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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 MARCH 31, 1998
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, 34624
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 APRIL 30, 1998
----- -----------------------------
<S> <C>
Common Stock, $0.01 par value............................... 28,925,915 shares
</TABLE>
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<PAGE> 2
LINCARE HOLDINGS INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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
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 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>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 19,027 $ 4,078
Accounts and notes receivable............................. 68,888 68,383
Income tax receivable..................................... -- 2,530
Inventories............................................... 1,867 1,542
Prepaid expenses.......................................... 449 516
-------- --------
Total current assets.............................. 90,231 77,049
-------- --------
Property and equipment...................................... 198,087 181,438
Less accumulated depreciation............................... 81,123 73,148
-------- --------
Net property and equipment........................ 116,964 108,290
-------- --------
Other assets:
Goodwill.................................................. 251,953 245,600
Intangible assets......................................... 5,028 5,262
Covenants not to compete.................................. 2,609 2,869
Other..................................................... 1,269 1,318
-------- --------
Total other assets................................ 260,859 255,049
-------- --------
Total assets................................. $468,054 $440,388
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations............. $ 7,298 $ 8,580
Accounts payable.......................................... 16,498 14,390
Accrued expenses:
Compensation and benefits.............................. 10,228 8,781
Other.................................................. 3,860 3,192
Income taxes payable...................................... 2,214 --
-------- --------
Total current liabilities......................... 40,098 34,943
-------- --------
Long-term obligations, excluding current installments....... 527 4,602
Deferred income taxes....................................... 8,350 6,861
Minority interest........................................... 732 915
Stockholders' equity:
Common stock.............................................. 289 287
Additional paid-in capital................................ 118,419 111,001
Retained earnings......................................... 299,957 281,779
Less treasury stock....................................... 318 --
-------- --------
Total stockholders' equity........................ 418,347 393,067
-------- --------
Total liabilities and stockholders' equity... $468,054 $440,388
======== ========
</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
---------------------------
MARCH 31, MARCH 31,
1998 1997
------------ ------------
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Net revenues................................................ $ 111,904 $ 101,012
---------- ----------
Costs and expenses:
Costs of goods and services............................... 18,019 15,417
Operating expenses........................................ 26,640 21,540
Selling, general and administrative expenses.............. 25,472 20,470
Bad debt expense.......................................... 1,343 1,005
Depreciation expense...................................... 8,010 6,315
Amortization expense...................................... 2,985 3,440
---------- ----------
82,469 68,187
---------- ----------
Operating income.................................. 29,435 32,825
---------- ----------
Other income (expense):
Interest income........................................... 125 28
Interest expense.......................................... (87) (226)
Net loss on disposal of property and equipment............ (11) (19)
---------- ----------
27 (217)
---------- ----------
Income before income taxes........................ 29,462 32,608
Income taxes................................................ 11,284 12,553
---------- ----------
Net income........................................ $ 18,178 $ 20,055
========== ==========
Income per common share.....................................
Basic..................................................... $ 0.63 $ 0.71
========== ==========
Diluted................................................... $ 0.61 $ 0.69
========== ==========
Weighted average number of common shares outstanding........ 28,790,560 28,298,370
========== ==========
Weighted average number of common shares and common share
equivalents outstanding................................... 29,722,608 29,160,081
========== ==========
</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 THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash from operations........................................ $ 42,872 $ 31,407
Investing activities:
Proceeds from sale of property and equipment.............. 48 6
Capital expenditures...................................... (16,258) (11,915)
Decrease in other assets.................................. 49 111
Business acquisitions, net of cash acquired............... (7,860) (21,165)
-------- --------
(24,021) (32,963)
-------- --------
Financing activities:
Proceeds from long-term obligations....................... 3,000 19,000
Payment of long-term obligations.......................... (9,956) (16,244)
Decrease in minority interest............................. (253) (244)
Proceeds from issuance of common stock.................... 3,625 1,185
Payment to acquire treasury stock......................... (318) --
-------- --------
(3,902) 3,697
-------- --------
Increase in cash............................................ 14,949 2,141
Cash and cash equivalents, beginning of period.............. 4,078 1,541
-------- --------
Cash and cash equivalents, end of period.................... $ 19,027 $ 3,682
======== ========
</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 March 31, 1998
and condensed consolidated statements of operations and cash flows for the three
months ended March 31, 1998 and 1997 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, 1997 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, 1998 the Company acquired, in
unrelated acquisitions, the stock of five companies and certain assets of one
company. 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........................................................ $7,860
Deferred acquisition obligations............................ 1,585
Assumption of liabilities................................... 33
------
$9,478
======
</TABLE>
The aggregate purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 208
Property and equipment...................................... 488
Intangible assets........................................... 816
Goodwill.................................................... 7,966
------
$9,478
======
</TABLE>
Unaudited pro forma supplemental information on the results of operations
for the three months ended March 31, 1998 and March 31, 1997 are provided below
and reflect the acquisitions as if they had been combined at the beginning of
each respective period.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenues................................................ $112,947 $102,519
======== ========
Net income.................................................. $ 18,360 $ 20,314
======== ========
Income per common share
Basic..................................................... $ 0.64 $ 0.72
======== ========
Diluted................................................... $ 0.62 $ 0.70
======== ========
</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
ENDED MARCH 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Oxygen and other respiratory therapy........................ $ 99,987 $ 91,453
Home medical equipment and other............................ 11,917 9,559
-------- --------
Total............................................. $111,904 $101,012
======== ========
</TABLE>
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. There was no impact from OBRA 93 in 1998.
