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Rotech Healthcare Reports Third Quarter and Nine Months 2012 Financial Results

  Rotech Healthcare Reports Third Quarter and Nine Months 2012 Financial
  Results

Business Wire

ORLANDO, Fla. -- November 15, 2012

Rotech Healthcare Inc. (OTCBB: ROHI.OB) (the “Company”) today announced
financial results for the third quarter September30, 2012.

Key performance indicators for the third quarter September30, 2012 include:

  *Year-over- year organic growth of 6% for oxygen patients, 12% for CPAP
    rental patients and 7% for CPAP sales;
  *Net revenue was positively impacted by organic patient growth and
    previously completed asset purchase transactions which contributed
    approximately $2.7 million and $0.7 million, respectively for the three
    months ended September30, 2012 compared to the comparable period in 2011.
    This positive growth was offset by $12.0 million as described below:

       *Decreased nebulizer medication volume and reimbursement totaling
         approximately $1.8 million;
       *Decreased net revenue from higher rates of contractual/revenue
         adjustments compared to prior year totaling approximately $3.2
         million;
       *Patients moved to non-billable status primarily as a result of
         Medicare claim denials from pre-payment and post-payment audits
         totaling approximately $3.3 million;
       *Decreased net revenue from Medicare oxygen patients reaching their 36
         month rental cap totaling approximately $3.5 million; and
       *Decreased net revenue from non-core product lines totaling
         approximately $0.2 million.

  *Adjusted EBITDA^1 decreased to $21.4 million for the three months ended
    September30, 2012 from $27.7 million for the three months ended
    September30, 2011.
  *Adjusted EBITDA^1 decreased to $65.7 million for the nine months ended
    September30, 2012 from $84.1 million for the nine months ended
    September30, 2011.

"Patient growth for our key product lines continues to be good, and our
efforts to reduce adjustments for contractuals and bad debt are beginning to
have a positive impact," said Philip Carter, President and Chief Executive
Officer. "Planning for 2013 is well underway to position the Company for
improved financial performance for the year ahead," Mr. Carter added.

^1 See accompanying table for reconciliation to net loss and related note
regarding immaterial prior period error correction.

About Rotech Healthcare Inc.

Rotech Healthcare Inc. is one of the largest providers of home medical
equipment and related products and services in the United States, with a
comprehensive offering of respiratory therapy and durable home medical
equipment and related services. The Company provides home medical equipment
and related products and services principally to older patients with breathing
disorders, such as chronic obstructive pulmonary diseases (COPD), which
include chronic bronchitis, emphysema, obstructive sleep apnea and other
cardiopulmonary disorders. The Company provides equipment and services in 49
states through approximately 410 operating locations located primarily in
non-urban markets.

Forward-Looking Statements

This press release contains certain statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 and the provisions of section 21E of the Securities Exchange Act of
1934, as amended, and section 27A of the Securities Act of 1933, as amended.
These forward-looking statements include all statements regarding the intent,
belief or current expectations regarding matters discussed in this press
release and all statements which are not statements of historical fact. Words
such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,”
“projects,” “may,” “will,” “could,” “should,” “would,” variations of such
words and similar expressions are intended to identify such forward-looking
statements. These forward-looking statements involve known and unknown risks,
uncertainties, contingencies and other factors that could cause results,
performance or achievements to differ materially from those stated or implied
in this press release. The following are some but not all of such risks,
uncertainties, contingencies, assumptions and other factors, many of which are
beyond the control of the Company, that could cause results, performance or
achievements to differ materially from those anticipated: general economic,
financial and business conditions; our ability to successfully transition and
retain patients associated with equipment and asset purchases; setting of new
reimbursement rates and other changes in reimbursement policies, the timing of
reimbursements and other legislative initiatives aimed at reducing health care
costs associated with Medicare and Medicaid; issues relating to reimbursement
by government and third-party payors for the Company's products and services
generally; the impact of competitive bidding on Medicare volume in the
impacted competitive bidding areas; the costs associated with government
regulation of the health care industry; health care reform and the effect of
changes in federal and state health care regulations generally; whether the
Company will be subject to additional regulatory restrictions or penalties;
issues relating to our ability to maintain effective internal control over
financial reporting and disclosure controls and procedures; compliance with
federal and state regulatory agencies, as well as accreditation standards and
confidentiality requirements with respect to patient information; the effects
of competition, industry consolidation and referral sources; recruiting,
hiring and retaining qualified employees and directors; compliance with
various settlement agreements and corporate compliance programs; the costs and
effects of legal proceedings; the Company's ability to meet our working
capital, capital expenditures and other liquidity needs; our ability to
maintain compliance with the covenants contained in our indentures for our
senior secured notes and our senior second lien notes; our ability to maintain
current levels of collectability on our accounts receivable; our ability to
successfully realize material improvements in bad debt expense levels and
revenue adjustments; and other factors as described in the Company's filings
with the Securities and Exchange Commission. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date thereof. The Company does not undertake any obligation to publicly
release any revisions to any forward-looking statements to reflect events or
circumstances after the date of this release or to reflect the occurrence of
unanticipated events.

