<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended October 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
Commission File Number
0-14003
--------------------
ROTECH MEDICAL CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified on its Charter)
Florida 59-2115892
- -------------------------------- -------------------
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4506 L.B. McLeod Road, Suite F, Orlando, Florida 32811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 841-2115
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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 and 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
--- ---
Indicate the number of shares outstanding of each class of issuer's classes
of common stock as of December 12 , 1995: 12,070,753
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
Index
PAGE
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated
Balance Sheets, Interim
at October 31, 1995 and
Year End at July 31, 1995 1
Condensed Consolidated
Interim Statements of
Income for the Three Months
Ended October 31, 1995
and 1994 2
Condensed Consolidated
Interim Statements of
Shareholders' Equity for
the Three Months Ended
October 31, 1995 and 1994 3
Condensed Consolidated
Interim Statements of
Cash Flows for the Three
Months Ended October 31,
1995 and 1994 4
Notes to Consolidated Interim
Financial Statements 5
Item 2. Management's Discussion
and Analysis of Financial
Condition and Results 10-11
of Operations
Part II. Other Information 12
Signature 13
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31 July 31
1995 1995
(Unaudited)
------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,773,302 $ 577,283
Accounts Receivable:
Trade, less allowance for contractual
adjustments and doubtful accounts 52,718,201 42,236,981
Other 2,287,883 1,418,918
Inventories 15,922,681 12,036,188
Prepaid expenses 364,980 388,728
------------ ------------
Total Current Assets 74,067,047 56,658,098
Other Assets:
Intangible assets, less accumulated amortization 85,964,755 68,811,955
Other assets 1,091,067 249,070
------------ ------------
87,055,822 69,061,025
Property and equipment, less accumulated depreciation 56,150,812 45,912,848
------------ ------------
$217,273,681 $171,631,971
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other liabilities $ 9,456,831 $ 8,842,171
Notes payable to banks 50,094,215 9,980,000
Deferred income taxes 384,504 334,504
Income taxes receivable (607,954) (306,849)
------------ ------------
Total Current Liabilities 59,327,596 18,849,826
Other liabilities:
Deferred income taxes 3,763,834 3,123,625
Shareholders' Equity:
Common Stock, par value $.0002 per share, 50,000,000
shares authorized, 11,434,667 shares at October 31,
1995 and 11,421,821 shares at July 31, 1995 issued and
outstanding 2,296 2,293
Treasury stock, at cost (814,535) (814,535)
Additional paid-in capital 118,232,086 118,031,491
Retained earnings 36,762,404 32,439,271
------------ ------------
154,182,251 149,658,520
------------ ------------
$217,273,681 $171,631,971
============ ============
</TABLE>
Note: The consolidated balance sheet at July 31, 1995 has been condensed from
the audited financial statements at that date.
See notes to condensed consolidated interim financial statements.
1
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Condensed Consolidated Interim Statements of Income
Three Months Ended
October 31 October 31
1995 1994
(Unaudited)
---------------------------
Operating revenue $45,119,179 $26,723,095
Cost and expenses:
Cost of revenue 12,247,877 7,397,419
Selling, general and administrative 21,648,847 13,202,584
Depreciation and amortization 3,897,523 1,773,275
Interest expense 440,963 78,754
----------- -----------
38,235,210 22,452,032
----------- -----------
Income before income taxes 6,883,969 4,271,063
Income tax expense 2,560,836 1,580,000
----------- -----------
Net Income $ 4,323,133 $ 2,691,063
=========== ===========
Net Income Per Share $0.37 $0.28
=========== ===========
Weighted Average Number of Shares Outstanding 11,823,000 9,666,000
See notes to condensed consolidated interim financial statements.
