ITEM 1. BUSINESS
GENERAL
Lincare Holdings Inc. is a Delaware corporation. Lincare Holdings Inc. together with its subsidiaries ("Lincare" or the "Company"), is one of the nation's largest providers of oxygen and other respiratory therapy services to patients in the home. The Company's customers typically suffer from chronic obstructive pulmonary disease ("COPD"), such as emphysema, chronic bronchitis or asthma, and require supplemental oxygen or other respiratory therapy services in order to alleviate the symptoms and discomfort of respiratory dysfunction. Lincare currently serves over 320,000 customers in 44 states through 564 operating centers.
THE HOME RESPIRATORY MARKET
The Company estimates that the home respiratory therapy market (including home oxygen equipment and respiratory therapy services) represents approximately $4.5 billion in annual sales, with growth in services estimated at approximately 7% per year over the last five years. This growth reflects the significant increase in the number of persons afflicted with COPD, which is largely attributable to the increasing proportion of the U.S. population over the age of 65 years. Growth in the home respiratory market is further driven by the continued trend toward treatment of patients in the home as a lower cost alternative to the acute care setting.
BUSINESS STRATEGY
The Company's strategy is to increase its market share through internal growth and strategic acquisitions. Lincare focuses primarily on growth in existing and nearby geographic markets, which the Company believes is generally more profitable than adding additional operating centers in distant markets. In addition, the Company expands into new geographic markets on a selective basis, either through acquisitions or by opening new operating centers, when it believes such expansion will enhance its business. In 2001, Lincare acquired 18 local and regional competitors with operations in 12 states. These acquisitions expanded the Company's presence in two states where the Company did not previously operate as well as states where the Company had existing locations.
Revenue growth is dependent upon the overall growth rate of the home respiratory care market and on the Company's ability to increase market share through effective marketing efforts and selective acquisition of local or regional competitors. Growing cost containment efforts by government and private insurance reimbursement programs have created an increasingly competitive environment, accelerating consolidation trends within the home health care industry.
The Company will continue to concentrate on providing oxygen and other respiratory therapy services to patients in the home and to provide home medical equipment and other services where it believes such services will enhance the Company's primary business. In 2001, oxygen and other respiratory therapy services accounted for approximately 88% of the Company's revenues.
PRODUCTS AND SERVICES OF LINCARE
Lincare primarily provides oxygen and other respiratory therapy services to patients in the home. Lincare also provides a variety of home infusion therapies in certain geographic markets. When a patient is referred to one of the Company's operating centers by a physician, hospital discharge planner or other source, the Company's customer representative obtains the necessary medical and insurance coverage information and coordinates the delivery of patient care. The prescribed therapy is delivered by one of the Company's representatives to the customer's home, where instructions and training are provided to the customer and the customer's family regarding appropriate equipment use and maintenance and the prescribed therapy. Following the initial setup, Company representatives make periodic visits to the
customer's home, the frequency of which is dictated by the type of therapy. All services and equipment provided by the Company are coordinated with the customer's physician. During the period that the Company provides services and equipment for a customer, the customer remains under the physician's care and medical supervision. The Company employs respiratory therapists, nurses and other qualified clinicians to perform certain training and other functions in connection with the Company's services. All clinicians are licensed where required by applicable law.
Home Oxygen Equipment. The major types of oxygen delivery equipment are oxygen concentrators and liquid oxygen systems. Each method of delivery has different characteristics that make it more or less suitable to specific patient applications.
Oxygen concentrators are stationary units that provide a continuous flow of oxygen by filtering ordinary room air. Concentrators are most commonly used by patients as their primary source of stationary oxygen. These systems are often supplemented with portable gaseous oxygen cylinders, to meet the ambulatory needs of the patient.
Liquid oxygen systems are thermally insulated containers of liquid oxygen, generally consisting of a stationary unit and a portable unit, which are most commonly used by patients with significant ambulatory requirements.
Other Respiratory Therapy Services. Other respiratory therapy services offered by the Company include the following:
Nebulizers and associated respiratory medications provide aerosol therapy for patients suffering from COPD and asthma.
