<PAGE>
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 (Date of earliest event reported): March 16, 1995
----------------
ROTECH MEDICAL CORPORATION
--------------------------
(Exact name of Registrant as specified on its Charter)
Florida 59-2115892
- ----------------------------- -------------------
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4506 L.B. McLeod Road, Suite F, Orlando, Florida 32811
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 841-2115
- ---------------------------------------------------------------------
Not Applicable
- --------------
(former name or former address, if changed since last report)
<PAGE>
The undersigned Registrant hereby amends the following item, financial
statements, exhibits or other portions of its Current Report on Form 8-K, filed
March 16, 1995, relating to the acquisition of an aggregate of individually
insignificant businesses acquired during the period August 1, 1994 to March 13,
1995.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- ---------------------------------------------------------------------------
(a)1. Financial Statements of Business Acquired.
------------------------------------------------
Lovejoy Medical Ltd.
--------------------
Report of Independent Certified Public Accountants
Balance Sheet at December 31, 1993
Statement of Income for the Year Ended December 31, 1993
Statement of Shareholder's Equity for the Year Ended December
31, 1993
Statement of Cash Flows for the Year Ended December 31, 1993
Notes to Financial Statements
Interim Balance Sheet at July 31, 1994 (unaudited)
Interim Statement of Income for the Seven Months Ended July
31, 1994 (unaudited)
Interim Statement of Shareholder's Equity for the Seven Months
Ended July 31, 1994 (unaudited)
Interim Statement of Cash Flows for the Seven Months Ended July
31, 1994 (unaudited)
Notes to Interim Financial Statements as of July 31, 1994
(unaudited)
Rothert's Hospital Equipment, Inc.
----------------------------------
Report of Independent Certified Public Accountants
Balance Sheet at December 31, 1993
Statement of Income for the Year Ended December 31, 1993
Statement of Shareholders' Equity for the Year Ended December
31, 1993
2
<PAGE>
Statement of Cash Flows for the Year Ended December 31, 1993
Notes to Financial Statements
Interim Balance Sheet at September 30, 1994 (unaudited)
Interim Statement of Income for the Nine Months Ended
September 30, 1994 (unaudited)
Interim Statement of Shareholders' Equity for the Nine Months
Ended September 30, 1994 (unaudited)
Interim Statement of Cash Flows for the Nine Months Ended
September 30, 1994 (unaudited)
Notes to Interim Financial Statements as of September 30, 1994
(unaudited)
Pioneer Medical Services, Inc.
------------------------------
Report of Independent Certified Public Accountants
Balance Sheet at December 31, 1994
Statement of Income for the Year Ended December 31, 1994
Statement of Shareholders' Equity for the Year Ended December
31, 1994
Statement of Cash Flows for the Years Ended December 31, 1994
Notes to Financial Statements
(b)1. Pro Forma Financial Information.
----------------------------------------
Pro Forma Condensed Combined Financial Statements at July 31,
1994 (unaudited)
Pro Forma Condensed Combined Interim Financial Statements at
January 31, 1995 (unaudited)
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment on Report on 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
RoTech Medical Corporation
a Florida Corporation
Dated: May 1, 1995 By: /s/ Rebecca R. Irish
------------------- -----------------------
Rebecca R. Irish, Treasurer and
Chief Financial Officer
4
<PAGE>
Report of Independent Certified Public Accountants
- ------------------------------------------------------------------------------
Shareholder and Director
Lovejoy Medical Ltd.
We have audited the accompanying balance sheet of Lovejoy Medical Ltd. as of
December 31, 1993, and the related statements of income, shareholder's equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lovejoy Medical Ltd. at
December 31, 1993, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
MICHAEL GALLOWAY & COMPANY
Orlando, Florida
April 21, 1995
5
<PAGE>
Lovejoy Medical Ltd.
Balance Sheet
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
1993
-----------
<S> <C>
ASSETS
Current Assets:
Cash.................................................... $ 40,587
Accounts receivable:
Trade, less allowance for contractual and doubtful
accounts of $349,926................................ 814,873
Inventories............................................. 248,633
Prepaid expenses and other.............................. 19,132
----------
Total Current Assets........................................ 1,123,225
Other Assets:
Intangible assets net of accumulated amortization
of $66,667.......................................... 138,333
Other................................................... 14,762
----------
153,095
Property and Equipment, less accumulated depreciation....... 899,938
----------
Total Assets................................................ $2,176,258
==========
</TABLE>
See accompanying notes.
----------------------
6
<PAGE>
Lovejoy Medical Ltd.
Balance Sheet
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
1993
-----------
<S> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable........................................ $ 107,599
Accrued expenses and other liabilities.................. 142,856
Current portion of long-term debt....................... 198,505
----------
Total Current Liabilities................................... 448,960
Long-term debt, less current portion........................ 1,075,841
Shareholder's Equity:
Common stock, par value $20 per share, 1,000 shares
authorized, issued and outstanding.................. 20,000
Retained earnings....................................... 631,457
----------
651,457
----------
Total Liabilities and Shareholder's Equity.................. $2,176,258
==========
</TABLE>
See accompanying notes.
----------------------
7
<PAGE>
Lovejoy Medical Ltd.
Statement of Income
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1993
-----------
<S> <C>
Operating revenue........................................... $3,677,812
Cost and expenses:
Cost of revenue......................................... 796,049
Selling, general and administrative..................... 2,287,242
Depreciation and amortization........................... 280,430
Interest................................................ 36,775
----------
3,400,496
----------
Net Income...................................... $ 277,316
==========
</TABLE>
See accompanying notes.
----------------------
8
<PAGE>
Lovejoy Medical Ltd.
