-----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, AxJiD1MJql6g/jz9V3LIpwDJ9fhPC7dXonIMYafvioaLXvo8DHPjskrzYZQ8Wv0F rdPs5qRNGtgV7Hv6t95h2A== 0000950115-98-001028.txt : 19980525 0000950115-98-001028.hdr.sgml : 19980525 ACCESSION NUMBER: 0000950115-98-001028 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980520 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980521 SROS: NONE 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: 98629295 BUSINESS ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 BUSINESS PHONE: 6096656300 MAIL ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 8-K/A 1 CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------- FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report - April 24, 1998 (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 (I.R.S. Employer incorporation or organization) file number) Identification No.) One MEDIQ Plaza, Pennsauken, New Jersey 08110 -------------------------------------------------- (Address of principal executive offices, zip code) Area Code (609) 662-3200 ------------------------ (Telephone number) Item 5. Other Events. MEDIQ Incorporated (the "Company"), through its wholly-owned subsidiary, MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN") entered into an Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as of April 24, 1998, with CH Industries, Inc. ("CHI"), certain direct and indirect subsidiaries of CHI and certain other parties, including CH Medical, Inc. and subsidiaries ("CH Medical"), (collectively, the "Sellers") to purchase certain of the assets and rights of the Sellers (the "CH Medical Business") including, but not limited to, accounts receivable, inventory, rental equipment and other tangible property, intellectual property rights, key records (including customer lists, customer files, supplier information) and certain contract rights (the "CHI Acquisition") for a purchase price of approximately $50.0 million in cash, including related costs and expenses, and the assumption of certain specified obligations related to the acquired assets. CHI is a Texas-based corporation which has specialized in the development of various medical products utilized in patient care treatment and therapy for over thirty years. In addition to its development of medical products, CHI is a national sales, rental and service corporation specializing in patient beds, overlays, mattress replacement systems, pressure relieving pads and surfaces and other therapeutic support surfaces with approximately 75 business locations nationwide. CHI has, among other things, developed technology used in the manufacture of beds and frameless systems for hospitals, extended care facilities and homes to effectively treat the severe conditions and complications inherent to patients who are bed confined. CHI offers a complete line of portable pressure relieving products to provide hospitals and extended care facilities with an array of bed therapies in a cost effective manner. The assets acquired under the Asset Purchase Agreement involve only the Sellers' assets related to the manufacture, sale and rental of beds and other support surfaces and do not include the Sellers' other fabrication businesses. The obligations of MEDIQ/PRN under the Asset Purchase Agreement are conditioned upon receipt of all statutory and regulatory consents and approvals under the laws or regulations of the United States necessary to permit the consummation of the acquisition and necessary to own and operate the acquired assets, including approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). Accordingly, on April 2, 1998, MEDIQ/PRN and the Sellers each filed a notification report together with requests for early termination of the waiting period under the HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division in respect of the transaction and on April 13, 1998, the FTC and the Antitrust Division granted early termination of the waiting period under the HRS Act in respect of the transaction. In addition to approval under the HSR Act, the obligations of MEDIQ/PRN under the Asset Purchase Agreement are also subject to, among other things, the fulfillment or waiver of the following conditions: (a) The representations and warranties made by the Sellers and qualified by the words "material" or "material adverse effect" or like words shall be true and correct, and the representations and warranties not so qualified shall be true in all material respects as of the closing. 2 (b) The Sellers shall have performed and complied with all covenants, agreements, and conditions required by the Asset Purchase Agreement to be performed or complied with by them prior to or at the closing. (c) The consents necessary or advisable to transfer the acquired assets and for MEDIQ/PRN to operate the business from and after the closing shall have been secured in a form reasonably satisfactory to MEDIQ/PRN. (d) There shall not have been any material adverse effect in respect of the acquired assets or the acquired business prior to the closing. (e) All of the liens and other encumbrances (excluding certain permitted exceptions) outstanding on any of the acquired assets shall have been terminated and released prior to or at the closing. (f) There shall not be any order of any court or administrative agency in effect which restrains or prohibits the transactions contemplated by the Asset Purchase Agreement or which would materially limit or adversely affect MEDIQ/PRN's ownership or control of any of the acquired assets or the acquired businesses, and there shall not have been threatened, nor shall there be pending, any action or proceeding by or before any court or governmental agency or other regulatory or administrative agency or commission, (i) challenging any of the transactions contemplated by the Asset Purchase Agreement or seeking monetary relief by reason of the consummation of such transactions or (ii) which might have a material adverse effect on the acquired assets or on the business, prospects or condition (financial or otherwise) of the Sellers. (g) MEDIQ/PRN shall have completed arrangements for the financing of the purchase of the acquired assets on terms and conditions to MEDIQ/PRN's sole satisfaction and it shall have received the proceeds thereof. All obligations of the Sellers under the Asset Purchase Agreement are subject to, among other things, the fulfillment or waiver prior to or at the closing, of the following conditions. (a) The representations and warranties made by MEDIQ/PRN in the Asset Purchase Agreement and qualified by the words "material" or "material adverse effect" or like words shall be true and correct, and the representations and warranties not so qualified shall be true in all material respects as of the closing. (b) MEDIQ/PRN shall have performed and complied with all covenants, agreements and conditions required by the Asset Purchase Agreement to be performed or complied with by it prior to or at the closing. 3 In addition to the foregoing, the Asset Purchase Agreement contains certain covenants by the Sellers including, but not limited to, conduct of the business prior to the effective time; corporate name changes after the effective time; cooperation; obtaining of necessary consents; confidential information; no solicitation of alternative transactions; non-competition provisions; delivery of interim financial statements; access to the Sellers' books and records; and termination of certain agreements. The Asset Purchase Agreement also contains covenants made by MEDIQ/PRN, including, but not limited to, cooperation and employee hiring and other employee related matters. Provided all of the conditions to the closing have been satisfied or waived, it is anticipated that the closing of the CHI Acquisition will take place on a date which is the earlier of (i) 8 days after the closing of the Merger by and among a Company organized by Bruckmann, Rosser, Sherrill & Co., L.P. and MEDIQ Incorporated (the "Merger"), or; (ii) the fiftieth day after the Registration Statement on Form S-4 relating to the Merger has been declared effective. The consummation of the Merger is not conditioned upon the closing of the CHI Acquisition, and the CHI Acquisition is not conditioned upon the consummation of the Merger. There can be no assurance that the Company will ultimately consummate the CHI Acquisition or that, if consummated, the terms of the CHI Acquisition will be described herein. The Company presently expects to finance the purchase price of the CHI Acquisition with $50.0 million of Term Loans under a new credit facility to be entered into as a result of the Merger. The Company has recently received the CH Medical, Inc. unaudited interim financial statements as of and for the six month period ended February 28, 1998 and is filing these financial statements herewith. In addition, the Company has also included in this report, a Pro Forma Statement of Operations for the six months ended March 31, 1998 and fiscal year ended September 30, 1997, and a Pro Forma Balance Sheet as of March 31, 1998 prepared on the basis set forth therein. RECENT DEVELOPMENTS -- STANDARD & POOR'S RATINGS SERVICES In connection with financing the Merger, the Company currently expects to issue $75.0 million (gross proceeds) of Senior Discount Debentures due 2009 (the "Debentures") and MEDIQ/PRN currently expects to issue $240.0 million aggregate principal amount of Senior Subordinated Notes due 2008 (the "Notes"). On May 15, 1998, Standard & Poor's Ratings Services ("Standard & Poor's") assigned its rating of "B-" to the Company's proposed Debentures and its "CCC+" rating to the Company's proposed $78.2 million Series A 13% Cumulative Compounding Preferred Stock. At the same time, Standard & Poor's assigned its "B-" rating to MEDIQ/PRN's proposed Notes and its "B+" rating to MEDIQ/PRN's proposed $275.0 million senior secured bank facility (the "bank facility"), such bank facility to be secured by substantially all of the assets of MEDIQ/PRN and its subsidiaries. Also, Standard & Poor's affirmed its "B+" corporate credit ratings on the Company and MEDIQ/PRN and its "B+" bank loan rating on MEDIQ/PRN and removed these ratings from CreditWatch, where they were placed January 20, 1998 following announcement of the Merger. Standard & Poor's rating outlook is now negative. On May 18, 1998, Moody's Investors Service ("Moody's") assigned its "B1" rating to MEDIQ/PRN's bank facility, assigned its "B3" rating to MEDIQ/PRN's proposed Notes and assigned its "Caa1" rating to the Company's Debentures. In addition, Moody's lowered its rating on the Company's 7.5% Exchangeable Subordinated Debentures due 2003 to "Caa1" from "B3". Moody's rating outlook is stable. 