UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended: March 31, 1997 Commission File Number: 1-8147
MEDIQ Incorporated
(Exact name of registrant as specified in its charter)
Delaware 51-0219413
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One MEDIQ Plaza, Pennsauken, New Jersey 08110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 662-3200
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of May 2, 1997, there were 19,365,319 shares of Common Stock, par value $1.00
per share and 6,282,701 shares of Preferred Stock, par value $.50 per share,
outstanding.
1
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended March 31, 1997
INDEX
Page
Number
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements.
Condensed Consolidated Statements of Operations-
Three and Six Months Ended March 31, 1997 and 1996
(Unaudited) 4
Condensed Consolidated Balance Sheets-
March 31, 1997 (Unaudited) and
September 30, 1996 5
Condensed Consolidated Statements of Cash Flows-
Six Months Ended March 31, 1997 and 1996
(Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 12-17
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K. 18
2
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended March 31, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
3
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Rental $ 32,524 $ 31,077 $ 61,246 $ 58,808
Sales 5,731 2,508 9,459 4,552
Other 4,311 3,414 7,344 5,732
-------- -------- -------- --------
42,566 36,999 78,049 69,092
Costs and Expenses:
Cost of sales 4,680 1,639 7,754 3,561
Operating 14,800 12,400 27,315 24,606
Selling and administrative 5,533 5,386 11,522 10,816
Restructuring -- -- -- 2,200
Depreciation and amortization 7,364 7,413 14,731 14,836
-------- -------- -------- --------
32,377 26,838 61,322 56,019
-------- -------- -------- --------
Operating Income 10,189 10,161 16,727 13,073
Other (Charges) Credits:
Interest expense (5,409) (6,881) (11,922) (13,592)
Equity participation - repurchase of MEDIQ/PRN warrants -- -- (11,047) --
Gain on sale and market appreciation of Cardinal Health stock 4,021 -- 9,213 --
Gain on NutraMax note receivable 1,195 -- 1,195 --
Other - net 679 (32) 1,144 382
-------- -------- -------- --------
Income (loss) from Continuing Operations before
Income Taxes and Extraordinary Item 10,675 3,248 5,310 (137)
Income Tax Expense 4,318 1,975 6,444 960
-------- -------- -------- --------
Income (loss) before Discontinued Operations and
Extraordinary Item 6,357 1,273 (1,134) (1,097)
Discontinued Operations (net of taxes) (66) 1,542 37,175 2,544
Extraordinary Item - Early Retirement of Debt (net of taxes) (462) -- (6,926) 1,001
-------- -------- -------- --------
Net Income $ 5,829 $ 2,815 $ 29,115 $ 2,448
======== ======== ======== ========
Earnings per share:
Continuing Operations $ .25 $ .05 $ (.05) $ (.04)
Discontinued Operations -- .06 1.46 .10
Extraordinary Item (.02) -- (.27) .04
-------- -------- -------- --------
Net Income $ .23 $ .11 $ 1.14 $ .10
======== ======== ======== ========
Weighted Average Shares Outstanding 25,739 24,845 25,501 24,713
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Mar. 31, Sept. 30
1997 1996
---------- ----------
(Unaudited) (See Note)
Assets
------
<S> <C> <C>
Current Assets:
Cash $ 2,939 $ 3,219
Accounts receivable - net 39,837 30,233
Inventories 11,328 6,614
Deferred income taxes 4,962 2,447
Other current assets 3,501 2,280
-------- --------
Total Current Assets 62,567 44,793
Property, plant and equipment - net 117,332 122,706
Goodwill - net 56,116 58,321
Investment in discontinued operations - restricted 5,425 64,967
Notes receivable 14,551 7,328
Deferred financing fees 8,613 4,225
Marketable equity securities - restricted 5,200 --
Other Assets 6,959 5,773
-------- --------
Total assets $276,763 $308,113
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 9,247 $ 8,907
Accrued expenses 26,638 27,877
Current portion of long-term debt 8,039 8,520
-------- --------
Total Current Liabilities 43,924 45,304
Senior debt 134,118 192,461
Subordinated debt 13,850 41,229
Deferred income taxes 29,022 7,254
Other liabilities 2,766 4,420
Stockholders' Equity 53,083 17,445
-------- --------
Total Liabilities and Stockholders' Equity $276,763 $308,113
======== ========
</TABLE>
Note: The balance sheet at September 30, 1996 has been condensed from the
audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 29,115 $ 2,448
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Income from discontinued operations (37,175) (2,544)
Gain on sale of Cardinal shares (9,213) --
Equity participation-repurchase of MEDIQ/PRN warrants 11,047 --
Other - net (4,242) 7,554
-------- --------
Net cash provided by (used in) operating activities (10,468) 7,458
Cash Flows from Investing Activities:
Proceeds from sale of discontinued operations 120,790 1,500
Proceeds from sale of equipment and other assets 546 3,046
Purchase of equipment (8,005) (9,804)
Note receivable from SpectraCair -- (3,250)
Repurchase of MEDIQ/PRN warrant (12,500) (1,625)
Other (3,043) (1,688)
-------- --------
Net cash provided by (used in) investing activities 97,788 (11,821)
Cash Flows from Financing Activities:
Borrowings 214,000 22,210
Debt repayments (293,126) (19,088)
Deferred financing fees (8,746) --
Exercise of stock options 272 1,419
-------- --------
Net cash provided by (used in) financing activities (87,600) 4,541
-------- --------
Increase (decrease) in cash (280) 178
-------- --------
Cash:
Beginning balance 3,219 2,966
-------- --------
Ending balance $ 2,939 $ 3,144
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 13,034 $ 12,489
======== ========
Income taxes paid $ 3,249 $ 366
======== ========
Supplemental disclosure of non-cash investing and financing activities:
Conversion of 7.25% subordinated debentures into common stock $ 6,251 $ --
======== ========
Equipment financed with long-term debt and capital leases $ -- $ 1,539
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of March 31, 1997 and the condensed
consolidated statements of operations and cash flows for the six months ended
March 31, 1997 and 1996 have been prepared by the Company, without audit. In the
opinion of management, all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1997 and for all periods presented have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's September 30, 1996 Annual Report on Form 10-K.
The results of operations for the period ended March 31, 1997 are not
necessarily indicative of the operating results for the full year.
Note B - Revenues
The Company derives revenues from the following sources: (1) rental - rental of
moveable medical equipment, (2) sales - sales of disposable products, spare
parts and equipment and (3) other - logistical services, revenue-share
arrangements, maintenance and reconditioning services and management consulting
services.