2
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Condensed Consolidated Interim Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Treasury Paid-in Retained
Shares Amount Stock Capital Earnings
(Unaudited)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1994 9,504,770 $1,909 $(814,535) $64,520,077 $19,613,012
Issuance of Common Stock in
acquisition of subsidiaries 138,362 28 1,996,532
Issuance of Common Stock pursuant
to Employee Stock Compensa-
tion Plan 8,918 2 98,228
Net income for the three months
ended October 31, 1994 2,691,063
---------- ------ --------- ------------ -----------
Balance, October 31, 1994 9,652,050 $1,939 $(814,535) $ 66,614,837 $22,304,075
========== ====== ========= ============ ===========
Balance, August 1, 1995 11,421,821 $2,293 $(814,535) $118,031,491 $32,439,271
Issuance of Common Stock in
acquisition of subsidiaries 1,816 1 42,647
Issuance of Common Stock pursuant
to Employee Stock Compensa-
tion Plan 11,030 2 157,948
Net income for the three months
ended October 31, 1995 4,323,133
---------- ------ --------- ------------ -----------
Balance, October 31, 1995 11,434,667 $2,296 $(814,535) $118,232,086 $36,762,404
========== ====== ========= ============ ===========
</TABLE>
See notes to condensed consolidated interim financial statements.
3
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Condensed Consolidated Interim Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
October 31 October 31
1995 1994
(Unaudited)
---------------------------------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 6,536,734 $ 3,886,860
Investing Activities
Purchases of property and equipment (3,858,309) (2,762,677)
Proceeds from sale of property and equipment 15,160
Changes in advances and deposits (827,364) (22,094)
Payments for acquisition of net assets, net of cash
acquired (39,769,257) (11,970,539)
------------ ------------
Net Cash Used in Investing Activities (44,454,930) (14,740,150)
------------ ------------
Financing Activities
Net proceeds from long-term debt and notes payable 40,114,215 13,034,000
------------ ------------
Net Cash Provided by Financing Activities 40,114,215 13,034,000
------------ ------------
Increase (Decrease) in Cash 2,196,019 2,180,710
Cash at Beginning of Period 577,283 331,681
------------ ------------
Cash at End of Period $ 2,773,302 $ 2,512,391
============ ============
</TABLE>
See notes to condensed consolidated interim financial statements.
4
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)
Note A - Basis of Reporting
The condensed consolidated interim balance sheet as of October 31, 1995 and the
condensed consolidated interim statements of income, shareholders' equity and
cash flows for the three months ended October 31, 1995 and 1994 are unaudited.
In the opinion of management, these statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring accruals, necessary for the
fair statement of the results of the interim periods.
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 consolidated audited financial statements as
of and for the year ended July 31, 1995. The results of operations for the
interim period are not necessarily indicative of the results which may be
expected for an entire year.
Note B - Subsequent Events
During the period from November 1, 1995 to December 12, 1995, the Company issued
86,000 shares of its common stock valued at approximately $1,482,000 and paid
cash of approximately $10,554,000 to purchase the net assets of thirteen home
health care companies based in Arkansas, Colorado, Florida, Montana, Oklahoma,
South Carolina, Texas and Utah.
5
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)-continued
Note C - Pro Forma Condensed Combined Statements of Income
The pro forma condensed combined statement of income for the year ended July 31,
1995 has been prepared to illustrate the estimated combined effects of the
various Agreements of Purchase and Sale (Agreements) upon RoTech Medical
Corporation (the Company) for those acquisition transactions consummated between
August 1, 1995 and December 1, 1995. The pro forma condensed combined statement
of income was derived by adjusting the historical statement for the year ended
July 31, 1995 of the Company and the unaudited historical statements of income
for the most recent fiscal year end of the unaudited acquired entities.
The pro forma condensed combined interim statement of income for the three
months ended October 31, 1995 was derived by adjusting the unaudited interim
historical statement of income for the three months ended October 31, 1995 of
the Company and the unaudited interim historical statements of income of the
acquired entities for the period prior to their respective inclusion in the
unaudited historical interim statement of income of the Company for the three
months ended October 31, 1995. The entities acquired prior to October 31, 1995
are included in the Company's balance sheet as of October 31, 1995.