4 Item 7. Financial Statements and Exhibits. Page ---- (b) Pro Forma Financial Information: Unaudited Proforma Statement of Operations for the Year ended September 30, 1997. 9 Unaudited Proforma Statement of Operations for the Six Months ended March 31, 1998 and 1997. 11 Unaudited Proforma Balance Sheet as of March 31, 1998. 21 (c) Exhibits. Exhibit 2 - Asset Purchase Agreement.(a) Exhibit 23 - Consent of BDO Seidman, LLP Independent Certified Public Accountants.(a) Exhibit 99.1 Press Release dated April 27, 1998.(a) Exhibit 99.2 - Audited Financial Statements of CH Medical, Inc. and Subsidiaries.(a) Statements of Income for the three years ended August 31, 1997. Statements of Net Assets as of August 31, 1997 and 1996. Statements of Cash Flows for the three years ended August 31, 1997. Exhibit 99.3 - Unaudited Financial Statements of CH Medical, Inc. and Subsidiaries.(a) Statements of Income for the three months ended November 30, 1997 and 1996. Statements of Net Assets as of November 30, 1997 and 1996. Statements of Cash Flows for the three months ended November 30, 1997 and 1996. . Exhibit 99.4 - Unaudited Financial Statements of CH Medical, Inc. and Subsidiaries. Statements of Income for the six months ended February 28, 1998 and 1997. Statements of Net Assets as of February 28, 1998 Statements of Cash Flows for the six months ended February 28, 1998 and 1997. - ---------- (a) Previously filed with the Company's Current Report on Form 8-K on April 28, 1998. 5 Item 7(b). Pro Forma Financial Information The term "Holdings" refers to MEDIQ Incorporated, the term "the Company" refers to Holdings and all of its subsidiaries including MEDIQ/PRN on a consolidated basis, and all other capitalized terms used but not defined herein have the meanings ascribed to them in the Company's Registration Statement on Form S-4 (Reg. No. 333-46233) declared effective by the Securities and Exchange Commission on April 28, 1998 if not defined herein. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated financial statements (the "Pro Forma Financial Statements") are based on the historical consolidated financial statements of the Company, MEDIQ PRN/HNE, LLC ("SpectraCair") and CH Medical. SpectraCair was acquired on September 1, 1997 (the "SpectraCair Acquisition"), and, accordingly, the Company's historical consolidated statements of operations include the results of operations of SpectraCair beginning September 1, 1997 and the Company's historical balance sheet as of March 31, 1998 includes the assets and liabilities of SpectraCair. The Company has entered into a definitive agreement with respect to the CHI Acquisition and presently expects to consummate this transaction simultaneously with the Merger, subject to the satisfaction of certain conditions. The pro forma condensed consolidated statements of operations for the year ended September 30, 1997 and the six months ended March 31, 1997 give effect to the SpectraCair Acquisition, the Transactions and the CHI Acquisition as if they were consummated on October 1, 1996. The pro forma condensed consolidated statements of operations for the six months ended March 31, 1998 give effect to the Transactions and the CHI Acquisition as if they were consummated on October 1, 1996. The pro forma condensed consolidated balance sheet gives effect to the Transactions and the CHI Acquisition as if they were consummated on March 31, 1998. All the pro forma adjustments are described more fully in the accompanying notes. The CH Medical historical financial information reflected in the Pro Forma Financial Statements represents the accounts and operations of CH Medical with respect to the CH Medical Business. During the period covered by the CH Medical Financial Statements, the CH Medical Business was conducted as an integral part of CHI's overall operations, and separate financial statements were not prepared. The Company has been advised by CHI that the CH Medical Financial Statements were prepared from the historical accounting records of CHI and include various allocations for costs and expenses. 6 Therefore, the statements of operations of CH Medical may not be indicative of the results of operations that would have resulted if CH Medical had operated on a stand-alone basis. The Company has been advised by CHI that all of the allocations and estimates reflected in the CH Medical Financial Statements are based on assumptions that CHI management believes are reasonable under the circumstances. As a result of the SpectraCair Acquisition on September 1, 1997, the Company anticipates the elimination of duplicative costs for functional areas and the reduction of certain expenses as a result of expected synergies of $.4 million. In addition, SpectraCair recognized a change in its statement of operations for the eleven months ended August 31, 1997 of $.6 million related to the revenue generated in fiscal 1996 from its acquisition of the rental assets of Bio Clinic Corporation, a subsidiary of Sunrise Medical, Inc. ("Bio Clinic") on January 31, 1996. Management also expects that the CHI Acquisition will generate certain synergies and result in a lower cost structure for the combined entity. Certain anticipated cost savings for the closing of duplicate facilities and the elimination of personnel are reflected in the Pro Forma Financial Statements. Although management also anticipates that there will be additional cost savings from the CHI Acquisition in such areas as insurance, advertising and telephone costs, travel, meals and entertainment expenses and taxes other than income taxes, such additional cost savings are not reflected in the Pro Forma Financial Statements. Management estimates that such additional cost savings will approximate $1.8 million per year. However, there can be no assurance that the Company will be able to generate the expected cost savings in connection with the CHI Acquisition, or realize the anticipated cost reductions with respect to the SpectraCair Acquisition. For the pro forma last twelve months ended March 31, 1998, the Company would have reported EBITDA (as defined below) of $68.5 million and Adjusted EBITDA (as defined below) of $71.2 million. The pro forma last twelve months ended March 31, 1998 operating results were derived by adding the pro forma operating results for the fiscal year ended September 30, 1997 to the pro forma operating results for the six months ended March 31, 1998 and subtracting the pro forma operating results for the six months ended March 31, 1997. EBITDA is defined as income from continuing operations before interest, taxes, depreciation, amortization and non-recurring merger costs. The Company's definition of EBITDA includes non-recurring merger costs and accordingly, may not be comparable to other companies' EBITDA disclosures. EBITDA is presented because it is a widely accepted financial indicator of a company's ability to service indebtedness. However, EBITDA should not be considered as an alternative to income from operations or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of a company's operating performance or as a measure of liquidity. Adjusted EBITDA is defined as EBITDA for the Company plus (A) cost savings of approximately $0.2 million related to the elimination of duplicative costs for functional areas and the reduction of certain costs which the Company expects to realize in connection with the SpectraCair Acquisition, (B) SpectraCair's non-cash charge of $0.6 million related to revenue generated in fiscal 1996 from the acquisition of Bio Clinic rental assets SpectraCair recognized in its statement of operations for the eleven months ended August 31, 1997 and (C) annualized cost savings relating to the CHI Acquisition of approximately $1.9 million in such areas as insurance, advertising and telephone costs, travel, meals and entertainment expenses and taxes other than income taxes. The Pro Forma Financial Statements 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 such transactions been consummated on the date or for the periods indicated and do not purport to be indicative of the balance sheet data or results of operations as of any future date or for any future period. The pro forma adjustments were applied to the respective historical statements to reflect and account for the Merger as a recapitalization. Accordingly, the historical basis of the Company's assets and liabilities has not been affected by the Merger. The SpectraCair Acquisition was and the CHI Acquisition, if consummated, will be accounted for using the purchase method of accounting. The purchase method of accounting allocates the aggregate purchase price to the assets acquired and liabilities assumed based upon their respective fair values. The allocation of the aggregate purchase price for the CH Medical Business reflected in the Pro Forma Financial Statements is preliminary. The final allocation of the aggregate purchase price is contingent upon studies and valuations which have not yet been completed. Management is unable to predict whether any adjustments as a result of the foregoing will have a material effect on the Pro Forma Financial Statements. 7 MEDIQ INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Year Ended September 30, 1997 ------------------------------------------------------------------------------------ MEDIQ/PRN Pro Forma Pro Forma Adjustments Pro Forma for Historical for the Adjustments SpectraCair ---------------------------- SpectraCair for the and the MEDIQ/PRN SpectraCair Acquisition Transactions Transactions --------- ----------- ----------- ------------ ------------ Revenues: Rental ..................... $124,316 $9,647 $ -- $ -- $133,963 Sale of parts, disposables and equipment ............ 