Note C - Discontinued Operations
On May 7, 1997, the Company sold the stock of Health Examinetics, Inc. to the
management of Health Examinetics for approximately $1.7 million, consisting of
$.1 million in cash and $1.6 million in notes. The sale resulted in a net loss
which is included in the estimated net loss on the disposal of discontinued
operations recorded in fiscal 1996.
On December 31, 1996, the Company sold to NutraMax Products, Inc. ("NutraMax"),
all of the 4,037,258 shares of NutraMax common stock owned by the Company at a
price of $9.00 per share. The Company received from NutraMax $19.9 million in
cash and an interest-bearing promissory note (the "Note") in the amount of $16.4
million. The Note matures in July 2003 and bears interest at 7.5% per annum for
the first eighteen months with decreasing interest rates over the remaining
term. The Note is payable when NutraMax shares owned by the Company, which are
held in escrow in support of the Company's 7.50% Exchangeable Subordinated
Debentures due 2003 (the "7.50% debentures"), are delivered to NutraMax upon
release from escrow. The NutraMax shares are released from escrow upon the
purchase or redemption of the 7.50% debentures. The Note does not bear a market
rate of interest for its full term. Accordingly, the Company discounted the Note
to $13.6 million and recognized an after-tax gain of $4.6 million, or $.18 per
share.
In the second quarter of 1997, the Company repurchased $14 million of the 7.50%
debentures in the open market (See Note D) which resulted in the release of
913,922 shares of NutraMax common stock from escrow. The shares were delivered
to NutraMax resulting in a cash payment.
7
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note C - Discontinued Operations (Continued)
on the Note of $7.1 million and the realization of a $1.2 million pretax gain as
a result of the recognition of a portion of the discount on the Note. The gain
is reflected in Other Income on the Company's Condensed Consolidated Statement
of Operations.
On November 6, 1996, the Company sold substantially all of the assets of MEDIQ
Mobile X-Ray Services, Inc. ("Mobile X-Ray") to Symphony Diagnostics, Inc., a
subsidiary of Integrated Health Services, Inc. ("IHS", NYSE:IHS) for $5.3
million in cash and shares of IHS common stock with a guaranteed value of $5.2
million with the possibility of the Company receiving additional cash
consideration based upon the occurrence of certain future events. The Company
anticipates the sale of the IHS shares in fiscal 1997 with the proceeds to be
used to reduce borrowings under the Credit Agreement. The loss on the disposal
of these assets was recorded in fiscal 1996.
On October 11, 1996, PCI Services, Inc., was acquired by Cardinal Health, Inc.
("Cardinal"). As a result, the Company received 966,000 shares of Cardinal stock
which, based on the closing price on October 11, 1996, had a market value of
$79.2 million. The Company recognized an after-tax gain of $32.6 million on this
transaction. In December 1996, Cardinal's common stock split 3 for 2 and, as of
December 31, 1996, the Company owned 1,449,000 shares which had an aggregate
market value of $84.4 million based upon the closing price of $58.25 per share
on that date. Accordingly, the Company recognized market appreciation of $5.2
million on the Cardinal shares in the first quarter of fiscal 1997. The Company
sold its Cardinal shares in January 1997 and recognized an additional pretax
gain of $4 million.
The Company anticipates that the disposal of InnoServ Technologies, Inc., its
remaining discontinued operation, will be completed in fiscal 1997.
The investment in discontinued operations as of March 31, 1997 consisted of (in
thousands):
Current assets $6,116
Current liabilities 880
------
Net current assets 5,236
Other noncurrent assets - net 189
------
$5,425
======
Revenues from discontinued operations were $3.3 million and $20.1 million for
the six months ended March 31, 1997 and 1996, respectively.
Note D - Long-Term Debt
On October 1, 1996, the Company, together with MEDIQ/PRN, entered into a $260
million Credit Agreement with a group of lenders (the "Credit Agreement"). The
Credit Agreement provided for four separate loans, a Term A loan ($35 million),
a Term B loan ($100 million), an Acquisition Revolver ($100 million) and a
Working Capital Revolver ($25 million). Borrowings under the Credit Agreement
provided the funds for the Company to refinance substantially all of its
existing senior debt, its outstanding lines of credit and all of MEDIQ/PRN's
subordinated
8
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note D - Long-Term Debt (Continued)
debt and $100 million 11 1/8% Senior Secured Notes (the "Refinancing"). On
January 24, 1997, the Company executed an amendment to the Credit Agreement to
increase the amounts which may be borrowed under the Term B loan by $45 million
and the Working Capital Revolver by $5 million. The additional funds are
available at the time of consummation of the acquisition of Universal Hospital
Services, Inc. ("Universal") (See Note G). Substantially all of the cash
proceeds from the sale of NutraMax stock, Mobile X-Ray assets and Cardinal stock
were used to reduce borrowings under the Credit Agreement. As of March 31, 1997,
the Company had $100 million available under the Acquisition Revolver and $19.5
million available under the Working Capital Revolver, both of which were
available to the Company upon continued compliance with certain financial
covenants and/or ratios.
Borrowings under the Credit Agreement bear interest at either the prime rate
plus a factor or at a Eurodollar rate plus a factor. The factor may change
quarterly based upon the Company's leverage ratio as defined in the Credit
Agreement. The Company's interest rate on the Term A loan, the Acquisition
Revolver and the Working Capital Revolver is prime (8.50% at March 31, 1997)
plus 1.25% or Eurodollar (5.60% at March 31, 1997) plus 2.75% and the interest
rate on the Term B loan is either prime plus 1.75% or Eurodollar plus 3.25%. The
loans are collateralized by substantially all of the assets of the Company. In
May 1997, as a result of an improvement in the Company's leverage ratio, the
Company's factors on the Term A loan, the Acquisition Revolver and the Working
Capital Revolver will change to 0.5% for prime and 2.00% for Eurodollar. The
factor on the Term B loan will change to 1.25% for prime and 2.75% for
Eurodollar.
In accordance with the terms of the Credit Agreement, effective November 15,
1996, the Company entered into interest rate hedge transactions which terminate
in January 2000. Under one of these transactions, on $50 million of borrowings,
the Company's base Eurodollar borrowing rate is fixed at 6.26% per annum,
instead of a floating Eurodollar rate. Under the second hedge transaction, on an
additional $50 million of borrowings, the Company's base Eurodollar rate cannot
be lower than 5.25% or greater than 7.43%.
