-----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, WwyMWwA88xcGwXglXHlC1eHBxvej9DKQEuR2k8dyAf5VXGfJhZjO3fuAXLoB3xto z60y/A8loZ++6qDbNZSzKg== 0000950144-99-009846.txt : 19990812 0000950144-99-009846.hdr.sgml : 19990812 ACCESSION NUMBER: 0000950144-99-009846 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: 99683761 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 JUNE 30, 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 JULY 31, 1999 ----- ----------------------------- Common Stock, $0.01 par value............................... 58,233,117 shares
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 LINCARE HOLDINGS INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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..... 10 Item 5 Other Information........................................... 10 Item 6 Exhibits and Reports on Form 8-K............................ 10 SIGNATURE........................................................... 11
2 3 LINCARE HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) (IN THOUSANDS) Current assets: Cash and cash equivalents................................. $ 625 $ 5,100 Accounts and notes receivable............................. 93,029 85,187 Income tax receivable..................................... 4,626 3,553 Inventories............................................... 3,029 2,908 Prepaid expenses.......................................... 762 478 -------- -------- Total current assets.............................. 102,071 97,226 -------- -------- Property and equipment...................................... 288,118 246,033 Less: accumulated depreciation.............................. 125,185 105,799 -------- -------- Net property and equipment........................ 162,933 140,234 -------- -------- Other assets: Goodwill.................................................. 392,723 336,485 Intangible assets......................................... 9,137 6,102 Covenants not to compete.................................. 1,294 1,772 Other..................................................... 918 820 -------- -------- Total other assets................................ 404,072 345,179 -------- -------- Total assets................................. $669,076 $582,639 ======== ======== Current liabilities: Current installments of long-term obligations............. $ 15,305 $ 12,923 Accounts payable.......................................... 20,992 19,169 Accrued expenses: Compensation and benefits.............................. 9,324 10,679 Other.................................................. 6,362 5,377 -------- -------- Total current liabilities......................... 51,983 48,148 -------- -------- Long-term obligations, excluding current installments....... 55,073 22,258 Deferred income taxes....................................... 15,651 15,651 Minority interest........................................... 804 926 Stockholders' equity: Common stock.............................................. 584 583 Additional paid-in capital................................ 129,882 128,828 Retained earnings......................................... 415,398 367,085 Less: treasury stock...................................... 299 840 -------- -------- Total stockholders' equity........................ 545,565 495,656 -------- -------- Total liabilities and stockholders' equity... $669,076 $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 FOR THE SIX MONTHS ENDED --------------------------- ------------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 1998 ------------ ------------ ----------- ----------- (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) Net revenues................................ $ 143,025 $ 119,518 $ 279,106 $ 231,422 ----------- ----------- ----------- ----------- Costs and expenses: Costs of goods and services............... 22,032 18,681 43,629 36,700 Operating expenses........................ 32,466 27,643 63,403 54,283 Selling, general and administrative expenses............................... 31,728 26,647 61,723 52,119 Bad debt expense.......................... 1,716 1,434 3,349 2,777 Depreciation expense...................... 10,300 8,565 19,850 16,575 Amortization expense...................... 3,977 2,966 7,767 5,951 ----------- ----------- ----------- ----------- 102,219 85,936 199,721 168,405 ----------- ----------- ----------- ----------- Operating income.................. 40,806 33,582 79,385 63,017 ----------- ----------- ----------- ----------- Other income (expense): Interest income........................... 57 159 106 284 Interest expense.......................... (745) (129) (1,397) (216) Net loss on disposal of property and equipment.............................. (37) (23) (45) (34) ----------- ----------- ----------- ----------- (725) 7 (1,336) 34 ----------- ----------- ----------- ----------- Income before income taxes........ 40,081 33,589 78,049 63,051 Income taxes................................ 15,271 12,865 29,736 24,149 ----------- ----------- ----------- ----------- Net income........................ $ 24,810 $ 20,724 $ 48,313 $ 38,902 =========== =========== =========== =========== Income per common share..................... Basic..................................... $ 0.43 $ 0.36 $ 0.83 $ 0.67 =========== =========== =========== =========== Diluted................................... $ 0.42 $ 0.35 $ 0.82 $ 0.66 =========== =========== =========== =========== Weighted average number of common shares outstanding............................... 58,376,441 57,960,693 58,365,959 57,771,955 =========== =========== =========== =========== Weighted average number of common shares and common share equivalents outstanding...... 59,251,608 59,365,322 59,309,156 59,392,340 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 4 5 LINCARE HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED ------------------------ JUNE 30, JUNE 30, 1999 1998 --------- --------- (IN THOUSANDS) Cash from operations........................................ $ 71,805 $ 63,599 Investing activities: Proceeds from sale of property and equipment.............. 108 68 Capital expenditures...................................... (38,426) (29,865) (Increase) decrease in other assets....................... (98) 35 Business acquisitions, net of cash acquired............... (46,231) (34,784) -------- -------- (84,647) (64,546) -------- -------- Financing activities: Proceeds from long-term obligations....................... 91,000 18,000 Payment of long-term obligations.......................... (83,747) (19,887) Decrease in minority interest............................. (220) (253) Proceeds from issuance of common stock.................... 794 6,060 Treasury stock issued..................................... 540 1,071 -------- -------- 8,367 2,849 -------- -------- Increase (decrease) in cash................................. (4,475) 1,902 Cash and cash equivalents, beginning of period.............. 5,100 4,078 -------- -------- Cash and cash equivalents, end of period.................... $ 625 $ 5,980 ======== ========
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 June 30, 1999, the condensed consolidated statements of operations for the three and six month periods ended June 30, 1999 and 1998 and the condensed consolidated statements of cash flows for the six months ended June 30, 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 six months ended June 30, 1999 the Company acquired, in unrelated acquisitions, the stock of four companies and certain assets of three 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........................................................ $46,231 Deferred acquisition obligations............................ 7,065 Assumption of liabilities................................... 20,968 ------- $74,264 =======
The aggregate purchase price was allocated as follows: Current assets.............................................. $ 2,316 Property and equipment...................................... 4,275 Intangible assets........................................... 5,257 Goodwill.................................................... 62,416 ------- $74,264 =======
Unaudited pro forma supplemental information on the results of operations for the six months ended June 30, 1999 and June 30, 1998 are provided below and reflect the acquisitions as if they had been combined at the beginning of each respective period.
FOR THE SIX MONTHS ENDED JUNE 30, ---------------------- 1999 1998 -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) Net revenues................................................ $287,466 $251,432 ======== ======== Net income.................................................. $ 48,976 $ 41,567 ======== ======== Income per common share: Basic..................................................... $ 0.84 $ 0.72 ======== ======== Diluted................................................... $ 0.83 $ 0.70 ======== ========
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 FOR THE SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, -------------------- ------------------------ 1999 1998 1999 1998 -------- -------- ---------- ---------- (IN THOUSANDS) Oxygen and other respiratory therapy.... $128,639 $107,157 $250,258 $207,145 Home medical equipment and other........ 14,386 12,361 28,848 24,277 -------- -------- -------- -------- Total......................... $143,025 $119,518 $279,106 $231,422 ======== ======== ======== ========
Net revenues for the three months ended June 30, 1999 increased by $23,507,000 (or 19.7%) compared with the three months ended June 30, 1998, and for the six months ended June 30, 1999 increased $47,684,000 (or 20.6%) compared with the six months ended June 30, 1998. The price cuts attributable to the BBA reduced the Company's revenues by approximately $4,685,000 and $9,205,000 for the three and six months ended June 30, 1999. Excluding the effect on the Company's revenues from the Medicare price reductions, internally generated growth increased revenues by approximately $13,713,000 (or 11.5%) and $27,648,000 (or 11.9%) for the three and six months ended June 30, 1999. Growth due to acquisitions increased revenues by approximately $14,479,000 (or 12.1%) for the three months ended June 30, 1999 and $29,241,000 (or 12.6%) for the six months ended June 30, 1999 over the comparable prior year period. Cost of goods and services as a percentage of net revenues were 15.4% for the three months ended June 30, 1999 compared with 15.6% for the three months ended June 30, 1998. Costs of goods and services as a percentage of net revenues were 15.6% for the six months ended June 30, 1999 compared with 15.9% for the six months ended June 30, 1998. Operating expenses as a percentage of net revenues were 22.7% for the three months ended June 30, 1999 as compared to 23.1% for the three months ended June 30, 1998. Operating expenses as a percentage of net revenues were 22.7% for the six months ended June 30, 1999 compared with 23.5% for the six months ended June 30, 1998. 