19,922 142 -- -- 20,064 Other ...................... 11,915 -- (1,475)(A) -- 10,440 -------- ------ ------ -------- -------- 156,153 9,789 (1,475) -- 164,467 Costs and Expenses: Cost of sales .............. 16,334 112 -- -- 16,446 Operating................... 46,138 2,638 (1,475)(A) -- 47,301 Selling..................... 13,353 2,804 -- -- 16,157 General and Administrative............ 18,049 1,545 -- 1,000(C) 20,594 Management fees- MEDIQ..................... 3,341 -- -- -- 3,341 Depreciation and amortization.............. 30,333 2,313 -- -- 32,646 -------- ------ ------ -------- -------- Operating Income............ 28,605 377 -- (1,000) 27,982 Other (Charges) Credits: Interest expense.................. (16,912) (499) -- (16,780)(D) (34,191) Interest income............. 985 -- -- -- 985 Other - net................. 6,989 -- 61(A) -- 7,050 -------- ------ ------ -------- -------- Income from Continuing Operations before Income Taxes.............. 19,667 (122) 61 (17,780) 1,826 Income Taxes................ 7,438 -- (24)(B) (7,112)(B) 302 -------- ------ ------ -------- -------- Income (Loss) from Continuing Operations................ $12,229 $ (122) $ 85 $(10,668) $ 1,524 ======== ====== ====== ======== ======== Year Ended September 30, 1997 ---------------------------------------------------------------------- Consolidated Consolidated Holdings Holdings Pro Forma Pro Forma for Holdings for Pro Forma SpectraCair, Pro Forma/ SpectraCair Adjustments the Consolidating and the for the CHI Transactions Adjustments(E) Transactions Acquisition(F) and CHI -------------- ------------ -------------- ------------ Revenues: Rental ..................... $ -- $133,963 $22,154 $156,117 Sale of parts, disposables and equipment ............ -- 20,064 4,556 24,620 Other ...................... (193) 10,247 -- 10,247 -------- -------- ------- -------- (193) 164,274 26,710 190,984 Costs and Expenses: Cost of sales .............. -- 16,446 1,355 17,801 Operating................... -- 47,301 8,268 55,569 Selling..................... -- 16,157 3,233 19,390 General and Administrative............ 2,223 22,817 6,208 29,025 Management fees- MEDIQ..................... (3,341) -- -- -- Depreciation and amortization.............. 26 32,672 3,588 36,260 -------- -------- ------- -------- Operating Income............ 899 28,881 4,058 32,939 Other (Charges) Credits: Interest expense.................. (9,922) (44,113) (4,297) (48,410) Interest income............. 1,084 2,069 -- 2,069 Other - net................. (16,562) (9,512) 193 (9,319) -------- -------- ------- -------- Income from Continuing Operations before Income Taxes.............. (24,501) (22,675) (46) (22,721) Income Taxes................ (5,395) (5,093) (18) (5,111) -------- -------- ------- -------- Income (Loss) from Continuing Operations................ $(19,106) $(17,582) $ (28) $(17,610) ======== ======== ======= ========
See Notes to Pro Forma Condensed Consolidated Statements of Operations 8 MEDIQ INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Six Months Ended March 31, 1997 -------------------------------------------------------------------------------------------- MEDIQ/PRN Pro Forma ProForma Adjustments Pro Forma for Holdings Historical for the Adjustments SpectraCair Pro Forma/ ------------------------ SpectraCair for the and the Consolidating MEDIQ/PRN SpectraCair Acquisition Transactions Transactions Adjustments(E) --------- ----------- ----------- ------------ ------------ -------------- Revenues: Rental ..................... $ 63,193 $ 5,885 $ -- $ -- $ 69,078 $ -- Sale of parts, disposables and equipment ........... 9,459 96 -- -- 9,555 -- Other ...................... 5,495 -- (854)(A) -- 4,641 (98) -------- -------- -------- -------- -------- -------- 78,147 5,981 (854) -- 83,274 (98) Costs and Expenses: Cost of sales .............. 7,759 76 -- -- 7,835 -- Operating .................. 22,228 1,242 (854)(A) -- 22,616 -- Selling .................... 6,570 1,632 -- -- 8,202 -- General and administrative . 8,802 946 -- 500(C) 10,248 1,232 Management fees-MEDIQ ...... 148 -- -- -- 148 (148) Depreciation and amortization ............ 14,715 1,463 -- -- 16,178 16 -------- -------- -------- -------- -------- -------- Operating Income .............. 17,925 622 -- (500) 18,047 (1,198) Other (Charges) Credits: Interest expense ........... (10,194) (295) -- (6,607)(D) (17,096) (4,960) Interest income ............ 519 -- -- -- 519 547 Other-net .................. 10,654 -- (163)(A) -- 10,491 (11,217) -------- -------- -------- -------- -------- -------- Income (Loss) from Continuing Operations before Income Taxes ........ 18,904 327 (163) (7,107) 11,961 (16,828) Income Taxes .................. 7,309 -- 65 (B) (2,843)(B) 4,531 (2,158) -------- -------- -------- -------- -------- -------- Income (Loss) from Continuing Operations ...... $ 11,595 $ 327 $ (228) $ (4,264) $ 7,430 $(14,670) ======== ======== ======== ======== ======== ======== Six Months Ended March 31, 1997 ------------------------------------------------------------ Consolidated Holdings Consolidated Pro Forma Holdings for Pro Forma Pro Forma for SpectraCair Adjustments SpectraCair, and the for the CHI the Transactions Transactions Acquisition(F) and CHI ------------ -------------- ---------------- Revenues Rental ..................... $ 69,078 $10,631 $79,709 Sale of parts, disposables and equipment ........... 9,555 1,692 11,247 Other ...................... 4,543 -- 4,543 -------- ------- ------- 83,176 12,323 95,499 Costs and Expenses: Cost of sales .............. 7,835 537 8,372 Operating .................. 22,616 4,472 27,088 Selling .................... 8,202 1,453 9,655 General and administrative . 11,480 2,746 14,226 Management fees-MEDIQ ...... -- -- -- Depreciation and amortization ............ 16,194 1,795 17,989 -------- ------- ------- Operating Income .............. 16,849 1,320 18,169 Other (Charges) Credits: Interest expense ........... (22,056) (2,148) (24,204) Interest income ............ 1,066 4 1,070 Other-net .................. (726) 382 (344) -------- ------- ------- Income (Loss) from Continuing Operations before Income Taxes ........ (4,867) (442) (5,309) Income Taxes .................. 2,373 (177) 2,196 -------- ------- ------- Income (Loss) from Continuing Operations ...... $ (7,240) $ (265) $(7,505) ======== ======= =======
See Notes to Pro Forma Condensed Consolidated Statements of Operations 9 MEDIQ INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Six Months Ended March 31, 1998 ------------------------------------------------------------------------------------- Consolidated Pro Forma MEDIQ/PRN Holdings Holdings Adjustments Pro Forma Pro Forma/ Pro Forma Historical for the for the Consolidating for the MEDIQ/PRN Transactions Transactions Adjustments(E) Transactions --------- ------------ ------------ -------------- ------------ Revenues: Rental .................................. $ 69,993 $ -- $ 69,993 $ -- $ 69,993 Sales of parts, disposables and equipment ............................ 13,979 -- 13,979 -- 13,979 Other ................................... 5,145 -- 5,145 (138) 5,007 -------- -------- -------- -------- -------- 89,117 -- 89,117 (138) 88,979 Cost and Expenses: Cost of sales ........................... 11,270 -- 11,270 -- 11,270 Operating ............................... 28,449 -- 28,449 -- 28,449 Selling ................................. 7,557 -- 7,557 -- 7,557 General and administrative .............. 9,486 500 (C) 9,986 (138) 9,848 Management fees-MEDIQ ................... 279 -- 279 (279) -- Nonrecurring-merger costs ............... 363 -- 363 -- 363 Depreciation and amortization ........... 16,586 -- 16,586 -- 16,586 -------- -------- -------- -------- -------- Operating Income ........................ 15,127 (500) 14,627 279 14,906 Other (Charges) Credits: Interest expense ........................ (6,739) (10,291)(D) (17,030) (5,478) (22,508) Interest income ......................... 475 -- 475 -- 475 Other-net ............................... 4 -- 4 -- 4 -------- -------- -------- -------- -------- Income (Loss) from Continuing Operations before Income Taxes ....... 8,867 (10,791) (1,924) (5,199) (7,123) Income Taxes ............................ 3,962 (4,316)(B) (354) (2,067) (2,421) -------- -------- -------- -------- -------- Income (Loss) from Continuing Operations ........................... $ 4,905 $ (6,475) $ (1,570) $ (3,132) $ (4,702) ======== ======== ======== ======== ======== Six Months Ended March 31, 1998 ------------------------------------ Consolidated Holdings Pro Forma Pro Forma Adjustments for the for the CHI Transactions Acquisition(F) and CHI -------------- ------------ Revenues: Rental .................................. $11,292 $ 81,285 Sales of parts, disposables and equipment ............................ 1,636 15,615 Other ................................... -- 5,007 ------- -------- 12,928 101,907 Cost and Expenses Cost of sales ........................... 294 11,564 Operating ............................... 4,642 33,091 Selling ................................. 1,475 9,032 General and administrative .............. 2,921 12,769 Management fees-MEDIQ ................... -- -- Nonrecurring-merger costs ............... -- 363 Depreciation and amortization ........... 1,795 18,381 ------- -------- Operating Income ........................ 1,801 16,707 Other (Charges) Credits: Interest expense ........................ (2,148) (24,656) Interest income ......................... 10 485 Other-net ............................... 189 193 ------- -------- Income (Loss) from Continuing Operations before Income Taxes ....... (148) (7,271) (59) (2,480) Income Taxes ............................ ------- -------- Income (Loss) from Continuing Operations ........................... $ (89) $ (4,791) ======= ========
