-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Med9L6as9uMPbEkBFbZ36lS1oGcPoIJC98N7q2z2/v+5CMQ3XGe9Jk5JJgI3En+s 1BL0k/z4qnOJyEFO6r927A== 0000950144-99-005640.txt : 19990513 0000950144-99-005640.hdr.sgml : 19990513 ACCESSION NUMBER: 0000950144-99-005640 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCARE HOLDINGS INC CENTRAL INDEX KEY: 0000882235 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 510331330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19946 FILM NUMBER: 99617782 BUSINESS ADDRESS: STREET 1: 19337 US 19 N STE 500 CITY: CLEARWATER STATE: FL ZIP: 34624 BUSINESS PHONE: 8135307700 MAIL ADDRESS: STREET 1: 19337 US 19 NORTH STE 500 CITY: CLEARWATER STATE: FL ZIP: 34624 10-Q 1 LINCARE HOLDINGS INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-Q --------------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 COMMISSION FILE NUMBER 0-19946 LINCARE HOLDINGS INC. (Exact name of registrant as specified in its charter) DELAWARE 51-0331330 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19337 US 19 NORTH, SUITE 500, 33764 CLEARWATER, FL (Zip Code) (Address of principal executive offices)
Registrant's telephone number, including area code: (727) 530-7700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT APRIL 30, 1999 ----- ----------------------------- Common Stock, $0.01 par value............................... 58,364,532 shares
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 LINCARE HOLDINGS INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1 Financial Statements (unaudited) Condensed consolidated balance sheets..................... 3 Condensed consolidated statements of operations........... 4 Condensed consolidated statements of cash flows........... 5 Notes to condensed consolidated financial statements...... 6 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition........................ 7 Item 3 Quantitative and Qualitative Disclosure Regarding Market Risk...................................................... 9 PART II. OTHER INFORMATION Item 1 Legal Proceedings........................................... 9 Item 2 Changes in Securities....................................... 9 Item 3 Defaults Upon Senior Securities............................. 9 Item 4 Submission of Matters to a Vote of the Security Holders..... 9 Item 5 Other Information........................................... 9 Item 6 Exhibits and Reports on Form 8-K............................ 9 SIGNATURE........................................................... 10
2 3 LINCARE HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) (IN THOUSANDS) Current assets: Cash and cash equivalents................................. $ 2,123 $ 5,100 Accounts and notes receivable............................. 94,275 85,187 Income tax receivable..................................... -- 3,553 Inventories............................................... 2,801 2,908 Prepaid expenses.......................................... 575 478 -------- -------- Total current assets.............................. 99,774 97,226 -------- -------- Property and equipment...................................... 271,783 246,033 Less: accumulated depreciation.............................. 115,476 105,799 -------- -------- Net property and equipment........................ 156,307 140,234 -------- -------- Other assets: Goodwill.................................................. 386,723 336,485 Intangible assets......................................... 7,974 6,102 Covenants not to compete.................................. 1,547 1,772 Other..................................................... 759 820 -------- -------- Total other assets................................ 397,003 345,179 -------- -------- Total assets................................. $653,084 $582,639 ======== ======== Current liabilities: Current installments of long-term obligations............. $ 14,526 $ 12,923 Accounts payable.......................................... 18,915 19,169 Accrued expenses: Compensation and benefits.............................. 10,485 10,679 Other.................................................. 8,105 5,377 Income taxes payable................................... 7,428 -- -------- -------- Total current liabilities......................... 59,459 48,148 -------- -------- Long-term obligations, excluding current installments....... 57,166 22,258 Deferred income taxes....................................... 15,651 15,651 Minority interest........................................... 990 926 Stockholders' equity: Common stock.............................................. 584 583 Additional paid-in capital................................ 129,256 128,828 Retained earnings......................................... 390,588 367,085 Less: treasury stock...................................... 610 840 -------- -------- Total stockholders' equity........................ 519,818 495,656 -------- -------- Total liabilities and stockholders' equity... $653,084 $582,639 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 4 LINCARE HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED --------------------------- MARCH 31, MARCH 31, 1999 1998 ------------ ------------ (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) Net revenues................................................ $ 136,081 $ 111,904 ---------- ---------- Costs and expenses: Costs of goods and services............................... 21,597 18,019 Operating expenses........................................ 30,937 26,640 Selling, general and administrative expenses.............. 29,995 25,472 Bad debt expense.......................................... 1,633 1,343 Depreciation expense...................................... 9,550 8,010 Amortization expense...................................... 3,790 2,985 ---------- ---------- 97,502 82,469 ---------- ---------- Operating income.................................. 38,579 29,435 ---------- ---------- Other income (expense): Interest income........................................... 49 125 Interest expense.......................................... (652) (87) Net loss on disposal of property and equipment............ (8) (11) ---------- ---------- (611) 27 ---------- ---------- Income before income taxes........................ 37,968 29,462 Income taxes................................................ 14,465 11,284 ---------- ---------- Net income........................................ $ 23,503 $ 18,178 ========== ========== Income per common share..................................... Basic..................................................... $ 0.40 $ 0.32 ========== ========== Diluted................................................... $ 0.40 $ 0.31 ========== ========== Weighted average number of common shares outstanding........ 58,355,360 57,581,120 ========== ========== Weighted average number of common shares and common share equivalents outstanding................................... 59,397,126 59,445,207 ========== ==========
See accompanying notes to condensed consolidated financial statements. 4 5 LINCARE HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED -------------------------- MARCH 31, MARCH 31, 1999 1998 ---------- ---------- (IN THOUSANDS) Cash from operations........................................ $ 42,268 $ 42,872 Investing activities: Proceeds from sale of property and equipment.............. 14 48 Capital expenditures...................................... (22,881) (16,258) Decrease in other assets.................................. 61 49 Business acquisitions, net of cash acquired............... (37,455) (7,860) -------- -------- (60,261) (24,021) -------- -------- Financing activities: Proceeds from long-term obligations....................... 57,000 3,000 Payment of long-term obligations.......................... (42,491) (9,956) Decrease in minority interest............................. -- (253) Proceeds from issuance of common stock.................... 277 3,625 Treasury stock issued (acquired).......................... 230 (318) -------- -------- 15,016 (3,902) -------- -------- Increase (decrease) in cash................................. (2,977) 14,949 Cash and cash equivalents, beginning of period.............. 5,100 4,078 -------- -------- Cash and cash equivalents, end of period.................... $ 2,123 $ 19,027 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 6 LINCARE HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The accompanying condensed consolidated balance sheet as of March 31, 1999, the condensed consolidated statements of operations for the three months ended March 31, 1999 and 1998 and the condensed consolidated statements of cash flows for the three months ended March 31, 1999 and 1998 are unaudited. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. The accompanying condensed consolidated balance sheet as of December 31, 1998 is derived from the Lincare Holdings Inc. (the "Company") audited balance sheet as of that date. NOTE 2 -- BUSINESS COMBINATIONS During the three months ended March 31, 1999 the Company acquired, in unrelated acquisitions, the stock of four companies and certain assets of two companies. Each acquisition was accounted for as a purchase. The results of the acquired companies are included in the accompanying consolidated statements of operations since the respective dates of acquisition. The aggregate cost of these acquisitions was as follows:
(IN THOUSANDS) -------------- Cash........................................................ $37,455 Deferred acquisition obligations............................ 6,065 Assumption of liabilities................................... 17,560 ------- $61,080 =======
The aggregate purchase price was allocated as follows: Current assets.............................................. $ 2,191 Property and equipment...................................... 2,776 Intangible assets........................................... 2,975 Goodwill.................................................... 53,138 ------- $61,080 =======
Unaudited pro forma supplemental information on the results of operations for the three months ended March 31, 1999 and March 31, 1998 are provided below and reflect the acquisitions as if they had been combined at the beginning of each respective period.