Non-invasive ventilation provides nocturnal ventilatory support for neuromuscular and COPD patients. This therapy improves daytime function and decreases incidents of acute illness.
Apnea monitors provide respiratory alarm systems for infants at risk for sudden infant death syndrome.
Ventilators support respiratory function in severe cases of respiratory failure where the patient can no longer sustain the mechanics of breathing without the assistance of a machine.
Continuous positive airway pressure devices maintain open airways in patients suffering from obstructive sleep apnea by providing airflow at prescribed pressures during sleep.
Home Infusion Therapy. Lincare provides a variety of home infusion therapies in certain geographic markets. These therapies include:
Parenteral nutrition involves the intravenous feeding of life-sustaining nutrients to patients with impaired or altered digestive tracts or conditions that prohibit adequate oral nutritional support.
Intravenous antibiotic therapy is the infusion of anti-infective medications into the patient's bloodstream for the treatment of infectious diseases.
Enteral nutrition is administered to patients who cannot eat as a result of an obstruction to the upper gastrointestinal tract or other medical condition.
Chemotherapy is the administration of cytotoxic drugs to patients suffering from particular types of cancer.
Dobutamine infusions are provided to patients to treat chronic end-stage congestive heart failure that has not responded to standard drug therapy. These patients require a long-term venous access device and frequent blood chemistry monitoring.
Immune globulin (IVIG) therapy is utilized for a variety of immune disorders such as B-cell and T-cell immune deficiency, acute infections, post transplant immunodeficiency and burns.
Continuous pain management is the administration of analgesic drugs to patients suffering from acute or chronic pain.
Central catheter management provides monitoring and supplies to patients requiring access via a peripherally inserted line into the superior vena cava.
Lincare also supplies home medical equipment, such as hospital beds, wheelchairs and other supplies that may be required by patients.
COMPANY OPERATIONS
Management. The Company maintains a decentralized approach to management of its local business operations. Decentralization of managerial decision-making enables the Company's operating centers to respond promptly and effectively to local market demands and opportunities. The Company believes that the personalized nature of customer requirements and referral relationships characteristic of the home health care business mandate the Company's localized operating structure.
Each of the Company's 564 operating centers is managed by a center manager who has responsibility and accountability for the operating and financial performance of the center. Service and marketing functions are performed at the local operating level, while strategic development, financial control and operating policies are administered at the corporate level. Reporting mechanisms are in place at the operating center level to monitor performance and ensure field accountability.
A team of area managers directly supervises individual operating center managers, serving as an additional mechanism for assessing and improving performance of the Company's operations. The Company's operating centers are served by regional billing centers which control all of the Company's billing and reimbursement functions.
MIS Systems. The Company believes that the proprietary management information system developed by the Company is one of its key competitive advantages. The system provides management with critical information to measure and evaluate performance levels throughout the Company. Management reviews monthly reports including revenues and profitability by individual center, accounts receivable and cash collection performance, equipment controls and utilization, customer activity, and manpower trends. The Company has an in-house staff of computer programmers which enables the Company to continually enhance its computer systems in order to provide timely financial and operational information and to respond promptly to changes in reimbursement regulations and policies.
Accounts Receivable Management. The Company derives a majority of its revenues from reimbursement by third party payors. The Company accepts assignment of insurance benefits from customers and, in most instances, invoices and collects payments directly from Medicare, Medicaid and private insurance carriers, as well as from customers under co-insurance provisions. The following table sets forth, for the periods indicated, the Company's payor mix.
Third party reimbursement is a complicated process which involves submission of claims to multiple payors, each having its own claims requirements. To operate effectively in this environment, the Company has designed and implemented proprietary computer systems to decrease the time required for the submission and processing of third party payor claims. The Company's systems are capable of tailoring the submission of claims to the specifications of individual payors. The Company's in-house management information system capability also enables it to adjust quickly to regulatory or reimbursement changes.
These features serve to decrease the processing time of claims by payors, resulting in a more rapid collection of accounts receivable. In addition, the Company is capable of submitting claims electronically to any Medicare carrier or other third party payor that processes electronic claims.