See Notes to Pro Forma Condensed Consolidated Statements of Operations 10 Notes to Pro Forma Condensed Consolidated Statements of Operations (unaudited) (in thousands) (A) Reflects the elimination of transactions between MEDIQ/PRN and SpectraCair for logistical services, and the elimination of MEDIQ/PRN's portion of SpectraCair's historical income (loss), which was recognized on the equity method of accounting. (B) Reflects the effect on income tax expense of the historical income (loss) of SpectraCair and/or the pro forma adjustments described in the footnotes herein at an incremental effective tax rate of 40%. Prior to the SpectraCair Aquisition, SpectraCair was a limited liability company and, therefore, was not subject to income taxes. (C) For the year ended September 30, 1997, reflects a $1.0 million annual management fee pursuant to the Management Agreement. For the six months ended March 31, 1998 and 1997, reflects one half of such annual management fee. (D) Reflects the increased interest cost related to the New Credit Facility and the Notes, as follows:
Year Ended Six Months Six Months September 30, Ended March 31, Ended March 31, 1997 1997 1998 ------------- --------------- --------------- New Credit Facility: Revolving Credit Facility $ 280 $ 140 $ 140 Acquisition Loans ....... 375 188 188 Term Loans .............. 8,594 4,297 4,292 Notes ...................... 22,800 11,400 11,400 Amortization of financing fees/debt issue costs over the period of the related financing ............... 1,704 852 852 Existing borrowings to carry forward (capital leases) ........ 438 219 158 -------- -------- -------- 34,191 17,096 17,030 Historical interest costs: MEDIQ/PRN ............... (16,912) (10,194) (6,739) SpectraCair ............. (499) (295) -- -------- -------- -------- $ 16,780 $ 6,607 $ 10,291 ======== ======== ========
11 The Revolving Credit Facility is assumed to bear interest at an annual rate of LIBOR plus margins of 2.25% on amounts borrowed; bear interest at 2.25% for amounts reserved for letters of credit; and bear a fee of 0.5% for the undrawn portion of the unused commitments. Interest on the Revolving Credit Facility represents commitment fees on the undrawn portion of the commitments and the amount reserved for letters of credit. The Term Loans are assumed to bear interest at an annual rate of LIBOR plus 2.75%. The Company will pay a commitment fee of 0.5% per annum on the amount of unused commitments for Acquisition Loans. Interest on the Acquisition Loans represents commitment fees on $75.0 million of unused commitments. Under the Term Loan Facility (as defined), $100.0 million was assumed to be utilized to consummate the Transactions. If the CHI Acquisition is consummated, an additional $50.0 million of Term Loans are expected to be utilized to acquire the CH Medical Business (see footnote F). Should the CHI Acquisition not be consummated simultaneously with the Merger, the Company will pay a commitment fee of 0.5% per annum on $50.0 million of the unused commitments under the Term Loan Facility from the date of the Merger until such commitments expire and interest on the Term Loans noted above would increase by a corresponding amount. LIBOR is based on the Company's average LIBOR rate for fiscal 1997 of 5.84%. The Notes are assumed to bear interest at 9.5%. A 0.125% change in the interest rate on the above loans would increase or decrease annual interest expense and income (loss) from continuing operations by: Annual Loss from Interest Continuing Expense Operations ----------- ---------- New Credit Facility.......... $125 $ 75 Notes........................ $300 $180 A 0.125% change in the interest rate on the above loans would increase or decrease semi-annual interest expense and income (loss) from continuing operations by: Semi-Annual Loss from Interest Continuing Expense Operations ----------- ---------- New Credit Facility.......... $ 63 $ 38 Notes........................ $150 $ 90 Deferred financing fees on the New Credit Facility are allocated between the tranches based on each tranche's relative value to the total facility. Amortization periods for deferred financing fees related to the Revolving Credit Facility and the Acquisition Loans are six years and eight years for the Term Loans. Debt issue costs on the Notes are amortized over ten years. 12 (E) The following unaudited pro forma statements of operations have been based on the unaudited accounting records of Holdings for the year ended September 30, 1997 and the six months ended March 31, 1997 and 1998. No separate financial statements have been prepared for Holdings for any period. The pro forma statements of operations reflect the adjustments required to consolidate Holdings with MEDIQ/PRN and to reflect the SpectraCair Acquisition and/or the Transactions related solely to Holdings as if they had occurred on October 1, 1996. The pro forma statements of operations may not be indicative of the results of operations that actually would have been achieved had the SpectraCair Acquisition and/or the Transactions been consummated on October 1, 1996.
Year Ended September 30, 1997 ------------------------------------------------------------------ Holdings Pro Forma Consolidating Pro Forma/ Historical Adjustments Adjustments Consolidating ---------- ----------- ------------- ------------- Revenues: Other............................ $33 $ -- $(226)(iii) $ (193) Costs and Expenses: General and administrative....... 2,553 -- (330)(iii) 2,223 Management fees-MEDIQ............ (3,341) -- -- (3,341) Depreciation and amortizati...... 26 -- -- 26 -------- ------- ----- -------- Operating Income................... 795 -- 104 899 Other (Charges) Credits: Interest expense................. (2,195) (7,727)(i) -- (9,922) Interest income.................. 1,084 -- -- 1,084 Other-net........................ (16,562) -- -- (16,562) -------- ------- ----- ------- Loss from Continuing Operations before Income Taxes.............. (16,878) (7,727) 104 (24,501) Income Taxes....................... (1,981) (3,091)(ii) (323)(iii) (5,395) -------- ------- ----- -------- Income (Loss) from Continuing Operations....................... $(14,897) $(4,636) $ 427 $(19,106) ======== ======= ===== ========
13
Six Months Ended March 31, 1997 ------------------------------------------------------------------ Holdings Pro Forma Consolidating Pro Forma/ Historical Adjustments Adjustments Consolidating ---------- ----------- ------------- ------------- Revenues: Other............................ $ 21 $ -- $(119)(iii) $ (98) Costs and Expenses: General and administrative....... 1,351 -- (119)(iii) 1,232 Management fees-MEDIQ............ (148) -- -- (148) Depreciation and amortization.... 16 -- -- 16 -------- ------- ----- -------- Operating Income................... (1,198) -- -- (1,198) Other (Charges) Credits: Interest expense................. (1,728) (3,232)(i) -- (4,960) Interest income.................. 547 -- -- 547 Other-net........................ (11,217) -- -- (11,217) -------- ------- ----- -------- Loss from Continuing Operations before Income Taxes.............. (13,596) (3,232) -- (16,828) Income Taxes....................... (865) (1,293)(ii) -- (2,158) -------- ------- ----- -------- Income (Loss) from Continuing Operations....................... $(12,731) $(1,939) $ -- $(14,670) ======== ======= ===== ========
14
Six Months Ended March 31, 1998 ------------------------------------------------------------------ Holdings Pro Forma Consolidating Pro Forma/ Historical Adjustments Adjustments Consolidating ---------- ----------- ------------- ------------- Revenues: Other............................ $ -- $ -- $(138)(iii) $ (138) Costs and Expenses: General and administrative....... -- -- (138)(iii) (138) Management fees-MEDIQ............ (279) -- -- (279) -------- ------- ----- -------- Operating Income................... 279 -- -- 279 Other (Charges) Credits: Interest expense................. (496) (4,982)(i) -- (5,478) -------- ------- ----- -------- Loss from Continuing Operations before Income Taxes.............. (217) (4,982) -- (5,199) Income Taxes....................... (74) (1,993)(ii) -- (2,067) -------- ------- ----- -------- Income (Loss) from Continuing Operations....................... $ (143) $(2,989) $ -- $ (3,132) ======== ======= ===== ========
15 (i) Reflects the increased interest cost related to the Debentures, as follows:
Year Ended Six Months Six Months September 30, Ended March 31, Ended March 31, 1997 1997 1998 ------------- --------------- --------------- Debentures .................................. $8,813 $4,406 $4,924 Amortization of debt issue costs over the period of the related financing .......... 355 177 177 Existing borrowings to carry forward (Exchangeable Debentures) ................ 754 377 377 ------ ------ ------ 9,922 4,960 5,478 Holding's historical interest costs ......... (2,195) (1,728) (496) ------ ------ ------ $7,727 $3,232 $4,982 ====== ====== ======
- ---------- The Debentures are assumed to bear interest at 11.75%. A 0.125% change in the interest rate on the Debentures would increase or decrease annual interest expense and income (loss) from continuing operations by $94 and $56, respectively, and semi-annual interest expense and loss from continuing operations by $47 and $28, respectively. Debt issue costs on the Debentures are amortized over 11 years. (ii) Reflects the effects on income tax expense at an incremental effective rate of 40%. (iii) Reflects the historical adjustments required to consolidate Holdings and MEDIQ/PRN. 16 (F) The following unaudited pro forma statements of operations have been based on the CH Medical Financial Statements for the year ended August 31, 1997 and the six months ended February 28, 1997 and 1998. The pro forma statements of operations are based on management's best estimate of the effects of the CHI Acquisition as if such acquisition and the initial financing thereof had occurred on October 1, 1996. The pro forma statements of operations may not be indicative of the results of operations that actually would have been achieved had the CHI Acquisition been consummated on October 1, 1996.
