SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: August 19, 1996
---------------
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)
Item 5. Other Events
- --------------------
On April 17, 1996 the Board of Directors of the Company declared a
two-for-one split of its Common Stock, payable on May 21, 1996. This was
affected in the form of a 100% dividend to shareholders of record on April 30,
1996. Shareholders' equity has been restated to give retroactive recognition to
the stock split for all periods presented by reclassifying from additional paid
in capital to common stock the par value of the additional shares arising from
the split. In addition, for all periods presented, all references in the
consolidated financial statements and footnotes thereto to number of shares, per
share amounts, weighted average shares outstanding, as well as stock option and
related price information have been restated to give retroactive effect to the
two-for-one stock split as affected on May 21, 1996. Such financial
statements are included in the Exhibit attached.
Item 7. Financial Statements. Pro Forma Financial Information and Exhibits
- --------------------------------------------------------------------------
(c) Exhibits
Index to Consolidated Financial
Statements........................... F-1
Report of Independent Certified
Public Accountants for the years
ended July 31, 1994 and 1995......... F-2
Report of Independent Auditors
for the year ended July 31, 1993..... F-3
Consolidated Balance Sheets as of
July 31, 1994 and 1995 .............. F-4
Consolidated Statements of Income for
the fiscal years ended July 31,
1993, 1994, and 1995................. F-5
Consolidated Statements of
Shareholders' Equity for the fiscal
years ended July 31, 1993, 1994 and
1995................................. F-6
Consolidated Statements of Cash Flows
for the fiscal years ended July 31,
1993, 1994, and 1995................. F-7
Notes to Consolidated Financial
Statements........................... F-8
EXHIBIT
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
Report of Independent Certified
Public Accountants for the years
ended July 31, 1995 and 1994.......... F-2
Report of Independent Auditors
for the year
ended July 31, 1993................... F-3
Consolidated Balance Sheets as of
July 31, 1994 and 1995................ F-4
Consolidated Statements of Income for
the fiscal years ended July 31,
1993, 1994, and 1995.................. F-5
Consolidated Statements of
Shareholders' Equity for the fiscal
years ended July 31, 1993, 1994 and
1995.................................. F-6
Consolidated Statements of Cash Flows
for the fiscal years ended July 31,
1993, 1994, and 1995.................. F-7
Notes to Consolidated Financial
Statements............................ F-8
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
RoTech Medical Corporation
Orlando, Florida
We have audited the accompanying consolidated balance sheets of RoTech
Medical Corporation and subsidiaries (the "Company") as of July 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the two years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of RoTech Medical Corporation
and subsidiaries at July 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the two years then ended in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
October 19, 1995, except for Income Per Share of Note 1
as to which the date is April 17, 1996
Orlando, Florida
F-2
REPORT OF INDEPENDENT AUDITORS
SHAREHOLDERS AND DIRECTORS ROTECH MEDICAL CORPORATION
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of RoTech Medical Corporation and
subsidiaries for the year ended July 31, 1993. 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated results of
operations and cash flows of RoTech Medical Corporation and subsidiaries for the
year ended July 31, 1993, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Orlando, Florida
September 15, 1993, except for
Income Per Share of
Note 1 as to which the
date is April 17, 1996
F-3
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31
---------------------------
1994 1995
------------ -------------
ASSETS
CURRENT ASSETS
Cash....................................................... $ 331,681 $ 577,283
Accounts receivable:
Trade, less allowance for contractual adjustments and
doubtful accounts of $6,333,000 at July 31, 1994 and
$7,958,000 at July 31, 1995........................... 29,568,314 42,236,981
Other................................................... 1,622,975 1,418,918
Inventories............................................. 5,918,437 12,036,188
Prepaid expenses........................................ 711,350 388,728
----------- ------------
TOTAL CURRENT ASSETS................................... 38,152,757 56,658,098
OTHER ASSETS
Intangible assets, less accumulated amortization of
$3,636,000 at July 31, 1994 and $8,179,000 at July 31,
1995..................................................... 30,880,930 68,811,955
