EXHIBIT 13.1
ROTECH
1995
ANNUAL REPORT
A HOME HEALTH CARE COMPANY
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
RoTech Medical Corporation and Subsidiaries
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Table of Contents
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July 31, 1995
Letter to Shareholders............................... 2-3
Consolidated Financial Statements.................... 4-21
Financial Statement Schedule......................... 21
Reports of Independent Certified Public Accountants.. 22-23
Selected Consolidated Financial Data................. 24
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 25-28
Selected Quarterly Consolidated Financial Data....... 29
Prices of Common Stock............................... 29
RoTech Medical Corporation and Subsidiaries
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To Our Shareholders
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RoTech's commitment to bringing home health care to patients in non-urban
America resulted in our seventh consecutive year of record revenues and
earnings. Throughout fiscal 1995, the Company continued to implement its
acquisition and expansion strategy, increasing the number of non-urban markets
served, while increasing the portfolio of home health care products and services
available to patients in those markets. The recent historical growth of home
health care has been driven by technological advances, increased acceptance of
home health care, the need to reduce the cost of care, the aging of America's
population and the enhanced life expectancy of Americans compared to past years.
Our industry faces health care reform efforts, cost containment measures and
managed care initiatives that will drive the management of the business. RoTech
continued to devote significant time and focus to its operations, including
information systems, to posture itself to handle the future billing, management,
operational and reporting needs.
Record net operating revenue, net income and net income per share amounts posted
during fiscal 1995 and prior years are shown in the table below. These record
amounts were all posted despite increases in shares outstanding, primarily as a
result of our various stock offerings.
Net Operating Net Income Wtd. Average
Revenue Net Income per Share # of Shares
------- ---------- --------- -----------
1995 $134,111 $13,145 $1.27 10,342
1994 71,470 8,112 .99 8,147
1993 48,383 5,127 .77 6,692
1992 37,122 3,686 .60 6,175
1991 26,321 2,169 .43 5,090
(all amounts are shown in 000's except per share amounts)
The home health care industry has experienced an active consolidation trend for
the last seven years, yet the current pace has increased exponentially over the
past few years. All home health care companies are concerned about the trends
being discussed and/or implemented by the governmental payors and managed care
entities. They are concerned about their inability to influence such changes and
what will be required to weather these changes financially. Such industry
changes are not controllable and they may drive many smaller businesses out of
the marketplace, leaving their patient bases which would still require care.
With Medicare reimbursement reduction imminent, we have seen a heightened
consolidation pace. RoTech's profits improved after the 30% reduction in
Medicare reimbursement experienced in 1989 through increasing its patient bases
without corresponding increases in costs, which management believes could happen
again, depending on the magnitude of the final reimbursement reduction. In
response to the pending revenue reductions, RoTech plans to scrutinize its
operations to provide only those required services to Medicare beneficiaries,
implement tougher collection procedures on Medicare patient copayments and
continue consolidation of our buying power to reduce costs for all patients. The
opportunities to purchase good home health care operations are ample in this
environment for companies such as RoTech that can obtain capital to consolidate
these operations for overall continued and enhanced profitability.
2
RoTech Medical Corporation and Subsidiaries
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To Our Shareholders
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Acquisitions completed during fiscal 1995 took RoTech into additional non-urban
states including Colorado, Oklahoma, South Dakota and Wyoming, while we also
strengthened our market penetration in Arkansas, Louisiana, Mississippi, Texas
and Montana. Acquisitions completed to date since August 1, 1995 furthered our
market presence in Alabama, Arkansas, Louisiana, Mississippi, Tennessee and
Texas along with the October 1, 1995 acquisition of Hook's Home Health Care's 32
locations which dynamically increased our market coverage in Indiana, Illinois
and Ohio. The Hook's transaction presents significant volume to the Company to
drive revenues and purchasing capabilities. We believe there are opportunities
to introduce new products and services to the Hook's patient and referral bases,
to consolidate some and improve other operational aspects thereby improving
profitability of Hook's and other RoTech locations.
In May 1995, the Company sold 1,700,000 shares of its common stock for
approximate net proceeds of $50 million, which is approximately the same amount
spent on acquisitions during fiscal 1995. The proceeds were used to paydown the
existing line of credit balance and to fund pending acquisitions. All monies
from the offering were utilized in operations by the first week of July 1995.
Effective June 1, 1995, the Company's line of credit was increased to $75
million. Additionally, during fiscal 1995 the Company generated $17.1 million in
cash from operations. The Company believes that its positive cash flow
capabilities and credit capacity are sufficient to fund its acquisition and
expansion activities for the next twelve months.
We believe patients benefit from an approach to health care controlled
comprehensively by the primary care physician and we have historically targeted
the patients of such physicians in our non-urban marketplaces. Continued
development of our long term strategy of developing cost-effective health care
delivery systems lead to the acquisition of twenty physician practices in
Florida and Mississippi over the last 20 months. Market penetration is necessary
to effectively benefit from these investments. We continue to invest in these
two geographic areas so that our strategy can be realized to its fullest
potential resulting in better, less expensive patient care through early
detection, early treatment and the use of preventive protocols that governmental
payors and managed care entities will demand.