Year Ended August 31, 1997 ------------------------------------------------ Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- Revenues: Rental .................................................... $ 22,154 $ -- $ 22,154 Sales of parts, disposables and equipment ................. 4,556 -- 4,556 -------- -------- -------- 26,710 -- 26,710 Costs and Expenses: Cost of sales ............................................. 1,355 -- 1,355 Operating ................................................. 10,244 (1,976)(i) 8,268 Selling ................................................... 4,005 (772)(i) 3,233 General and administrative ................................ 7,692 (1,484)(i) 6,208 Depreciation and amortization ............................. 1,740 1,848 (ii) 3,588 -------- -------- -------- Operating Income ............................................. 1,674 2,384 4,058 Other (Charges) Credits: Interest expense .......................................... (245) (4,052)(iii) (4,297) Other - net ............................................... 193 -- 193 -------- -------- -------- Income (Loss) from Continuing Operations before Income Taxes.. 1,622 (1,668) (46) Income Taxes ................................................. 616 (634)(iv) (18) -------- -------- -------- Income (Loss) from Continuing Operations ..................... $ 1,006 $ (1,034) $ (28) ======== ======== ========
Six Months Ended February 28, 1997 ------------------------------------------------ Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- Revenues: Rental .................................................... $ 10,631 $ -- $ 10,631 Sales of parts, disposables and equipment ................. 1,692 -- 1,692 -------- -------- -------- 12,323 -- 12,323 Costs and Expenses: Cost of sales ............................................. 537 -- 537 Operating ................................................. 5,255 (783)(i) 4,472 Selling ................................................... 1,707 (254)(i) 1,453 General and administrative ................................ 3,227 (481)(i) 2,746 Depreciation and amortization ............................. 875 920 (ii) 1,795 -------- -------- -------- Operating Income ............................................. 722 598 1,320 Other (Charges) Credits: Interest expense .......................................... (75) (2,073)(iii) (2,148) Interest income ........................................... 4 -- 4 Other ..................................................... 382 -- 382 -------- -------- -------- Income (Loss) from Continuing Operations before Income Taxes.. 1,033 (1,475) (442) Income Taxes ................................................. 431 (608)(iv) (177) -------- -------- -------- Income (Loss) from Continuing Operations ..................... $ 602 $ (867) $ (265) ======== ======== ========
Six Months Ended February 28, 1998 ------------------------------------------------ Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- Revenues: Rental .................................................... $ 11,292 $ -- $ 11,292 Sales of parts, disposables and equipment ................. 1,636 -- 1,636 -------- -------- -------- 12,928 -- 12,928 Costs and Expenses: Cost of sales ............................................. 294 -- 294 Operating ................................................. 5,587 (945)(i) 4,642 Selling ................................................... 1,775 (300)(i) 1,475 General and administrative ................................ 3,516 (595)(i) 2,921 Depreciation and amortization ............................. 888 907 (ii) 1,795 -------- -------- -------- Operating Income ............................................. 868 933 1,801 Other (Charges) Credits: Interest expense .......................................... (154) (1,994)(iii) (2,148) Interest income ........................................... 10 -- 10 Other ..................................................... 189 -- 189 -------- -------- -------- Income (Loss) from Continuing Operations before Income Taxes.. 913 (1,061) (148) Income Taxes ................................................. 347 (406)(iv) (59) -------- -------- -------- Income (Loss) from Continuing Operations ..................... $ 566 $ (655) $ (89) ======== ======== ========
17 - ----------- (i) Reflects management's estimate of cost savings related to the closing of duplicate facilities and the elimination of personnel partially offset by increases in Company personnel. There can be no assurance, however, that the Company will realize such cost savings. (ii) Reflects the increase in depreciation and amortization from the allocation of the purchase price to property, plant and equipment and intangible assets, including goodwill. Property, plant and equipment, which is assumed to approximate historic net book value, will be depreciated over three years. The intangible assets represent a covenant not to compete which will be amortized over five years, five patents which will be amortized over the remaining life of each respective patent (which averages approximately 11 years), and goodwill which will be amortized over 20 years. Depreciation and amortization is calculated as follows:
Year Six Months Six Months Ended Ended Ended August 31, February 28, February 28, 1997 1997 1998 ---------- ------------ ------------ Property, plant and equipment............................ $1,573 $ 787 $ 787 Covenant not to compete.................................. 100 50 50 Patents.................................................. 455 228 228 Goodwill................................................. 1,460 730 730 ------ ------ ------ 3,588 1,795 1,795 Historical............................................... (1,740) (875) (888) ------ ------ ------ $1,848 $ 920 $ 907 ====== ====== ======
(iii) Reflects the increase in interest expense as a result of $50.0 million of borrowings to consummate the CHI Acquisition, including related costs and expenses. Funds to consummate the acquisition were assumed to have been borrowed under the Term Loan Facility at an interest rate of 8.59% (LIBOR plus 2.75%). (iv) Reflects the effects on income tax expense of the historical operations of the CH Medical Business and the adjustments described in the footnotes herein at an incremental effective tax rate of 40%. 18 MEDIQ INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands)
As of March 31, 1998 ----------------------------------------------------------------------------------------------------- Consolidated Pro Forma Pro Forma MEDIQ/PRN Holdings Holdings Adjustments Adjustments Pro Forma Pro Forma/ Pro Forma for the Historical for the for the Consolidating for the CHI MEDIQ/PRN Transactions Transactions Adjustments(H) Transactions Acquisition(I) --------- ------------ ------------ -------------- ------------ -------------- ASSETS Cash ................. $ 3,846 $ 2,116(A) $ 5,962 $ 79 $ 6,041 $ -- Accounts receivable, net ............... 46,385 -- 46,385 -- 46,385 7,757 Inventories .......... 15,428 -- 15,428 -- 15,428 5,024 Deferred income taxes ............. 3,728 -- 3,728 569 4,297 -- Other current assets .... 1,197 2,636(F) 3,833 -- 3,833 -- -------- -------- -------- -------- -------- -------- Total current assets.. 70,584 4,752 75,336 648 75,984 12,781 Property, plant and equipment, net .... 113,703 -- 113,703 -- 113,703 4,345 Goodwill ............. 55,558 -- 55,558 -- 55,558 30,069 Other assets ......... 13,408 8,383(B) 21,791 3,779 25,570 6,205 -------- -------- -------- -------- -------- -------- Total assets .... $253,253 $ 13,135 $266,388 $ 4,427 $270,815 $ 53,400 ======== ======== ======== ======== ======== ======== As of March 31, 1998 -------------------- Consolidated Holdings Pro Forma for the Transactions and CHI ------------ ASSETS Cash ................. $ 6,041 Accounts receivable, net ............... 54,142 Inventories .......... 20,452 Deferred income taxes ............. 4,297 Other current assets .... 3,833 -------- Total current assets.. 88,765 Property, plant and equipment, net .... 118,048 Goodwill ............. 85,627 Other assets ......... 31,775 -------- Total assets .... $324,215 ========