Other assets............................................... 2,009,230 249,070
----------- ------------
32,890,160 69,061,025
PROPERTY AND EQUIPMENT, less accumulated depreciation....... 23,389,838 45,912,848
----------- ------------
TOTAL ASSETS........................................... $94,432,755 $171,631,971
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................... $ 2,950,631 $ 4,870,171
Accrued expenses and other liabilities..................... 2,570,402 3,972,000
Notes payable.............................................. 4,098,000 9,980,000
Deferred income taxes...................................... 598,594 334,504
Income taxes payable (receivable).......................... 152,015 (306,849)
----------- ------------
TOTAL CURRENT LIABILITIES.............................. 10,369,642 18,849,826
OTHER LIABILITIES
Deferred income taxes...................................... 742,650 3,123,625
----------- ------------
742,650 3,123,625
SHAREHOLDERS' EQUITY
Common Stock, par value $.0002 per share, 50,000,000
shares authorized, 19,009,540 at July 31, 1994 and
22,843,642 at July 31, 1995............................. 3,818 4,586
Additional paid-in capital................................. 64,518,168 118,029,198
Treasury Stock............................................. (814,535) (814,535)
Retained earnings.......................................... 19,613,012 32,439,271
----------- ------------
83,320,463 149,658,520
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................................ $94,432,755 $171,631,971
=========== ============
See accompanying notes.
F-4
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED JULY 31
--------------------------------------
1993 1994 1995
----------- ----------- ------------
Operating Revenue.................... $48,383,021 $71,469,618 $134,111,458
Cost and expenses:
Cost of revenue.................... 12,358,678 17,408,548 36,287,811
Selling, general and
administrative................... 25,063,878 35,879,483 66,477,381
Depreciation and
amortization..................... 2,801,415 5,338,494 9,565,238
Interest........................... 76,230 66,676 835,462
----------- ----------- ------------
40,300,201 58,693,201 113,165,892
----------- ----------- ------------
Income Before Income Taxes........... 8,082,820 12,776,417 20,945,566
Income tax expense................... 2,955,470 4,664,197 7,800,800
----------- ----------- ------------
Net Income........................... $ 5,127,350 $ 8,112,220 $ 13,144,766
=========== =========== ============
Net Income Per Share................. $0.38 $0.50 $0.64
=========== =========== ============
See accompanying notes.
F-5
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL
TREASURY PAID-IN RETAINED
COMMON STOCK STOCK CAPITAL EARNINGS
-------------------- --------- ------------ -----------
SHARES AMOUNT
----------- -------
Balance, August 1, 1992................. 12,261,924 $2,452 $ $ 11,003,842 $ 6,511,754
Issuance of Common Stock pursuant to
Employees Stock Compensation Plan... 6,200 2 31,272
Issuance of Common Stock in acquisition
of subsidiaries...................... 137,900 28 577,504
Repurchase and retirement of Common
Stock pursuant to exercise of put and
other options........................ (220,374) (44) (1,117,002) (138,312)
Issuance of Common Stock in Public
Offering............................. 2,300,000 460 14,198,042
Net income............................. 5,127,350
---------- ------ --------- ------------ -----------
Balance, July 31, 1993.................. 14,485,650 2,898 24,693,658 11,500,792
Issuance of Common Stock pursuant to
Employees Stock Compensation Plan..... 1,600 9,015
Issuance of Common Stock in acquisition
of subsidiaries...................... 605,832 120 3,077,015
Repurchase of Common Stock............. (83,542) (814,535)
Issuance of Common Stock in Public
Offering............................. 4,000,000 800 36,738,480
Net income............................. 8,112,220
---------- ------ --------- ------------ -----------
Balance, July 31, 1994.................. 19,009,540 3,818 (814,535) 64,518,168 19,613,012
Issuance of Common Stock pursuant to
Employees Stock Compensation Plan..... 32,126 8 185,576
Issuance of Common Stock in acquisition
of subsidiaries...................... 391,976 78 3,197,340
Issuance and repurchase and retirement
of Common Stock pursuant to exercise of
stock options........................ 173,299 (318,507)
Issuance of Common Stock in Public
Offering............................. 3,400,000 680 49,884,817
Issuance of Common Stock pursuant to
exercise of stock options............. 10,000 2 69,998
Net income............................. 13,144,766
---------- ------ --------- ------------ -----------
Balance at July 31, 1995................ 22,843,642 $4,586 $(814,535) $118,029,198 $32,439,271
========== ====== ========= ============ ===========
See accompanying notes.