A renewed focus on durable medical equipment rentals emerged in our company this
year. Through certain of its recent acquisitions, RoTech has been able to
increase revenues by introducing newer durable medical equipment products which
enable patients to receive less expensive care. Our corporate sales force's
continual education of the patient and the primary care physician in the arena
has broadened our revenue base.
RoTech values its relationships with its patients and would like to thank all of
its patients and its shareholders for their support of the Company in these
changing times.
/s/ William P. Kennedy
William P. Kennedy
Chairman of the Board
3
RoTech Medical Corporation and Subsidiaries
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Consolidated Balance Sheets
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JULY 31
1995 1994
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ASSETS
Current Assets:
Cash $ 577,283 $ 331,681
Accounts receivable:
Trade, less allowance for contractual adjustments
and doubtful accounts of $7,958,000 in 1995 and
$6,333,000 in 1994 42,236,981 29,568,314
Other 1,418,918 1,622,975
Inventories 12,036,188 5,918,437
Prepaid expenses 388,728 711,350
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Total Current Assets 56,658,098 38,152,757
Other Assets:
Intangible assets, less accumulated amortization of
$8,179,000 in 1995 and $3,636,000 in 1994 68,811,955 30,880,930
Other assets ------------ -----------
249,070 2,009,230
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69,061,025 32,890,160
Property and equipment, less accumulated depreciation 45,912,848 23,389,838
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Total Assets $171,631,971 $94,432,755
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4
RoTech Medical Corporation and Subsidiaries
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Consolidated Balance Sheets
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JULY 31
1995 1994
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,870,171 $ 2,950,631
Accrued expenses and other liabilities 3,972,000 2,570,402
Note payable 9,980,000 4,098,000
Deferred Income Taxes 334,504 598,594
Income taxes payable (306,849) 152,015
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Total Current Liabilities 18,849,826 10,369,642
Other Liabilities:
Deferred income taxes 3,123,625 742,650
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3,123,625 742,650
Shareholders' Equity:
Common Stock, par value $.0002 per share,
50,000,000 shares authorized, 11,421,821 in 1995
and 9,504,770 in 1994 shares issued and 2,293 1,909
outstanding
Treasury stock (814,535) (814,535)
Additional paid-in capital 118,031,491 64,520,077
Retained earnings 32,439,271 19,613,012
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149,658,520 83,320,463
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Total Liabilities and Shareholders' Equity $171,631,971 $94,432,755
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5
RoTech Medical Corporation and Subsidiaries
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Consolidated Statements of Income
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YEAR ENDED JULY 31
1995 1994 1993
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Operating revenue $134,111,458 $71,469,618 $48,383,021
Cost and expenses:
Cost of revenue 36,287,811 17,408,548 12,358,678
Selling, general and administrative 66,477,381 35,879,483 25,063,878
Depreciation and amortization 9,565,238 5,338,494 2,801,415
Interest 835,462 66,676 76,230
------------ ----------- -----------
113,165,892 58,693,201 40,300,201
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Income before income taxes 20,945,566 12,776,417 8,082,820
Income tax expense 7,800,800 4,664,197 2,955,470
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Net Income $ 13,144,766 $ 8,112,220 $ 5,127,350
============ =========== ===========
Net Income Per Share $1.27 $0.99 $0.77
============ =========== ===========
See accompanying notes.
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6
RoTech Medical Corporation and Subsidiaries
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Consolidated Statements of Shareholders' Equity
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COMMON STOCK ADDITIONAL
--------------------- TREASURY PAID-IN RETAINED
SHARES AMOUNT STOCK CAPITAL EARNINGS
---------- ------ --------- ------------ -----------
Balance at August 1, 1992 6,130,962 $1,226 $ $ 11,005,068 $ 6,511,754
Issuance of Common Stock pursuant to
Employees Stock Compensation Plan 3,100 1 31,273
Issuance of Common Stock in acquisition of
subsidiaries 68,950 14 577,518
Repurchase and retirement of Common
Stock pursuant to exercise of put and other options (110,187) (22) (1,117,024) (138,312)
Issuance of Common Stock in Public Offering 1,150,000 230 14,198,272
Net income 5,127,350
---------- ------ --------- ------------ -----------
Balance at July 31, 1993 7,242,825 1,449 24,695,107 11,500,792
Issuance of Common Stock pursuant to
Employees Stock Compensation Plan 800 9,015
Issuance of Common Stock in acquisition of
subsidiaries 302,916 60 3,077,075
Repurchase of Common Stock (41,771) (814,535)
Issuance of Common Stock in Public Offering 2,000,000 400 36,738,880
Net income 8,112,220
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BALANCE AT JULY 31, 1994 9,504,770 1,909 (814,535) 64,520,077 19,613,012
ISSUANCE OF COMMON STOCK PURSUANT TO
EMPLOYEES STOCK COMPENSATION PLAN 16,063 4 185,580
ISSUANCE OF COMMON STOCK IN
ACQUISITION OF SUBSIDIARIES 195,988 39 3,197,379
ISSUANCE AND REPURCHASE AND RETIREMENT
OF COMMON STOCK PURSUANT TO EXERCISE 173,299 (318,507)
OF STOCK OPTIONS
ISSUANCE OF COMMON STOCK IN PUBLIC OFFERING 1,700,000 340 49,885,157
ISSUANCE OF COMMON STOCK PURSUANT TO EXERCISE
OF STOCK OPTIONS 5,000 1 69,999
NET INCOME 13,144,766
---------- ------ --------- ------------ -----------
BALANCE AT JULY 31, 1995 11,421,821 $2,293 $(814,535) $118,031,491 $32,439,271
========== ====== ========= ============ ===========
See accompanying notes.