See Notes to Pro Forma Condensed Consolidated Balance Sheets 19 MEDIQ INCORPORATED AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands)
As of March 31, 1998 ------------------------------------------------------------------------------------------------ Consolidated Pro Forma Pro Forma MEDIQ/PRN Holdings Holdings Adjustments Adjustments Pro Forma Pro Forma/ Pro Forma for the Historical for the for the Consolidating for the CHI MEDIQ/PRN Transactions Transactions Adjustments(H) Transactions Acquisition(I) --------- ------------ ------------ -------------- ------------ -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable ............ $ 10,667 $ -- $ 10,667 $ -- $ 10,667 $ -- Accrued expenses ............ 13,075 -- 13,075 2,169 15,244 -- Federal & state taxes payable .................. 837 -- 837 33 870 -- Other current liabilities ... 558 -- 558 -- 558 3,400 Current portion of long-term debt ........... 6,534 (4,698)(C) 1,836 -- 1,836 -- --------- --------- --------- --------- --------- --------- Total current liabilities ......... 31,671 (4,698) 26,973 2,202 29,175 3,400 Existing senior debt ........ 127,311 (126,829)(D) 482 -- 482 -- New Credit Facility ......... -- 100,000 (E) 100,000 -- 100,000 50,000 Debentures .................. -- -- -- 75,000 75,000 -- Notes ....................... -- 240,000 (E) 240,000 -- 240,000 -- Exchangeable Debentures ..... -- -- -- 10,055 10,055 -- Deferred income taxes and other liabilities ........ 29,851 (2,731)(F) 27,120 (2,394) 24,726 -- --------- --------- --------- --------- --------- --------- Total liabilities ...... 188,833 205,742 394,575 84,863 479,438 53,400 Mandatorily Redeemable Preferred Stock: Series A Preferred Stock .......... -- -- -- 78,235 78,235 -- Series C Preferred Stock ......... -- -- -- 30,000 30,000 -- --------- --------- --------- --------- --------- --------- -- -- -- 108,235 108,235 -- Stockholders' Equity: Holdings Preferred Stock .......... -- -- -- -- -- -- Series B Preferred Stock .... -- -- -- 30 30 -- Common Stock ................ 10 -- 10 -- 10 -- Capital in excess of par value ................ 86,457 -- 86,457 (46,497) 39,960 -- Retained earnings ........... 58,830 (8,050)(F) 50,780 (407,638) (356,858) -- Treasury stock .............. -- -- -- -- -- -- Advances to affiliates ...... (80,877) (184,557)(G) (265,434) 265,434 -- -- --------- --------- --------- --------- --------- --------- Total stockholders' equity............... 64,420 (192,607) (128,187) (188,671) (316,858) -- --------- --------- --------- --------- --------- --------- Total Liabilities and Stockholders' Equity .............. $ 253,253 $ 13,135 $ 266,388 $ 4,427 $ 270,815 $ 53,400 ========= ========= ========= ========= ========= ========= As of March 31, 1998 -------------------- Consolidated Holdings Pro Forma for the Transactions and CHI ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable ............ $ 10,667 Accrued expenses ............ 15,244 Federal & state taxes payable .................. 870 Other current liabilities ... 3,958 Current portion of long-term debt ........... 1,836 --------- Total current liabilities ......... 32,575 Existing senior debt ........ 482 New Credit Facility ......... 150,000 Debentures .................. 75,000 Notes ....................... 240,000 Exchangeable Debentures ..... 10,055 Deferred income taxes and other liabilities ........ 24,726 --------- Total liabilities ...... 532,838 Mandatorily Redeemable Preferred Stock: Series A Preferred Stock .......... 78,235 Series C Preferred Stock ......... 30,000 --------- 108,235 Stockholders' Equity: Holdings Preferred Stock .......... -- Series B Preferred Stock .... 30 Common Stock ................ 10 Capital in excess of par value ................ 39,960 Retained earnings ........... (356,858) Treasury stock .............. -- Advances to affiliates ...... -- --------- Total stockholders' equity............... (316,858) --------- Total Liabilities and Stockholders' Equity .............. $ 324,215 =========
See Notes to Pro Forma Condensed Consolidated Balance Sheets 20 Notes to Pro Forma Condensed Consolidated Balance Sheets (unaudited) (in thousands) (A) The pro forma adjustments to cash reflect the following: Total Sources: New Credit Facility.............................................. $100,000 Debentures....................................................... 75,000 Notes............................................................ 240,000 Preferred Stock.................................................. 138,235 Common Stock..................................................... 10,000 -------- 563,235 -------- Total Uses: Merger Consideration............................................. 390,704 Repayment of Existing Credit Facility (see Notes C and D below).. 131,527 Financing fees and expenses...................................... 18,700 Other fees and expenses.......................................... 18,600 Deferred compensation payments................................... 1,588 -------- 561,119 -------- Working Capital................................................ $ 2,116 ======== (B) Reflects the increase in deferred financing fees/debt issue costs related to the New Credit Facility and the Notes, as follows: Existing deferred financing fees related to debt to be refinanced as a result of the Merger.............................. $ (6,417) Deferred financing fees related to the debt to be issued as a result of the Merger..................................... 14,800 -------- $ 8,383 ========
(C) Represents the repayment of the funds outstanding under the Existing Credit Facility with a portion of the proceeds from the New Credit Facility. The New Credit Facility is not anticipated to require principal payments in the first year. The remaining indebtedness of $1,836 represents the current portion of capital lease obligations. (D) Represents the repayment of the funds outstanding under the Existing Credit Facility with a portion of the proceeds from the New Credit Facility. The remaining indebtedness of $482 represents the long-term portion of capital lease obligations. (E) Reflects the borrowings under the New Credit Facility and the Notes. (F) Reflects the costs associated with employment contracts providing for additional compensation as a result of the Merger, net of related income tax effects, and the write-off of financing fees, net of related income tax effects, related to the Existing Credit Facility repaid as a result of the Merger, as follows: Gross Tax Effect Net ------- ---------- ------ Additional Compensation................ $ 7,000 $2,800 $4,200 Write-off of Deferred Fees............. 6,417 2,567 3,850 ------- ------ ------ $13,417 $5,367 $8,050 ======= ====== ====== Taxes were calculated at an incremental effective tax rate of 40%. Of the $5,367 of total taxes, $2,636 of the tax effect of the above transactions were used to increase the Company's income tax receivable reflected in "Other current assets." Such amount represents the Company's historical fiscal 1997 income tax liability. The remainder of the tax effect of $2,731 is reflected in "Deferred income taxes and other liabilities." (G) Reflects funds advanced to Holdings from the proceeds of the New Credit Facility and the Notes to consummate the Merger. 21 Notes to Pro Forma Condensed Consolidated Balance Sheets (Continued) (unaudited) (in thousands) (H) The following unaudited pro forma balance sheet has been based on the unaudited accounting records of Holdings as of March 31, 1998. No separate financial statements of Holdings have been prepared for any period. The pro forma/consolidating adjustments reflect the adjustments required to consolidate Holdings with MEDIQ/PRN and to reflect the Transactions related solely to Holdings as if they had occurred on March 31, 1998.