FOR THE THREE MONTHS ENDED MARCH 31, ---------------------- 1999 1998 -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) Net revenues................................................ $139,941 $119,659 ======== ======== Net income.................................................. $ 23,832 $ 19,175 ======== ======== Income per common share: Basic..................................................... $ 0.41 $ 0.33 ======== ======== Diluted................................................... $ 0.41 $ 0.32 ======== ========
The unaudited pro forma financial information is not necessarily indicative of either the results of operations that would have occurred had the transactions been effected at the beginning of the respective preceding periods or of future results of operations of the combined companies. 6 7 LINCARE HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BALANCED BUDGET ACT OF 1997 On August 5, 1997, the Balanced Budget Act of 1997 ("BBA") was signed into law. This legislation, among other things, reduces Medicare expenditures by $115 billion over five years. The BBA reduces Medicare payment amounts for oxygen and oxygen equipment furnished after January 1, 1998, to 75 percent of the fee schedule amounts in effect during 1997. Payment amounts for oxygen and oxygen equipment furnished after January 1, 1999, and each subsequent year are reduced to 70 percent of the fee schedule amounts in effect during 1997. The BBA freezes the Consumer Price Index (U.S. urban average) update for covered items of durable medical equipment for each of the years 1998 through 2002 while limiting fees for parenteral and enteral nutrients, supplies and equipment to 1995 reasonable charge levels over the same period. The BBA reduces payment amounts for covered drugs and biologicals to 95 percent of the average wholesale price of such covered items for each of the years 1998 through 2002. The BBA authorizes the Department of Health and Human Services to conduct up to five competitive bidding demonstration projects for the acquisition of durable medical equipment and requires that one such project be established for oxygen and oxygen equipment. Each demonstration project is to be operated over a three-year period and is to be conducted in not more than three competitive acquisition areas. The BBA also includes provisions designated to reduce health care fraud and abuse including a surety bond requirement for durable medical equipment providers. OPERATING RESULTS The following table sets forth for the periods indicated a summary of the Company's net revenues by source:
FOR THE THREE MONTHS ENDED MARCH 31, -------------------- 1999 1998 -------- -------- (IN THOUSANDS) Oxygen and other respiratory therapy........................ $121,622 $ 99,987 Home medical equipment and other............................ 14,459 11,917 -------- -------- Total............................................. $136,081 $111,904 ======== ========
Net revenues for the three months ended March 31, 1999 increased by $24,177,000 (or 21.6%) compared with the three months ended March 31, 1998. The price cuts attributable to the BBA reduced the Company's revenues by approximately $4,520,000 for the three months ended March 31, 1999. Excluding the effect on the Company's revenues from the Medicare price reductions, internally generated growth increased revenues by approximately $13,936,000 (or 12.5%) while growth from acquisitions increased revenues by approximately $14,762,000 (or 13.1%) for the three months ended March 31, 1999 over the comparable prior year period. Cost of goods and services as a percentage of net revenues was 15.9% for the three months ended March 31, 1999 compared with 16.1% for the three months ended March 31, 1998. Operating expenses as a percentage of net revenues were 22.7% for the three months ended March 31, 1999 as compared to 23.8% for the three months ended March 31, 1998. Selling, general and administrative expenses as a percentage of net revenues were 22.0% for the three months ended March 31, 1999 compared with 22.8% for the three months ended March 31, 1998. The Company was able to offset approximately $1,200,000 of the price cuts attributed to the BBA in the first quarter of 1999 by maintaining a cost structure that, with increases in net revenues, allows the Company to spread its overhead over the larger base of revenue, resulting in improvements in operating income. 7 8 Amortization expense for the three months ended March 31, 1999 increased to $3,790,000 compared with $2,985,000 for the three month period ending March 31, 1998. The increase is attributable to the amortization of intangible assets associated with business combinations in 1998 and the first quarter of 1999. Operating income for the three months ended March 31, 1999 increased to $38,579,000 compared with $29,435,000 for the three months ended March 31, 1998. The increases in operating income are attributable to the continued revenue growth and efforts to control costs. LIQUIDITY AND CAPITAL RESOURCES Net cash provided from operating activities was $42,268,000 for the three months ended March 31, 1999 compared with $42,872,000 for the three months ended March 31, 1998. Net cash used in investing and financing activities was $45,245,000 for the three months ended March 31, 1999 compared with $27,923,000 for the three months ended March 31, 1998. Activity during the three-month period ended March 31, 1999 included the Company's investment of $37,455,000 in business acquisitions, investment in capital equipment of $22,881,000, proceeds of $57,000,000 from long-term obligations, and payments of $42,491,000 related to long-term obligations. YEAR 2000 REMEDIATION Certain risks may exist with respect to potential malfunctions of computer hardware and software and embedded microprocessors due to the upcoming change in the century (the "Year 2000 problem"). Malfunctions may arise due to the design of microchips and microprocessors and computer systems that are programmed to use two rather than four digits to define the applicable year. The Company is involved in