Statement of Shareholder's Equity
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- RETAINED
SHARES AMOUNT EARNINGS
------- -------- ----------
<S> <C> <C> <C>
Balance at January 1, 1993..... 1,000 $20,000 $1,187,571
Net income................... - - 277,316
Distribution to Shareholder.. - - (833,430)
------- -------- ----------
Balance at December 31, 1993... 1,000 $20,000 $ 631,457
======= ======== ==========
</TABLE>
See accompanying notes.
----------------------
9
<PAGE>
Lovejoy Medical Ltd.
Statement of Cash Flows
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1993
-----------
<S> <C>
OPERATING INCOME
Net income.................................................... $ 277,316
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation............................................. 213,763
Amortization............................................. 66,667
Changes in operating assets and liabilities:
Decrease in trade accounts receivable.................. 155,440
Increase in inventories................................ (23,049)
Decrease in prepaid expenses and other................. 102,445
Decrease in accounts payable........................... (80,373)
Increase in accrued expenses and other liabilities..... 39,339
----------
Net cash provided by operating activities............ 751,548
INVESTING ACTIVITIES
Purchases of property and equipment......................... (335,486)
Payment for acquisition of net assets, net of
cash acquired............................................. (987,815)
Advances and deposits....................................... (17)
----------
Net cash used in investing activities................ (1,323,318)
FINANCING ACTIVITIES
Distributions to shareholder................................ (833,430)
Proceeds from long-term debt................................ 1,550,000
Payments on long-term debt.................................. (275,654)
----------
Net cash provided by financing activities............ 440,916
----------
Decrease in cash................... (130,854)
Cash at beginning of period................................. 171,441
----------
Cash at end of period....................................... $ 40,587
==========
Supplemental disclosure of cash flow
information
Cash paid during the year for interest.................. $ 40,345
</TABLE>
See accompanying notes.
-----------------------
10
<PAGE>
Lovejoy Medical Ltd.
Notes to Financial Statements--December 31, 1993
- ------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Lovejoy Medical Ltd. (the "Company") was incorporated on November 16, 1983.
The Company markets and provides home health care products and services and
rents home care equipment to patients, through its six locations in Kentucky.
These products and services, which are typically prescribed by a physician,
include home health care products (such as respiratory therapy equipment and
convalescent medical equipment).
REVENUE RECOGNITION
Revenues are reported on the accrual basis in the period in which services are
provided. Operating revenue represents the estimated net realizable amounts from
patients, third-party payors, and others for services rendered. The Company's
accounts receivable consists primarily of amounts due from federal and state
third-party reimbursement programs and third-party payors.
Rental income under short-term leasing arrangements is recognized on a
straight-line basis over the term of the lease and approximated $2.2 million in
1993. Approximately 85% of gross revenue in 1993 was derived under
federal and state third-party reimbursement programs.
INVENTORIES
Inventories consist principally of durable medical equipment and medical
supplies and are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight line method over the estimated useful lives of the assets (generally
three to five years). Amortization of leasehold improvements is included in
depreciation.
INCOME TAXES
On December 27, 1986, the Company elected to be treated as an S corporation
under the provisions of the Internal Revenue Code by the consent of its
shareholders. Under these provisions, the Company's income is taxable to its
shareholders rather than the Company.
11
<PAGE>
Lovejoy Medical Ltd.
Notes to Financial Statements - December 31, 1993
- ------------------------------------------------------------------------------
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Rental equipment....................................... $1,331,960
Furniture and fixtures................................. 119,636
Office equipment....................................... 122,728
Vehicles............................................... 296,626
----------
1,870,950
Less accumulated depreciation.......................... 971,012
----------
$ 899,938
----------
</TABLE>
The carryng value of the rental equipment is $605,276.
3. LONG-TERM DEBT
The Company's long-term debt consists of a $1,550,000 secured commercial loan
with interest at the prime rate plus .75%. The loan is payable in monthly
installments of $23,205 with remaining balance due on July 12, 1995. The loan is
collateralized by substantially all trade accounts receivable, inventory,
property and equipment, cash and investments of the Company.
The annual maturities of the loan are as follows:
<TABLE>
<S> <C>
Due in 1994............................................ $ 198,505
Due in 1995............................................ 1,075,841
----------
Total outstanding balance.............................. $1,274,346
==========
</TABLE>
12
<PAGE>
Lovejoy Medical Ltd.
Notes to Financial Statements - December 31, 1993
- ------------------------------------------------------------------------------
4. ACQUISITION
The Company acquired substantially all of the net assets of a Kentucky-based
home health care company and acquired covenants not to compete from the seller
and the seller's key management effective July 12, 1993 for $1,120,000 cash.
The combined fair market value of those assets acquired and liabilities assumed
effective July 12, 1993 are reflected below:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable.................. $ 425,000
Inventories.......................... 50,000
Prepaid expenses..................... 5,000
Property and equipment............... 375,000
Liabilities.......................... (132,185)
---------
Net assets acquired.................. $ 722,815
=========
</TABLE>
Operating results of the acquired company have been included in the statement of
income since the date of acquisition. The covenants not to compete are amortized
over periods ranging from nine months to three years, on a straight-line basis.
5. LEASE COMMITMENTS
Rental expense approximated $130,630 for the year ended December 31, 1993.
Future minimum rental commitments under leases, primarily for buildings, are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31
--------------------------------
<S> <C>
1994......................... $106,806
1995......................... 101,828
1996......................... 85,492
1997......................... 84,000
1998......................... 49,000
--------
$427,126
========
</TABLE>
13
<PAGE>
Lovejoy Medical Ltd.