F-6
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JULY 31
--------------------------------------------
1993 1994 1995
------------- ------------- --------------
OPERATING ACTIVITIES
Net income .............................. $ 5,127,350 $ 8,112,220 $ 13,144,766
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation............................ 2,100,863 3,341,919 4,974,785
Amortization of intangible assets....... 700,552 1,996,575 4,590,453
Provision for deferred income taxes..... 296,513 715,932 2,116,885
Gain on sale of property and equipment.. (11,505) (15,983) (15,160)
Issuance of Common Stock as employee
compensation and pursuant to exercise
of stock options....................... 31,274 9,015 255,583
Equity in income from affiliated
company................................ (20,000) (109,493) (910,246)
Changes in operating assets and
liabilities:
Increase in trade accounts receivable.. (1,810,374) (6,645,093) (5,452,570)
(Increase) decrease in other
receivable............................ 280,476 (1,198,602) 364,006
Increase in inventories................ (437,369) (872,687) (2,633,575)
(Increase) decrease in prepaid
expenses.............................. (253,232) (140,712) 391,366
Increase (decrease) in accounts
payable............................... (3,226,656) 1,315,516 1,919,540
Decrease in accrued expenses and
other liabilities..................... (920,339) (1,512,257) (1,181,063)
Decrease in income taxes payable....... (283,387) (240,128) (458,864)
------------ ------------ -------------
Net cash provided by (used in)
operating activities................. 1,574,166 4,756,222 17,105,906
INVESTING ACTIVITIES
Purchases of property and equipment...... (4,047,553) (9,389,526) (17,298,613)
Payments for acquisitions of net
assets, net of cash acquired .......... (2,176,877) (37,734,909) (55,643,515)
Proceeds from sale of property and
equipment............................... 86,655 15,983 68,167
Advances and deposits.................... (293,329) 44,253 391,368
------------ ------------ -------------
Net cash used in investing activities. (6,431,104) (47,064,199) (72,482,593)
FINANCING ACTIVITIES
Proceeds from long-term debt and notes
payable................................. 8,694,181 32,493,900 109,037,900
Payments on long-term debt and notes
payable................................. (14,465,900) (28,396,000) (103,155,900)
Proceeds from issuance of Common Stock... 14,198,502 36,739,280 49,885,497
Repurchase of Common Stock............... (1,255,358) (814,535) (145,208)
------------ ------------ -------------
Net cash provided by financing
activities........................... 7,171,425 40,022,645 55,622,289
------------ ------------ -------------
Increase (decrease) in cash........... 2,314,487 (2,285,332) 245,602
Cash at beginning of period.............. 302,526 2,617,013 331,681
------------ ------------ -------------
Cash at end of period.................... $ 2,617,013 $ 331,681 $ 577,283
============ ============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period:
Interest .............................. $ 148,000 $ 69,000 $ 933,000
Income taxes............................ 2,905,000 4,546,000 6,774,000
See accompanying notes.
F-7
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JULY 31, 1995
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
RoTech Medical Corporation (the "Company") was incorporated on September 1,
1981. The Company, through its subsidiaries, markets and provides home health
care products and services and rents home care equipment to patients, primarily
in the Southeastern United States. 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) and home
infusion therapy products and related services.
Principles of Consolidation
The consolidated financial statements include the accounts of RoTech Medical
Corporation and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in the consolidated financial
statements.
Financial Instruments
The Company believes the book value of their financial instruments (cash
equivalents, accounts receivable, line of credit, accounts payable, accrued
expenses and income taxes payable) approximates their fair value due to their
short-term nature.