As a result of the Refinancing, the Company recognized in the first quarter of
1997, an extraordinary charge of $13 million ($6.7 million net of taxes)
resulting from the write-off of deferred charges and premiums incurred related
principally to the tender offer to purchase the $100 million 11 1/8% Senior
Secured Notes, and a non-recurring charge of $11 million for the repurchase of
warrants to purchase 10% of MEDIQ/PRN issued in connection with financing the
KCI acquisition in 1994. The non-recurring charge is reflected in Other Charges
on the Company's Condensed Consolidated Statement of Operations.
During fiscal 1997, the Company repurchased an aggregate of $21.9 million of the
7.50% debentures at a discount in the open market, $14 million of which were
purchased in the second quarter (See Note C). The Company recognized an
extraordinary gain in connection with the repurchase of the 7.50% debentures and
write-offs of related deferred charges in the amount of $51,000, net of taxes
through March 31, 1997.
During fiscal 1997, the Company repurchased or redeemed $23 million of the 7.25%
Subordinated Convertible Debentures due 2006 ("7.25% debentures"). The Company
recognized an extraordinary loss in connection with the repurchase of the 7.25%
debentures and
9
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note D - Long-Term Debt (Continued)
write-offs of related deferred charges in the amount of $.2 million. The
remaining balance of $6.2 million of the 7.25% debentures were converted into
833,446 shares of the Company's common stock.
Note E - Inventories
Inventories, which consist primarily of finished goods held for sale and repair
parts for rental equipment, are stated at the lower of cost (first-in, first-out
method) or market.
Note F - Income Taxes
As a result of the sale of the Company's investments in PCI, NutraMax and
Cardinal (See Note C), the Company has utilized all of its available net
operating loss and capital loss carryforwards, all of its Investment Tax Credits
and Rehabilitation Tax Credits and a portion of its alternative minimum tax
credit carryforwards.
Note G - Commitments and Contingencies
On February 10, 1997, the Company was sued in the Superior Court of New Jersey
by its former wholly-owned subsidiary, MHM Services, Inc. ("MHM"; formerly
Mental Health Management, Inc.). The suit challenges the validity of a note
receivable the Company and MHM entered into upon the spin-off of MHM to MEDIQ's
shareholders in August 1993. The Company believes this suit has no merit and
intends to defend the suit vigorously. In addition, beginning in February 1997,
MHM has not made the required monthly installments on the note. On February 11,
1997 the Company gave notice to MHM of its default on the note and declared all
sums outstanding under the note to be immediately due and payable. The Company
does not believe an additional reserve on the carrying value of the note
receivable is necessary at this time and is pursuing collection efforts.
Investigations and Legal Proceedings - MEDIQ Imaging Services, Inc., the assets
of which were sold by the Company in August 1995, was notified in January 1995
that it was the subject of a criminal and civil investigation by the United
States Attorney's Office for the District of New Jersey and the Department of
Health and Human Services. In March 1997, the Company was advised by the
U.S. Government that the criminal investigation has been terminated, however,
the Company remains the subject of a civil investigation. Reference is made to
Note I in the Company's Annual Report on Form 10-K for additional information.
10
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note H - Acquisition of Universal Hospital Services, Inc.
On February 11, 1997, the Company entered into a definitive agreement with
Universal Hospital Services, Inc. ("Universal") (NASDAQ; UHOS) to acquire the
outstanding shares of Universal for $17.50 per share. Including the assumption
of debt, the total purchase price is approximately $138 million. Universal
provides movable medical equipment to over 3,300 hospitals and alternate care
providers. In addition, Universal sells disposable supplies related to the
equipment it rents. Universal operates in 46 states in five primary categories -
critical care, monitoring, newborn care, respiratory care and specialty beds.
On April 4, 1997, the shareholders of Universal approved the acquisition
subject to Hart-Scott-Rodino approval. On April 10, 1997, the Company and
Universal received a request for additional information from the Federal Trade
Commission ("FTC") in connection with the Company's Hart-Scott-Rodino filing.
This "second request" extends the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, during which the FTC is permitted to review
the transaction. The waiting period will expire on the twentieth calendar day
after the FTC has determined that the companies have substantially complied with
the FTC's request.
The transaction is structured as a cash merger and is anticipated to be funded
with available funds and proceeds from the existing Credit Agreement.
11
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note I - New Accounting Pronouncements
For fiscal 1997, the Company has formally adopted SFAS No. 123, "Accounting for
Stock-based Compensation Plans," which will result in disclosure of the proforma
net income and net earnings per share amounts assuming the fair value method in
the fiscal year end financial statements, as required. As a result, the adoption
of this statement will not have any impact on reported results of operations and
financial position.
The Financing Accounting Standards Board has issued SFAS No. 128, "Earnings Per
Share," which will result in changes to the computation and presentation of
earnings per share. The Company will be required to adopt this standard during
its quarter ended December 31, 1997 with earlier adoption not permitted. At this
time, the Company has not determined the impact this standard will have on the
Company's earnings per share.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company as of
March 31, 1997 and results of operations for the six month periods ended March
31, 1997 and 1996. This discussion should be read in conjunction with the
financial statements included elsewhere herein and the Management's Discussion
and Analysis and Financial Statement sections of the Company's Annual Report on
Form 10-K for the year ended September 30, 1996 to which the reader is directed
for additional information.
Seasonality
The Company's rental business is seasonal, with demand historically peaking
during periods of increased hospital census, which generally occur in the winter
months during the Company's second fiscal quarter.
Results of Operations
Second Quarter 1997 Compared with Second Quarter 1996
Revenues from continuing operations were $42.6 million for the second quarter of
fiscal 1997, as compared to $37 million in the prior year period, an increase of
$5.6 million, or 15%. The revenue growth was attributable to a 5% increase in
rental revenue, a 129% increase in sales and a 26% increase in other revenue.
The growth in rental revenue was primarily attributable to a sustained flu
season in the second quarter of fiscal 1997 as compared to the prior year
period. The increase in sales was derived primarily from a significant
distribution contract which was in place during the entire second quarter of
fiscal 1997 as compared to a portion of the prior year period as well as
increases in sales of disposable products in the current period as a result of
additional volume. The increase in other revenue was achieved principally
through a new revenue-sharing arrangement for certain rental products and
revenues from outsourcing services.
Operating income was consistent with the prior year period at $10.2 million, as
a result of the Company's growth in non-rental activities which provide a lower
gross margin than the rental business and the Company making additional
investments of people and other resources in the second quarter of fiscal 1997
to accelerate the growth in non-rental activities. In addition, the sustained
flu season resulted in higher variable costs in the second quarter of fiscal
1997 as compared to the prior year period.