Notes to Financial Statements - December 31, 1993
- ------------------------------------------------------------------------------
6. RELATED PARTY TRANSACTIONS
The Company leases a certain facility from a company owned by its president and
sole shareholder. Rent expense under this operating lease amounted to $28,000
in 1993 and is included in the lease commitments
disclosed in Note 5.
7. SUBSEQUENT EVENT
Effective August 1, 1994, the Company sold substantially all of its net assets
and granted a covenant not to compete to a Florida-based provider of home health
care services for approximately $3.8 million cash and 131,057 shares of the
buyer's restricted common stock valued at $1.9 million.
14
<PAGE>
Lovejoy Medical Ltd.
Interim Balance Sheet (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31, 1994
-------------
<S> <C>
ASSETS
Current Assets:
Cash.................................................... $ 37,403
Accounts receivable:
Trade, less allowance for contractual and doubtful
accounts........................................ 1,355,813
Inventories............................................. 251,867
Prepaid expenses and other.............................. 25,910
----------
Total Current Assets........................................ 1,670,993
Other Assets:
Intangible assets net of accumulated amortization....... 138,333
Other................................................... 14,762
----------
153,095
Property and Equipment, less accumulated depreciation....... 886,578
----------
Total Assets................................................ 2,710,666
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable, accrued expense and other
liabilities......................................... $ 198,518
Current portion of long-term debt....................... 198,505
----------
Total Current Liabilities................................... 397,023
Long-term debt.............................................. 965,441
Shareholder's Equity:
Common stock, par value $20 per share, 1,000 shares
authorized, issued and outstanding.................. 20,000
Retained earnings....................................... 1,328,202
----------
1,348,202
----------
Total Liabilities and Shareholder's Equity.................. $2,710,666
==========
</TABLE>
See accompanying notes to interim financial statements.
------------------------------------------------------
15
<PAGE>
Lovejoy Medical Ltd.
Interim Statement of Income (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JULY 31, 1994
------------------
<S> <C>
Operating revenue................................. $2,843,574
Cost and expenses:
Cost of revenue............................... 588,542
Selling, general and administrative........... 1,418,800
Depreciation.................................. 122,415
Interest...................................... 53,177
----------
2,182,934
----------
Net Income............................ $ 660,640
==========
</TABLE>
See accompanying notes to interim financial statements.
-------------------------------------------------------
16
<PAGE>
Lovejoy Medical Ltd.
Interim Statement of Shareholder's Equity (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS
------ -------- ----------
<S> <C> <C> <C>
Balance at January 1, 1994...................... 1,000 $20,000 $ 631,457
Net Income.................................. 660,640
Distributions to Shareholder................ 36,105
------ -------- ----------
Balance at July 31, 1994........................ 1,000 $20,000 $1,328,202
====== ======== ==========
</TABLE>
See accompanying notes to interim financial statements.
------------------------------------------------------
17
<PAGE>
Lovejoy Medical Ltd.
Interim Statement of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JULY 31, 1994
------------------
<S> <C>
Net cash provided by operating activities..... $ 216,271
INVESTING ACTIVITIES
Purchases of property and equipment............... (109,055)
----------
Net cash used in investing activities......... (109,055)
FINANCING ACTIVITIES
Net payments on long-term debt.................... (110,400)
----------
Net cash used in financing activities......... (110,400)
----------
Decrease in cash..... (3,184)
Cash at beginning of period....................... 40,587
----------
Cash at end of period............................. $ 37,403
==========
</TABLE>
See accompanying notes to interim financial statements.
-------------------------------------------------------
18
<PAGE>
Lovejoy Medical Ltd.
Notes to Interim Financial Statements - July 31, 1994 (Unaudited)
- ------------------------------------------------------------------------------
1. BASIS OF REPORTING
The interim balance sheet as of July 31, 1994 an the interim statements of
income, shareholder's equity and cash flows for the seven months ended July 31,
1994 are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited 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 interim financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's audited financial statements as of and for the year ended December
31, 1993. The results of operations for the interim period are not necessarily
indicative of the results which may be expected for an entire year.
2. SUBSEQUENT EVENT
Effective August 1, 1994, the Company sold substantially all of its net assets
and granted a covenant not to compete to a Florida-based provider of home health
care services for approximately $3.8 million cash and 131.057 shares of the
buyer's restricted common stock valued at $1.9 million.
19
<PAGE>
Report of Independent Certified Public Accountants
- ------------------------------------------------------------------------------
Shareholder and Director
Rothert's Hospital Equipment, Inc.
We have audited the accompanying balance sheet of Rothert's Hospital Equipment,
Inc. as of December 31, 1993, and the related statements of income,
shareholder's equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material aspects, the financial position of Rothert's Hospital Equipment,
Inc. at December 31, 1993, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
MICHAEL GALLOWAY & COMPANY
Orlando, Florida
April 21, 1995
20
<PAGE>
Rothert's Hospital Equipment, Inc.
Balance Sheet
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
1993
-----------
<S> <C>
ASSETS
Current Assets:
Cash.................................................... $ 20,916
Accounts receivable:
Trade, less allowance for contractual and doubtful
accounts of $149,684................................ 514,342
Inventories............................................. 215,155
Prepaid expenses and other.............................. 9,305
----------
Total Current Assets........................................ 759,718
Other Assets:
Investment in affiliated company........................ 76,584
Other assets............................................ 775
----------
77,359
Property and Equipment, less accumulated depreciation....... 492,736
----------
Total Assets................................................ $1,329,813
==========
</TABLE>
See accompanying notes.
----------------------
21
<PAGE>
Rothert's Hospital Equipment, Inc.