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.
Rental income under short-term leasing arrangements is recognized on a
straight-line basis over the term of the lease and approximated $20,895,000,
$31,142,000 and $59,017,000 in 1993, 1994 and 1995 respectively. The provision
for doubtful accounts approximated $3,284,000, $3,377,000 and $4,499,000 in
1993, 1994 and 1995, respectively.
Inventories
Inventories consist principally of durable medical equipment, medical supplies
and pharmaceutical products 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.
Intangible Assets
The excess of cost over the fair value of assets acquired and other
intangibles, primarily non-compete agreements, are being amortized over 2 to 25
years on a straight-line basis.
F-8
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED JULY 31, 1995
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
Income Taxes
Deferred income taxes are provided for all items included in the determination
of earnings in different periods for tax and financial reporting purposes.
Effective August 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes." As permitted under the new
rules, prior years' financial statements have not been restated.
Income Per Share
On April 17, 1996 the Board of Directors of the Company declared a two-for-one
split of its Common Stock, payable on May 21, 1996. This was affected in the
form of a 100% dividend to shareholders of record on April 30, 1996.
Shareholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from additional paid in
capital to common stock the par value of the additional shares arising from the
split. In addition, for all periods presented, all references in the
consolidated financial statements and footnotes thereto to number of shares, per
share amounts, weighted average shares outstanding, as well as stock option and
related price information have been restated to give retroactive effect to the
two-for-one stock split as affected on May 21, 1996.
Income per share has been computed using the weighted average number of shares
of Common Stock outstanding during each period, including any Common Stock
equivalents resulting from outstanding stock options and warrants calculated
using the treasury stock method. The number of shares used in the calculation of
income per share for 1993, 1994, and 1995 was 13,384,000, 16,294,000, and
20,684,000 respectively. The difference between shares for primary and fully
diluted income per share was not significant in any year. Accordingly, fully
diluted income per share is not presented.
2. THIRD-PARTY RATE ADJUSTMENTS AND REVENUE
Approximately 43% in 1993, 48% in 1994, and 63% in 1995 of gross revenue was
derived under federal and state third-party reimbursement programs. A portion of
these revenues is based on cost reimbursement principles and is subject to audit
and retroactive adjustment by the respective third-party fiscal intermediaries.
In the opinion of management, retroactive adjustments, if any, would not be
material to the financial position or results of operations of the Company.
3. ACQUISITIONS
During the fiscal year ended July 31, 1995, the Company issued 391,976 shares
of its restricted Common Stock valued at $3,197,000, issued 626,472 shares of
its restricted common stock which were placed in escrow pending the attainment
of certain operating profit thresholds (see Note 4), and paid cash of
approximately $52,075,000 to purchase the net assets of certain home health care
companies, all of the outstanding common stock of certain home health companies
and substantially all of the assets of a home health partnership.
F-9
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED JULY 31, 1995
3. ACQUISITIONS--(CONTINUED)
The combined fair market values of those assets acquired and (liabilities
assumed) in 1995 are reflected in the following classifications on the balance
sheet:
Cash.................................. $ 597,000
Accounts receivable................... 7,304,000
Inventories........................... 3,484,000
Prepaid expenses...................... 69,000
Other assets.......................... 53,000
Property and equipment................ 10,199,000
Accounts payable, accrued expenses
and other liabilities................ (6,497,000)
-----------
Net assets acquired................... $15,209,000
===========
Operating results of the acquired companies have been included in the
statements of income since the respective dates of acquisition. The acquisitions
have been accounted for by the purchase method of accounting. The excess of the
purchase price over the fair market values of the assets acquired and
liabilities assumed will be amortized over 2 to 25 years on a straight-line
basis.
The operations of entities acquired subsequent to July 31, 1995 (see Note 13)
are not included in the Company's historical statements of income as presented
herein. The net assets of those entities acquired subsequent to July 31, 1995
are also not included in the Company's balance sheet as of July 31, 1995.
Operations of such entities are included in the accompanying pro forma results.
