These borrowings are assumed to be outstanding at the beginning of each period presented. The assumed rate of interest on the borrowings under the revolving credit facility is a weighted average variable rate of 9.04% for the year ended September 30, 1998 and PF-4 7.92% for the nine months ended June 30, 1999. The assumed rate of interest on the borrowings under the acquisition loan facility is a weighted average variable rate of 9.04% for the year ended September 30, 1998 and 7.48% for the nine months ended June 30, 1999. The assumed rates of interest are the rates actually incurred by the Company within each period and include applicable margins. Commitment fees of the Company were adjusted to reflect the additional amounts borrowed and no longer subject to commitment fees. In connection with the acquisition of HTD, the credit agreement governing the revolving credit and acquisition loan facilities was amended. The fee to effect this amendment of approximately $1.0 million is assumed to be amortized over the remaining term of the facilities of approximately six years. (5) Income taxes on the pro forma adjustments at the Company's effective income tax rate for the period plus an adjustment to historical income taxes of the Acquired Business to reflect the Company's historical effective tax rate for the period. The relationship that the Company's historical income taxes have with the Company's historical loss from continuing operations before taxes is representative for pro forma purposes. (6) The Company funded a portion of the acquisition of HTD with the issuance of 44,225 shares of the Company's Common Stock. These shares are assumed to be issued and outstanding at the beginning of each period presented. Basic and diluted per share amounts are the same as no effect is given to warrants and options to purchase the Company's Common Stock that are outstanding during the periods because they are antidilutive. PF-5 ITEM 7(c) EXHIBITS EX-23 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 - CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated July 29, 1999 on the financial statements of HTD Corporation and Subsidiaries, excluding the acute care division, and Triad Holdings, Inc. and Subsidiaries, included in this Form 8-K/A, into MEDIQ Incorporated's previously filed Registration Statement File Numbers 33-61724, 333-46233, 333-58933, and 333-58935. /s/ Arthur Andersen LLP August 30, 1999 -----END PRIVACY-ENHANCED MESSAGE-----