Balance Sheet
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
1993
-----------
<S> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable........................................ $ 298,163
Accrued expenses and other liabilities.................. 48,404
Notes payable........................................... 477,991
Advance from shareholder................................ 108,000
----------
Total Current Liabilities................................... 932,558
Shareholder's Equity:
Common stock, par value $162.22 per share, 500 shares
authorized, issued and outstanding.................. 81,111
Retained earnings....................................... 316,144
----------
397,255
----------
Total Liabilities and Shareholder's Equity.................. $1,329,813
==========
</TABLE>
See accompanying notes.
----------------------
22
<PAGE>
Rothert's Hospital Equipment, Inc.
Statement of Income
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1993
-----------
<S> <C>
Operating revenue........................................... $3,956,262
Cost and expenses:
Cost of revenue......................................... 1,101,226
Selling, general and administrative..................... 2,153,366
Depreciation............................................ 110,605
Interest................................................ 22,009
----------
3,387,206
----------
Net Income...................................... $ 569,056
==========
</TABLE>
See accompanying notes.
----------------------
23
<PAGE>
Rothert's Hospital Equipment, Inc.
Statement of Shareholder's Equity
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- RETAINED
SHARES AMOUNT EARNINGS
---------- --------- ----------
<S> <C> <C> <C>
Balance at January 1, 1993..... 500 $81,111 $220,174
Net income................... - - 569,056
Distribution to Shareholder.. - - (473,086)
------- ------- --------
Balance at December 31, 1993... 500 $81,111 $316,144
======= ======= ========
</TABLE>
See accompanying notes.
----------------------
24
<PAGE>
Rothert's Hospital Equipment, Inc.
Statement of Cash Flows
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1993
-----------
<S> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 569,056
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation............................................... 110,605
Changes in operating assets and liabilities:
Increase in trade accounts receivable.................... (17,187)
Increase in inventories.................................. (79,101)
Decrease in prepaid expenses............................. 2,531
Increase in accounts payable............................. 177,213
Increase in accrued expenses and other liabilities....... 18,558
---------
Net cash provided by operating activities................ 718,675
INVESTING ACTIVITIES
Purchases of property and equipment........................... (424,168)
Increase in investment in affialiated company................. (71,454)
Advances and deposits......................................... (775)
---------
Net cash used in investing activities.................... (496,397)
FINANCING ACTIVITIES
Distributions to shareholders................................. (473,086)
Proceeds from notes payable................................... 204,158
---------
Net cash used in financing activities.................... (268,928)
---------
Increase in cash........................ 16,350
Cash at beginning of period................................... 4,566
---------
Cash at end of period......................................... $ 20,916
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest.................... $ 25,269
</TABLE>
See accompanying notes.
-----------------------
25
<PAGE>
Rothert's Hospital Equipment, Inc.
Notes to Financial Statements - December 31, 1993
- ------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Rothert's Hospital Equipment, Inc. (the "Company") was incorporated on January
1, 1983. The Company markets and provides home health care products and services
and rents home care equipment to patients, through its two locations in Kentucky
and one location in Ohio. These products and services, which are typically
prescribed by a physician, include home health care products (such as
respiratory therapy equipment and convalescent medical equipment).
REVENUE RECOGNITION
Revenues are reported on the accrual basis in the period in which services are
provided. Operating revenue represents the estimated net realizable amounts from
patients, third-party payors, and others for services rendered. The Company's
accounts receivable consists primarily of amounts due from federal and state
third-party reimbursement programs and third-party payors.
Rental income under short-term leasing arrangements is recognized on a
straight-line basis over the term of the lease and approximated $1.8 million in
1993. Approximately 85% of gross revenue in 1993 was derived under
federal and state third-party reimbursement programs.
INVENTORIES
Inventories consist principally of durable medical equipment and medical
supplies and are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets (generally
three to five years). Amortization of leasehold improvements is included in
depreciation.
26
<PAGE>
Rothert's Hospital Equipment, Inc.
Notes to Financial Statements - December 31, 1993
- ------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
On April 1, 1990, the Company elected to be treated as an S corporation under
the provisions of the Internal Revenue Code by the consent of its shareholders.
Under these provisions, the Company's income is taxable to its shareholders
rather than the Company.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Rental equipment....................................... $ 828,654
Leasehold improvements................................. 192,315
Computer equipment..................................... 146,105
Vehicles............................................... 94,227
Furniture and equipment................................ 60,265
Office equipment....................................... 23,843
----------
1,345,409
Less accumulated depreciation.......................... 852,673
----------
$ 492,736
==========
</TABLE>
The carrying value of the rental equipment is $202,374.
3. CURRENT NOTES PAYABLE
Current notes payable at December 31, 1993 were $477,991 under a $1,000,000
working capital secured line of credit, with interest at the prime rate. The
working capital secured line of credit is payable on demand.
The working capital secured line of credit is collateralized by substantially
all trade accounts receivable, inventory, property and equipment, cash and
investments and all other assets of the Company.
27
<PAGE>
Rothert's Hospital Equipment, Inc.
Notes to Financial Statements - December 31, 1993
- ------------------------------------------------------------------------------
4. LEASE COMMITMENTS
Rental expense approximated $109,000 in 1993.
Future minimum rental commitments under operating leases, primarily for
buildings, are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31
--------------------------------
<S> <C>
1994......................... $ 99,360
1995......................... 99,360
1996......................... 100,428
1997......................... 100,428
1998......................... 100,428
Thereafter................... 816,852
----------
1,316,856
=========
</TABLE>
5. INVESTMENT IN AFFILIATED COMPANY AND RELATED PARTY TRANSACTIONS
The Company leases a certain facilities from an affiliated company. The
Company's 33 percent ownership in this affiliated company is accounted for by
the equity method. The Company's president and shareholder also individually
owns one-third of the affiliated company. Rent expense under these lease
amounted to approximately $100,000 for the year ended December 31, 1993, and
they are included in the lease commitments disclosed in Note 4.
