<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 JANUARY 31, 1996
----------------
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 March 13, 1996: 12,389,321
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Index
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets, Interim at January 31, 1996 and
Year End at July 31, 1995 1
Condensed Consolidated Interim
Statements of Income for the Three
Months and Six Months Ended January
31, 1996 and 1995 2
Condensed Consolidated Interim
Statements of Shareholders' Equity for
the Six Months Ended January 31, 1996
and 1995 3
Condensed Consolidated Interim
Statements of Cash Flows for the Six
Months Ended January 31, 1996 and
1995 4
Notes to Condensed Consolidated Interim
Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Part II. Other Information 13
Signature 14
</TABLE>
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 31 July 31
1996 1995
--------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash $3,547,339 $577,283
Accounts Receivable:
Trade, less allowance for contractual adjustments and
doubtful accounts 65,556,906 42,236,981
Other 3,512,431 1,418,918
Inventories 16,848,535 12,036,188
Prepaid expenses 753,383 388,728
-------------- --------------
Total Current Assets 90,218,594 56,658,098
Other Assets:
Intangible assets, less accumulated amortization 115,714,154 68,811,955
Other assets 1,670,366 249,070
-------------- --------------
117,384,520 69,061,025
Property and equipment, less accumulated depreciation 66,863,661 45,912,848
-------------- --------------
$274,466,775 $171,631,971
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other liabilities $9,713,512 $8,842,171
Notes payable to banks 100,199,176 9,980,000
Deferred income taxes 539,634 334,504
Income taxes receivable (1,431,220) (306,849)
-------------- --------------
Total Current Liabilities 109,021,102 18,849,826
Other liabilities:
Deferred income taxes 3,895,200 3,123,625
Shareholders' Equity:
Common Stock, par value $.0002 per share, 50,000,000
shares authorized, 11,555,775 shares at January 31, 1996
and 11,421,821 shares at July 31, 1995 issued and
outstanding 2,320 2,293
Treasury stock, at cost (814,535) (814,535)
Additional paid-in capital 120,669,089 118,031,491
Retained earnings 41,693,599 32,439,271
-------------- --------------
161,550,473 149,658,520
-------------- --------------
$274,466,775 $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
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31 January 31 January 31 January 31
1996 1995 1996 1995
------------------------------ ------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenue $ 61,463,199 $32,581,640 $106,582,378 $59,304,735
Cost and expenses:
Cost of revenue 16,782,626 8,996,663 29,030,503 16,394,082
Selling, general and administrative 30,091,030 16,331,445 51,739,877 29,534,029
Depreciation and amortization 5,864,991 2,087,476 9,762,514 3,860,751
Interest 895,758 231,616 1,336,721 310,370
-------------- ------------- -------------- -------------
53,634,405 27,647,200 91,869,615 50,099,232
-------------- ------------- -------------- -------------
Income before income taxes 7,828,794 4,934,440 14,712,763 9,205,503
Income tax expense 2,897,599 1,830,000 5,458,435 3,410,000
-------------- ------------- -------------- -------------
Net Income $4,931,195 $3,104,440 $9,254,328 $5,795,503
============== ============= ============== =============
Net income per share $0.40 $0.31 $0.76 $0.59
============== ============= ============== =============
Weighted Average Number
of Shares Outstanding 12,244,407 9,897,285 12,222,552 9,879,648
</TABLE>
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 17,268 3 209,694
Issuance of Common Stock pursuant
to Employee Stock Compensation
Plan 138,362 28 1,996,532
Net income for the six months
ended January 31, 1995 5,795,503
-------------------------------------------------------------------
Balance, January 31, 1995 9,660,400 $1,940 $(814,535) $66,726,303 $25,408,515
=========== ======== =========== ============== =============
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 119,924 24 2,439,151
Issuance of Common Stock pursuant
to Employee Stock Compensation
Plan 14,030 3 198,447
Net income for the six months ended
January 31, 1996 9,254,328
-------------------------------------------------------------------
Balance, January 31, 1996 11,555,775 $2,320 $(814,535) $120,669,089 $41,693,599
=========== ======== =========== ============== =============
</TABLE>
See notes to condensed consolidated interim financial statements.