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7
RoTech Medical Corporation and Subsidiaries
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Consolidated Statements of Cash Flows
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YEAR ENDED JULY 31
1995 1994 1993
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OPERATING ACTIVITIES
Net income $13,144,766 $ 8,112,220 $ 5,127,350
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation 4,974,785 3,341,919 2,100,863
Amortization of intangible assets 4,590,453 1,996,575 700,552
Provision for deferred income taxes 2,116,885 715,932 296,513
Gain on sale of property and equipment (15,160) (15,983) (11,505)
Issuance of Common Stock as employee
compensation and pursuant to exercise of
stock options 255,583 9,015 31,274
Equity in income from affiliated company (910,246) (109,493) (20,000)
Changes in operating assets and liabilities:
Increase in trade accounts receivable (5,452,570) (6,645,093) (1,810,374)
(Increase) decrease in other receivables 364,006 (1,198,602) 280,476
Increase in inventories (2,633,575) (872,687) (437,369)
(Increase) decrease in prepaid expenses 391,366 (140,712) (253,232)
Increase (decrease) in accounts payable 1,919,540 1,315,516 (3,226,656)
Decrease in accrued expenses and other
liabilities (1,181,063) (1,512,257) (920,339)
Decrease in income taxes payable (458,864) (240,128) (283,387)
----------- ----------- -----------
Net cash provided by operating activities 17,105,906 4,756,222 1,574,166
See accompanying notes.
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8
RoTech Medical Corporation and Subsidiaries
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Consolidated Statements of Cash Flows
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YEAR ENDED JULY 31
1995 1994 1993
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INVESTING ACTIVITIES
Purchases of property and equipment (17,298,613) (9,389,526) (4,047,553)
Payments for acquisitions of net assets, net of
cash acquired (55,643,515) (37,734,909) (2,176,877)
Proceeds from sale of property and equipment 68,167 15,983 86,655
Advances and deposits 391,368 44,253 (293,329)
------------- ------------ ------------
Net cash used in investing activities (72,482,593) (47,064,199) (6,431,104)
FINANCING ACTIVITIES
Proceeds from long-term debt and notes
payable 109,037,900 32,493,900 8,694,181
Payments on long-term debt and notes payable (103,155,900) (28,396,000) (14,465,900)
Proceeds from issuance of Common Stock 49,885,497 36,739,280 14,198,502
Repurchase of Common Stock (145,208) (814,535) (1,255,358)
------------- ------------ ------------
Net cash provided by financing activities 55,622,289 40,022,645 7,171,425
------------- ------------ ------------
Increase (decrease) in cash 245,602 (2,285,332) 2,314,487
Cash at beginning of period 331,681 2,617,013 302,526
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Cash at end of period $ 577,283 $ 331,681 $ 2,617,013
============= ============ ============
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest $ 933,000 $ 69,000 $ 148,000
Income taxes 6,774,000 4,546,000 2,905,000
See accompanying notes.
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9
RoTech Medical Corporation and Subsidiaries
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995
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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 health 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 $59,017,000, $31,142,000
and $20,895,000 in 1995, 1994 and 1993, respectively. The provision for
doubtful accounts approximated $4,499,000, $3,377,000 and $3,284,000 in 1995,
1994 and 1993, 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.
10
RoTech Medical Corporation and Subsidiaries
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995
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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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
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 1995, 1994, and 1993 was 10,342,000, 8,147,000 and
6,692,000, 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 63% in 1995, 48% in 1994, and 43% in 1993 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.
11
RoTech Medical Corporation and Subsidiaries
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995
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3. ACQUISITIONS
During the fiscal year ended July 31, 1995, the Company issued 195,988 shares of
its restricted Common Stock valued at $3,197,000, issued 313,236 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.
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 statement 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.
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 years
presented to illustrate the estimated combined effects of the various Agreements
for Purchase and Sale (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.
12
RoTech Medical Corporation and Subsidiaries
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995
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3. ACQUISITIONS (CONTINUED)
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 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.
(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.