an extensive, ongoing program to identify and remediate potential issues arising from the Year 2000 problem. The Company uses a proprietary and internally developed management information system (MIS) which serves as the platform for the operating and financial activities of the Company. The MIS system processes billings to and collections from third party payors for services provided by the Company and supports all of the Company's accounting, finance and general ledger functions. The system provides management with information used to measure and evaluate performance levels throughout the Company including revenues and profitability, accounts receivable and collections, equipment controls and utilization, customer activity and manpower trends. The Company has completed, in all material respects, the conversion of its mission-critical MIS software thereby mitigating the risk of Year 2000 problems. The costs associated with this conversion were immaterial and fully expensed in the prior fiscal year. The Company is assessing its use of ancillary, third party computer software used to electronically submit medical claims to certain payors. In the event that the use of this software is impacted by the Year 2000 problem, the Company's contingency plan includes the submission of paper claims to such payors. The Company does not believe that this will have a material effect on the Company's ability to receive payment for services rendered. Certain medical devices and equipment provided by the Company to its customers may contain embedded technology such as microprocessors that could be affected by the Year 2000 problem. The Company has identified those categories of devices and equipment that may be sensitive to the change in century, and has developed a plan to determine the Year 2000 status of specific items. In the event that the Company identifies specific devices and equipment that are not Year 2000 compliant, or the Company is unable to determine the status of such items, the Company will remove such items from service and replace them with therapeutically comparable, Year 2000 compliant equipment from alternate vendors. The Company does not believe that the scope and cost of exchanging non-compliant devices and equipment will have a material impact on the Company's financial position. The Company is highly dependent upon certain government and private payors for payment of claims for services and equipment provided by the Company. The Company is in the process of determining the Year 2000 compliance of computer systems used by third party payors to process claims for medical services and equipment submitted by the Company for payment. The Company cannot be assured of the timely 8 9 remediation of third party claims processing and payment systems. The failure by a significant third party payor to correct Year 2000 problems, to the extent that such issues delay or prevent timely or appropriate payment of claims, could have a material impact on the Company's cash flow from operations. The Company is monitoring the Year 2000 progress of Medicare Part B carriers, and other government agencies and private payors with which the Company does significant business, to determine the potential impact to the Company. The Company is also in the process of determining the contingency plans of these payors to release payments to providers such as the Company in the event of claims processing system failures. Such plans may include cash advances to providers based on historical payment trends or processing claims on paper rather than in an electronic format. QUANTITATIVE AND QUALITATIVE DISCLOSURE REGARDING MARKET RISK The Company has no derivative securities as of March 31, 1999. The Company is exposed to changes in interest rates as a result of its bank credit agreement which is based on the London Interbank Offered Rate. A 10% increase in interest rates related to the Company's bank credit facility would not have a material effect on the Company's earnings over the next fiscal year or the bank credit agreement's fair value. FORWARD LOOKING STATEMENTS Statements contained in this Form 10-Q that are not based on historical facts are forward looking statements, subject to uncertainties and risks, including, but not limited to, the constantly changing health care environment, potential reductions in reimbursement by government and third party payors for the Company's products and services, the demand for the Company's products and services, economic and competitive conditions, the availability of appropriate acquisition candidates and the successful completion of acquisitions, access to borrowed and/or equity capital on favorable terms, and other risks detailed in the Company's Securities and Exchange Commission filings. PART II. OTHER INFORMATION Item 1 Legal Proceedings The Company has received inquiries from government agencies requesting patient records and other documents. The Company is cooperating with the government's requests for information. The government has not disclosed the basis for these inquiries. Thus, the duration or outcomes of these matters cannot be predicted with any degree of certainty. Items 2-5 Not applicable. Item 6 Exhibits and Reports on Form 8-K (a) Exhibits:
EXHIBIT NUMBER EXHIBIT - ------- ------- 27.0 -- Financial Data Schedule (for SEC Use Only)
(b) The Company did not file a Current Report on Form 8-K during the three months ended March 31, 1999. 9 10 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Lincare Holdings Inc. -------------------------------------- Registrant /s/ PAUL G. GABOS -------------------------------------- Paul G. Gabos Secretary, Chief Financial Officer and Principal Accounting Officer May 12, 1999 10 EX-27.0 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF LINCARE HOLDINGS FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 2,123 0 103,471 9,196 2,801 99,774 271,783 115,476 653,084 59,459 0 0 0 584 519,234 653,084 136,081 136,081 21,597 21,597 75,905 1,633 652 37,968 14,465 23,503 0 0 0 23,503 0.40 0.40
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