Note 8. Long-Term Obligations

Long-term obligations at June 30, 2012 and December 31, 2011 consist of:


	June 30, 2012			December 31, 2011
	(In thousands)
Series A convertible debentures to mature in 2037, bearing fixed interest of 2.75%, with a put/call option in 2012	$	275,000		$	275,000
Unamortized discount		(3,685	)		(9,059	)
Series B convertible debentures to mature in 2037, bearing fixed interest of 2.75%, with a put/call option in 2014		275,000			275,000
Unamortized discount		(26,256	)		(31,332	)
Single draw Eurodollar five-year term loan bearing interest equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”) plus an applicable margin based on the Company’s consolidated leverage ratio (consolidated funded indebtedness to consolidated EBITDA)		250,000			0
Eurodollar loans under five-year revolving credit agreement bearing annual interest equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”) plus an applicable margin based on the Company’s consolidated leverage ratio (consolidated funded indebtedness to consolidated EBITDA)		0			100,000
Other long-term obligations		1,405			1,710
Contingent consideration		16,935			21,595
Unsecured acquisition obligations, net of imputed interest, payable in various installments through 2015		15,434			20,996

Total long-term obligations		803,833			653,910
Less: current installments		307,128			397,132

Long-term obligations, excluding current installments	$	496,705		$	256,778

The Company’s revolving credit agreement with several lenders and Wells Fargo Bank, National Association, as agent, as amended June 29, 2012, permits the Company to borrow amounts up to $450.0 million under a five-year revolving credit facility and up to $250.0 million under a five-year single draw term loan facility documented as the second tranche to the existing 2011 Credit Facility. The revolving credit facility contains a $60.0 million letter of credit sub-facility, which reduces the principal amount available under the facility by the amount of outstanding letters of credit on the sub-facility. As of June 30, 2012, there were no borrowings outstanding under the revolving credit facility and $36.8 million in standby letters of credit were issued. As of June 30, 2012, $250.0 million was outstanding on the single draw term loan facility. The principal amount of the term loan is due in quarterly installments, with 50% of the principal amortizing in the five-year period ending on the final maturity date. The Company pays an annual administration agency fee along with a quarterly facility fee. The facility fee is based on the Company’s consolidated leverage ratio and ranges between 0.175% and 0.275% annually. The leverage ratio is calculated each quarter to determine the applicable interest rate on revolving loans, the letter of credit fee and the facility fee for the following quarter. The revolving credit agreement contains several financial and other negative and affirmative covenants customary in such agreements and is secured by a pledge of the stock of the wholly-owned subsidiaries of Lincare Holdings Inc. The financial covenants in the Company’s credit agreement include interest coverage and leverage ratios, as defined in the agreement. The Company’s credit agreement requires compliance with all covenants set forth in the agreement and the Company was in compliance with all covenants as of June 30, 2012. The credit agreement defines the occurrence of certain specified events as events of default which, if not waived by or cured to the satisfaction of the requisite lenders, allow the lenders to take actions against the Company, including termination of commitments under the agreement, acceleration of any unpaid principal and accrued interest in respect of outstanding borrowings, payment of additional cash collateral to be held in escrow for the benefit of the lenders and enforcement of any and all rights and interests created and existing under the credit agreement. Under certain conditions, an event of default may result in an increase in the interest rate (the “Default Rate”) payable by the Company on loans outstanding under the credit facility. The Default Rate is equal to the interest rate (including any applicable percentage as set forth in the agreement) otherwise applicable to such loans plus 2% per annum. In the case of a bankruptcy event (as defined in the credit agreement), all commitments automatically terminate and all amounts outstanding under the credit facility become immediately due and payable.