13
RoTech Medical Corporation and Subsidiaries
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995
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For the Year Ended July 31, 1994
------------------------------------------------------------------------------------
(Unaudited)
RoTech RoTech
Medical Medical
Corporation Corporation
Consolidated Combined Combined
Year Ended Acquired Pro Forma Pro Forma
July 31, 1994 Entities Adjustments Results
------------------------------------------------------------------------------------
Operating revenue $71,469,618 $43,695,309 $115,164,927
Cost and expenses:
Cost of revenue 17,408,548 12,414,129 29,822,677
Selling, general
and administrative 35,879,483 22,780,833 $(800,000)(a) 57,860,316
Depreciation and amortization 5,338,494 1,596,376 2,670,955 (b) 9,605,825
Interest 66,676 326,600 3,797,806 (c) 4,191,083
----------- ----------- ----------- ------------
58,693,201 37,117,938 5,668,761 101,479,901
----------- ----------- ----------- ------------
Income before income taxes 12,776,417 6,577,370 (5,668,761) 13,685,026
Income tax expense 4,664,197 2,264,974 (1,838,341)(d) 5,090,830
----------- ----------- ----------- ------------
Net Income $ 8,112,220 $ 4,312,397 $(3,830,420) $ 8,594,196
=========== =========== =========== ============
Net Income Per Share $0.99 $1.03
=========== ============
Weighted Average Number
of Shares Outstanding 8,147,144 195,988 (e) 8,343,132
14
RoTech Medical Corporation and Subsidiaries
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995
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For the Year Ended July 31, 1995
---------------------------------------------------------------
(Unaudited)
RoTech RoTech
Medical Medical
Corporation Corporation
Consolidated Combined Combined
Year Ended Acquired Pro Forma Pro Forma
July 31, 1995 Entities Adjustments Results
---------------------------------------------------------------
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 (580,111)(d) 7,969,509
------------ ----------- ----------- ------------
Net Income $ 13,144,766 $ 2,121,371 $(1,737,785) $ 13,453,903
============ =========== =========== ============
Net Income Per Share $1.27 $1.28
============ ============
Weighted Average Number
of Shares Outstanding 10,342,000 195,988 (e) 10,537,988
15
RoTech Medical Corporation and Subsidiaries
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NOTES TO CONSOLIDATED FINANCIAL STATEMENT - JULY 31, 1995
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4. SHAREHOLDERS' EQUITY
On May 10, 1995, the Company completed a public offering of 1,700,000 shares of
its Common Stock at $31.00 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 784,000 shares of the
Company's Common Stock at prices ranging from $11.88 to $18.75 per share.
During the year, 14,000 options were exercised. At July 31, 1995, 416,926
options were exercisable.
On June 1, 1992, pursuant to an employment agreement, the Company issued 10,000
options to purchase its Common Stock at $14.25 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 50,000 additional shares based on cash collections of a
subsidiary and 25,024 warrants to purchase the Company's Common Stock at $15.00
per share through November 1, 1995. No warrants were exercised as of July 31,
1995.
Certain acquisitions transacted in fiscal years 1995 and 1994 include provisions
for the issuance of up to 313,236 and 134,066 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, 10,000 shares of the Company's Common Stock at $27.75 per share. The
options are exercisable until June 30, 2000.
Certain acquisitions transacted in the fiscal year 1995 include provisions for
the issuance of 505,511 put options. At July 31, 1995, 927,168 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 $13.00 to
$30.17.
16
RoTech Medical Corporation and Subsidiaries
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995
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5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JULY 31
1995 1994
------------ ------------
Rental equipment $ 48,271,671 $ 25,128,053
Furniture and equipment 14,499,465 7,547,422
Vehicles 3,947,514 1,741,651
Leasehold improvements 1,357,378 1,144,099
------------ ------------
68,076,028 35,561,225
Accumulated depreciation (22,163,180) (12,171,387)
------------ ------------
$ 45,912,848 $ 23,389,838
============ ============
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.
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.
7. LEASE COMMITMENTS
Rental expense approximated $3,924,000, $1,837,000 and $1,021,000 for the years
ended July 31, 1995, 1994 and 1993, respectively. Future minimum rental
commitments under 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
==========
17
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995
- -------------------------------------------------------------------------------
8. INCOME TAXES
Income tax expense for the years ended July 31, consists of the following:
LIABILITY Liability Deferred
METHOD Method Method
---------- ---------- ----------
1995 1994 1993
---------- ---------- ----------
Current
Federal $6,064,000 $3,632,313 $2,365,908
State 606,000 448,529 293,049
---------- ---------- ----------
6,670,000 4,080,842 2,658,957
Deferred
Federal 1,040,800 519,670 263,834
State 90,000 63,685 32,679
---------- ---------- ----------
1,130,800 583,355 296,513
---------- ---------- ----------
$7,800,800 $4,664,197 $2,955,470
========== ========== ==========
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:
1995 1994
----------- -----------
Deferred tax liabilities:
Tax over book depreciation $ 481,000 $ 514,000
Tax over book intangibles amortization 2,934,000 587,000
Prepaid insurance 43,000 240,000
---------- ----------
Total deferred tax liabilities 3,458,000 1,341,000
Deferred tax assets:
Net operating loss carryforwards 385,000 420,000
Uniform Capitalization 185,000 157,000
---------- ----------
Total deferred tax assets 570,000 577,000
Valuation allowance for deferred tax assets (385,000) (420,000)
---------- ----------
Net deferred tax assets 185,000 157,000
---------- ----------
Net deferred tax liabilities $3,273,000 $1,184,000
========== ==========
18
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 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 carry forwards.