Interest expense decreased 21% to $5.4 million for the second quarter of fiscal
1997 primarily as a result of substantial reductions of debt and lower interest
rates associated with the refinancing that occurred on October 1, 1996.
In January 1997, the Company sold its Cardinal Health, Inc. ("Cardinal") shares
for $88.4 million and realized a pretax gain of $9.2 million. The Company
recognized $5.2 million of this gain as market appreciation in the first quarter
of 1997. Accordingly, $4.0 million of pretax gain was recorded in the second
quarter of 1997.
In the second quarter of fiscal 1997, the Company repurchased $14 million of the
7.50% Exchangeable Subordinated Debentures ("7.50% debentures") in the open
market which resulted in the release of 913,922 shares of NutraMax Products,
13
<PAGE>
Inc. ("NutraMax") common stock from escrow. The shares were delivered to
NutraMax resulting in a cash payment on the NutraMax note receivable (the
"Note") of $7.1 million and the realization of a $1.2 million pretax gain as a
result of the recognition of a portion of the discount on the Note.
The Company's effective tax rate was disproportionate compared to the statutory
rate as a result of goodwill amortization and non-recognition of certain
operating losses and non-operating gains for state income tax purposes.
Revenues and operating income from discontinued operations were $1.8 million and
$9,000, respectively, as compared to revenues and operating income of $10.3
million and $2.1 million, respectively, in the prior year period. Estimated
operating results from discontinued operations through the expected date of
disposal were included in the estimated loss on disposal recognized in fiscal
1996.
As a result of the repurchases of the Company's 7.25% Subordinated Convertible
Debentures ("7.25% debentures") and 7.50% debentures, the Company recognized in
the second quarter of 1997 an extraordinary charge of $.7 million ($.5 million
net of taxes) resulting primarily from the write-off of related deferred
charges.
The current period reflects several significant non-recurring transactions as
discussed above. In addition, the Company refinanced a significant portion of
its debt and reduced its average borrowing rate on October 1, 1996. The
following table provides a proforma analysis of the Company's results of
operations as if the Company: (a) applied the proceeds from the sales of its
investments in Cardinal and Integrated Health Services, Inc. ("IHS") to its
outstanding debt as of October 1, 1996, (b) received all cash from the sale of
NutraMax and applied the proceeds to its outstanding debt as of October 1, 1996,
and (c) tax effected the adjustments described in (a) and (b).
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 Proforma March 31, 1997
Actual Adjustments Proforma
------------------ ----------- ------------------
<S> <C> <C> <C>
Revenues $ 42,566 $ 42,566
Operating Income 10,189 10,189
Other (Charges) Credits:
Interest expense (5,409) 694 (a),(b) (4,715)
Gain on sale of Cardinal Health
stock 4,021 (4,021) (a) --
Gain on NutraMax note receivable 1,195 (1,195) (b) --
Other - net 679 679
-------- --------
Income from Continuing Operations before
Income Taxes and Extraordinary Item 10,675 6,153
Income Tax Expense 4,318 1,496 (c) 2,822
--------- --------
Net Income from Continuing Operations $ 6,357 $ 3,331
========= ========
Per Share Data:
Net Income from Continuing Operations $ .25 $ .13
========= ========
</TABLE>
14
<PAGE>
Six Months Ended March 31, 1997 Compared with Six Months Ended March 31, 1996
Revenues from continuing operations were $78 million for the six months ended
March 31, 1997, as compared to $69.1 million in the prior year period, an
increase of $8.9 million, or 13%. The revenue growth was attributable to a 4%
increase in rental revenue, a 108% increase in sales, and a 28% increase in
other revenue. The growth in rental revenue was primarily attributable to a
sustained flu season and increased volume through an expanded customer base. The
increase in sales was derived primarily from a significant distribution contract
which was in place during the entire six months ended March 31, 1997 as compared
to a portion of the second quarter of fiscal 1996 as well as increases in sales
of disposable products in the current period as a result of additional volume.
The increase in other revenue was achieved principally through a new
revenue-sharing arrangement for certain rental products and revenues from
outsourcing services.
Operating income increased $1.5 million, or 10% to $16.7 million, for the six
months ended March 31, 1997, as compared to $15.3 million, exclusive of a $2.2
million restructuring charge, in the prior year period. The restructuring charge
was incurred in connection with the downsizing of corporate functions and
consolidation of certain activities with the operations of MEDIQ/PRN. The
improvement in operating income was attributable to the growth of revenues from
non-rental activities with lower gross margins and reductions in corporate
overhead of $.7 million related to the downsizing of corporate functions. This
improvement was partially offset by an additional investment of people and other
resources in the second quarter of fiscal 1997 to accelerate the growth of the
Company's non-rental activities and higher variable costs associated with the
sustained flu season.
Interest expense decreased 12% to $11.9 million for the six months ended March
31, 1997 primarily as a result of substantial reductions of debt and lower
interest rates associated with the refinancing that occurred on October 1, 1996.
In October 1996, the Company incurred a non-recurring charge of $11 million for
the repurchase of warrants to purchase 10% of MEDIQ/PRN issued in connection
with financing the KCI acquisition in 1994.
The Company's effective tax rate was disproportionate compared to the statutory
rate as a result of the non-deductibility of the expense associated with the
repurchase of the MEDIQ/PRN warrants, goodwill amortization and non-recognition
of certain operating losses and non-operating gains for state income tax
purposes.
On December 31, 1996, the Company sold to NutraMax, all of the 4,037,258 shares
of NutraMax common stock owned by the Company at a price of $9.00 per share. The
Company received from NutraMax $19.9 million in cash and an interest-bearing
promissory note in the amount of $16.4 million. The Note matures in July 2003
and bears interest at 7.5% per annum for the first eighteen months with
decreasing interest rates over the remaining term. The Note is payable when
NutraMax shares owned by the Company, which are held in escrow in support of the
Company's 7.50% debentures are delivered to NutraMax upon release from escrow.
The NutraMax shares are to be released from escrow upon the purchase or
redemption of the 7.50% debentures. The Note does not bear a market rate of
interest for its full term. Accordingly, the Company discounted the Note to
$13.6 million and recognized an after-tax gain of $4.6 million, or $.18 per
share.