The operations of any entities acquired subsequent to October 31, 1995 are not
included in the Company's historical interim statement of income as presented
herein. The net assets of any entities acquired subsequent to October 31, 1995
are not included in the Company's balance sheet as of October 31, 1995.
The pro forma condensed combined statements of income were prepared as if the
purchases and sales had occurred on the first day of the respective periods
presented. The pro forma condensed combined statements of income presented are
not necessarily indicative of the results of operations that might have occurred
had such transactions been completed as of the date specified or of the results
of operations of the Company and its subsidiaries for any future period.
No changes in operating revenue and expenses have been made to reflect the
results of any modification to operations that might have been made had the
Agreements been consummated on the aforesaid assumed effective date for purposes
of presenting pro forma results. Certain supportable payroll costs attributable
to acquired entities' employees whose services would have been terminated upon
the effective date of purchase and sale have been eliminated. The acquisitions
condensed combined statements of income include amortization of goodwill as if
the Agreements had been completed on the assumed effective date referred to
above.
The pro forma condensed combined statements of income should be read in
conjunction with the audited consolidated financial statements and related notes
thereto included elsewhere herein.
6
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Pro Forma Condensed Combined Statements of Income
<TABLE>
<CAPTION>
For the Year Ended July 31, 1995
------------------------------------------------------------
(Unaudited)
RoTech RoTech
Medical Medical
Corporation Corporation
Consolidated Combined Combined
Year Ended Acquired Pro Forma Pro Forma
July 31, 1995 Entities Adjustments Results
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Operating revenue $134,111,458 $41,501,737 $175,613,195
Cost and expenses:
Cost of revenue 36,287,811 17,833,797 (1,200,000)(a) 52,921,608
Selling, general
and administrative 66,477,381 20,519,442 (3,750,000)(b) 83,246,823
Depreciation and amortization 9,565,238 571,407 1,800,000 (c) 11,936,645
Interest 835,462 241,671 1,800,000 (d) 2,877,133
------------ ----------- ----------- ------------
113,165,892 39,166,317 (1,350,000) 150,982,209
------------ ----------- ----------- ------------
Income before income taxes 20,945,566 2,335,420 1,350,000 24,630,986
Income tax expense 7,800,800 688,302 683,000 (e) 9,172,102
------------ ----------- ----------- ------------
Net Income $ 13,144,766 $ 1,647,118 $ 667,000 $ 15,458,884
============ =========== =========== ============
Net Income Per Share $1.27 $1.49
============ ============
Weighted Average Number
of Shares Outstanding 10,342,000 2,000 (f) 10,344,000
</TABLE>
7
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Pro Forma Condensed Combined Interim Statements of Income
<TABLE>
<CAPTION>
For the Three Months Ended October 31, 1995
------------------------------------------------------------
(Unaudited)
RoTech
Medical RoTech
Corporation Medical
Consolidated Corporation
Three Months Combined Combined
Ended Acquired Pro Forma Pro Forma
October 31, 1995 Entities Adjustments Results
--------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Operating revenue $45,119,179 $4,859,947 $49,979,126
Cost and expenses:
Cost of revenue 12,247,877 2,007,844 (150,000)(a) 14,105,721
Selling, general
and administrative 21,648,847 2,431,751 (437,500)(b) 23,643,098
Depreciation and amortization 3,897,523 141,411 400,000 (c) 4,438,934
Interest 440,963 33,688 340,000 (d) 814,651
----------- ---------- --------- -----------
38,235,210 4,614,694 152,500 43,002,404
----------- ---------- --------- -----------
Income before income taxes 6,883,969 245,253 (152,500) 6,976,722
Income tax expense 2,560,836 73,371 (39,000)(e) 2,595,207
----------- ---------- --------- -----------
Net Income $ 4,323,133 $ 171,882 $(113,500) $ 4,381,515
=========== ========== ========= ===========
Net Income Per Share $ 0.37 $ 0.37
=========== ===========
Weighted Average Number
of Shares Outstanding 11,823,000 2,000 (f) 11,825,000
</TABLE>
8
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)-continued
Note C - Pro Forma Condensed Combined Statements of Income-continued
(a) Supportable adjustment to reduce the acquired entities' cost of revenue
based on minimum cost savings to be gained by those acquired entities purchasing
goods under the Company's contractual arrangements.