SALES AND MARKETING
Favorable trends affecting the U.S. population and home health care have created an environment which should produce increasing demand for the services provided by Lincare. The average age of the American population is increasing and, as a person ages, more health care services are generally required. Further, well-documented changes occurring in the health care industry show a trend toward home care rather than institutional care as a matter of patient preference and cost containment.
Sales activities are generally carried out by the Company's full-time sales representatives located at the Company's local operating centers with assistance from the center managers. In addition to promoting the high quality of the Company's equipment and services, the sales representatives are trained to provide information concerning the advantages of home respiratory care. Sales representatives are often licensed respiratory therapists who are highly knowledgeable in the provision of supplemental oxygen and other respiratory therapies.
The Company primarily acquires new customers through referrals. The Company's principal sources of referrals are physicians, hospital discharge planners, prepaid health plans, clinical case managers and nursing agencies. The Company's sales representatives maintain continual contact with these medical professionals in order to strengthen these relationships.
The Company's referral sources recognize the Company's reputation for providing high-quality equipment and service to patients and provide a steady flow of customers. While the Company views its referral sources as fundamental to its business, no single referral source accounts for more than 1.0% of the Company's revenues. The Company has more than 320,000 active customers, and the loss of any single customer or group of customers would not materially impact the Company's business.
The Company has received accreditation from the Community Health Accreditation Program.
Accreditation by a national accrediting body represents a marketing benefit to the Company's operating centers and provides for a recognized quality assurance program throughout the Company. Several proposals have been made to require health care providers to be accredited or licensed by independent agencies in order to participate in government reimbursement programs. Many private payors already require such accreditation.
ACQUISITIONS
In 2001, the Company acquired, in unrelated acquisitions, certain operating assets of 18 local and regional competitors with operations in 12 states. These acquisitions resulted in the addition of 15 new operating centers.
In 2000, the Company acquired, in unrelated acquisitions, certain operating assets of 15 local and regional competitors with operations in 16 states. These acquisitions resulted in the addition of 48 new operating centers.
QUALITY CONTROL
The Company is committed to providing consistently high quality products and services. The Company's quality control procedures and training programs are designed to promote greater responsiveness and sensitivity to individual customer needs and to assure the highest level of quality and convenience to the customer and the referring physician. Licensed respiratory therapists, registered nurses and other clinicians provide professional health care support to customers and assist in the Company's sales and marketing efforts.
SUPPLIERS
The Company purchases its oxygen and equipment from a variety of suppliers. The Company is not dependent upon any single supplier and believes that its oxygen and equipment needs can be provided by several manufacturers.
COMPETITION
The home respiratory care market is a fragmented and highly competitive industry that is served by the Company, other national providers and, by Company estimates, over 2,000 regional and local providers.
Quality of service is the single most important competitive factor within the home respiratory care market. The relationships between a home respiratory care company and its customers and referral sources are highly personal. There is no incentive for either the physician or the patient to alter this relationship so long as the home respiratory care company is providing responsive, professional and high-quality service. Other key competitive factors are efficiency of reimbursement and accounts receivable management systems.
Home respiratory care companies compete primarily on the basis of service since reimbursement levels are established by fee schedules promulgated by Medicare, Medicaid or by the individual determinations of private insurance companies. Furthermore, marketing efforts by home respiratory care companies are typically directed toward referral sources which generally do not share financial responsibility for the payment of services provided to customers.
MEDICARE REIMBURSEMENT
As a supplier of home oxygen and other respiratory therapy services for the home health care market, the Company participates in Medicare Part B, the Supplementary Medical Insurance Program, which was established by the Social Security Act of 1965. Suppliers of home oxygen and other respiratory therapy services have historically been heavily dependent on Medicare reimbursement due to the high proportion of elderly suffering from respiratory disease.