15
<PAGE>
On November 6, 1996, the Company sold substantially all of the assets of MEDIQ
Mobile X-Ray Services, Inc. ("Mobile X-Ray") to Symphony Diagnostics, Inc., a
subsidiary of IHS, for $5.3 million in cash and shares of IHS common stock with
a guaranteed value of $5.2 million with the possibility of the Company receiving
additional cash consideration based upon the occurrence of certain future
events. The Company anticipates the sale of the IHS shares in fiscal 1997 with
the proceeds to be used to reduce the borrowings under the Credit Agreement (See
Liquidity and Capital Resources). The loss on the disposal of these assets was
recorded in fiscal 1996.
On October 11, 1996, PCI Services, Inc., was acquired by Cardinal. As a result,
the Company received 966,000 shares of Cardinal stock which, based on the
closing price on October 11, 1996, had a market value of $79.2 million. The
Company recognized an after-tax gain of $32.6 million on this transaction. In
December 1996, Cardinal's common stock split 3 for 2 and, as of December 31,
1996, the Company owned 1,449,000 shares which had an aggregate market value of
$84.4 million based upon the closing price of $58.25 per share on that date.
Accordingly, the Company recognized market appreciation of $5.2 million on the
Cardinal shares in the first quarter of fiscal 1997. The Company sold its
Cardinal shares in January 1997 for $88.4 million and recognized an additional
pretax gain of $4 million.
Revenues and operating loss from discontinued operations were $3.3 million and
$.2 million, respectively, as compared to revenues and operating income of $20.1
million and $3.6 million, respectively, in the prior year period. Estimated
operating results from discontinued operations through the expected date of
disposal were included in the estimated loss on disposal recognized in fiscal
1996.
As a result of the refinancing and repurchases of the Company's 7.25% and 7.50%
debentures, the Company recognized an extraordinary charge of $13.3 million
($6.9 million net of taxes) resulting primarily from the write-off of related
deferred charges and premiums incurred related principally to the tender offer
to purchase the $100 million 11 1/8% Senior Secured Notes due 1999.
The current period reflects several significant non-recurring transactions as
discussed above. In addition, the Company refinanced a significant portion of
its debt and reduced its average borrowing rate. The following table provides a
proforma analysis of the Company's results of operations as if the Company: (a)
had not repurchased the MEDIQ/PRN warrants, (b) applied the proceeds from the
sales of its investments in discontinued operations in the first quarter of
fiscal 1997 to its outstanding debt as of October 1, 1996 and (c) tax effected
the adjustments described in (a) and (b).
16
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
March 31, 1997 Proforma March 31, 1997
Actual Adjustments Proforma
---------------- ----------- ----------------
<S> <C> <C> <C>
Revenues $ 78,049 $ 78,049
Operating Income 16,727 16,727
Other (Charges) Credits:
Interest expense (11,922) 3,276 (b) (8,646)
Equity participation - repurchase of
MEDIQ/PRN warrants (11,047) 11,047 (a) --
Gain on sale of Cardinal Health
stock 9,213 (9,213) (b) --
Gain on NutraMax note receivable 1,195 (1,195) (b) --
Other - net 1,144 1,144
-------- --------
Income from Continuing Operations before
Income Taxes and Extraordinary Item 5,310 9,225
Income Tax Expense 6,444 (2,228) (c) 4,216
-------- --------
Net Income (Loss) from
Continuing Operations $ (1,134) $ 5,009
======== ========
Per Share Data:
Net Income (Loss) from
Continuing Operations $ (.05) $ .20
======== ========
</TABLE>
Liquidity and Capital Resources
Cash used in operating activities was $10.5 million in the six months ended
March 31, 1997, as compared to cash provided by operations of $7.5 million in
the prior year period. The decrease in cash flows from operating activities in
the current period was primarily attributable to an increase in accounts
receivable associated with the Company's revenue growth, higher inventories to
support the increase in the Company's sales activities, and the payment of
income taxes.
Net cash provided by investing activities was $97.8 million, and consisted of
cash proceeds from the sales of the Company's investments in NutraMax and
Cardinal stock and certain assets of Mobile X-Ray aggregating $120.8 million,
partially offset by capital expenditures for equipment of $8.0 million and the
repurchase of the MEDIQ/PRN warrants for $12.5 million.
Net cash used in financing activities consisted of debt repayments of $293.1
million related to the refinancing, subordinated debenture repurchases and debt
service and deferred financing fees of $8.7 million related to the refinancing.
These cash disbursements were partially offset by borrowings of $214 million.
On October 1, 1996, the Company, together with MEDIQ/PRN, entered into a $260
million Credit Agreement with a group of lenders (the "Credit Agreement"). The
Credit Agreement provided for four separate loans, a Term A loan ($35 million),
a Term B loan ($100 million), an Acquisition Revolver ($100 million) and a
Working Capital Revolver ($25 million). The amounts available under the Credit
Agreement provided the funds for the Company to refinance substantially all of
its existing senior debt, its outstanding lines of credit, all of MEDIQ/PRN's
subordinated debt and $100 million 11 1/8% Senior Secured Notes (the
"Refinancing"). On January 24, 1997, the Company executed an amendment to the
Credit Agreement to increase the Term B loan by $45 million and the Working
Capital Revolver by $5 million. The additional funds are available at the time
of consummation of the acquisition of Universal Health Services, Inc.
("Universal") (Note G). Substantially all of the cash proceeds from the sale of
NutraMax stock, Mobile X-Ray assets and Cardinal stock were used to reduce
borrowings under the Credit Agreement. As of March 31, 1997, the Company had
17
<PAGE>
$100 million available under the Acquisition Revolver and $19.5 million
available under the Working Capital Revolver both of which were available to the
Company upon continued compliance with certain financial covenants and/or
ratios.
Borrowings under the Credit Agreement bear interest at either the prime rate
plus a factor or at a Eurodollar rate plus a factor. The factor may change
quarterly based upon the Company's leverage ratio. As of March 31, 1997 the
Company's interest rate on the Term A loan, the Acquisition Revolver and the
Working Capital Revolver is prime (8.50% at March 31, 1997) plus 1.25% or
Eurodollar (5.60% at March 31, 1997) plus 2.75% and the interest rate on the
Term B loan is prime plus 1.75% or Eurodollar plus 3.25%. The loans are
collateralized by substantially all of the assets of the Company. On May 1,
1997, the Company elected a six month Eurodollar rate of 6.06% for $30 million
of the Term A loan and $99 million of the Term B loan. In May 1997, as a result
of an improvement in the Company's leverage ratio, the Company's factors on the
Term A loan, the Acquisition Revolver and the Working Capital Revolver will
change to 0.5% for prime and 2.00% for Eurodollar. The factor on the Term B loan
will change to 1.25% for prime and 2.75% for Eurodollar.