(b) Supportable general and administrative expenses relating directly to the
payroll and related expenses of those terminated employees determined to be
duplicated by the Company's existing personnel and therefore would not be needed
after the acquisitions.
(c) Amortization on intangibles recorded in the combined acquisitions (amortized
over various lives from 5 to 25 years).
(d) Additional interest expense related to borrowings for cash paid to acquire
combined entities; assumed borrowed on the first day of the respective periods
presented.
(e) Adjustment to income tax expense for the tax expense relating to the net
income as adjusted for the combined acquired entities. Income taxes are
calculated on the basis that operations of the consolidated company could be
combined as one company for federal income tax purposes at the actual historical
rate for the period. No assurance can be given that these tax benefits will be
realizable by the Company.
(f) Additional shares of the Company's Common Stock issued pursuant to the
Agreements; assumed issued on the first day of the respective periods presented.
9
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the Three Months Ended October 31, 1995 and 1994
Operating revenue for the three months ended October 31, 1995 increased to
$45,119,000 from $26,723,000 for the three months ended October 31, 1994. This
69% increase in operating revenue is attributable to acquisitions and expanded
product and service lines in existing areas of operation. The Company continues
to employ a single sales force to maintain and develop both the home respiratory
and other medical equipment and home infusion therapy and other pharmacy related
lines of business.
Operating revenue for the home respiratory and other medical equipment grew to
$32,457,000 for the three months ended October 31, 1995 from $17,821,000 for the
three months ended October 31, 1994. This 82% increase was due mainly to
increases in patient bases throughout the Company's locations and increased
marketing efforts in certain locations acquired during fiscal year 1995 and the
first quarter of fiscal year 1996.
Operating revenue from home infusion therapy and other pharmacy-related products
and services increased 31% to $9,066,000 for the three months ended October 31,
1995 from $6,925,000 for the three months ended October 31, 1994. Growth in this
line of business should continue as the Company expands its referral bases and
available products and services.
Operating revenue from primary care physician services increased to $3,596,000
for the three months ended October 31, 1995 from $1,977,000 for the three months
ended October 31, 1994. Growth in this line of business should continue as the
Company continues to expand such primary care physician services in the two
regional markets where it operates.
Cost of revenue increased 66% to $12,248,000 for the three months ended October
31, 1995 from $7,397,000 for the three months ended October 31, 1994. Cost of
revenue as a percentage of operating revenue decreased to 27.2% from 27.7% for
the same period due to changes in the Company's combined product mix in the last
year. Selling, general and administrative expenses increased 64% to $21,649,000
for the three months ended October 31, 1995 from $13,203,000 for the three
months ended October 31, 1994. Selling, general and administrative expenses as a
percentage of operating revenue decreased to 48.0% for the three months ended
October 31, 1995 from 49.4% for the three months ended October 31, 1994. The
change in selling, general and administrative expenses as a percentage of
operating revenue is largely the result of the mix of revenues, costs and
expenses at newly acquired locations.
Depreciation and amortization expense increased 120% to $3,898,000 for the three
months ended October 31, 1995 from $1,773,000 for the three months ended October
31, 1994. This increase is attributable to the Company's purchase of intangible
and fixed assets resulting from various acquisitions along with the additional
fixed assets needed for the increased rentals of equipment.
10
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Management's Discussion and Analysis of Financial Condition and
Results of Operations
(continued)
The Company incurred net interest expense of $441,000 for the three months ended
October 31, 1995 compared to net interest expense of $79,000 for the three
months ended October 31, 1994. The interest expense resulted from the Company
borrowing monies to fund certain acquisitions, which included approximately
$30,000,000 expended between August 1, 1995 and October 31, 1995.