In December 2000, an approximately $35 billion Medicare "giveback" package was signed into law as part of H.R. 4577, the "Consolidated Appropriations Act, 2001." The appropriations act incorporated by reference the text of H.R. 5661, the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 ("BIPA"), which included reimbursement and other policy changes intended to mitigate the effects of reimbursement cuts contained in the Balanced Budget Act of 1997 (the "BBA"). Among other things, BIPA:
(1) modified payments for durable medical equipment ("DME") items. For certain items provided in 2001, BIPA updates payments in two steps: for the period January 1, 2001 through June 30, 2001, DME payments remained the same as were in effect before enactment of BIPA, and for the period of July 1, 2001 through December 31, 2001, DME items received a CPI-U update of 3.5 percent increased by a "transitional allowance" of 3.28 percent. Under BIPA, the transitional allowance will not be taken into account in calculating payment amounts after 2001. No DME payment increase is authorized for 2002. The DME payment update specifically did not apply to oxygen and oxygen equipment.
(2) required the U.S. General Accounting Office ("GAO") to study Medicare reimbursement for drugs and biologicals and for related services. The GAO issued its report to Congress, entitled "Medicare Payments for Covered Outpatient Drugs Exceed Providers' Cost", in September 2001. The GAO made recommendations designed to improve the accuracy of Medicare payments for drugs and related services, including establishing Medicare payment levels for prescription drugs and their delivery and administration that are more closely related to their costs, examining the benefits and risks of expanding the current competitive bidding demonstration projects for drugs covered under Medicare Part B, and instituting a process to monitor access to Medicare covered drugs to ensure that payment changes do not negatively affect access for particular drugs, for groups of beneficiaries, or in
certain geographic areas. The government, acting through legislation or regulation, may implement some or all of the GAO's recommendations. The Company cannot predict whether the government will take any such action and, if so, what effect such action will have on the Company's ability to provide respiratory and infusion drugs and related services to Medicare beneficiaries in the future.
Federal and state budgetary and other cost-containment pressures will continue to impact the home respiratory care industry. The Company cannot predict whether new federal and state budgetary proposals will be adopted or the effect, if any, such proposals would have on the Company's business.
GOVERNMENT REGULATION
The federal government and all states in which the Company currently operates regulate various aspects of its business. In particular, the Company's operating centers are subject to federal laws covering the repackaging of drugs (including oxygen) and regulating interstate motor-carrier transportation. The Company's locations also are subject to state laws governing, among other things, pharmacies, nursing services, distribution of medical equipment and certain types of home health activities. Certain Company employees are subject to state laws and regulations governing the ethics and professional practice of respiratory therapy, pharmacy and nursing.
As a health care supplier, Lincare is subject to extensive government regulation, including numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various government programs. The marketing, billing, documentation and other practices of health care companies are all subject to government scrutiny. To ensure compliance with Medicare and other regulations, regional carriers often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of services rendered to patients. Similarly, government agencies periodically open investigations and obtain information from health care providers pursuant to the legal process. Violations of federal and state regulations can result in severe criminal, civil and administrative penalties and sanctions, including disqualification from Medicare and other reimbursement programs.
Health care is an area of rapid regulatory change. Changes in the law and new interpretations of existing laws may affect permissible activities, the relative costs associated with doing business, and reimbursement amounts paid by federal, state and other third party payors. The Company cannot predict the future of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations, or possible changes in national health care policies. Future legislative and regulatory changes could have a material adverse impact on the Company.
EMPLOYEES
As of January 31, 2002, the Company had approximately 6,100 employees. None of the Company's employees are covered by collective bargaining agreements. The Company believes that the relations between the Company's management and its employees are good.
ENVIRONMENTAL MATTERS
Management believes that the Company is currently in compliance, in all material respects, with applicable federal, state and local statutes and ordinances regulating the discharge of hazardous materials into the environment. Management does not believe it will be required to expend any material amounts in order to remain in compliance with these laws and regulations or that such compliance will materially affect its capital expenditures, earnings or competitive position.
AVAILABLE INFORMATION
The Company files reports with the Securities and Exchange Commission ("SEC") as required by SEC rules and regulations on Form 10-Q, Form 10-K and the annual proxy statement. These reports are available to the public to read and copy at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Company is an electronic filer with the SEC and these reports are also available through the SEC internet site (http://www.sec.gov).
ITEM 2.