In accordance with the terms of the Credit Agreement, effective November 15,
1996, the Company entered into interest rate hedge transactions which terminate
in January 2000. Under one of these transactions, on $50 million of borrowings,
the Company's base Eurodollar borrowing rate is fixed at 6.26% per annum,
instead of a floating Eurodollar rate. Under the second hedge transaction, on an
additional $50 million of borrowings, the Company's base Eurodollar rate cannot
be lower than 5.25% or greater than 7.43%.
During fiscal 1997, the Company repurchased an aggregate of $21.9 million of the
7.50% debentures at a discount in the open market. The Company recognized an
extraordinary gain in connection with the repurchase of the 7.50% debentures and
write-offs of related deferred charges in the amount of $51,000, net of taxes
through March 31, 1997. The Company has borrowed on its new credit facility to
redeem or repurchase a portion of the 7.50% exchangeable subordinated
debentures. However, except to the extent required by the terms of the indenture
pursuant to which this debenture was issued, there can be no assurance that any
additional redemption or repurchase will occur.
During fiscal 1997, the Company repurchased or redeemed $23 million of the 7.25%
debentures. The Company recognized an extraordinary loss in connection with the
repurchase of the 7.25% debentures and write-offs of deferred related charges in
the amount of $.2 million. The Company funded the repurchase/redemption with
proceeds from its Credit Agreement. The remaining balance of $6.2 million of the
7.25% debentures were converted into 833,446 shares of the Company's common
stock.
On February 11, 1997, the Company entered into a definitive agreement with
Universal to acquire the outstanding shares of Universal for $17.50 per share.
Including the assumption of debt, the total purchase price is approximately $138
million. Universal provides movable medical equipment to over 3,300 hospitals
and alternate care providers. In addition, Universal sells disposable supplies
related to the equipment it rents. Universal operates in 46 states in five
primary categories - critical care, monitoring, newborn care, respiratory care
and specialty beds. On April 4, 1997, the shareholders of Universal approved the
acquisition subject to Hart-Scott-Rodino approval. On April 10, 1997, the
Company and Universal received a request for additional information from the
Federal Trade Commission ("FTC") in connection with the Company's
Hart-Scott-Rodino filing. This "second request" extends the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, during which the FTC
is permitted to review the transaction. The waiting period will expire on the
twentieth calendar day after the FTC has determined that the companies have
substantially complied with the FTC's request. The transaction is structured as
a cash merger and is anticipated to be funded with available funds and proceeds
from the existing Credit Agreement.
18
<PAGE>
The Company expects that its primary sources of liquidity for operating
activities will be generated through cash flows from MEDIQ/PRN. Proceeds from
the sale of discontinued operations and miscellaneous assets will be used to
repay long-term debt. The Company believes that sufficient funds will be
available from operating cash flows, the sale of assets and its credit facility
to meet the Company's anticipated operating and capital requirements.
19
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended 31, 1997
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The 1997 Annual Meeting of Stockholders of the Company was held on March 5,
1997. Stockholders of the Company elected the Board of Directors. No broker
non-votes were recorded. The following is a presentation of the voting results
from the March 5, 1997 Annual Stockholders' Meeting:
Nominee For Withheld
------- --- --------
Michael J. Rotko 51,164,528 213,699
Jacob A. Shipon 15,382,023 120,444
Thomas E. Carroll 51,170,806 207,421
Michael F. Sandler 51,179,758 92,449
Sheldon M. Bonovitz 15,013,764 488,703
Mark S. Levitan 15,466,195 36,272
H. Scott Miller 15,456,675 45,702
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 4.1(b) - Amendment to Credit Agreement, dated April 1, 1997.
Exhibit 11 - Computation of Net Income Per Share.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed the following report on Form 8-K during the quarter
ended March 31, 1997:
Date of Earliest Event Requiring Report: December 31, 1996
Date of Filing: February 4, 1997
Items Reported: Items 2, 5 and 7
Subject: Sale of Cardinal Health, Inc. common stock in
January 1997 and consummation of previously
announced sale of Company's investment in
NutraMax Products, Inc. on December 31, 1996.
20
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
Quarter Ended March 31, 1997
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)
May 8, 1997
(Date)
/s/ Michael F. Sandler
-----------------------------------
Michael F. Sandler
Senior Vice President -- Finance
and Chief Financial Officer
21
EXHIBIT 4.1 (b)
AMENDMENT NO. 2 AND WAIVER TO THE
CREDIT AGREEMENT
Dated as of April 1, 1997
AMENDMENT NO. 2 AND WAIVER TO THE CREDIT AGREEMENT, among MEDIQ/PRN LIFE SUPPORT
SERVICES, INC., a Delaware corporation (the "Borrower"), MEDIQ INCORPORATED, a
Delaware corporation ("MEDIQ"), PRN HOLDINGS, INC., a Delaware corporation
(together with MEDIQ, the "Parent Guarantors"), the banks, financial
institutions and other institutional lenders parties to the Credit Agreement
referred to below (collectively, the "Lenders") and Banque Nationale de Paris as
administrative agent (the "Administrative Agent") for the Lenders and
NationsBank N.A., as documentation agent (the "Documentation Agent").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Parent Guarantors, the Lenders, the Administrative Agent
and the Documentation Agent have entered into a Credit Agreement dated as of
October 1, 1996, as amended by Amendment No. 1 dated as of January 24, 1997 (as
so amended, the "Credit Agreement"). Capitalized terms not otherwise defined in
this Amendment and Waiver have the same meanings as specified in the Credit
Agreement.
(2) The Borrower seeks to acquire (the "UHS Acquisition") Universal Hospital
Services, Inc., a Minnesota corporation ("UHS") and has requested that the
Required Lenders amend and waive certain provisions of the Credit Agreement in
order to permit the Borrower to acquire UHS for a purchase price greater than
$140,000,000 and incur certain one time extraordinary charges associated with
the acquisition and the operations of UHS.
(3) The Required Lenders are, on the terms and conditions stated below, willing
to grant the request of the Borrower and the Borrower and such Lenders have
agreed to amend and waive the Credit Agreement as hereinafter set forth.
<PAGE>
SECTION 1. Amendments to the Credit Agreement. Section 1.01 of the Credit
Agreement is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 3(a) hereof, hereby amended as
follows:
(1) The definition of "EBITDA" is amended by deleting clause (g) thereof in its
entirety and substituting therefor the following:
"(g) all one-time expenses of the Borrower and its Affiliates incurred
in connection with the UHS Acquisition for (i) acquisition
expenses, lease related expenses, facility closure expenses and
professional and other fees, and (ii) the write-down of UHS's
Demand Positive Airway Pressure Devices inventory.
