<PAGE> 1
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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 SEPTEMBER 30, 1997
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)
<TABLE>
<S> <C>
DELAWARE 51-0331330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19337 US 19 NORTH, SUITE 500, 33758
CLEARWATER, FL (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (813) 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.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT OCTOBER 31, 1997
----- -------------------------------
<S> <C>
Common Stock, $0.01 par value............................... 28,516,399 shares
</TABLE>
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LINCARE HOLDINGS INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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
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 Security Holders......... 9
Item 5 Other Information........................................... 9
Item 6 Exhibits and Reports on Form 8-K............................ 9
SIGNATURES.......................................................... 9
</TABLE>
2
<PAGE> 3
LINCARE HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,432 $ 1,541
Accounts and notes receivable............................. 62,605 51,090
Income tax receivable..................................... -- 187
Inventories............................................... 1,887 1,689
Prepaid expenses.......................................... 459 466
-------- --------
Total current assets.............................. 68,383 54,973
-------- --------
Property and equipment...................................... 190,371 150,598
Less accumulated depreciation............................... 77,130 57,068
-------- --------
Net property and equipment........................ 113,241 93,530
-------- --------
Other assets:
Goodwill.................................................. 224,405 184,817
Intangible assets......................................... 9,219 8,867
Covenants not to compete.................................. 3,254 4,478
Other..................................................... 1,038 743
-------- --------
Total other assets................................ 237,916 198,905
-------- --------
Total assets................................. $419,540 $347,408
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations............. $ 4,427 $ 5,783
Accounts payable.......................................... 13,821 16,958
Accrued expenses:
Compensation and benefits.............................. 9,758 6,895
Other.................................................. 2,862 1,704
Income taxes payable................................... 221 --
-------- --------
Total current liabilities......................... 31,089 31,340
Revolving credit loan....................................... 8,000 7,500
Long-term obligations, excluding current installments....... 423 734
Deferred income taxes....................................... 7,719 7,681
Minority interest........................................... 849 905
Stockholders' equity:
Common stock.............................................. 285 282
Additional paid-in capital................................ 104,098 97,335
Retained earnings......................................... 267,077 201,631
-------- --------
Total stockholders' equity........................ 371,460 299,248
-------- --------
Total liabilities and stockholders' equity... $419,540 $347,408
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
LINCARE HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
(IN THOUSANDS EXCEPT SHARE AND (IN THOUSANDS EXCEPT SHARE AND
PER SHARE DATA) PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues................................ $ 114,772 $ 89,633 $ 324,486 $ 254,375
----------- ----------- ----------- -----------
Costs and expenses:
Costs of goods and services............... 16,910 13,928 48,854 39,246
Operating expenses........................ 24,251 19,206 68,757 54,512
Selling, general and administrative
expenses............................... 23,105 18,297 65,454 51,972
Bad debt expense.......................... 1,148 894 3,245 2,533
Depreciation expense...................... 7,280 5,255 20,215 15,020
Amortization expense...................... 3,580 3,266 10,643 9,586
----------- ----------- ----------- -----------
76,274 60,846 217,168 172,869
----------- ----------- ----------- -----------
Operating income.................. 38,498 28,787 107,318 81,506
----------- ----------- ----------- -----------
Other income (expense):
Interest income........................... 27 33 94 120
Interest expense.......................... (223) (117) (924) (281)
Net loss on disposal of property and
equipment.............................. (12) (26) (71) (37)
----------- ----------- ----------- -----------
(208) (110) (901) (198)
----------- ----------- ----------- -----------
Income before income taxes........ 38,290 28,677 106,417 81,308
Income taxes................................ 14,742 11,040 40,971 31,302
----------- ----------- ----------- -----------
Net income........................ $ 23,548 $ 17,637 $ 65,446 $ 50,006
=========== =========== =========== ===========
Income per common share..................... $ 0.80 $ 0.61 $ 2.24 $ 1.74
=========== =========== =========== ===========
Weighted average number of common shares and
common share equivalents outstanding...... 29,385,243 28,973,719 29,260,948 28,813,720