On October 31, 2007, the Company completed the sale of $275.0 million principal amount (including exercise of a $25.0 million over-allotment option) of convertible senior debentures due 2037 – Series A (the “Series A Debentures”) and $275.0 million principal amount (including exercise of a $25.0 million over-allotment option) of convertible senior debentures due 2037 – Series B (the “Series B Debentures” and together with the Series A Debentures, the “Series Debentures”) in a private placement. The Series Debentures pay interest semi-annually at a rate of 2.75% per annum. The Series Debentures are unsecured and unsubordinated obligations and are convertible under specified circumstances based upon a base conversion rate, which, under certain circumstances, will be increased pursuant to a formula that is subject to a maximum conversion rate. Upon conversion, holders of the Series Debentures will receive cash up to the principal amount, and any excess conversion value will be delivered in shares of the Company’s common stock or in a combination of cash and shares of common stock, at the Company’s option. The base conversion rate for the Debentures as of June 30, 2012 is 31.0828 shares of common stock per $1,000 principal amount of Series Debentures, equivalent to a base conversion price of approximately $32.17 per share. In addition, if at the time of conversion the applicable price of the Company’s common stock exceeds the base conversion price, holders of the Series A Debentures and Series B Debentures will receive an additional number of shares of common stock per $1,000 principal amount of the Debentures, as determined pursuant to a specified formula. The Company will have the right to redeem the Series A Debentures and the Series B Debentures at any time after November 1, 2012 and November 1, 2014, respectively. Holders of the Series Debentures will have the right to require the Company to repurchase for cash all or some of their Series Debentures upon the occurrence of certain fundamental change transactions or on November 1, 2012, 2017, 2022, 2027 and 2032, in the case of the Series A Debentures, and November 1, 2014, 2017, 2022, 2027 and 2032, in the case of the Series B Debentures. Due to the right of the Series A holders to put the securities to the Company for cash within one year of the June 30, 2012 and December 31, 2011 consolidated balance sheet dates, the Series A Debentures are classified as current liabilities in the accompanying consolidated balance sheets.

The Company has estimated the fair value of the liability components of the Series Debentures by calculating the present value of the cash flows of similar liabilities without associated equity components. In performing those calculations, the Company estimated that instruments similar to the Series A and B Debentures without a conversion feature as of the date of issuance would have had 7.0% and 7.4% rates of return (respectively) and expected lives of five and seven years (respectively). These estimated rates of return were based on the Company’s nonconvertible debt borrowing rate at the time of issuance and the expected lives were based on the holder’s put option features embedded in the notes. The initial proceeds from the instruments exceeded the estimated fair value of the liability components, and as a result, the Company reclassified $47.4 million and $67.2 million, respectively, of the carrying value of the Series A and B convertible debentures to equity as of the October 31, 2007 issuance date. These amounts represent the equity components of the proceeds from the debentures. The Company also recognized debt discounts equal to the equity components which are accreted to interest expense over the respective 5 and 7-year terms of the first put option dates specified in the indentures underlying the debentures. The accreted interest plus the cash interest payments based on the stated coupon rates results in interest cost being recognized in the income statement that reflects the interest rates on similar instruments without a conversion feature.

The debt and equity components recognized for the Series A and Series B convertible debentures were as follows (in thousands):


	June 30, 2012						December 31, 2011
	Series A			Series B			Series A			Series B
Principal amount of convertible debentures	$	275,000		$	275,000		$	275,000		$	275,000
Unamortized discount		(3,685	)		(26,256	)		(9,059	)		(31,332	)
Net carrying amount		271,315			248,744			265,941			243,668
Additional paid-in capital		29,065			41,238			29,065			41,238

At June 30, 2012, the remaining period over which the discount on the liability components will be amortized is 4 months and 28 months for the Series A and Series B convertible debentures, respectively.

The amount of interest expense recognized for the three months ended June 30, 2012 and 2011 was as follows (in thousands):


	June 30, 2012				June 30, 2011
	Series A		Series B		Series A		Series B
Contractual coupon interest	$	1,890	$	1,890	$	1,890	$	1,890
Amortization of discount on convertible debentures		2,710		2,561		2,532		2,383

Interest expense	$	4,600	$	4,451	$	4,422	$	4,273

The amount of interest expense recognized for the six months ended June 30, 2012 and 2011 was as follows (in thousands):


	June 30, 2012				June 30, 2011
	Series A		Series B		Series A		Series B
Contractual coupon interest	$	3,781	$	3,781	$	3,781	$	3,781
Amortization of discount on convertible debentures		5,374		5,076		5,020		4,724

Interest expense	$	9,155	$	8,857	$	8,801	$	8,505