As of March 31, 1998 --------------------------------------------------------------------- Historical Pro Forma Consolidating Pro Forma/ Holdings Adjustments Adjustments(ix) Consolidating ---------- ----------- --------------- ------------- ASSETS Cash ........................................ $ 79 $-- $-- $ 79 Deferred income taxes ....................... -- -- 569 569 --------- --------- --------- --------- Total current assets ..................... 79 -- 569 648 Other assets ................................ 141,371 3,900 (i) (141,492) 3,779 --------- --------- --------- --------- Total assets ............................. $ 141,450 $ 3,900 $(140,923) $ 4,427 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Accrued expenses ............................ $ 1,859 -- $ 310 $ 2,169 Federal and state taxes payable ............. 513 -- (480) 33 --------- --------- --------- --------- Total current liabilities ................ 2,372 -- (170) 2,202 Debentures .................................. -- 75,000 (ii) -- 75,000 Exchangeable Debentures(viii) ............... 10,055 -- -- 10,055 Deferred income taxes and other liabilities . (30,582) (1,588)(iii) 29,776 (2,394) --------- --------- --------- --------- Total liabilities ........................ (18,155) 73,412 29,606 84,863 Mandatory Redeemable Preferred Stock: Series A Preferred Stock .................... -- 78,235 (iv) -- 78,235 Series C Preferred Stock .................... -- 30,000 (iv) -- 30,000 --------- --------- --------- --------- -- 108,235 -- 108,235 Stockholders' Equity: Holdings Preferred Stock .......................... 3,322 (3,322)(v) -- -- Series B Preferred Stock .................... -- 30 (iv) -- 30 Common Stock ................................ 20,068 10 (iv) (10) -- -- (20,068)(v) -- -- Capital in excess of par value .............. 27,102 29,970 (iv) (86,457) (46,497) -- 9,990 (iv) -- -- -- (27,102)(v) -- -- Retained earnings ........................... 1,685 (344,458)(v) (53,265) (407,638) -- (11,600)(vi) -- -- Treasury stock .............................. (4,246) 4,246 (v) -- -- Advances to affiliates ...................... 111,674 184,557 (vii) (30,797) 265,434 --------- --------- --------- --------- Total stockholders' equity ............... 159,605 (177,747) (170,529) (188,671) --------- --------- --------- --------- Total liabilities and stockholders' equity ................. $ 141,450 $ 3,900 $(140,923) $ 4,427 ========= ========= ========= =========
- ----------- (i) Reflects the increase in debt issue costs for the Debentures. (ii) Reflects the borrowings under the Debentures. (iii) Reflects the payout of Holdings' deferred compensation plan of $1,588 under its provisions for change of control as a result of the Merger. (iv) Reflects the presently anticipated issuance of securities of Holdings to the BRS Entities, the Co-Investors, the Rotko Entities and the Management Stockholders, as well as shares of Series A Preferred Stock issued to holders of Holdings Shares in the Merger (including the Rotko Entities and the Management Stockholders), as follows: 22
BRS Entities Holders of and the Rotko Management Holdings Co-Investors Entities Stockholders Shares Total ------------ -------- ------------ ---------- -------- Mandatorily Redeemable Preferred Stock: Series A Preferred Stock ............. $ 56,246 $ -- $2,015 $19,974 $ 78,235 Series C Preferred Stock.............. 28,962 -- 1,038 -- 30,000 -------- ------- ------ ------- -------- Total mandatorily redeemable preferred stock................. 85,208 -- 3,053 19,974 108,235 Series B Preferred Stock: At par................................ 16 13 1 -- 30 Capital in excess of par.............. 16,008 13,389 573 -- 29,970 -------- ------- ------ ------- -------- Total Series B Preferred Stock...... 16,024 13,402 574 -- 30,000 -------- ------- ------ ------- -------- Total preferred stock .............. $101,232 $13,402 $3,627 $19,974 $138,235 ======== ======= ====== ======= ======== Common Stock: At par................................ 8 1 1 -- 10 Capital in excess of par.............. 8,284 1,097 609 -- 9,990 -------- ------- ------ ------- -------- Total common stock................. $ 8,292 $ 1,098 $ 610 $ -- $ 10,000 ======== ======= ====== ======= ========
Year 1 dividends on the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are anticipated to be $10.2 million, $4.0 million, $4.1 million, respectively. Each series of preferred stock includes compounding features which will increase the amount of dividends in future years if accrued dividends from prior years have not been paid. (v) Reflects the purchase of Holdings Shares for the Merger Consideration, as follows: Preferred stock................................................. $ 3,322 Common stock.................................................... 20,068 Capital in excess of par........................................ 27,102 Retained earnings............................................... 344,458 Treasury stock.................................................. (4,246) -------- Total..................................................... $390,704 ======== (vi) Reflects the fees and expenses anticipated to be paid to effect the Transactions. (vii) Reflects funds advanced from MEDIQ/PRN from the proceeds of the New Credit Facility and the Notes to consummate the Merger. (viii) On December 31, 1996, the Company sold to NutraMax all the shares of NutraMax Common Stock owned by the Company at a price of $9.00 per share. Under the terms of the agreement, the Company received from NutraMax cash and an interest bearing promissory note. The note is payable when NutraMax shares owned by the Company, which currently are held in escrow in support of the Company's Exchangeable Debentures, are released from escrow. Upon consummation of the Merger, the holders of Exchangeable Debentures may require the Company to repurchase them. (ix) Reflects the historical adjustments required to consolidate Holdings and MEDIQ/PRN. 23 (I) The following unaudited pro forma statement of net investment in assets has been based on the CH Medical Financial Statements as of February 28, 1998. The pro forma statement of net investment in assets is based on management's best estimate of the effects of the CHI Acquisition and the initial financing thereof. The CHI Acquisition will be accounted for using the purchase method of accounting whereby the aggregate purchase price will be allocated to the assets acquired and liabilities assumed based upon their respective fair values. The allocation of the aggregate purchase price reflected below is preliminary. The final allocation of the purchase price is contingent upon studies and valuations which have not yet been completed. Management is unable to predict whether any adjustment as a result of the foregoing will have a material effect.
As of February 28, 1998 -------------------------------------------------------------------------- Elimination of Items Not Acquisition Historical Acquired(i) Adjustments Pro Forma ---------- ------------ ----------- --------- ASSETS Cash .......................... $ 251 $ (251) $ -- $ -- Accounts receivable, net ...... 7,757 -- -- 7,757 Inventories ................... 5,024 -- -- 5,024 -------- -------- -------- -------- Total current assets ....... 13,032 (251) -- 12,781 Property, plant and equipment, net ............. 4,379 (34) -- 4,345 Goodwill ...................... -- -- 30,069(ii) 30,069 Other assets .................. 1,518 (813) 5,500(ii) 6,205 -------- -------- -------- -------- Total assets ............... 18,929 (1,098) 35,569 53,400 -------- -------- -------- -------- LIABILITIES Accounts payable .............. 1,231 (1,231) -- -- Accrued expenses .............. 552 (552) -- -- Other current liabilities ..... 110 (110) 3,400(ii) 3,400 Current portion of long-term debt ............. 4,148 (4,148) -- -- -------- -------- -------- -------- Total current liabilities .. 6,041 (6,041) 3,400 3,400 Senior debt ................... 151 (151) -- -- Senior credit facility ........ -- -- 50,000(iii) 50,000 Deferred income taxes and other liabilities ................ 338 (338) -- -- -------- -------- -------- -------- Total liabilities .......... 6,530 (6,530) 53,400 53,400 -------- -------- -------- -------- Net investment in assets .......... $ 12,399 $ 5,432 $(17,831)(ii) $ -- ======== ======== ======== ========
- ----------- (i) Reflects the elimination of assets and liabilities not acquired or assumed by the Company. (ii) Reflects the preliminary allocation of the purchase price for the CHI Acquisition, as follows: Other assets: Patents............................................. $ 5,000 Covenants not to compete............................ 500 Goodwill.............................................. 30,069 Reserves for closing duplicate facilities and eliminating CHI personnel........................................... (3,400) Net investment in assets after eliminating the effects of assets and liabilities not to be acquired or assumed (see footnote (i) above)................. 17,831 -------- Purchase price........................................ $ 50,000 ======== (iii) Reflects the indebtedness incurred to finance the CHI Acquisition and related costs and expenses. 24 MEDIQ INCORPORATED AND SUBSIDIARIES 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 hereunto duly authorized. MEDIQ Incorporated (Registrant) May 20, 1998 (Date) /s/ Jay M. Kaplan ------------------------------- Jay M. Kaplan Senior Vice President-Finance and Chief Financial Officer EX-99.4 2 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS CH MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME 1998 1997 ----------- ----------- Six Months Ended February 28, ---------------------------- Net Rental and Sales ......................... $12,927,435 $12,322,897 Rental Expenses and Cost of Goods Sold ....... 5,881,390 5,791,887 ----------- ----------- Gross Profit ................................. 7,046,045 6,531,010 ----------- ----------- Operating Expenses (Note 4): Selling expenses .......................... 1,774,325 1,707,220 Depreciation .............................. 887,951 874,783 General and administrative expenses ....... 3,515,483 3,226,643 ----------- ----------- Total Operating Expenses ..................... 6,177,759 5,808,646 ----------- ----------- Operating Income ............................. 868,286 722,364 ----------- ----------- Other Income (Expense): Interest expenses ......................... (154,007) (74,713) Interest income ........................... 9,808 3,867 Other income .............................. 189,142 381,658 ----------- ----------- Total Other Income (Expense) ................. 44,943 310,812 ----------- ----------- Income Before Income Taxes ................... 913,229 1,033,176 ----------- ----------- Income Taxes (Note 6) ........................ 347,028 431,456 ----------- ----------- Net Income ................................... $ 566,201 $ 601,720 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. 1 CH MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF NET ASSETS February 28, 1998 ASSETS Current: Cash and cash equivalents .................................... $ 250,862 Accounts receivable-trade, net of allowance for doubtful accounts of $1,172,837 (Note 3)............................ 7,047,924 Accounts receivable-other .................................... 709,054 Inventories (Note 1 and 3) ................................... 5,023,788 ----------- Total current assets ............................................ 13,031,628 ----------- Net property and equipment (Notes 2, 3 and 5) ................... 4,379,151 ----------- Other assets .................................................... 1,517,539 ----------- $18,928,318 =========== LIABILITIES Current Accounts payable ............................................. $ 1,231,560 Accrued expenses ............................................. 