ITEM 2. PROPERTIES
All but one of the Company's 564 operating center locations are leased from unrelated third parties. Each operating center is a combination warehouse and office, with warehouse space generally comprising approximately 50% of the facility. Warehouse space is used for storage of adequate supplies of equipment necessary to conduct the Company's business. The Company also leases 25 separate billing centers from unrelated third parties. The Company owns its headquarters facility located in Clearwater, Florida.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company receives inquiries from various government agencies requesting patient records and other documents. It has been Lincare's policy to cooperate with all such requests for information. The government has not instituted any proceedings or served Lincare with any complaints as a result of these inquiries.
Private litigants may also make claims against the Company for violations of health care laws in actions known as qui tam suits and the government may intervene in, and take control of, such actions. The Company is a defendant in certain qui tam proceedings. Lincare intends to vigorously defend these suits should they proceed. The government has declined to intervene in all unsealed qui tam actions of which the Company is aware.
As a health care supplier, Lincare is subject to extensive government regulation, including numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various government programs. The marketing, billing, documentation and other practices of health care companies are all subject to government scrutiny. To ensure compliance with Medicare and other regulations, regional carriers often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of services rendered to patients. Similarly, government agencies periodically open investigations and obtain information from health care providers pursuant to legal process. Violations of federal and state regulations can result in severe criminal, civil and administrative penalties and sanctions, including disqualification from Medicare and other reimbursement programs.
The Company is also involved in certain other claims and legal actions arising in the ordinary course of its business.
The ultimate disposition of all such matters is not expected to have a material adverse impact on the Company's financial position, results of operations or liquidity.
In December 2001, the Company settled an investigation by the U.S. Attorneys' Office in Sacramento, California, without admitting any wrongdoing. The government's investigation, which commenced in July 1998, primarily focused on claims made by certain of the Company's California operating centers for reimbursement under Medicare for home oxygen and other therapies. As part of the settlement, Lincare paid the government $3.15 million and a Lincare subsidiary entered into a Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Health and Human Services.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 2001.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market System under the symbol LNCR. The following table sets forth the high and low closing sale prices as reported by NASDAQ for the periods indicated.
There were approximately 221 holders of record of the common stock as of January 31, 2002.
The Company has not paid any cash dividends on its capital stock and does not anticipate paying cash dividends in the foreseeable future. It is the present intention of the Company's Board of Directors to retain all earnings in the Company in order to support the future growth of the Company's business.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below under the caption "Statements of Operations Data" for the years ended December 31, 2001, 2000, 1999, 1998 and 1997, are derived from the consolidated financial statements of the Company audited by KPMG LLP, independent certified public accountants.
The data set forth below is qualified by reference to, and should be read in conjunction with, the consolidated financial statements, accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report.
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(1) In 2001, the Company recorded other charges of $10,650,000 of which $4,150,000 was related to the settlement of an investigation by the U.S. Attorneys' Office in Sacramento, California, without any admission by the Company of wrongdoing, including a $1,000,000 reserve for related legal expenses. The remaining $6,500,000 of other charges related to the execution by the Company of employment
agreements with 16 mid-level management employees as well as the modifying and extension of certain executive officer employment agreements.
(2) In 1997, the Company recorded a non-recurring expense of $15,557,000, of which $11,849,000 was related to the write down of impaired capital equipment and $3,708,000 was related to the write down of impaired intangible assets.
(a) Excluding borrowings under the Company's revolving credit agreement totaling $75,000,000, which are due and payable in 2002.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company continues to pursue its strategy of increasing market share in existing and surrounding geographic markets through internal growth and selective acquisition of local and regional competitors. In addition, the Company will continue to expand into new geographic markets on a selective basis, either through acquisition or by opening new operating centers, when the Company believes it will enhance its business. The Company's focus remains primarily on oxygen and other respiratory therapy services, which represent approximately 88% of the Company's revenues.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Company include accounts of all majority-owned subsidiaries. The Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles.
Revenue Recognition
The Company's revenues are recognized on an accrual basis in the period in which services and related products are provided to customers and are recorded at net realizable amounts estimated to be received from customers and third party payors. If the payment amount received differs from the net realizable amount, an adjustment is made to the net realizable amount in the period that these payment differences are determined. The Company reports revenues in its financial statements net of such adjustments. The Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition", provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 101.