The Company's effective tax rate differs from the statutory rate for the years
ended July 31, as follows:
LIABILITY Liability Deferred
METHOD Method Method
--------- --------- --------
1995 1994 1993
--------- --------- --------
Percentage of pre-tax income:
Statutory rate 35.0% 34.0% 34.0%
Increase (decrease) in tax rate resulting from:
State income taxes, net of federal income tax benefit 2.0 3.8 2.3
Amortization of nondeductible intangible assets 2.5 1.9 2.2
Other (2.3) (3.2) (1.9)
---- ---- ----
37.2% 36.5% 36.6%
==== ==== ====
9. RELATED PARTY TRANSACTIONS
The Company purchases certain products from companies owned by its chief
executive officer and shareholder. Such transactions amounted to $55,000,
$70,000 and $73,000 for the years ended July 31, 1995, 1994 and 1993,
respectively. These same companies purchased approximately $28,000, $236,000
and $409,000 of products from the Company for the fiscal years ended July 31,
1995, 1994 and 1993, respectively.
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 $760,000, $536,000 and
$446,000 for the years ended July 31, 1995, 1994 and 1993, respectively.
19
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995
- -------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company executed a stock option agreement with a firm which provides certain
legal services to the Company. One of the Company's directors and officers is a
shareholder and officer of the firm. (See Note 4.)
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended July 31, 1995 and 1994:
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 $ .28 $ .31 $ .34 $ .35
=========== =========== =========== ===========
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 $ .20 $ .24 $ .26 $ .28
=========== =========== =========== ===========
11. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities include:
JULY 31
1995 1994
----------- -----------
Accrued payroll expenses $2,164,221 $1,123,570
Deferred payments 1,754,633 1,433,941
Deferred taxes and other accrued liabilities 53,146 12,891
---------- ----------
$3,972,000 $2,570,402
========== ==========
20
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JULY 31, 1995 AND
FINANCIAL STATEMENT SCHEDULE
- -------------------------------------------------------------------------------
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 assets 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.
SCHEDULE II - VAluation and Qualifying Accounts
- ------------------------------------------------
COLUMN C
-------------------------
COLUMN A COLUMN B ADDITIONS COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED CHARGED TO
BEGINNING OF TO OTHER DEDUCTIONS BALANCE AT
CLASSIFICATION PERIOD COSTS AND ACCOUNTS- DESCRIBE (1) END OF
EXPENSES DESCRIBE PERIOD
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1995:
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR CONTRACTUAL
ADJUSTMENTS AND DOUBTFUL
ACCOUNTS $6,333,000 $4,499,000 --- $2,874,000 $7,958,000
Year ended July 31, 1994:
Deducted from asset accounts:
Allowance for contractual
adjustments and doubtful
accounts $3,417,000 $3,377,000 --- $ 461,000 $6,333,000
Year ended July 31, 1993:
Deducted from asset accounts:
Allowance for contractual
adjustments and doubtful
accounts $3,214,000 $3,284,000 --- $3,081,000 $3,417,000
(1) Uncollectible accounts written off, net of recoveries and net of the
allowance for contractual adjustments and doubtful accounts remaining at the
respective fiscal year-end recorded in conjunction with certain
acquisitions.
21
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
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. Our audits also included the
financial statement schedule, for the years ended July 31, 1995 and 1994,
presented on page 21. These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
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, 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. Also, in our opinion, such financial
statement schedule for the two-year period ended July 31, 1995, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
October 19, 1995
Orlando, Florida
22
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Report of Independent Certified Public Accountants
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. Our audit also included the
accompanying financial statement schedule for the year ended July 31, 1993.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Orlando, Florida
September 15, 1993
23
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Selected Consolidated Financial Data
- -------------------------------------------------------------------------------
(in thousands, except per share amounts)
- -------------------------------------------------------
Year Ended July 31
- ----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
Statements of Income Data:
- --------------------------
Operating revenue:
Home respiratory and other
medical equipment $ 88,838 $41,579 $23,857 $15,706 $14,688
Home infusion therapy and other
pharmacy related services 33,554 25,492 21,715 19,959 10,886
Other products & services 11,719 4,399 2,811 1,457 747
- ----------------------------------------------------------------------------------------------
Total operating revenue 134,111 71,470 48,383 37,122 26,321
- ----------------------------------------------------------------------------------------------
Cost and expenses:
Cost of revenue 36,288 17,409 12,359 8,434 5,766
Selling, general and administrative 66,477 35,880 25,064 20,208 14,992
Depreciation and amortization 9,565 5,338 2,801 2,486 1,549
Interest 835 67 76 305 610
- ----------------------------------------------------------------------------------------------
Total cost and expenses 113,165 58,694 40,300 31,433 22,917
- ----------------------------------------------------------------------------------------------
Income before income taxes 20,946 12,776 8,083 5,689 3,404
Income tax expense 7,801 4,664 2,956 2,003 1,235
- ----------------------------------------------------------------------------------------------
Net income $ 13,145 $ 8,112 $ 5,127 $ 3,686 $ 2,169
- ----------------------------------------------------------------------------------------------
Earnings per share:
- -------------------
Net income per share $1.27 $0.99 $0.77 $0.60 $0.43
- ----------------------------------------------------------------------------------------------
Other Data:
- -----------
Weighted average shares outstanding 10,342 8,147 6,692 6,175 5,090
- ----------------------------------------------------------------------------------------------
Balance Sheet Data:
- -------------------
Working Capital $ 37,808 $27,783 $18,203 $ 9,617 $ 6,621
Total Assets 171,632 94,433 40,019 25,137 20,961
Long-term Debt
(less current portion) -- -- -- 1,053 1,538
Shareholders' Equity 149,659 83,320 36,197 17,518 13,673
- ----------------------------------------------------------------------------------------------
The Company has acquired various businesses in the five years shown above.