SECTION 2. Waiver. The provisions of Section 5.02(f)(i)(4) are hereby waived
solely to the extent that such section limits the aggregate amount of
Investments outstanding after giving effect to the UHS Acquisition to
$140,000,000.
SECTION 3. Conditions of Effectiveness. This Amendment and Waiver shall become
effective as of the date first above written when, and only when, the
Administrative Agent shall have received counterparts of this Amendment and
Waiver executed by the Borrower and the Required Lenders, or, as to any of the
Lenders, advice satisfactory to the Administrative Agent that such Lender has
executed this Amendment and Waiver. The effectiveness of this Amendment and
Waiver is conditioned upon the accuracy of the factual matters described herein.
This Amendment and Waiver is subject to the provisions of Section 9.01 of the
Credit Agreement.
SECTION 4. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction indicated in the recital of the
parties to this Amendment and Waiver.
(b) The execution, delivery and performance by each Loan Party of this
Amendment and Waiver and the Loan Documents, as amended hereby, to which it
is or is to be a party, and the consummation of the transactions
contemplated hereby, are within such Loan Party's corporate powers, have
been duly authorized by all necessary corporate action and do not (i)
contravene each such Loan Party's charter or by-laws, (ii) violate any law
(including, without limitation, the Securities Exchange Act of 1934, as
amended, and the Racketeer Influenced and Corrupt Organizations Chapter of
the Organized Crime Control Act of 1970), rule or regulation (including,
without limitation, Regulation X of the Board of Governors of the Federal
Reserve System), or any order, writ, judgment, injunction, decree,
determination or award, binding on or affecting any Loan Party or any of
its Subsidiaries or any of their properties, (iii) conflict with or result
in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting any Loan Party, any of their Subsidiaries or any of
their properties or (iv) except for the Liens created under the Collateral
Documents, as amended hereby, or any amendments or supplements thereto
contemplated hereby, result in or require the creation or imposition of any
Lien upon or with respect to any of the properties of any Loan Party or any
of its Subsidiaries.
(c) No authorization or approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery, recordation, filing or
performance by any Loan Party of this Amendment and Waiver, any of the
Collateral Documents or any amendments or supplements thereto contemplated
hereby to which each such Loan Party is or is to be a party, or any of the
Loan Documents, as amended hereby, to which it is or is to be a party.
<PAGE>
(d) This Amendment and Waiver and each of the Collateral Documents and
amendments and supplements thereto contemplated hereby to which each Loan
Party is a party have been duly executed and delivered by each such Loan
Party. This Amendment and Waiver and each of the other Loan Documents, as
amended hereby, to which each Loan Party is a party are, and each of the
other Collateral Documents and amendments and supplements thereto
contemplated hereby to which each such Loan Party is or is to be a party,
when delivered hereunder, will be, legal, valid and binding obligations of
each such Loan Party, enforceable against each such Loan Party in
accordance with their respective terms.
(e) There is no action, suit, investigation, litigation or proceeding affecting
any Loan Party or any of their Subsidiaries (including, without limitation,
any Environmental Action) pending or threatened before any court,
governmental agency or arbitrator that (i) would be reasonably likely to
have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Amendment and Waiver, the Collateral
Documents, any amendments or supplements thereto contemplated hereby or any
of the other Loan Documents, as amended hereby, or the consummation of any
of the transactions contemplated hereby.
SECTION 5. Reference to and Effect on the Loan Documents. (a) On and after the
effectiveness of this Amendment and Waiver, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment and Waiver.
(b) The Credit Agreement, the Notes and each of the other Loan Documents, as
specifically amended by this Amendment and Waiver, are and shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed.
Without limiting the generality of the foregoing, the Collateral Documents and
all of the Collateral described therein do and shall continue to secure the
payment of all Obligations of the Loan Parties under the Loan Documents, in each
case as amended by this Amendment and Waiver.
(c) The execution, delivery and effectiveness of this Amendment and Waiver shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
SECTION 6. Costs, Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Agent in connection with the preparation, execution, delivery
and administration, modification and amendment of this Amendment and Waiver, and
the other instruments and documents to be delivered hereunder (including,
without limitation, the reasonable fees and expenses of counsel for the Agent)
in accordance with the terms of Section 9.04 of the Credit Agreement.
SECTION 7. Execution in Counterparts. This Amendment and Waiver may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment and
Waiver by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment and Waiver.
SECTION 8. Governing Law. This Amendment and Waiver shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
MEDIQ/PRN LIFE SUPPORT
SERVICES, INC.
By /s/ Jay M. Kaplan
---------------------------------
Title: Sr. Vice-President
BANQUE NATIONALE DE PARIS,
as Administrative Agent and as Lender
By /s/ Allan Mustacchi
---------------------------------
Title: Vice-President
By /s/ Stephen Kovacs
---------------------------------
Title: Vice-President
NATIONSBANK, N.A.,
as Documentation Agent and as Lender
By /s/ Michael S. Sylvester
---------------------------------
Title: Officer
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Kimberly Harris
---------------------------------
Title: Vice-President
CAISSE NATIONALE DE CREDIT AGRICOLE
By /s/ Craig Welsh
---------------------------------
Title: First Vice-President
CREDITANSTALT CORPORATE FINANCE, INC.
By /s/ Clifford L. Wells
---------------------------------
Title: Vice-President
By /s/ Stacy Harmon
---------------------------------
Title: Senior Associate
<PAGE>
FIRST SOURCE FINANCIAL, LLP
By: First Source Financial , Inc.
as Agent/Manager
By /s/ James W. Wilson
---------------------------------
Title: Senior Vice-President
METROPOLITAN LIFE INSURANCE COMPANY
By /s/ James R. Dughi
---------------------------------
Title: Assistant Vice-President
LASALLE NATIONAL BANK
By /s/ Olga Georgien
---------------------------------
Title: First Vice-President
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By /s/ Michael P. Hermsen
---------------------------------
Title: Managing Director
MELLON BANK, N.A.
By
---------------------------------
Title:
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By
---------------------------------
Title:
PILGRIM AMERICA PRIME RATE TRUST
By /s/ Michael J. Bacevich
---------------------------------
Title: Vice-President
<PAGE>
SUMMIT BANK
By /s/ Gail S. Powers
---------------------------------
Title: Vice-President
USTRUST
By /s/ Thomas Z. Macina
---------------------------------
Title: Vice-President
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By /s/ Kathleen A. Zarn
---------------------------------
Title: Vice-President
RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS B.V.