551,918 Dealer deposits .............................................. 25,470 Revolving line of credit (Note 3) ............................ 4,148,002 Other liabilities ............................................ 84,000 ----------- Total current liabilities ....................................... 6,040,950 ----------- Notes payable-other ............................................. 88,000 Note payable officer ............................................ 62,609 Federal income taxes payable (Note 7)............................ -- Deferred income taxes (Note 7) .................................. 338,442 ----------- Total liabilities ............................................... 6,530,001 ----------- Net assets ...................................................... $12,398,317 =========== The accompanying notes are an integral part of the consolidated financial statements. 2 CH MEDICAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended February 28, -------------------------- 1998 1997 ----------- ----------- Operating Activities: Net Income ......................................... $ 566,201 $ 601,720 Adjustments to reconcile net income to cash provided by operating activities: Depreciation .................................... 887,951 874,783 Allowance for Bad Debts ......................... 440,000 -- Changes in operating assets and liabilities: Accounts receivable-trade ....................... 101,596 (1,929,099) Accounts receivable-other ....................... (508,627) 1,000 Inventories ..................................... (797,505) (159,858) Other assets .................................... (18,796) (7,508) Accounts payable ................................ 248,126 893,132 Accrued expenses ................................ (250,425) (158,118) Other liabilities ............................... (374,891) -- Notes payable-other ............................. (39,000) -- ----------- ----------- Cash provided by operating activities ................. 254,630 116,052 ----------- ----------- Cash Used in Investing Activities: Capital expenditures ............................... (54,481) (1,503,256) ----------- ----------- Financing Activities: Net borrowing under notes payable-officer .......... (222,706) 167,037 Net borrowings under revolving line of credit ...... (33,661) 1,149,437 ----------- ----------- Cash provided by (used in) financing activities ....... (256,367) 1,316,474 ----------- ----------- Net decrease in cash and cash equivalents ............. (56,218) (70,730) Cash and cash equivalents at beginning of year ........ 307,080 297,473 ----------- ----------- Cash and cash equivalent at end of period ............. $ 250,862 $ 226,743 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 CH MEDICAL, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES Description of Business and Basis Presentation -- The statements of net assets, of income and cash flows relate to the operations of CH Medical, Inc. and Subsidiaries (the "Company"). The Company is engaged in the manufacture, sale and rental of special care hospital beds and associated acute care air support therapy systems. These financial statements are prepared pursuant to a letter of intent between CH Industries and MEDIQ ("MEDIQ") Incorporated whereby the net operating assets of CH Medical, Inc. will be acquired by MEDIQ. During the period covered by the financial statements, the businesses were conducted as an integral part of CH Industries overall operations, and separate financial statements were not prepared for the businesses. These financial statements have been prepared from CH Industries' historical accounting records. The financial statements also include various allocated costs and expenses as described herein, which are not necessarily indicative of the costs and expense which would have resulted if the businesses had been operated as a separate company. Therefore, the statement of operations may not be indicative of the results of operation that would have resulted if the Company were operated on a stand alone basis. All of the allocation and estimates reflected in the financial statements are based on assumptions that management believes reasonable under the circumstances. Certain expenses, consisting primarily of costs related to certain employees, the shareholder and related parties of the Company, and other non-operating items have been excluded from the financial statements presented, as they are not indicative of the net operating assets and liabilities nor the operations to be acquired under the letter of intent. Principles of Consolidation -- The accompanying consolidated financial statements include the accounts of CH Medical, Inc. and the following wholly-owned subsidiaries: Cardio Systems International, Inc. Cardio Systems Manufacturing, Inc. Cardio Systems-Austin, Ltd Cardio Systems-Dallas, Ltd. Cardio Systems-Atlanta, Inc. Cardio Systems-Chattanooga, Inc. Cardio Systems-Chicago, Inc. Cardio Systems-Fort Myers, Inc. Cardio Systems-Kansas City, Inc. Cardio Systems-Memphis, Inc. Cardio Systems-Miami, Inc. 4 Cardio Systems-Oklahoma City, Inc. Cardio Systems-Sacramento, Inc. Cardio Systems-Tampa, Inc. Cardio Systems North America Dealer Corporation, Inc. Cardio Systems Operations, Inc. Cardio Systems Partners, Inc. Cardio Systems Sales, Inc. Cardio Systems of Texas-Austin, Inc Cardio Systems of Texas-Dallas, Inc. SCD Industries, Inc. Special Care Delivery, Inc. All significant intercompany transactions and balances have been eliminated in consolidation. Interim Financial Information -- The interim amounts are not necessarily indicative of the results of operations and cash flows for a full year. Revenue Recognition -- Services and rental revenue are recognized as services are rendered. Sales and other revenue are recognized when products are shipped. Cash and Cash Equivalents -- The Company considers all highly liquid investments with an original maturity of ninety days or less to be cash equivalents. Inventories -- Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). Costs include material, labor and manufacturing overhead costs. Inventory expected to be converted into equipment for short-term rental has been reclassified to property, plant and equipment. Property, Plant and Equipment -- Property, plant and equipment are stated at cost. Betterment's which extend the useful of the equipment are capitalized. Depreciation -- Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives (thirty to forty years for the buildings and between three and ten years for most of the Company's other property and equipment) of the assets. Income Taxes -- The Company recognizes certain transactions in different time periods for the financial reporting and income tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The provision for deferred income taxes represents the change in deferred income tax accounts during the period. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make 5 estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 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. Long Lived Assets -- In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," management reviews long-lived assets and intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. As part of the assessment, management analyzes the undiscounted cash flows for each product that has significant long-lived or intangible asset values associated with it. This analysis for the asset values as of August 31, 1997 indicated there was no impairment to these assets' carrying values. New Accounting Pronouncements -- Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") is effective for financial statements with fiscal years beginning after December 15, 1997. Earlier application is permitted. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company has yet to determine the preferred format for presenting this information. 6 CH MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Inventories Inventories are summarized as follows: February 28, 1998 ------------ Raw materials .............................................. $ 351,665 Work-in-process ............................................ 3,365,938 Finished goods ............................................. 1,306,185 ------------ Total ...................................................... $ 5,023,788 ============ 2. Property and Equipment Property and equipment consist of the following: February 28, 1998 ------------ Rental medical equipment ................................... $ 9,609,993 Machinery and equipment .................................... 463,336 Office equipment ........................................... 514,196 Building and improvements .................................. 216,933 Vehicles ................................................... 89,142 Land ....................................................... 8,536 ------------ Total ...................................................... 10,902,136 Accumulated depreciation ................................... (6,522,985) ------------ Net property and equipment ................................. $ 4,379,151 ============ 3. Line of Credit CH Industries has a $7,500,000 revolving line of credit with a bank which expires, May 1, 1999. The interest rate is at the 30-day LIBOR rate plus 2.25 percent. The Company has been allocated a portion of the line of credit based on the ratio of debt to current assets. At February 28, 1998, the Company's interest rate was 7.84 percent. The outstanding borrowings are secured by CH Industries' accounts receivable, inventories (including those 7 of the Company) and the guarantee of the parent's stockholder. Certain financial covenants exist related to CH Industries total debt ratio, tangible net worth, working capital, capital expenditures and additional debt. 4. Operating Expenses and Other Allocation Expenses All operating expenses are allocated to the business using procedures deemed appropriate to the nature of the expense involved. The procedures utilized various allocation bases such as relative investments and number of employees, and direct effort expended. Interest expense is determined at the corporate level based on the consolidated indebtedness of CH Industries and allocated to the business on the basis of their proportionate share of current assets of CH Industries. CH Industries management believes the allocations are reasonable, but they are not necessarily indicative of the costs that would have been incurred if the businesses had been a separate company. 5. Related Party Transactions The Company leases certain office space, warehouse facilities and equipment from its stockholder, CH Realty and CH Leasing, Ltd., limited partnerships controlled 99 percent by the stockholder. Rental expenses for operating leases to affiliates was $145,296 and $191,869 for the six months ended February 28, 1998 and 1997, respectively. 6. Income Taxes Federal, state and local income taxes are allocated based upon an effective tax rate of 38 and 42 percent for the six months ended February 28, 1998 and 1997, respectively. The allocation approximates the results that would occur if the business were a separate taxpayer. Income tax expense differs from the amount computed by applying the federal statutory rate of 34 percent primarily due to varying state income taxes. Deferred taxes result from temporary differences arising from differing methods of depreciation for tax and financial reporting purposes and from allowance for doubtful accounts not deductible for tax purposes. 7. Supplemental Interest and income taxes paid during the six months ended February 28, 1998 was $905,000 compared with interest and income taxes paid during the six months ended February 28, 1997 of $1,677,000. These amounts were allocated to the Company based on average outstanding debt and net income before taxes. 8 -----END PRIVACY-ENHANCED MESSAGE-----