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
LINCARE HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash from operations........................................ $ 90,170 $ 80,615
Investing activities:
Proceeds from sale of property and equipment.............. 113 218
Capital expenditures...................................... (37,355) (26,393)
Increase in other assets.................................. (295) (501)
Business acquisitions, net of cash acquired............... (48,114) (43,789)
-------- --------
(85,651) (70,465)
-------- --------
Financing activities:
Proceeds from revolving line of credit.................... 68,000 25,000
Payment on revolving line of credit....................... (69,000) (25,000)
Proceeds from long-term obligations....................... 154 --
Payment of long-term obligations.......................... (5,285) (7,266)
Decrease in minority interest............................. (244) (226)
Proceeds from issuance of common stock.................... 3,747 3,897
-------- --------
(2,628) (3,595)
-------- --------
Increase in cash............................................ 1,891 6,555
Cash and cash equivalents, beginning of period.............. 1,541 1,009
-------- --------
Cash and cash equivalents, end of period.................... $ 3,432 $ 7,564
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
LINCARE HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet as of September 30,
1997, and condensed statements of operations and cash flows for the nine months
ended September 30, 1997 and 1996 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, 1996 is
derived from the Lincare Holdings Inc. (the "Company") audited balance sheet as
of that date.
NOTE 2 -- BUSINESS COMBINATIONS
During the nine months ended September 30, 1997, the Company acquired, in
unrelated acquisitions, the stock of four companies and certain assets of ten
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 date of acquisition.
The aggregate cost of these acquisitions was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Cash........................................................ $48,114
Deferred acquisition obligations............................ 4,105
Assumption of liabilities................................... 416
-------
$52,635
=======
</TABLE>
The aggregate purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 2,485
Property and equipment...................................... 2,755
Intangible assets........................................... 5,535
Goodwill.................................................... 41,860
-------
$52,635
=======
</TABLE>
Unaudited pro forma supplemental information on the results of operations
for the nine months ended September 30, 1997, and September 30, 1996, are
provided below and reflect the acquisitions as if they had been combined at the
beginning of each respective period.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenues................................................ $335,962 $282,482
======== ========
Net income.................................................. $ 67,563 $ 55,483
======== ========
Income per common share..................................... $ 2.31 $ 1.93
======== ========
</TABLE>
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
<PAGE> 7
LINCARE HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING RESULTS
The following table sets forth for the periods indicated a summary of the
Company's net revenues by source:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- -------------------
1997 1996 1997 1996
--------- --------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Oxygen and other respiratory therapy.......... $102,285 $ 80,668 $290,506 $231,723
Home medical equipment and other.............. 12,487 8,965 33,980 22,652
-------- -------- -------- --------
Total............................... $114,772 $ 89,633 $324,486 $254,375
======== ======== ======== ========
</TABLE>
Net revenues for the three months ended September 30, 1997, increased by
$25,139,000 (or 28.1%) compared with the three months ended September 30, 1996,
and for the nine months ended September 30, 1997, increased $70,111,000 (or
27.6%) compared with the nine months ended September 30, 1996. Approximately
$11,487,000 of the net revenue increase for the three months ended September 30,
1997 and $35,173,000 for the nine months ended September 30, 1997, is
attributable to acquisitions, while $13,652,000 for the three months ended
September 30, 1997, and $34,938,000 for the nine months ended September 30, 1997
reflects internal growth.
On August 5, 1997, the Balanced Budget Act of 1997 ("BBA") was signed into
law. The 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.
On August 10, 1993, Congress passed the Omnibus Reconciliation Act of 1993
("OBRA 93"). The OBRA 93 legislation provided for a consumer price index update,
effective January 1, 1997, of approximately 2.8% on Medicare products and
services. No additional impact from OBRA 93 is expected for 1997.
Cost of goods and services as a percentage of net revenues was 14.7% for
the three months ended September 30, 1997, compared with 15.5% for the three
months ended September 30, 1996. Cost of goods and services as a percentage of
net revenues for the nine months ended September 30, 1997, was 15.1% compared
with 15.4% for the nine months ended September 30, 1996.