By its Managing Director, ABN TRUST
COMPANY (NEDERLAND) B.V.
By /s/ Christopher E. Jansen
---------------------------------
Title: Managing Director
By
---------------------------------
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By
---------------------------------
Title:
SENIOR DEBT PORTFOLIO
By Boston Management and Research, as
Investment Advisor
By
---------------------------------
Title:
CERES FINANCE LTD.
By /s/ John H. Cullinane
---------------------------------
Title: Director
<PAGE>
CAPTIVA FINANCE LTD.
By /s/ John H. Cullinane
---------------------------------
Title: Director
AMARA-1 FINANCE LTD.
By
---------------------------------
Title:
AMARA-2 FINANCE LTD.
By
---------------------------------
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By Merrill Lynch Asset Management,
L.P., as Investment Advisor
By
---------------------------------
Title:
<PAGE>
CONSENT
Dated as of April 1, 1997
Reference is made to Amendment No. 2 and Waiver dated as of April 1, 1997 (the
"Amendment and Waiver"), to the Credit Agreement dated as of October 1, 1996, as
amended by amendment No. 1 dated as of January 24, 1997 (as so amended, the
"Credit Agreement"; unless otherwise defined herein, capitalized terms being
used herein as therein defined) among MEDIQ/PRN Life Support Services, Inc., a
Delaware corporation, as Borrower, PRN Holdings, Inc. a Delaware corporation and
MEDIQ Incorporated, as Parent Guarantors, Banque Nationale de Paris, as
Administrative Agent, and certain other Lender Parties party thereto.
Each of the undersigned, as a Loan Party party to certain of the Loan Documents,
hereby consents to the Amendment and Waiver and hereby confirms and agrees that
(a) notwithstanding the effectiveness of such Amendment and Waiver, each Loan
Document to which it is a party is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects, except that, on and
after the effectiveness of such Amendment and Waiver, each reference in such
Loan Document to the "Credit Agreement", "thereunder", "thereof" or words of
like import shall mean and be a reference to the Credit Agreement, as amended by
such Amendment and Waiver, and (b) the Collateral Documents to which such Loan
Party is a party and all of the Collateral described therein do, and shall
continue to, secure the payment of all of the Secured Obligations (in each case,
as defined therein).
MEDIQ INVESTMENT SERVICES, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Vice-President & CFO
MEDIQ MANAGEMENT SERVICES, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Chief Financial Officer
MEDIQ SURGICAL EQUIPMENT
SERVICES, INC.
By /s/ Thomas E. Carroll
---------------------------------
Name: Thomas E. Carroll
Title: President
VALUE-MED PRODUCTS, INC.
By /s/ Thomas E. Carroll
---------------------------------
Name: Thomas E. Carroll
Title: President
<PAGE>
MEDIQ MOBILE X-RAY SERVICES, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Chief Financial Officer
HEALTH EXAMINETICS, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Vice-President
THERA-KINETICS ACQUISITION
CORPORATION
By /s/ Thomas E. Carroll
---------------------------------
Name: Thomas E. Carroll
Title: President
MDTC HADDON, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Chief Financial Officer
MEDIQ DIAGNOSTIC CENTERS, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Chief Financial Officer
MEDIQ DIAGNOSTICS CENTERS-I INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Chief Financial Officer
MEDIQ IMAGING SERVICES, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Vice-President & CFO
AMERICAN CARDIOVASCULAR IMAGING
LABS, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Chief Financial Officer
<PAGE>
ALPHA HEALTH CONSULTANTS, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Chief Financial Officer
P. I. CORPORATION
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Vice-President & CFO
MEDIQ SERVICES, INC.
By /s/ Michael F. Sandler
---------------------------------
Name: Michael F. Sandler
Title: Chief Financial Officer
EXHIBIT 11
MEDIQ INCORPORATED AND SUBSIDIARIES
Computation of Net Income Per Share
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computation of Primary Earnings Per Share:
- ------------------------------------------
Net Income $ 5,829 $ 2,815 $ 29,115 $ 2,448
======== ======== ======== =======
Weighted average of primary shares:
Common stock 18,742 18,275 18,621 18,064
Preferred stock 6,300 6,351 6,301 6,362
Assumed conversion of options 697 219 579 287
----- -------- -------- -------
Total 25,739 24,845 25,501 24,713
======== ======== ======== =======
Primary Earnings Per Share $ .23 $ .11 $ 1.14 $ .10
======== ======== ======== =======
Computation of Fully Diluted Earnings Per Share (1)
Net Income $ 5,829 $ 2,815 $ 29,115 $ 2,448
Interest and amortization of deferred costs on
debentures - net of tax -- 456 -- 911
-------- -------- -------- -------
Total $ 5,829 $ 3,271 $ 29,115 $ 3,359
======== ======== ======== =======
Weighted average of fully diluted shares:
Common stock 18,742 18,275 18,621 18,064
Preferred stock 6,300 6,351 6,301 6,363
Assumed conversion of options 765 351 648 353
Assumed conversion of convertible -- 5,397 -- 5,397
debentures
-------- -------- -------- -------
Total 25,807 30,374 25,570 30,177
======== ======== ======== =======
Fully Diluted Earnings Per Share $ .23 $ .11 $ 1.14 $ .11
======== ======== ======== =======
</TABLE>
(1) This calculation is provided in accordance with Regulation S-K, Item
601(b)(II) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15, because it is anti-dilutive on results in dilution of less
than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
MEDIQ INCORPORATED AND SUBSIDIARIES
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,939
<SECURITIES> 0
<RECEIVABLES> 42,646
<ALLOWANCES> 2,809
<INVENTORY> 11,328
<CURRENT-ASSETS> 62,567
<PP&E> 238,395
<DEPRECIATION> 121,063
<TOTAL-ASSETS> 276,763
<CURRENT-LIABILITIES> 43,924
<BONDS> 147,968
0
3,337
<COMMON> 20,039
<OTHER-SE> 29,707
<TOTAL-LIABILITY-AND-EQUITY> 276,763
<SALES> 9,459
<TOTAL-REVENUES> 68,590
<CGS> 7,754
<TOTAL-COSTS> 53,568
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,922
<INCOME-PRETAX> 5,310
<INCOME-TAX> 6,444
<INCOME-CONTINUING> (1,134)
<DISCONTINUED> 37,175
<EXTRAORDINARY> (6,926)
<CHANGES> 0
<NET-INCOME> 29,115
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