3
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Condensed Consolidated Interim Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
January 31 January 31
1996 1995
---------------------------------
(Unaudited)
<S> <C> <C>
Net Cash Provided by Operating Activities $ 6,389,754 $4,313,022
Investing Activities
Purchases of property and equipment (11,915,906) (6,884,817)
Proceeds from sale of property and equipment 15,160
Advances and deposits (1,236,080) (24,830)
Payments for acquisition of net assets and assumption
of liabilities, net of cash acquired (80,486,888) (19,874,666)
-------------- --------------
Net Cash Used in Investing Activities (93,638,874) (26,769,153)
Financing Activities
Net proceeds from long-term debt and notes payable 90,219,176 22,400,000
-------------- --------------
Net Cash Provided by Financing Activities 90,219,176 22,400,000
-------------- --------------
Increase (Decrease) in Cash 2,970,056 (56,131)
Cash at Beginning of Period 577,283 331,681
-------------- --------------
Cash at End of Period $ 3,547,339 $275,550
=============== ===============
</TABLE>
See notes to condensed consolidated interim financial statements.
4
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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 January 31, 1996 and the
condensed consolidated interim statements of income, shareholders' equity and
cash flows for the three months and six months ended January 31, 1996 and 1995
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 - Shareholders' Equity
During the six months ended January 31, 1996, the Company issued 119,924 shares
of its Common Stock as partial consideration for the purchase of several home
health care companies. The Company holds 785,134 shares in escrow related to
acquisitions as contingent shares to be released upon the development of future
events, with such measurement dates from February 28, 1996 to December 31, 1997.
During the six months ended January 31, 1996, stock options were granted to
certain employees for the purchase of 180,000 shares of Common Stock at prices
ranging from $23.00 to $27.50 subject to the terms stated in the Company's Stock
Option Plan.
In February 1996, options were exercised for the purchase of 64,426 shares of
Common Stock at prices ranging from $11.875 to $13.75.
Note C - Notes Payable
On December 29, 1995, the Company expanded its credit facility to $150,000,000,
of which approximately $50,000,000 was available for borrowing at January 31,
1996. The interest rate is selected by the Company based on either the LIBOR
rate plus 0.70% or a Bankers' Acceptance rate plus 0.75%. The terms and
covenants are similar to those in the previous loan agreement.
Note D - Subsequent Events
During the period from February 1, 1996 through March 13, 1996, the Company
completed the acquisitions of the net assets or stock of eight companies in five
states, using a combination of $9,044,408 cash and 6,640 shares of its Common
Stock.
5
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Note E - 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 the Company for
those acquisition transactions consummated between August 1, 1995 and March 13,
1996. 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 six
months ended January 31, 1996 was derived by adjusting the unaudited interim
historical statement of income for the six months ended January 31, 1996 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 interim historical statement of income of the Company for the six
months ended January 31, 1996. The entities acquired prior to January 31, 1996
are included in the Company's balance sheet as of January 31, 1996.
The operations of any entities acquired subsequent to January 31, 1996 are
not included in the Company's historical interim statement of income as
presented herein. The net assets of any entities acquired subsequent to January
31, 1996 are not included in the Company's balance sheet as of January 31, 1996.