Bad Debt Expense and Allowance for Uncollectible Accounts and Notes Receivable
The Company's accounts and notes receivable are reported net of allowance for uncollectible accounts and notes receivable. The majority of the Company's accounts and notes receivable are due from Medicare, Medicaid and private insurance carriers, as well as from customers under co-insurance provisions. Third party reimbursement is a complicated process which involves submission of claims to multiple payors, each having its own claims requirements. In some cases, the ultimate collection of
accounts and notes receivable subsequent to the service dates may not be known for several months. The Company records bad debt expense and the allowance for doubtful accounts based on a percentage of revenue. Various methods are used to evaluate the collectibility of accounts and notes receivable including current and historical cash collections, bad debt write-offs, and aging of accounts and notes receivable. The Company's proprietary management information systems are utilized to provide this data in order to assess bad debts. In the event that collection results of existing accounts and notes receivable are not consistent with historical experience, there may be a need to establish an additional allowance for doubtful accounts, which may materially impact the Company's financial position or results of operations.
Business Acquisition Accounting and Amortization Expense
The Company's business strategy is to increase its market share through internal growth and strategic acquisitions. The Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets", provide guidance on the application of generally accepted accounting principles for business acquisitions completed by the Company. The Company applies the purchase method of accounting for its business acquisitions. The Company uses available cash from operations and borrowings under the Company's revolving credit agreement as the consideration for business acquisitions. The Company allocates the purchase price of its business acquisitions based on the fair market value of identifiable tangible and intangible assets. The difference between the total cost of the acquisition and the sum of the fair values of acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill. Until the end of 2001, goodwill was amortized over a period of 40 years. The assignment of a 40 year life was based on each acquisition's ability to generate sufficient operating results to support the recorded goodwill balance. In accordance with SFAS No. 142, the Company will cease to amortize approximately $684,771,000 of goodwill beginning January 1, 2002.
The Company assesses the impairment of goodwill, intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important which could trigger an impairment review include, without limitation, (i) significant under-performance relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of the acquired assets or the strategy for the Company's overall business; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a decline in the Company's stock price for a sustained period; and (vi) technological and regulatory changes.
When the Company determines that the carrying value of intangibles, long-lived assets and related goodwill may be impaired, the Company evaluates the ability to recover those assets. If those assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. In accordance with SFAS No. 142, the Company is required to perform an initial impairment review of its goodwill in the first quarter of 2002.
Contingencies
The Company is involved in certain claims and legal matters arising in the ordinary course of its business. The Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies", provides guidance on the application of generally accepted accounting principles related to contingencies. The Company evaluates and records liabilities for contingencies based on known claims and legal actions when it is probable a liability has been incurred and the liability can be reasonably estimated. The Company has concluded that its accrued liabilities related to contingencies are appropriate and in accordance with generally accepted accounting principles.
NET REVENUES
The following table sets forth for the periods indicated a summary of the Company's net revenues by source:
Net revenues for the year ended December 31, 2001 increased by $109,958,000 (15.7%) over 2000. Net revenues for the year ended December 31, 2000 increased by $120,698,000 (or 20.8%) over 1999. The increases in net revenues are attributable to the Company's sales and marketing efforts that emphasize quality and customer service, and the effect of acquisitions completed by the Company.
COST OF GOODS AND SERVICES
Cost of goods and services as a percentage of net revenues was 15.2% for the year ended December 31, 2001 and was 16.1% and 15.4% for the years ended December 31, 2000 and 1999, respectively. The decrease in cost of goods for the year ended December 31, 2001 was the result of the higher proportion of revenues attributable to oxygen and other respiratory therapy, which generally carry higher gross margins than other home medical equipment and supplies.
OPERATING AND OTHER EXPENSES
The Company continues to maintain a cost structure that, with increased net revenues, has permitted the Company to spread its fixed operating expenses and overhead over a larger base of revenues, resulting in improvement in operating income. Operating expenses expressed as a percentage of net revenues was 22.6% for each of the years ended December 31, 2001, 2000 and 1999. Selling, general and administrative expenses expressed as a percentage of net revenues for the years ended December 31, 2001, 2000 and 1999 were 20.6%, 21.0% and 22.1%, respectively.