                               Tables to Follow

Descriptions of Adjusted EBITDA and reconciliations to our GAAP results are
included in the tables and notes attached to this press release.

     
       FINANCIAL HIGHLIGHTS
       (In millions, except per share data)
       UNAUDITED
       
       Schedule 1
       Condensed Consolidated Statements of Operations ^(1)
       
                         Three months ended           Nine months ended
                          September 30,                September 30,
                          2012           2011         2012         2011
       Net revenues       $  113.8        $  122.4     $  347.3      $ 365.4
       Costs and
       expenses:
       Cost of net        39.1            37.8         115.0         112.9
       revenues
       Selling,
       general and        65.1            63.2         201.8         188.8
       administrative
       Provision for
       doubtful           5.3             6.4          22.3          18.8
       accounts
       Depreciation
       and                2.2            2.4         7.0          7.0     
       amortization
       Total costs and    111.7          109.8       346.1        327.5   
       expenses
       Operating          2.1             12.6         1.2           37.9
       income
       Other expense
       (income):
       Interest           15.0            14.7         44.9          45.4
       expense, net
       Other expense      —               0.1          0.1           (0.8    )
       (income), net
       Loss on debt       —              —           —            1.2     
       extinguishment
       Total other        15.0           14.8        45.0         45.8    
       expense
       Loss before        (12.9     )     (2.2      )  (43.8     )   (7.9    )
       income taxes
       Income tax
       expense            (0.1      )     (0.2      )  —            (0.2    )
       (benefit)
       Net loss           (12.8     )     (2.0      )  (43.8     )   (7.7    )
       Accrued
       dividends on
       convertible        —              —           0.1          0.2     
       redeemable
       preferred stock
       Net loss
       attributable to    $  (12.8  )     $  (2.0   )  $  (43.9  )   $ (7.9  )
       common
       stockholders
       Net loss per
       common share:
       Basic and          $  (0.49  )     $  (0.08  )  $  (1.69  )   $ (0.31 )
       diluted
       
       Prior period amounts adjusted to reflect correction of immaterial prior
       period error identified during the quarter ended March 31, 2012. Net
^(1)   revenues for the three months ended September30, 2011 decreased $0.4
       from $122.8 to $122.4. Net revenues for the nine months ended
       September30, 2011 decreased $1.4 from $366.8 to $365.4.
       

     
       ROTECH HEALTHCARE INC. AND SUBSIDIARIES
       FINANCIAL HIGHLIGHTS
       (In millions, except per share data)
       UNAUDITED
       
       Schedule 2
       Reconciliations of Net (Loss) Earnings to Adjusted EBITDA
       
       Use of Non-GAAP Measures
       We present Adjusted EBITDA as a supplemental measure of our performance
       that is not required by, or presented in accordance with, generally
       accepted accounting principles (GAAP) in the United States of America.
       We define Adjusted EBITDA as net earnings (loss) adjusted for (i)
       income tax (benefit) expense, (ii) interest expense and (iii)
       depreciation and amortization, as further adjusted to eliminate the
       impact of certain items, consistent with definitions provided under our
       former senior facility, that we do not consider indicative of our
       ongoing operating performance. These further adjustments are itemized
       below. You are encouraged to evaluate these adjustments and the reasons
       we consider them appropriate for supplemental analysis. We believe
       Adjusted EBITDA assists investors and securities analysts in comparing
       our performance across reporting periods on a consistent basis by
       excluding certain items, consistent with definitions provided under our
       former senior facility, that we do not believe are indicative of our
       core operating performance. However, there may be additional items
       which are non-recurring as set forth in Management's Discussion and
       Analysis of Financial Condition and Results of Operations as set forth
       in our annual and quarterly filings with the Securities and Exchange
       Commission. We use Adjusted EBITDA to evaluate the effectiveness of our
       business strategies. In evaluating Adjusted EBITDA, you should be aware
       that in the future we may incur expenses that are the same as or
       similar to some of the adjustments in this presentation. Our
       presentation of Adjusted EBITDA should not be construed as an inference
       that our future results will be unaffected by unusual or non-recurring
       items.
       