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 to illustrate the estimated combined effects of the various Agreements
for Purchase and Sales (Agreements) upon the Company. 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. The pro forma 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.
(a) 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.
(b) Amortization on intangibles recorded in the combined acquisitions
(amortized over various lives from 2 to 25 years).
(c) Additional net interest expense related to borrowings for cash paid to
acquire combined entities.
F-10
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED JULY 31, 1995
3. ACQUISTIONS - (CONTINUED)
(d) 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.
(e) Additional shares of the Company's Common Stock issued pursuant to the
Agreements; assumed issued on the first day of the respective years
presented.
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, 1995 ENTITIES ADJUSTMENTS RESULTS
------------- ----------- --------------- ------------
Operating revenue...................... $134,111,458 $23,162,255 $157,273,713
Cost and expenses:
Cost of revenue...................... 36,287,811 6,132,065 42,419,876
Selling, general and administrative.. 66,477,381 12,904,336 $ (600,000)(a) 78,781,717
Depreciation and amortization........ 9,565,238 1,109,666 1,335,477(b) 12,010,381
Interest............................. 835,462 220,446 1,582,419(c) 2,638,327
------------ ----------- ----------- ------------
113,165,892 20,366,513 2,317,896 135,850,301
------------ ----------- ----------- ------------
Income before income taxes............. 20,945,566 2,795,742 (2,317,896) 21,423,412
Income tax expense..................... 7,800,800 674,371 (505,662)(d) 7,969,509
------------ ----------- ----------- ------------
Net Income........................ $ 13,144,766 $ 2,121,371 $(1,812,234) $ 13,453,903
============ =========== =========== ============
Net Income Per Share................... $.64 $.64
============ ============
Weighted Average Number of Shares
Outstanding........................... 20,684,000 391,976 (e) 21,075,976
4. SHAREHOLDERS' EQUITY
On May 10, 1995, the Company completed a public offering of 3,400,000 shares
of its Common Stock at $15.50 per share. The proceeds of the sale, after
deducting issuance costs, were $49,885,497. The Company used the proceeds to
reduce outstanding debts, to complete certain acquisitions and invested the
remainder in short-term interest-bearing obligations.
In July 1993, pursuant to the Company's Stock Option Plan, the Company issued
options to certain members of management to purchase up to 1,568,000 shares of
the Company's Common Stock at prices ranging from $5.94 to $9.38 per share.
During the year, 28,000 options were exercised. At July 31, 1995, 833,852
options were exercisable.
F-11
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED JULY 31, 1995
4. SHAREHOLDERS' EQUITY--(CONTINUED)
On June 1, 1992, pursuant to an employment agreement, the Company issued
20,000 options to purchase its Common Stock at $7.13 per share. The options are
exercisable until April 1, 1997; all options were exercised subsequent to July
31, 1995.
Certain acquisitions transacted in prior years included provisions for the
issuance of up to 100,000 additional shares based on cash collections of a
subsidiary and 50,048 warrants to purchase the Company's Common Stock at $7.50
per share through November 1, 1995. No warrants were exercised as of July 31,
1995.
Certain acquisitions transacted in the fiscal years 1995 and 1994, include
provisions for the issuance of up to 626,472 and 268,132 additional shares of
Common Stock, respectively, based on operating profit thresholds of certain
subsidiaries.
On July 1, 1995, the Company entered into a stock option agreement
("Agreement") with a firm which provides legal services to the Company (See
Note 9). The Agreement issued the firm options to purchase up to, but not
exceeding in the aggregate, 20,000 shares of the Company's Common Stock at
$13.88 per share. The options are exercisable until June 30, 2000.