Results of these acquisitions' operations are included from the respective dates
acquired.
24
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
- -------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED JULY 31, 1995 AND 1994
- -------------------------------------------------
Operating revenue increased 87.6% to $134.1 million for the fiscal year ended
July 31, 1995 ("fiscal 1995") from $71.5 million for the fiscal year ended July
31, 1994 ("fiscal 1994"). 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
113.7% to $88.8 million for fiscal 1995 from $41.6 million for fiscal 1994. The
increase was due mainly to increases in patient bases throughout the Company's
locations and increased marketing efforts in certain locations acquired during
fiscal year 1994 and 1995.
Operating revenue from home infusion therapy and pharmacy related services
increased 31.6% to $33.6 million for fiscal 1995 from $25.5 million for fiscal
1994. Growth in this line of business should continue as the Company expands
both its service areas and available products and services.
Operating revenue from physician practices represented 8.7% of total
operating revenue for fiscal 1995, compared to less than 5% for fiscal 1994.
The Company currently owns 20 physician practices and employs 26 primary care
physicians. These practices are clustered in two rural marketplaces. Growth in
this line of business should continue yet decline as a percentage of operating
revenue as the Company continues to acquire mostly home health care operations.
Cost of revenue as a percentage of operating revenue increased to 27.1% for
fiscal 1995 from 24.4% for fiscal 1994 due to changes in the product mix in the
last year resulting from mid-year fiscal 1994 and fiscal 1995 acquisitions.
Selling, general and administrative expenses as a percentage of operating
revenue remained relatively stable at 49.6% for fiscal 1995, down from 50.2% for
fiscal 1994 as the revenue base has grown faster than the Company's costs.
Selling, general and administrative expenses included a net gain from the sale
of another asset. The gain resulted from years of operational expenses flowing
through the income statements rather than being capitalized. The net gain was
offset by increased bad debt expense, resulting in no net impact on selling,
general and administrative expenses and no impact on earnings from the gain.
Management took the opportunity provided by the gain to improve its overall
long-term financial position. Changes in the Company's mix of business also
affect these categories. For example, physician practices have no cost of
revenue, and all expenses are of a selling, general and administrative nature.
Depreciation and amortization expense increased 79.2% to $9.6 million for
fiscal 1995 from $5.3 million for fiscal 1994. Depreciation and amortization
expense as a percentage of operating revenue was 7.1% for fiscal 1995 and 7.5%
for fiscal 1994. The dollar increase was attributable to the Company's purchase
of fixed and intangible assets resulting from various acquisitions and the fixed
assets needed for the increased rentals of equipment. All acquisitions in
fiscal 1995 were accounted for by the purchase method of accounting for
acquisitions.
25
Rotech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
- -------------------------------------------------------------------------------
Interest expense, net of interest income, increased to $835,000
for fiscal 1995 from $67,000 for fiscal 1994. This increase resulted from the
Company borrowing monies to fund certain acquisitions. The proceeds from the
Company's May 1995 stock offering were utilized to repay all bank indebtedness,
yet due to the acquisition pace, the Company became a borrower again in early
July 1995.
Income tax expense was provided at a 37.2% effective rate, compared to 36.5%
the prior fiscal year. The increase was due to the increase in non-deductible
amortization expense in fiscal 1995 and the entry into a higher tax bracket.
Net income for fiscal 1995 was $13.1 million, a 62.0% increase over the $8.1
million for fiscal 1994. Net income per share increased 28.3% to $1.27 for
fiscal 1995 compared to $0.99 for fiscal 1994. The weighted average number of
shares increased 26.9% to 10.3 million at July 31, 1995 from 8.1 million at July
31, 1994, primarily as a result of the March 1994 and May 1995 public stock
offerings and shares issued in conjunction with certain acquisitions.
FOR THE FISCAL YEARS ENDED JULY 31, 1994 AND 1993
- -------------------------------------------------
Operating revenue for fiscal 1994 increased to $71.5 million from $48.4
million for the fiscal year ended July 31, 1993 ("fiscal 1993"). The 48%
increase in operating revenue is attributable primarily to the increase from 71
locations to 134 locations in fiscal 1994 with approximately one-third of the
increase resulting from the acquired home respiratory and other medical
equipment companies. The balance of the growth in operating revenue was from
existing locations, inclusion of fiscal 1993 acquisitions for a full year and
locations internally developed in fiscal 1994.