7 8 Selling, general and administrative expenses as a percentage of net revenues were 22.2% for the three months ended June 30, 1999 compared with 22.3% for the three months ended June 30, 1998. Selling, general and administrative expenses as a percentage of net revenues were 22.1% for the six months ended June 30, 1999 compared with 22.5% for the six months ended June 30, 1998. Amortization expense for the three months ended June 30, 1999 increased to $3,977,000 compared with $2,966,000 for the three month period ending June 30, 1998. Amortization expense for the six months ended June 30, 1999 increased to $7,767,000 compared with $5,951,000 for the six month period ended June 30, 1998. The increase is attributable to the amortization of intangible assets associated with business combinations in 1998 and the first half of 1999. Operating income for the three and six months ended June 30, 1999 increased to $40,806,000 and $79,385,000, respectively, compared with $33,582,000 and $63,017,000 for the three and six months ended June 30, 1998. The increases in operating income are attributable to the continued revenue growth and efforts to control costs. The Company has been able to maintain a cost structure that, with increases in net revenues, allows the Company to spread its fixed costs over a larger base of revenues, resulting in improvements in operating income. LIQUIDITY AND CAPITAL RESOURCES Net cash provided from operating activities was $71,805,000 for the six months ended June 30, 1999 compared with $63,599,000 for the six months ended June 30, 1998. Net cash used in investing and financing activities was $76,280,000 for the six months ended June 30, 1999 compared with $61,697,000 for the six months ended June 30, 1998. Activity during the six-month period ended June 30, 1999 included the Company's investment of $46,231,000 in business acquisitions, investment in capital equipment of $38,426,000, proceeds of $91,000,000 from long-term obligations, and payments of $83,747,000 related to long-term obligations. On June 11, 1999, the Company's Board of Directors authorized the Company to repurchase up to $200 million of its outstanding common stock. Purchases will be made through open market or privately negotiated transactions, subject to market conditions and trading restrictions. 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. 8 9 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 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 had no derivative securities as of June 30, 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 As previously disclosed by the Company on November 17, 1998, a qui tam complaint against the Company was unsealed in the U.S. District Court in the Northern District of Georgia on November 6, 1998. On August 2, 1999, the Company was served with this complaint. If such service is valid and the case proceeds, the Company intends to vigorously defend this suit. The duration or outcome of this matter cannot be predicted with any degree of certainty. Items 2-3 Not Applicable. 9 10 Item 4 Submission of Matters to a Vote of the Security Holders. The Annual Meeting of Shareholders of the Company was held on May 10, 1999. The following matters were voted on at the Annual Meeting, with the number of votes cast for, against or withheld, as applicable in each case, indicated next to each such matter: 1. Election of Directors FOR WITHHELD ---------- -------- J.T. Kelly 54,656,721 56,285 J.P. Byrnes 54,656,656 56,350 C.B. Black 54,654,748 58,258 F.T. Cary 54,647,748 65,258 T.O. Pyle 54,654,748 58,258 W.F. Miller, III 54,654,748 58,258 2. Ratification of selection of KPMG LLP as the Company's independent accountants for the fiscal year ending December 31, 1999: For: 56,694,266 Against: 11,306 Abstain: 7,434 3. Approval of the amendment to the 1998 Stock Plan to increase by 500,000 the number of shares available under the 1998 Stock Plan: For: 38,945,099 Against: 15,743,045 Abstain: 24,862 Item 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 June 30, 1999. 10 11 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 August 11, 1999 11 EX-27.0 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF LINCARE HOLDINGS FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 625 0 100,469 7,440 3,029 102,071 288,118 125,185 669,076 51,983 0 0 0 584 129,882 669,076 279,106 279,106 43,629 43,629 156,092 3,349 1,397 78,049 29,736 48,313 0 0 0 48,313 0.83 0.82
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