The $108,000 advance from shareholder is unsecured, non-interest bearing and due
on demand.
6. EMPLOYEE BENEFIT PLAN
The Company maintains a voluntary 401(k) Plan covering substantially all
employees 21 years of age or older. Employees are permitted to make pre-tax
contributions to the plan pursuant to salary reduction agreements. The Company
may make discretionary matching contributions to the plan.
The Company expense under the plan was approximately $32,000 in 1993.
28
<PAGE>
Rothert's Hospital Equipment, Inc.
Notes to Financial Statements - December 31, 1993
- ------------------------------------------------------------------------------
7. SUBSEQUENT EVENT
Effective October 1, 1994, the Company sold substantially all of its net assets
and granted a covenant not to compete to a Florida-based provider of home health
care services for approximately $5.05 million cash.
29
<PAGE>
Rothert's Hospital Equipment, Inc.
Interim Balance Sheet (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
------------------
<S> <C>
ASSETS
Current Assets:
Cash.................................................... $ 331,636
Accounts receivable:
Trade, less allowance for contractual and doubtful
accounts........................................ 777,740
Inventories............................................. 280,000
Prepaid expenses and other.............................. 8,757
----------
Total Current Assets........................................ 1,398,133
Other Assets:
Investment in affiliated company........................ 104,167
Other................................................... 775
----------
104,942
Property and Equipment, less accumulated depreciation....... 645,082
----------
Total Assets................................................ $2,148,157
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable, Accrued expenses and other
liabilities......................................... $ 213,111
Notes payable........................................... 834,176
Advances from shareholder............................... 285,772
----------
Total Current Liabilities................................... 1,333,059
Shareholder's Equity:
Common stock, par value $162.22 per share, 500 shares
authorized, issued and outstanding.................. 81,111
Retained earnings....................................... 733,987
----------
815,098
----------
Total Liabilities and Shareholder's Equity.................. $2,148,157
==========
</TABLE>
See accompanying notes to interim financial statements.
------------------------------------------------------
30
<PAGE>
Rothert's Hospital Equipment, Inc.
Interim Statement of Income (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1994
-------------------
<S> <C>
Operating revenue................................. $2,730,444
Cost and expenses:
Cost of revenue............................... 528,676
Selling, general and administrative........... 1,445,418
Depreciation.................................. 128,191
Interest...................................... 43,715
----------
2,146,000
----------
Net Income............................ $ 584,444
==========
</TABLE>
See accompanying notes to interim financial statements.
-------------------------------------------------------
31
<PAGE>
Rothert's Hospital Equipment, Inc.
Interim Statement of Shareholder's Equity (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS
------ -------- ----------
<S> <C> <C> <C>
Balance at January 1, 1994...................... 500 $81,111 $ 316,144
Net Income.................................. 584,444
Distributions to Shareholders............... (166,601)
------ -------- ----------
Balance at September 30, 1994................... 500 $81,111 $ 733,987
====== ======== ==========
</TABLE>
See accompanying notes to interim financial statements.
------------------------------------------------------
32
<PAGE>
Rothert's Hospital Equipment, Inc.
Interim Statement of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1994
------------------
<S> <C>
Net cash provided by operating activities..... $ 251,484
INVESTING ACTIVITIES
Purchases of property and equipment............... (280,537)
Increase in investment in affiliated company...... (27,583)
----------
Net cash used in investing activities......... (308,120)
FINANCING ACTIVITIES
Proceeds from notes payable....................... 533,957
Distributions to shareholders..................... (166,601)
----------
Net cash provided by financing activities..... 367,356
----------
Increase in cash..... 310,720
Cash at beginning of period....................... 20,916
----------
Cash at end of period............................. $ 331,636
==========
</TABLE>
See accompanying notes to interim financial statements.
-------------------------------------------------------
33
<PAGE>
Rothert's Hospital Equipment, Inc.
Notes to Interim Financial Statements - September 30, 1994 (Unaudited)
- ------------------------------------------------------------------------------
1. BASIS OF REPORTING
The interim balance sheet as of September 30, 1994 and the interim statements of
income, shareholders' equity and cash flows for the nine months ended September
30, 1994 are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited 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 interim financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's audited financial statements as of and for the year ended December
31, 1993. The results of operations for the interim period are not necessarily
indicative of the results which may be expected for an entire year.
2. SUBSEQUENT EVENT
Effective October 1, 1994, the Company sold substantially all of its net assets
and granted a covenant not to compete to a Florida-based provider of home health
care services for approximately $5.05 million cash.
34
<PAGE>
Report of Independent Certified Public Accountants
- ------------------------------------------------------------------------------
Shareholder and Directors
Pioneer Medical Services, Inc.
We have audited the accompanying balance sheet of Pioneer Medical Services, Inc.
as of December 31, 1994, and the related statements of income, shareholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pioneer Medical Services, Inc.
at December 31, 1994, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
MICHAEL GALLOWAY & COMPANY
Orlando, Florida
April 21, 1995
35
<PAGE>
Pioneer Medical Services, Inc.
