Rotech Healthcare second-quarter adjusted EBITDA increases to $29.2 million

Rotech Healthcare Inc.Aug 5 2010

Rotech Healthcare Inc. (OTCBB: ROHI) (the "Company") today announced financial results for the three and six months ended June 30, 2010.

“We intend to refinance part or all of our debt prior to maturity, subject, of course, to continued favorable performance and market conditions”

Highlights for the three and six months ended June 30, 2010 include:

GROWTH

• As of June 30, 2010 revenue generating patients in the core product lines of oxygen and CPAP grew 10% compared to June 30, 2009.

ADJUSTED EBITDA

• Adjusted EBITDA increased to $29.2 million for the three months ended June 30, 2010 from $22.1 million for the three months ended June 30, 2009
• Adjusted EBITDA increased to $54.4 million for the six months ended June 30, 2010 from $43.3 million for the six months ended June 30, 2009
• Cash and cash equivalents of $54.0 million at June 30, 2010

During the month of April 2010, the Company settled a commercial arbitration proceeding related to previously unpaid claims and associated interest, fees, expenses and legal costs. The net amount received as a result of this settlement, after consideration of all legal costs and expenses incurred was approximately $2.9 million, which is included in Adjusted EBITDA for the three and six months ended June 30, 2010.

"We are pleased with our financial and operating performance during the three and six months ended June 30, 2010," said Philip Carter, President and Chief Executive Officer. "We continue to evaluate options and timing for addressing our upcoming debt maturities," he added. "We intend to refinance part or all of our debt prior to maturity, subject, of course, to continued favorable performance and market conditions," added Mr. Carter.

Liquidity and Debt

As of June 30, 2010, the Company had $54.0 million in cash. The Company has continued its election to pay cash interest on its payment-in-kind term loan since September 2009. As of June 30, 2010, the Company had approximately $513.2 million of long-term debt outstanding consisting of $225.8 million payable under its senior credit facility which matures in September 2011, and $287.0 million of senior subordinated notes which mature in April 2012. As of June 30, 2010, the Company's ratio of net debt to last twelve months Adjusted EBITDA decreased to 4.6 times.

Competitive Bidding

As previously announced, the Company accepted 17 contracts awarded by the Centers for Medicare & Medicaid Services ("CMS") in the Round 1 Rebid of the national Medicare Competitive Bidding Program. The Round 1 Rebid included nine competitive bidding areas ("CBAs"). Only contracted suppliers can service Medicare patients for the competitively-bid product categories in these locations, with a few exceptions. The new contracts awarded in Round 1 have a three-year term and are scheduled to take effect on January 1, 2011. Rotech has accepted the following contracts:

• 6 CBAs for oxygen supplies and equipment;
• 6 CBAs for enteral nutrients, equipment and supplies;
• 3 CBAs for continuous positive airway pressure, respiratory assist devices and related supplies and accessories; and
• 2 CBAs for standard power wheelchairs, scooters and related accessories.

CMS continues to award contracts through September and, therefore, additional contracts may be awarded.

"We are pleased with our success in the Round 1 Rebid of the national competitive biding programs and we look forward to considerable growth and expansion of our existing presence in these initial cities that we believe will more than offset the reduction in reimbursement rates over time," commented Philip L. Carter, Rotech's President and Chief Executive Officer. "Although we believe changes relating to the establishment of new reimbursement rates, as well as other related changes, should be evaluated prior to the further expansion of the competitive bidding program, we believe that CMS will achieve cost savings for the Medicare program and reduce the risk of fraud and abuse," continued Mr. Carter. "We believe that both the Company and CMS will gain valuable additional insight from the Round 1 Rebid that can serve to improve the competitive bidding process prior to further expansion," concluded Mr. Carter.