Certain acquisitions transacted in the fiscal year 1995 include provisions for
the issuance of 1,011,022 put options. At July 31, 1995, 1,854,336 put options
were outstanding. The put options are exercisable at certain points throughout
the period August 1, 1994 to December 31, 1998 at call prices ranging from $6.50
to $15.09.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JULY 31
----------------------------
1994 1995
------------- -------------
Rental equipment............... $ 25,128,053 $ 48,271,671
Furniture and equipment........ 7,547,422 14,499,465
Vehicles....................... 1,741,651 3,947,514
Leasehold improvements......... 1,144,099 1,357,378
------------ ------------
35,561,225 68,076,028
Less accumulated depreciation.. (12,171,387) (22,163,180)
------------ ------------
$ 23,389,838 $ 45,912,848
============ ============
6. CURRENT NOTES PAYABLE
Current notes payable at July 31, 1995 were $9,980,000 under a $75,000,000
working capital line of credit expiring on January 1, 1997. The rate on July 31,
1995 was 6.825%. The working capital line of credit is payable on demand and
provides for an interest rate of LIBOR plus 70 basis points or prime rate minus
1% for the first $20 million borrowed and LIBOR plus 82.5 basis points or prime
rate minus 1% for amounts borrowed in excess of $20 million borrowed.
The credit facility is collateralized by substantially all trade accounts
receivable, inventory, property and equipment, cash and investments of the
Company and guaranteed by the Company's subsidiaries. As of July 31, 1995 the
Company was in compliance with all covenants contained in the credit facility.
F-12
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED JULY 31, 1995
7. LEASE COMMITMENTS
Rental expense approximated $1,021,000, $1,837,000 and $3,924,000 for the
years ended July 31, 1993, 1994 and 1995, respectively.
Future minimum rental commitments under operating leases, primarily for
buildings, are as follows:
FOR THE YEARS ENDING JULY 31
- ----------------------------
1996....................... $2,924,000
1997....................... 2,168,000
1998....................... 1,610,000
1999....................... 1,227,000
2000....................... 548,000
----------
$8,477,000
==========
8. INCOME TAXES
Income tax expense for the years ended July 31, consists of the following:
DEFERRED LIABILITY LIABILITY
METHOD METHOD METHOD
1993 1994 1995
---------- ---------- ----------
Current
Federal.. $2,365,908 $3,632,313 $6,064,000
State.... 293,049 448,529 606,000
---------- ---------- ----------
2,658,957 4,080,842 6,670,000
Deferred
Federal.. 263,834 519,670 1,040,800
State.... 32,679 63,685 90,000
---------- ---------- ----------
296,513 583,355 1,130,800
---------- ---------- ----------
$2,955,470 $4,664,197 $7,800,800
========== ========== ==========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Provisions have been made
for deferred income taxes arising primarily from the use of different
depreciation methods for equipment and different lives for intangible assets for
financial and tax reporting purposes. Significant components of the Company's
deferred tax liabilities and assets as of July 31 are as follows:
1994 1995
----------- -----------
Deferred tax liabilities:
Tax over book depreciation......... $ 514,000 $ 481,000
Tax over book intangibles.......... 587,000 2,934,000
amortization......................
Prepaid insurance.................. 240,000 43,000
---------- ----------
Total deferred tax liabilities.. $1,341,000 $3,458,000
Deferred tax assets:
Net operating loss carryforwards... 420,000 385,000
Uniform capitalization............. 157,000 185,000
---------- ----------
Total deferred tax assets....... 577,000 570,000
Valuation allowance for deferred (420,000) (385,000)
tax assets........................ ---------- ----------
Net deferred tax assets......... 157,000 185,000
---------- ----------
Net deferred tax liabilities.... $1,184,000 $3,273,000
========== ==========
F-13
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED JULY 31, 1995
8. INCOME TAXES--(CONTINUED)
In 1991, the Company acquired net operating loss carryforwards of VitalCare
which are restricted to offset future taxable income of VitalCare of
approximately $1,500,000. These carryforwards are restricted to usage of
approximately $100,000 per year and expire in years 2001 through 2006. Amounts
unused in any year can be carried forward to the expiration date. In 1995, the
Company used approximately $100,000 of the carryforwards, leaving approximately
$1,040,000 available at July 31, 1995. For financial reporting purposes, a
valuation allowance of $385,000 has been recognized to offset the deferred tax
assets related to those carryforwards.