Balance Sheet
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
1994
-----------
<S> <C>
ASSETS
Current Assets:
Cash.................................................... $ 75,100
Accounts receivable:
Trade, less allowance for contractual and doubtful
accounts of $234,900................................ 327,083
Other................................................... 9,965
Inventories............................................. 10,500
----------
Total Current Assets........................................ 422,648
Other Assets................................................ 1,928
Property and Equipment, less accumulated depreciation....... 150,687
----------
Total Assets................................................ $575,263
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 83,386
Shareholders' Equity:
Common stock, par value $10 per share, 500 shares
authorized, issued and outstanding....................... 5,000
Retained earnings........................................... 486,877
----------
491,877
----------
Total Liabilities and Shareholers' Equity................... $575,263
==========
</TABLE>
See accompanying notes.
-----------------------
36
<PAGE>
Pioneer Medical Services, Inc.
Statement of Income
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1994
-----------
<S> <C>
Operating revenue........................................... $2,388,265
Cost and expenses:
Cost of revenue......................................... 320,347
Selling, general and administrative..................... 663,279
Depreciation............................................ 84,445
Interest................................................ 1,471
----------
1,069,542
----------
Net Income...................................... $1,318,723
==========
</TABLE>
See accompanying notes.
----------------------
37
<PAGE>
Pioneer Medical Services, Inc.
Statement of Shareholder's Equity
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- RETAINED
SHARES AMOUNT EARNINGS
---------- --------- -----------
<S> <C> <C> <C>
Balance at January 1, 1994...... 500 $5,000 $ 823,794
Net income.................... - - 1,318,723
Distributions to Shareholders. - - (1,655,640)
--- ------ -----------
Balance at December 31, 1993... 500 $5,000 $ 486,877
=== ====== ===========
</TABLE>
See accompanying notes.
----------------------
38
<PAGE>
Pioneer Medical Services, Inc.
Statement of Cash Flows
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1994
-----------
<S> <C>
OPERATING ACTIVITIES
Net income.................................................... $1,318,723
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation............................................. 84,445
Changes in operating assets and liabilities:
Decrease in trade accounts receivable.................. 204,135
Decrease in other receivable........................... 6,079
Decrease in accounts payable........................... (263)
Decrease in accrued expenses and other liabilities..... (57)
----------
Net cash provided by operating activities................ 1,613,062
INVESTING ACTIVITIES
Purchases of property and equipment......................... (52,624)
Proceeds from sales of property and equipment............... 196,268
Advances and deposits....................................... 147
----------
Net cash provided by investing activities............... 143,791
FINANCING ACTIVITIES
Payments on long-term debt.................................. (56,050)
Distributions to shareholders............................... (1,655,640)
----------
Net cash used in financing activities.................... (1,711,690)
----------
Increase in cash................... 45,163
Cash at beginning of period................................. 29,937
----------
Cash at end of period....................................... $ 75,100
==========
Supplemental disclosure of cash flow
information
Cash paid during the year for interest.................. $ 1,471
</TABLE>
See accompanying notes.
-----------------------
39
<PAGE>
Pioneer Medical Services, Inc.
Notes to Financial Statements-December 31, 1994
- ------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Pioneer Medical Services, Inc. (the "Company") was incorporated on May 24, 1989.
The Company markets and provides home health care products and services and
rents home care equipment to patients through its two locations in West
Virginia. These products and services, which are typically prescribed by a
physician, include home health care products (such as respiratory therapy
equipment and convalescent medical equipment).
REVENUE RECOGNITION
Revenues are reported on the accrual basis in the period in which services are
provided. Operating revenue represents the estimated net realizable amounts from
patients, third-party payors, and others for services rendered. The Company's
accounts receivable consists primarily of amounts due from federal and state
third party reimbursement programs and third-party payors.
Rental income under short-term leasing arrangements is recognized on a straight-
line basis over the term of the lease and approximated $1.9 million in 1994.
Approximately 65% of gross revenue in 1933 was derived under federal and state
third-party reimbursement programs.
INVENTORIES
Inventories consist principally of durable medical equipment and medical
supplies and are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight line method over the estimated useful lives of the assets (generally
three to seven years). Amortization of leasehold improvements is included in
depreciation.
40
<PAGE>
Pioneer Medical Services, Inc.
Notes to Financial Statements - December 31, 1994
- ------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
On January 1, 1992, the Company elected to be treated as an S corporation under
the provisions of the Internal Revenue Code by the consent of its shareholders.
Under these provisions, the Company's income is taxable to its shareholders
rather than the Company. However, the Company owns certain assets which have
approximately $600,000 of built-in gains which could be subject to corporate
income tax if sold.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Rental equipment....................................... $ 354,639
Furniture and equipment................................ 24,148
Vehicles............................................... 101,459
----------
480,246
Less accumulated depreciation.......................... 329,559
----------
$ 150,687
==========
</TABLE>
The carrying value of the rental equipment is $111,421.
3. RELATED PARTY TRANSACTIONS
The Company leases a certain facility from a company owned by its president and
shareholder. Rent expense under this operating lease amounted to $28,800 in
1994.
4. SUBSEQUENT EVENT
Effective January 1, 1995, the Company's shareholders sold 100% of their Class A
Common Stock and granted a covenant not to compete to a Florida-based provider
of home health care services for approximately $4.67 million cash.
41
<PAGE>
RoTech Medical Corporation and Subsidiaries
Pro Forma Condensed Combined Financial Statements
The pro forma condensed combined financial statements for the year ended
July 31, 1994 have been prepared to illustrate the estimated combined effects of
the Agreements of Purchase and Sales (Agreements) between RoTech Medical
Corporation (the Company) and Lovejoy, Rothert's and Pioneer. The pro forma
condensed combined balance sheet as of July 31, 1994 was derived by adjusting
the historical balance sheet as of July 31, 1994 of the Company and the
historical balance sheet as of July 31, 1994 of Lovejoy, the historical balance
sheet as of September 30, 1994 of Rothert's and the historical balance sheet as
of July 31, 1994 of Pioneer.