Operating expenses as a percentage of net revenues was 21.1% for the three
months ended September 30, 1997, compared with 21.4% for the three months ended
September 30, 1996. Operating expenses as a
7
<PAGE> 8
percentage of net revenues for the nine months ended September 30, 1997, was
21.2% compared with 21.4% for the nine months ended September 30, 1996. This
improvement was primarily due to the Company's successful integration of
acquired businesses into its existing locations. The company has been able to
maintain a cost structure that, with increases in net revenue, allows the
Company to spread its overhead over the larger base of revenue, resulting in
improvements in operating income.
Selling, general and administrative expenses as a percentage of net
revenues decreased to 20.1% for the three months ended September 30, 1997,
compared with 20.4% for the three months ended September 30, 1996, and 20.2% for
the nine months ended September 30, 1997, compared with 20.4% for the nine
months ended September 30, 1996. The improvement is attributable to the
Company's continued ability to leverage its infrastructure, with selling,
general and administrative expenses increasing by 26.3% and 25.9% while revenues
grew by 28.1% and 27.6%, respectively, for the three and nine months ended
September 30, 1997.
Amortization expense for the three months ended September 30, 1997,
increased to $3,580,000 compared with $3,266,000 for the three month period
ending September 30, 1996. Amortization expense increased to $10,643,000 for the
nine months ended September 30, 1997, compared with $9,586,000 for the nine
months ended September 30, 1996. This increase is attributable to the
amortization of intangible assets acquired during 1996 and the first nine months
of 1997.
Operating income for the three and nine months ended September 30, 1997,
increased to $38,498,000 and $107,318,000, respectively, compared with
$28,787,000 and $81,506,000 for the three and nine months ended September 30,
1996. The increases in operating income are attributable to the continued
internal and acquisition revenue growth and efforts to control costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities was $90,170,000 for the nine
months ended September 30, 1997, compared with $80,615,000 for the nine months
ended September 30, 1996.
Net cash used in investing and financing activities was $88,279,000 for the
nine months ended September 30, 1997, compared with $74,060,000 for the nine
months ended September 30, 1996. Activity in the nine months ended September 30,
1997, included the Company's investment of $48,114,000 in business acquisitions,
investment in capital equipment of $37,355,000, the borrowing of $68,000,000
from its revolving line of credit, payments of $69,000,000 on the revolving line
of credit and payments of $5,285,000 related to deferred acquisition
obligations. The company believes that internally generated funds, together with
funds that may be borrowed under such credit facility, will be sufficient to
meet the Company's anticipated capital requirements over the foreseeable future.
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 healthcare environment,
potential reductions in reimbursement by government and third party payors for
the Company's products and services, the demand for 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.
8
<PAGE> 9
PART II. OTHER INFORMATION
Items 1-5 Not applicable.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- ------- ------------
<C> <C> <S> <C>
27.0 -- Financial Data Schedule (for SEC Use Only)..................
</TABLE>
(b) The Company did not file a Current Report on Form 8-K during the three
months ended September 30, 1997.
SIGNATURES
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
November 14, 1997
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LINCARE HOLDINGS, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,432
<SECURITIES> 0
<RECEIVABLES> 69,315
<ALLOWANCES> 6,710
<INVENTORY> 1,887
<CURRENT-ASSETS> 68,383
<PP&E> 190,371
<DEPRECIATION> 77,130
<TOTAL-ASSETS> 419,540
<CURRENT-LIABILITIES> 31,089
<BONDS> 0
0
0
<COMMON> 285
<OTHER-SE> 371,175
<TOTAL-LIABILITY-AND-EQUITY> 419,540
<SALES> 324,486
<TOTAL-REVENUES> 324,486
<CGS> 48,854
<TOTAL-COSTS> 48,854
<OTHER-EXPENSES> 168,314
<LOSS-PROVISION> 3,245
<INTEREST-EXPENSE> 924
<INCOME-PRETAX> 106,417
<INCOME-TAX> 40,971
<INCOME-CONTINUING> 65,446
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,446
<EPS-PRIMARY> 2.24
<EPS-DILUTED> 2.24
</TABLE>