The Company's effective tax rate differs from the statutory rate for the years
ended July 31, as follows:
DEFERRED LIABILITY LIABILITY
METHOD METHOD METHOD
--------- ---------- ----------
1993 1994 1995
--------- ---------- ----------
Percentage of pre-tax income:
Statutory rate..................... 34.0% 34.0% 35.0%
Increase (decrease) in tax rate
resulting from:
State income taxes, net of
federal income tax 2.3 3.8 2.0
benefit........................
Amortization of nondeductible 2.2 1.9 2.5
intangible assets..............
Other........................... (1.9) (3.2) (2.3)
---- ---- ----
36.6% 36.5% 37.2%
==== ==== ====
9. RELATED PARTY TRANSACTIONS
The Company purchases certain products from companies owned by its chief
executive officer and shareholder. Such transactions amounted to $73,000,
$70,000 and $55,000 for the years ended July 31, 1993, 1994 and 1995
respectively. These same companies purchased approximately $409,000, $236,000
and $28,000 of products from the Company for the fiscal years ended July 31,
1993, 1994 and 1995.
The Company leases certain facilities and equipment and purchases services
from companies owned by certain directors, officers and shareholders. Rent
expense under these cancelable operating leases amounted to $446,000, $536,000
and $760,000 for the years ended July 31, 1993, 1994 and 1995, respectively.
The Company executed a stock option agreement with a firm which provides
certain legal business services to the Company. One of the Company's directors
and officers is a shareholder and officer of the firm. (See Note 4.)
F-14
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED JULY 31, 1995
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended July 31, 1994 and 1995:
JULY 31, 1994
--------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
Operating revenue........ $14,013,192 $15,879,528 $18,138,769 $23,438,129
Cost and expenses........ 11,789,932 13,084,208 14,698,347 19,120,714
Income tax expense....... 766,900 996,000 1,225,000 1,676,297
----------- ----------- ----------- -----------
Net income............... $ 1,456,360 $ 1,799,320 $ 2,215,422 $ 2,641,118
=========== =========== =========== ===========
Net income per share..... $ .10 $ .12 $ .13 $ .14
=========== =========== =========== ===========
JULY 31, 1995
--------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
Operating revenue........ $26,723,095 $32,581,640 $35,031,464 $39,775,259
Cost and expenses........ 22,452,032 27,647,200 29,780,618 33,286,042
Income tax expense....... 1,580,000 1,830,000 1,900,000 2,490,800
----------- ----------- ----------- -----------
Net income............... $ 2,691,063 $ 3,104,440 $ 3,350,846 $ 3,998,417
=========== =========== =========== ===========
Net income per share..... $ .14 $ .16 $ .17 $ .18
=========== =========== =========== ===========
11. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities include:
JULY 31
----------------------
1994 1995
---------- ----------
Accrued payroll expenses.............. $1,123,570 $2,164,221
Deferred payments..................... 1,433,941 1,754,633
Deferred taxes and other accrued 12,891 53,146
liabilities.......................... ---------- ----------
$2,570,402 $3,972,000
========== ==========
12. OTHER ASSETS
In February 1995, the Company sold its investment in an affiliated
company. The Company's 49% ownership was accounted for by the equity method. The
approximate $1,400,000 net gain and certain operating expenses incurred to carry
the asset are recorded in selling, general and administrative expenses.
13. SUBSEQUENT EVENTS
During the period August 1, 1995 to October 17, 1995, the Company issued
99,777 shares of its restricted Common Stock valued at $1,915,000 and paid cash
of $28,101,000 to purchase the net assets of nineteen home health care companies
and three primary care physician practices. During the period August 1, 1995 to
October 17, 1995, the Company paid cash of $1,675,000 to purchase the stock of
one home health care company.
F-15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report on 8-K to be signed on its behalf by the
undersigned hereunto duly authorized.
RoTech Medical Corporation,
a Florida Corporation
Dated: August 19, 1996 By: /s/ Rebecca R. Irish
--------------- --------------------
Rebecca R. Irish, Treasurer
and Chief Financial Officer