                           Three months ended          Nine months ended
                           September 30,               September 30,
                           2012           2011        2012          2011
       Net loss ^(1)       $  (12.9  )     $  (2.1  )  $  (43.7  )    $ (7.7 )
       Income tax benefit  (0.1      )     (0.2     )  —              (0.2   )
       Interest expense    15.1            14.7        44.9           45.5
       Depreciation and
       amortization,
       including patient   16.8            14.9        48.9           44.7
       service equipment
       depreciation
       Non-cash
       equity-based        0.1             0.3         0.7            0.5
       compensation
       expense
       Operational
       restructuring and   1.0             —           3.6            —
       transition related
       costs^(2)
       Settlement          —               0.1         0.1            0.1
       costs^(3)
       Loss on
       extinguishment of   —               —           —              1.2
       debt^(4)
       Intake system       —               —           8.4            —
       implementation^(5)
       Oxygen content      0.1             —           1.1            —
       overbilling ^(6)
       Legal fees ^(7)     0.3             —           0.7            —
       Other               1.0            —          1.0           —      
       adjustments^(8)
                           $  21.4        $  27.7    $  65.7       $ 84.1 
                                                                             
       Prior period amounts adjusted to reflect correction of immaterial prior
       period error identified during the quarter ended March 31, 2012. Net
(1 )   loss for the three months ended September 30, 2011 increased $0.4 from
       $1.7 from $2.1. Net loss for the nine months ended September 30, 2011
       increased $1.4 from $6.3 to $7.7.
       Includes $2.0 million retirement award due to Mr. Philip Carter, Chief
       Executive Officer of the Company, under the terms of his employment
(2 )   agreement, as well as other operational restructuring and transition
       related costs generally consisting of severance and location closure
       costs, and temporary, transitional employee costs associated with
       patient transition following asset or equipment purchase transactions.
       Settlement costs incurred outside our ordinary course of business which
(3 )   we do not believe reflect the current and ongoing cash charges related
       to our operating cost structure.
       We redeemed our 9.5% Senior Subordinated Notes due April 2012 on March
(4 )   17, 2011, and recorded a $1.2 million loss on extinguishment of debt
       related to unamortized debt issue costs.
       During the second half of 2011, we completed implementation of our new
       order intake system. In conjunction with our electronic medical record
       system implemented in 2009, we have redesigned our front-end order
       intake processes. As a result, we have been able to automate and
       consolidate many of our historically paper-based processes. However,
       during the six month implementation process, we experienced extended
       delays in obtaining certain required payor-specific documentation
       required to release claims. Such delays were caused by unanticipated
       operational backlogs associated with our conversion to the new order
       intake system. These operational backlogs caused our earned but
       unbilled accounts receivable to increase to approximately $30.5 million
       during the first quarter of 2012. We implemented numerous operational
(5 )   initiatives designed to eliminate this backlog and as of April 30,
       2012, we have reduced the total earned but unbilled receivables to
       $22.0 million. In the process of reducing our earned but unbilled
       receivables during the first quarter of 2012, we incurred significant
       incremental labor expense including overtime and temporary labor costs
       of approximately $0.5 million, as well as write- offs of accounts
       receivable associated with insurance and patient balances of
       approximately $7.8 million recorded during the three months ended March
       31, 2012. Management believes that these implementation issues are
       substantially resolved and the associated increases in labor costs,
       contractual/revenue adjustments impacting net revenue, and the
       provision for doubtful accounts recorded during the three months ended
       March 31, 2012 are not indicative of our current operating performance
       and are not expected to recur.
       Overpayment amount and associated legal and consulting fees related to
(6 )   the error in certain programming logic within its billing system
       identified during the quarter ended March 31, 2012.
(7 )   Legal fees associated with various non-recurring events and strategic
       activities.
(8 )   Other adjustments not considered indicative of our ongoing operating
       performance.
       


ROTECH HEALTHCARE INC. AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS

(In millions, except per share data)

UNAUDITED
                                                       
Schedule 3

Selected Balance Sheet Data^(1)
                                                             
                                  September 30, 2012         December 31, 2011
Cash and cash equivalents         $     19.2                 $    30.5
Accounts receivable, net          70.5                       76.0
Total current assets              108.3                      125.8
Total assets                      255.8                      277.0
Total current liabilities         88.1                       65.1
Long-term debt, less current      512.3                      511.1
portion
Total stockholders' deficiency    (346.2        )            (303.2       )
Total liabilities and             255.8                      277.0
stockholders' deficiency
                                                                          

 
    Selected Cash Flow Data
                                                    For the nine months ended
                                                     September 30,
                                                     2012           2011
    Net cash provided by operating activities        $  20.4        $ 24.7
    Net cash used in investing activities            (34.6    )       (40.4  )
    Net cash provided by (used in) financing         2.9              (14.3  )
    activities
                                                                             

      Prior period amounts adjusted to reflect correction of immaterial prior
      period error identified during the quarter ended March 31, 2012. Total
(1)  current liabilities as of December 31, 2011 increased $6.0 from $59.1 to
      $65.1. Total stockholders' deficiency as of December 31, 2011 increased
      $6.0 from $297.2 to $303.2.

Contact:

Rotech Healthcare Inc.
Philip L. Carter, 407-822-4600
President & Chief Executive Officer