The pro forma condensed combined statement of income was derived by
adjusting the historical statement for the year ended July 31, 1994 of the
Company and the historical statement of income for the year ended July 31, 1994
of Lovejoy, the historical statement of income for the year ended September 30,
1994 of Rothert's and the historical statement of income for the year ended July
31, 1994 of Pioneer. The pro forma condensed combined statement of income was
prepared as if each purchase and sale had occurred on August 1, 1993. The pro
forma condensed combined statement of income presented is not necessarily
indicative of the results of operations that might have occurred had the
transaction 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 along with certain expenses for
duplicate locations have been eliminated. The acquisitions have been accounted
for in accordance with the purchase method of accounting. The pro forma
condensed combined statement of income includes amortization of goodwill as if
the Agreements had been completed on the assumed effective date referred to
above.
The pro forma condensed combined financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
thereto included in the Company's July 31, 1994 Form 10-K.
42
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------
Pro Forma Condensed Combined Balance Sheet
<TABLE>
<CAPTION>
ROTECH ROTECH
MEDICAL MEDICAL
CORPORATION CORPORATION
CONSOLIDATED COMBINED COMBINED
JULY 31 ACQUIRED PRO FORMA PRO FORMA
1994 ENTITIES ADJUSTMENTS RESULTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash............................ $ 331,681 $ 136,603 $ 468,284
Accounts Receivable:
Trade, less allowances for
contractual adjustments
and doubtful accounts......... 29,568,314 1,656,298 31,224,612
Other......................... 1,622,975 9,965 1,632,940
Inventories................... 5,918,437 474,288 6,392,725
Prepaid Expenses.............. 711,350 28,437 739,787
----------- ----------- ----------- ------------
Total Current Assets........ 38,152,757 2,305,591 40,458,348
----------- ----------- ----------- ------------
Other Assets:
Intangible Assets, less
accumulated amortization... 30,880,930 138,333 13,972,036 (3) 44,991,299
Investment in affiliated
company.................... 1,874,660 1,874,660
Other assets................... 134,570 94,049 (76,584)(1) 152,035
----------- ----------- ----------- ------------
32,890,160 232,382 13,895,452 47,017,994
Property and equipment, less
accumulated depreciation....... 23,389,838 1,543,361 24,933,199
----------- ----------- ----------- ------------
TOTAL ASSETS...................... $94,432,755 $4,081,334 $13,895,452 $112,409,541
=========== =========== =========== ============
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Accounts payable, accrued
expenses and other liabilities. $ 5,521,033 $ 680,408 $ 1,860,339 (1) $21,605,356
Notes payable to bank............ 4,098,000 784,496 12,759,080 (1,2) 4,098,000
Income taxes payable............. 750,609 0 750,609
----------- ---------- ----------- ------------
Total Current Liabilities..... 10,369,642 1,464,904 14,619,419 26,453,965
Other Liabilities:
Deferred income taxes........... 742,650 742,650
Long-term debt.................. 1,075,841 (1,075,841)(1)
Shareholders' Equity
Common Stock, par value $.0002
per share, 50,000,000 shares
authorized, 9,504,770 shares
at July 31, 1994 issued and
outstanding..................... 1,909 106,111 (106,085)(2) 1,935
Treasury stock, at cost......... (814,535) (814,535)
Additional paid-in capital...... 64,520,077 1,892,437 (2) 66,412,514
Retained earnings............... 19,613,012 1,434,478 (1,434,478)(2) 19,613,012
----------- ----------- ----------- ------------
83,320,463 1,540,589 351,874 85,212,926
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.............. $94,432,755 $4,081,334 $13,895,452 $112,409,541
=========== =========== =========== ============
</TABLE>
See notes to pro forma condensed combined financial statements
--------------------------------------------------------------
43
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------
Pro Forma Condensed Combined Statements of Income
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1994
-----------------------------------------------------------------------------
ROTECH ROTECH
MEDICAL MEDICAL
CORPORATION CORPORATION
CONSOLIDATED COMBINED COMBINED
YEAR ENDED ACQUIRED PRO FORMA PRO FORMA
JULY 31, 1994 ENTITIES ADJUSTMENTS RESULTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenue................. $71,469,618 $10,022,339 $81,491,957
Cost and expenses:
Cost of revenue................ 17,408,548 2,217,622 19,626,170
Selling, general
and administrative.......... 35,879,483 5,103,887 (60,000)(a) 40,923,370
Depreciation and amortization.. 5,338,494 475,480 727,487 (b) 6,541,461
Interest....................... 66,676 60,255 904,150 (c) 1,031,081
----------- ----------- ----------- -----------
58,693,201 7,857,244 1,571,637 68,122,082
----------- ----------- ----------- -----------
Income before income taxes........ 12,776,417 2,165,095 (1,571,637) 13,369,875
Income tax expense................ 4,664,197 0 201,776 (d) 4,865,973
----------- ----------- ----------- -----------
Net income.................. $ 8,112,220 $ 2,165,095 $(1,773,413) $ 8,503,902
=========== =========== =========== ===========
Earnings Per Share Data:
Net Income Per Share.............. $0.99 $1.03
===== =====
Weighted Average Number
of Shares Outstanding........... 8,147,144 131,057 (e) 8,278,201
</TABLE>
44
<PAGE>
RoTech Medical Corporation and Subsidiaries
Notes to Pro Forma Condensed Combined Financial Statements
(1) Elimination of net book value of certain assets ($76,584) not acquired.