Operating revenue from home respiratory and other medical equipment grew 74%
to $41.6 million for fiscal 1994 from $23.9 million for fiscal 1993. This 74%
increase was due mainly to a continued focus of the Company's sales force toward
home respiratory products and services and acquisitions of companies
predominantly in this line of business.
Operating revenue from home infusion therapy increased 17% to $25.5 million
for fiscal 1994 from $21.7 million for fiscal 1993. The slower growth is due to
the fiscal 1994 direction of the Company's single sales force toward home
respiratory products and services, and unit growth in home infusion therapy
products and services in spite of some pricing pressures experienced during the
year.
Cost of revenue as a percentage of operating revenue decreased to 24.4% for
fiscal 1994 from 25.5% for fiscal 1993. The Company continued to obtain better
volume pricing with the addition of new entities and refocused its acquisition
efforts on the home respiratory and other medical equipment line of business,
which has a lower cost of revenue as a percentage of operating revenue. Selling,
general and administrative expenses as a percentage of operating revenue
decreased to 50.2% from 51.8% for the same two periods.
26
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
- -------------------------------------------------------------------------------
Depreciation and amortization expense increased 91% to $5.3 million for fiscal
1994 from $2.8 million for fiscal 1993, and increased as a percentage of
operating revenue during the same periods. This dollar increase is attributable
to the Company's purchases of fixed and intangible assets resulting from various
acquisitions and the fixed assets needed for the increased rentals of equipment.
Net interest expense decreased to $67,000 for fiscal 1994 from $76,000 for
fiscal 1993. This decrease resulted from the payment of outstanding debt
balances in March 1994 with proceeds from the public offering and lower interest
rates charged on borrowings from banks prior to March 1994. The decrease was
also due to the interest income earned on short-term investments.
The effective tax rate was 36.5% for fiscal 1994, compared to 36.6% for fiscal
1993.
As a result of the foregoing, net income increased 58% to $8.1 million from
$5.1 million and net income as a percentage of operating revenue increased to
11.3% for fiscal 1994 from 10.6% for fiscal 1993.
The Company was required to adopt Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," in the first quarter of fiscal 1994 as
more fully described in Note 1 of the consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At July 31, 1995, total current assets were $56.7 million and total current
liabilities were $18.8 million, resulting in working capital of $37.9 million.
The Company's current ratio was 3.01 to 1 at July 31, 1995 compared to 3.68 to 1
at July 31, 1994. Net trade accounts receivable increased $12.7 million in
fiscal 1995, or 42.8%. This increase is attributable to acquisitions of the net
assets of many home health care companies during the year and the 87.6% increase
in operating revenue over the prior year. As a result, the Company's days
revenue outstanding on net accounts receivable decreased to 98 days at July 31,
1995 from 116 days at July 31, 1994. Acquired receivables remaining outstanding
account for approximately 10 days revenue outstanding at July 31, 1995 and 21
days revenue outstanding at July 31, 1994.
Current liabilities increased $8.5 million in fiscal 1995, or 81.8%, as $10.0
million was borrowed on the working capital line of credit. The balance of the
change was due to the timing of payments to vendors.
During fiscal 1995, the Company generated cash of $17.1 million from operating
activities primarily as a result of net income of $13.1 million along with non-
cash expenses of $11.7 million. Advances on the working capital line of credit
were utilized to fund acquisitions and internal expansion. During fiscal 1995,
the Company spent $55.6 million to acquire various home health care companies
27
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
- -------------------------------------------------------------------------------
and $17.3 million to purchase property and equipment, primarily rental
equipment, for operational needs. The Company has been financing its revenue
growth and increased working capital requirements with positive net cash
provided by operating activities and short-term borrowings.
As of July 31, 1995, the Company had a working capital line of credit of $75.0
million, with approximately $65.0 million available for future borrowing. The
working capital and acquisition line of credit carries a negative pledge on all
Company assets, is payable on demand and provides for interest rates, at the
Company's election, of LIBOR plus .70% or prime rate minus 1% for the first
$20.0 million advanced to the Company and LIBOR plus .825% or prime rate minus
1% for any advances in excess of the first $20.0 million. The line of credit
requires compliance by the Company with certain financial and negative
covenants, including a restriction on dividends. Management believes that its
credit capacity and cash flow from operations, will be sufficient for the
Company's projected growth in the near future.
The Company completed a public offering in May of 1995 in which it issued an
additional 1.7 million shares for cash of $49.9 million, compared with its March
1994 public offering of 2.0 million shares which provided cash of $36.7
million.
For fiscal 1994, the Company's operating activities provided $4.8 million in
cash, compared to $1.6 million in fiscal 1993. The primary component of this
change was an increase in net income to $8.1 million for fiscal 1994, compared
to $5.1 million for fiscal 1993, offset by increased accounts receivable and
decreased amounts payable on operating liabilities. The Company has generated
positive net cash flow from operating activities in each of its last six fiscal
years despite increases in accounts receivable in each period resulting from the
similar growth in operating revenue.