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 Interim Statements of Income
[CAPTION]
<TABLE>
For the Year Ended July 31, 1995
-------------------------------------------------------------------
(Unaudited)
RoTech
Medical RoTech
Corporation Medical
Consolidated Corporation
Year Combined Combined
Ended Acquired Pro Forma Pro Forma
July 31, 1996 Entities Adjustments Results
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenue $134,111,458 $85,815,866 $219,927,324
Cost and expenses:
Cost of revenue 36,287,811 31,488,481 $(3,463,733)(a) 64,312,559
Selling, general
and administrative 66,477,381 43,037,931 (1,750,000)(b) 107,765,312
Depreciation and amortization 9,565,238 1,625,359 5,500,000 (c) 16,690,596
Interest 835,462 982,904 5,220,000 (d) 7,038,366
------------ ----------- ----------- ------------
113,165,892 77,134,675 5,506,267 195,806,833
------------ ----------- ----------- ------------
Income before income taxes 20,945,566 8,681,191 (5,506,267) 24,120,490
Income tax expense 7,800,800 2,434,254 (1,259,532)(e) 8,975,522
------------ ----------- ----------- ------------
Net Income $ 13,144,766 $ 6,246,937 $(4,246,735) $ 15,144,968
============ =========== =========== ============
Net Income Per Share $1.27 $1.45
============ ============
Weighted Average Number
of Shares Outstanding 10,342,000 126,564 (f) 10,468,564
</TABLE>
7
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Pro Forma Condensed Combined Interim Statements of Income
[CAPTION]
<TABLE>
For the Six Months Ended January 31, 1996
-------------------------------------------------------------------
(Unaudited)
RoTech
Medical RoTech
Corporation Medical
Consolidated Corporation
Six Months Combined Combined
Ended Acquired Pro Forma Pro Forma
January 31, 1996 Entities Adjustments Results
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenue $106,582,378 $23,870,480 $130,452,858
Cost and expenses:
Cost of revenue 29,030,503 $ 7,177,847 (789,563)(a) 35,418,787
Selling, general
and administrative 51,739,877 $13,020,934 (625,000)(b) 64,135,811
Depreciation and amortization 9,762,514 $ 598,310 2,500,000 (c) 12,860,823
Interest 1,336,721 $ 341,822 1,064,000 (d) 2,742,543
------------ ----------- ---------- ------------
91,869,615 21,138,913 2,149,437 115,157,964
------------ ----------- ---------- ------------
Income before income taxes 14,712,763 2,731,567 (2,149,437) 15,294,893
Income tax expense 5,458,435 315,622 (100,234)(e) 5,673,823
------------ ----------- ---------- ------------
Net Income $ 9,254,328 $ 2,415,945 $(2,049,203) $ 9,621,070
============ =========== =========== ============
Net Income Per Share $0.76 $0.78
============ ============
Weighted Average Number
of Shares Outstanding 12,222,552 96,100 (f) 12,318,652
</TABLE>
8
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)-continued
Note E - 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
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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 and Six Months Ended
January 31, 1996 and 1995
Operating revenue increased 89% to $61,463,000 for the three months ended
January 31, 1996 from $32,582,000 for the three months ended January 31, 1995.
Operating revenue increased 80% to $106,582,000 for the six months ended January
31, 1996 from $59,305,000 for the six months ended January 31, 1995. The
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 from home respiratory and other medical equipment
increased 125% to $46,958,000 for the three months ended January 31, 1996 from
$20,837,000 for the three months ended January 31, 1995. Operating revenue from
home respiratory and other medical equipment increased 105% to $79,415,000 for
the six months ended January 31, 1996 from $38,658,000 for the six months ended
January 31, 1995. The increase was due mainly to increases in patient bases
throughout the Company's locations and increased marketing efforts in certain
locations acquired during the fiscal year 1995 and the first six months of
fiscal year 1996.
Operating revenue from home infusion therapy and pharmacy related services
increased 6% to $9,332,000 for the three months ended January 31, 1996 from
$8,776,000 for the three months ended January 31, 1995. Operating revenue from
home infusion therapy and pharmacy related services increased 17% to $18,398,000
for the six months ended January 31, 1996 from $15,700,000 for six months ended
January 31, 1995. Growth in this line of business should continue as the Company
expands both its service areas and available products and services along with
coverage for certain home infusion therapies not previously paid for by the
Medicare program.
Operating revenue from physician practices represented 8% of total
operating revenue for the six month period ended January 31, 1996 and for the
six month period ended January 31, 1995. The Company currently owns 22 physician
practices and employs 27 primary care physicians. These practices are clustered
in two rural marketplaces. Growth in this line of business should continue as
the Company continues to acquire primary care practices in these two geographic
regions.