Net revenues for the three months ended March 31, 1998 increased by
$10,892,000 (or 10.8%) compared with the three months ended March 31, 1997. The
price cuts attributable to the BBA reduced the Company's revenues by
approximately $15,453,000 for the quarter. (see table)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, PERCENTAGE
-------------------- INCREASE
1998 1997 (DECREASE)
-------- -------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues -- before price cuts.......................... $127,357 $101,012 26.1%
Effect of price cuts................................... (15,453) -- (15.3)
-------- -------- -----
Actual revenues........................................ 111,904 101,012 10.8
======== ======== =====
</TABLE>
Excluding the effect on the Company's revenues from the Medicare price
reductions, internally generated growth increased revenues by approximately
$14,971,000 (or 14.8%) while growth from acquisitions increased revenues by
approximately $11,374,000 (or 11.3%) for the three months ended March 31, 1998
over the comparable prior year period.
7
<PAGE> 8
The revenue price cuts attributed to the BBA effected the relationship of
costs and expenses expressed as a percentage of net revenues. (see table)
<TABLE>
<CAPTION>
EXPRESSED AS A PERCENTAGE OF NET REVENUES
FOR THE THREE MONTHS ENDED
-------------------------------------------
RESULTS
EXCLUDING
ACTUAL IMPACT OF BBA ACTUAL
RESULTS PRICE CUTS RESULTS
MARCH 31, MARCH 31, MARCH 31,
1998 1998 1997
---------- --------------- ----------
<S> <C> <C> <C>
Cost of goods and services.............................. 16.1% 14.2% 15.3%
Operating expense....................................... 23.8 20.9 21.3
Selling, general and administrative expense............. 22.8 20.0 20.3
</TABLE>
Cost of goods and services as a percentage of net revenues was 16.1% for
the three months ended March 31, 1998 compared with 15.3% for the three months
ended March 31, 1997. Absent the effect of the BBA price cuts, cost of goods as
a percentage of net revenues was 14.2% for the three months ended March 31,
1998. This improvement is attributed primarily to the maturity of the Company's
respiratory pharmacy operations which commenced operations in the fourth quarter
of 1996 as well as increased revenues from rental of capital equipment.
Operating expenses as a percentage of net revenues were 23.8% for the three
months ended March 31, 1998 as compared to 21.3% for the three months ended
March 31, 1997. Adjusted for the effect of the BBA price cuts, operating
expenses as a percentage of net revenues for the three months ended March 31,
1998 were 20.9%. This improvement was primarily due to the Company's successful
integration of acquired businesses into its existing locations.
Selling, general and administrative expenses as a percentage of net
revenues were 22.8% for the three months ended March 31, 1998 compared with
20.3% for the three months ended March 31, 1997. Expressed as a percentage of
net revenues before the price cuts attributed to the BBA, selling, general and
administrative expense for the three months ended March 31, 1998 were 20.0%. The
company has been able to maintain 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.
Amortization expense for the three months ended March 31, 1998 decreased to
$2,985,000 compared with $3,440,000 for the three month period ending March 31,
1997. The decrease is attributable to the impairment writedown of certain
customer list intangible assets in the fourth quarter of 1997.
Operating income for the three months ended March 31, 1998 decreased to
$29,435,000 compared with $32,825,000 for the three months ended March 31, 1997.
This decrease is due to the impact of the revenue price cuts attributable to the
BBA.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities was $42,872,000 for the three
months ended March 31, 1998 compared with $31,407,000 for the three months ended
March 31, 1997. The increase in cash from operating activities is primarily
attributed to improved management of working capital. Accounts receivable
decreased $158,000 for the three months ended March 31, 1998 compared with an
increase of $3,329,000 for the three months ended March 31, 1997. Accounts
payable increased $2,108,000 compared with a decrease of $7,075,000 for the
three months ended March 31, 1997.
Net cash used in investing and financing activities was $27,923,000 for the
three months ended March 31, 1998 compared with $29,266,000 for the three months
ended March 31, 1997. First quarter activity included the Company's investment
of $7,860,000 in business acquisitions, investment in capital equipment of
$16,258,000, proceeds of $3,000,000 from long-term obligations, payments of
$9,956,000 related to long-term obligations, and proceeds from common stock
issued of $3,625,000 related to the exercise of employee stock options.
8
<PAGE> 9
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.
Quantitative and Qualitative Disclosure Regarding Market Risk.
The Company has no derivative securities as of March 31, 1998. The Company
is exposed to changes in interest rates as a result of its bank credit facility
which is based on the London Interbank Offered Rate.
A 10% increase in interest rates related to the Company's bank credit
facility would have an immaterial effect on the Company's earnings over the next
fiscal year.
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 March 31, 1998.
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
May 14, 1998
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 19,027
<SECURITIES> 0
<RECEIVABLES> 76,733
<ALLOWANCES> 7,845
<INVENTORY> 1,867
<CURRENT-ASSETS> 90,231
<PP&E> 198,087
<DEPRECIATION> 81,123
<TOTAL-ASSETS> 468,054
<CURRENT-LIABILITIES> 40,098
<BONDS> 0
0
0
<COMMON> 289
<OTHER-SE> 418,058
<TOTAL-LIABILITY-AND-EQUITY> 468,054
<SALES> 111,904
<TOTAL-REVENUES> 111,904
<CGS> 18,019
<TOTAL-COSTS> 18,019
<OTHER-EXPENSES> 64,450
<LOSS-PROVISION> 1,343
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 29,462
<INCOME-TAX> 11,284
<INCOME-CONTINUING> 18,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,178
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.61
</TABLE>