During fiscal 1994, investing activities used $47.1 million in cash, compared
to $6.4 million during fiscal 1993. During fiscal 1994, the Company spent $9.4
million to purchase property and equipment, primarily rental equipment, for
operations and general equipment needs, compared to $4.0 million in fiscal 1993.
Purchases of property and equipment typically represent the major component of
the Company's investing activities. The Company paid $38.6 million to acquire
various home health care companies in fiscal 1994. Aside from increased
purchases of home respiratory and other medical equipment to support its sales
growth in its home respiratory and other medical equipment operations, the
Company does not require significant fixed capital investment.
Financing activities provided $40.0 million in cash during fiscal 1994,
compared to $7.2 million during fiscal 1993. The Company's strategy has been to
use net cash flow from operations and borrowings to finance expansion of its
business. The Company was able to complete an equity offering and repay all
borrowings with a portion of the proceeds to enable the same strategy to
continue for fiscal 1994.
28
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Selected Quarterly Consolidated Financial Data and Prices of Common Stock
- -------------------------------------------------------------------------------
(in thousands, except per share amounts and prices of Common Stock)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1995
OPERATING REVENUE $26,723 $32,582 $35,031 $39,775
NET INCOME $ 2,691 $ 3,104 $ 3,351 $ 3,998
NET INCOME PER SHARE $ 0.28 $0.31 $0.34 $ 0.35
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 9,666 9,897 9,900 11,556
- -------------------------------------------------------------------------------
Year Ended July 31, 1994
Operating Revenue $14,013 $15,880 $18,139 $23,438
Net Income $ 1,456 $ 1,799 $ 2,215 $ 2,641
Net Income Per Share $ 0.20 $0.24 $0.26 $ 0.28
Weighted Average
Number of Shares
Outstanding 7,256 7,478 8,596 9,622
- -------------------------------------------------------------------------------
PRICES OF COMMON STOCK HIGH ($) LOW ($)
- -------------------------------------------------------------------------------
FISCAL 1995 - QUARTER ENDED
OCTOBER 31, 1994 27 18 3/4
JANUARY 31, 1995 29 24
APRIL 30, 1995 32 1/2 25 1/2
JULY 31, 1995 33 24 1/2
- -------------------------------------------------------------------------------
Fiscal 1994 - Quarter Ended
October 31, 1993 14 1/4 10
January 31, 1994 19 12 1/4
April 30, 1994 23 1/4 16 3/8
July 31, 1994 21 1/2 17 3/4
- -------------------------------------------------------------------------------
The Common Stock of the Company has traded on the over-the-counter market
since December 9, 1985 and is quoted on the NASDAQ National Market System under
the symbol "ROTC". The prices presented in the above table are the high and low
closing sales prices on the over-the-counter market for the Company's Common
Stock as reported on the NASDAQ Market System. On October 28, 1995, there were
11,990,779 shares of Common Stock outstanding which were held by approximately
609 shareholders of record. The Company has not paid any dividends since
formation. The Company anticipates that for the foreseeable future, it will
retain earnings in order to finance the development of its businesses and that
no cash dividends will be paid on its Common Stock.
29
RoTech Medical Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Directors William P. Kennedy
Chairman of the Board
Stephen P. Griggs
William A. Walker II
Jack T. Weaver
Leonard Williams
Executive Officers William P. Kennedy
Chief Executive Officer
Stephen P. Griggs
President, Assistant Secretary and
Chief Operating Officer
William A. Walker II
Secretary
Rebecca R. Irish
Treasurer, Assistant Secretary and
Chief Financial Officer
Corporate Office 4506 L. B. McLeod Road, Suite F
Orlando, FL 32811
(407) 841-2115
(800) 342-0416
Attorneys Winderweedle, Haines, Ward & Woodman,
P. A.
390 North Orange Avenue, Suite 600
Orlando, FL 32801
Auditors Deloitte & Touche LLP
200 South Orange Avenue, Suite 1800
Orlando, FL 32801
Financial Institution SunBank, National Association
200 South Orange Avenue
Orlando, FL 32801
Shareholder Information Transfer Agent:
The shares of RoTech Medical SunBank, National Association
Corporation's Common Stock commenced Attn: Corporate Trust Division
trading on the NASDAQ National 225 E. Robinson Street, Suite 350
Market System on December 9, 1985 Orlando, FL 32801
and are traded under the symbol
"ROTC". The approximate number of
shareholders of record as of October
28, 1995 was 609.
Annual Report: Annual Meeting:
A copy of RoTech Medical Corporation December 8, 1995 at 10:00 a.m.
Annual Report on Form 10-K as filed SunBank, National Association
will be made available without 200 South Orange Avenue
charge upon written request. 2nd Floor, Tower Side
Requests should be directed to: Campus Room
Orlando, FL 32801
Rebecca R. Irish
Treasurer and Chief Financial
Officer
RoTech Medical Corporation
Post Office Box 536576
Orlando, FL 32853-6576
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