10
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
(continued)
Cost of revenue as a percentage of operating revenue remained relatively
stable at 27% for the three months and the six months ended January 31, 1996 and
January 31, 1995. Selling, general and administrative expenses are a percentage
of operating revenue remained relatively stable at 49% for the six months ended
January 31, 1996 and January 31, 1995. Changes in the Company's mix of business
affect these categories, for example, physician practices have no cost of
revenue, all expenses are of a selling, general and administrative nature.
Depreciation and amortization expense increased 181% to $5,865,000 for the
three months ended January 31, 1996 from $2,087,000 for the three months ended
January 31, 1995. Depreciation and amortization expense increased 153% to
$9,763,000 for the six months ended January 31, 1996 from $3,861,000 for the six
months ended January 31, 1995. Depreciation and amortization expense as
percentage of revenue was 9.2% for the six months ended January 31, 1996
compared to 6.5% for the six months ended January 31, 1995. The increase was
attributable to growth in the Company's patient bases, expansion of rental-based
product lines and the Company's significant acquisition activities resulting in
depreciable and intangible assets.
Interest expense, net of interest income, increased to $896,000 for the
three months ended January 31, 1996 from $232,000 for the three months ended
January 31, 1995. Net interest expense increased to $1,337,000 for the six
months ended January 31, 1996 from $310,000 for the six months ended January 31,
1995. This increase resulted from the Company borrowing monies to fund its
acquisition and expansion activities.
Income tax expense was provided at a 37% effective rate, comparable to
actual rates experienced in prior periods. Net income for the six months ended
January 31, 1996 was $9,254,000, a 60% increase over the same period in fiscal
1995. Net income per share increased 29% to $0.76 for the six months ended
January 31, 1996 compared to $0.59 for the six months ended January 31, 1995.
The weighted average number of shares increased 24% to 12,203,000 at January 31,
1996 from 9,880,000 at January 31, 1995, primarily as a result of the Company's
May 1995 public offering in which it issued 2,000,000 shares of its Common
Stock. The Company issued 120,000 shares of its Common Stock in conjunction with
acquisitions in the six months ended January 31, 1996.
Liquidity and Capital Resources
At January 31, 1996, total current assets were $90,219,000 and total
current liabilities were $109,021,000, resulting in negative working capital of
$18,802,000. The Company's current ratio of 3.01 to 1 at July 31, 1995 has
decreased, as borrowings from banks have increased to $100,199,000 from
$9,980,000, which are classified as short term liabilities. The Company has no
long term debt and utilized $80,487,000 in proceeds from its borrowings from
banks to fund acquisitions in the six months ended January 31, 1996, which
consist of primarily long term assets.
11
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ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
(continued)
Net trade accounts receivable increased $23,320,000 due to acquisitions and
the Company's growth in net operating revenue. As a result, the Company's days
revenue outstanding on net accounts receivable remained stable at 98 at January
31, 1996 and July 31, 1995. Acquired receivables remaining outstanding account
for approximately 14 days revenue outstanding at January 31, 1996 and 10 days
revenue outstanding at July 31, 1995.
During the six months ended January 31, 1996, the Company generated cash of
$6,390,000 from operating activities, primarily as a result of net income of
$9,254,000 and the timing of purchases of and payments for operating items. As
of January 31, 1996, the Company had borrowed $100,199,000 on its working
capital line of credit of $150,000,000 to fund certain acquisitions. Management
believes the Company's credit capacity is sufficient to support the projected
growth of the Company.
12
<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
13
<PAGE>
ROTECH MEDICAL CORPORATION 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 thereunto duly authorized.
ROTECH MEDICAL CORPORATION
a Florida Corporation
Dated: March 18, 1996 By: /s/ Rebecca R. Irish
----------------- ------------------------------
Rebecca R. Irish, Treasurer
and Chief Financial Officer
14