Reclassification of certain liabilities assumed to accounts payable.
(2) Purchase price paid as current note payable to bank ($13,543,576) and
accrued as stock ($1,892,463). Elimination of acquired entities' equity in
accordance with the purchase method of accounting.
(3) Additional intangibles of $14,110,369 resulting from the excess of the
purchase price over the net assets acquired, less the elimination of the
historical intangibles of Rothert's of $138,333. This adjustment does not
contemplate any change to the purchase price for the differences in the
business purchased at their respective dates of acquisition compared to
what the purchase price may have been as of August 1, 1993.
(a) Supportable general and administrative expenses relating directly to the
payroll and related expenses of those terminated employees and locations
determined to be duplicated by the Company's existing structure and
therefore would not be needed after the acquisition. Elimination of
estimated non-recurring expenses incurred by Lovejoy, Rothert's and
Pioneer.
(b) Amortization on intangibles recorded in the acquisition (amortized over
various lives from 5 to 25 years).
(c) Additional interest expense related to borrowings (or reduced investments)
for cash paid to acquire Lovejoy, Rothert's and Pioneer; assumed borrowed
on August 1, 1993, less interest expense pertaining to liabilities not
assumed by the Company. Assumed 6.6% interest rate on purchase price.
(d) Adjustment to income tax expense relating to the net income as adjusted for
the combined entity. 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.
(e) Additional shares of the Company's Common Stock issued pursuant to the
Agreements; assumed issued on the first day of the period presented.
45
<PAGE>
RoTech Medical Corporation and Subsidiaries
Pro Forma Condensed Combined Interim Financial Statements
The pro forma condensed combined interim financial statements for the six
months ended January 31, 1995 have been prepared to illustrate the estimated
combined effects of the Agreements of Purchase and Sale (Agreements) between
RoTech Medical Corporation (the Company) and Lovejoy, Rothert's and Pioneer.
The pro forma condensed combined interim statement of income was derived by
adjusting the unaudited historical interim statement for the six months ended
January 31, 1995 of the Company and the unaudited historical interim statement
of income for the seven months ended July 31, 1994 of Lovejoy, the unaudited
historical interim statement of income for the nine months ended September 30,
1994 of Rothert's and the unaudited historical statement of income for the year
ended December 31, 1994 of Pioneer. The pro forma condensed combined interim
statement of income was prepared as if each purchase and sale had occurred on
August 1, 1994. The pro forma condensed combined interim statement of income
presented is not necessarily indicative of the results of operations that might
have occurred had the transaction 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 along with certain expenses for
duplicate locations have been eliminated. The acquisitions have been accounted
for in accordance with the purchase method of accounting. The pro forma
condensed combined interim statement of income includes amortization of goodwill
as if the Agreements had been completed on the assumed effective date referred
to above.
The pro forma condensed combined interim financial statements should be
read in conjunction with the audited consolidated financial statements and
related notes thereto included in the Company's July 31, 1994 Form 10-K and the
condensed consolidated interim financial statements and the related notes
thereto included in the Company's January 31, 1995 Form 10-Q/A.
46
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------
Pro Forma Condensed Combined Statements of Income
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JANUARY 31, 1995
-----------------------------------------------------------------------------
ROTECH
MEDICAL ROTECH
CORPORATION MEDICAL
CONSOLIDATED CORPORATION
SIX MONTHS COMBINED COMBINED
ENDED JANUARY ACQUIRED PRO FORMA PRO FORMA
31, 1995 ENTITIES ADJUSTMENTS RESULTS
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Operating revenue................. $59,304,735 $ 2,166,481 $61,471,216
Cost and expenses:
Cost of revenue................ 16,394,082 286,022 16,680,104
Selling, general
and administrative.......... 29,534,029 786,267 (30,000)(a) 30,290,296
Depreciation and amortization.. 3,860,751 70,709 363,744 (b) 4,295,204
Interest....................... 310,370 10,450 446,160 (c) 766,980
----------- ------------ ------------ -----------
50,099,232 1,153,448 779,904 52,032,584
----------- ------------ ------------ -----------
Income before income taxes........ 9,205,503 1,013,033 (779,904) 9,438,632
Income tax expense................ 3,410,000 0 79,264 (d) 3,489,264
----------- ------------ ------------ -----------
Net income.................. $ 5,795,503 $ 1,013,033 $ 859,168 $ 5,949,368
=========== ============ ============ ===========
Effective tax rate:
Earnings Per Share Data........... $ 0.59 $0.59
Weighted Average Number
of Shares Outstanding........... 9,879,648 131,057 (e) 10,010,705
</TABLE>
47
<PAGE>
RoTech Medical Corporation and Subsidiaries
Notes to Pro Forma Condensed Combined Interim Financial Statements
(a) Supportable general and administrative expenses relating directly to the
payroll and related expenses of those terminated employees and locations
determined to be duplicated by the Company's existing structure and
therefore would not be needed after the acquisition. Elimination of
estimated non-recurring expenses incurred by Lovejoy, Rothert's and
Pioneer.
(b) Amortization on intangibles recorded in the acquisition (amortized over
various lives from 5 to 25 years).
(c) Additional interest expense related to borrowings (or reduced investments)
for cash paid to acquire Lovejoy, Rothert's and Pioneer; assumed borrowed
on August 1, 1994, less interest expense pertaining to liabilities not
assumed by the Company. Assumed 6.6% interest rate on purchase price.
(d) Adjustment to income tax expense for the tax expense relating to the net
income as adjusted for the combined entity. 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.
(e) Additional shares of the Company's Common Stock issued pursuant to the
Agreements; assumed issued on the first day of the period presented.
48