Income tax expense was provided at a 37.2% effective rate, comparable to actual
rates experienced in prior periods. Net income for the quarter ended October 31,
1995 was $4,323,000, a 60.6% increase over the same period in fiscal 1994. Net
income per share increased 32% to $0.37 for the quarter ended October 31, 1995
compared to $0.28 for the same period in fiscal 1994. The weighted average
number of shares increased 22% to 11,823,000 at October 31, 1995 from 9,666,000
at October 31, 1994, primarily as a result of the May 1995 public stock offering
and shares issued in conjunction with certain acquisitions.
Liquidity and Capital Resources
At October 31, 1995, total current assets were $74.1 million and total current
liabilities were $59.3 million, resulting in working capital of $14.8 million.
The Company's current ratio was 1.25 to 1 at October 31, 1995 compared to 1.88
to 1 at October 31, 1994. The decrease in the current ratio is attributable to
the Company carrying the entire balance of notes payable to banks as a current
liability.
During the three months ended October 31, 1995, the Company generated cash of
$8,537,000 from operating activities, primarily as a result of net income of
$4,323,000, depreciation and amortization of $3,898,000 and the timing of
purchases of and payments for operating items. As of October 31, 1995, the
Company had borrowed $50.1 million on its working capital line of credit of $75
million to fund certain acquisitions. Management believes the Company's credit
capacity is sufficient for the projected growth of the Company.
At October 31, 1995, net accounts receivable were $52,718,000 compared to
$42,237,000 at July 31, 1995. The Company's days revenue outstanding on net
accounts receivable were 108 days at October 31, 1995 compared to 98 days at
July 31, 1995. Acquired receivables with no corresponding revenue account for
approximately 20 days revenue outstanding on net accounts receivable at October
31, 1995.
11
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Part II. Other Information
Item 1. Legal proceedings
NOT APPLICABLE
Item 2. Changes in securities
NOT APPLICABLE
Item 3. Defaults upon senior securities
NOT APPLICABLE
Item 4. Submission of matters to a vote
of security holders
The annual meeting of shareholders was held on
December 8, 1995. William P. Kennedy, Stephen P.
Griggs, William A. Walker II, Leonard E. Williams,
and Jack T. Weaver were elected as directors.
Item 5. Other information
NOT APPLICABLE
Item 6. Exhibits and Reports on Form 8-K
A current report on Form 8-K was filed on November 15,
1995 indicating the acquisition of a significant
aggregate of individually insignificant subsidiaries.
12
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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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.
ROTECH MEDICAL CORPORATION
a Florida Corporation
Dated: 12/14/95 By: /s/ Rebecca R. Irish
--------------- ---------------------------------
Rebecca R. Irish, Treasurer
and Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1ST QUARTER
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 2,773,302
<SECURITIES> 0
<RECEIVABLES> 52,718,201
<ALLOWANCES> 0
<INVENTORY> 15,922,681
<CURRENT-ASSETS> 74,067,047
<PP&E> 56,150,812
<DEPRECIATION> 0
<TOTAL-ASSETS> 217,273,681
<CURRENT-LIABILITIES> 59,327,596
<BONDS> 0
<COMMON> 2,296
0
0
<OTHER-SE> 154,179,955
<TOTAL-LIABILITY-AND-EQUITY> 217,273,681
<SALES> 0
<TOTAL-REVENUES> 45,119,179
<CGS> 12,247,877
<TOTAL-COSTS> 12,247,877
<OTHER-EXPENSES> 25,546,370
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 440,963
<INCOME-PRETAX> 6,883,969
<INCOME-TAX> 2,560,836
<INCOME-CONTINUING> 4,323,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,323,133
<EPS-PRIMARY> .37
<EPS-DILUTED> 0
</TABLE>