Bad debt expense as a percentage of net revenues was 1.5% for the years ended December 31, 2001 and 2000 and 1.2% for the year ended December 31, 1999. Continued growth in the pace of the Company's acquisition program has contributed to the increase in the Company's bad debt expense. The integration of these acquired companies into the Company's regional billing and collections offices can temporarily disrupt collections, thus adversely impacting the amount of accounts receivable written off as uncollectible.
Depreciation expense as a percentage of net revenues was 6.7% for the year ended December 31, 2001 compared with 6.8% and 7.1% for the years ended December 31, 2000 and 1999, respectively. The decrease in depreciation expense as a percentage of net revenues in 2001 and 2000 is attributable to reduced capital expenditures for respiratory assist devices resulting from changes in Medicare coverage guidelines on October 1, 1999.
AMORTIZATION EXPENSE
In July 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". SFAS No. 141 provides guidance regarding the initial recognition and measurement of goodwill and other intangible assets. In accordance with SFAS 141, goodwill resulting from business acquisitions completed after June 30, 2001 has not been amortized. For the six-month period ended December 31, 2001, $96,304,000 of the Company's goodwill was affected by the SFAS 141 provisions. Goodwill and other intangible assets resulting from business acquisitions before July 1, 2001 has been amortized through December 31, 2001. In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that goodwill and
certain intangible assets with indefinite lives no longer be amortized and instead be tested annually for impairment. The provisions of SFAS No. 142 apply to all business combinations completed after June 30, 2001. The Company adopted SFAS No. 142 effective January 1, 2002.
During 2001, the Company amortized $21,119,000 of its intangible assets compared to $19,495,000 in 2000 and $15,954,000 in 1999. The increase in amortization expense in 2001 (including the effect of SFAS No. 141) is attributed to the amortization of intangible assets associated with business combinations in 2001.
The Company's net intangible assets were $695,530,000 as of December 31, 2001. Of this total, $3,949,000 (consisting of the value assigned to customer lists) was being amortized over a period of three years, $6,810,000 (consisting of various covenants not to compete) over a period of one to five years and $684,771,000 (consisting of goodwill) over a period of 40 years.
OTHER CHARGES
In 2001, the Company recorded other charges of $10,650,000 of which $4,150,000 was related to the settlement of an investigation by the U.S. Attorneys' Office in Sacramento, California, without any admission by the Company of wrongdoing, including a $1,000,000 reserve for related legal expenses. The remaining $6,500,000 of other charges related to the execution by the Company of employment agreements with 16 mid-level management employees as well as the modifying and extension of certain executive officer employment agreements.
OPERATING INCOME
As shown in the table below, operating income for the year ended December 31, 2001 increased by $34,677,000 from 2000 and by $36,554,000 from 1999 for the year ended December 31, 2000.
INTEREST EXPENSE
Interest expense for the year ended December 31, 2001 was $16,013,000, compared to $18,019,000 and $5,940,000 for the years ended December 31, 2000 and 1999, respectively. The decrease in interest expense in 2001 is primarily attributable to reductions in amounts outstanding under the Company's revolving credit agreement and reductions in applicable interest rates. The increase in interest expense in 2000 was primarily attributable to additional borrowings utilized on the Company's revolving credit agreement in 2000 related to open market repurchases of approximately 13.4 million shares of its outstanding common stock.
REALIZED GAIN AND LOSS ON DERIVATIVE FINANCIAL INSTRUMENT
In September 2000, the Company entered into an interest swap agreement whereby the interest rates on its $125,000,000 of senior secured notes were effectively converted to variable interest rates. In December 2000, the Company terminated the interest rate swap agreement prior to its maturity at a realized gain of $3,018,000. The gain was deferred and is being recognized over the maturity period of the senior secured notes.
In addition, the Company entered into an interest rate collar transaction with an initial notional amount of $125,000,000. The collar had a floor and cap rate with a floating rate option based on three-month LIBOR. At December 31, 2000, the collar was recorded at a fair value by the Company for $1,961,000 in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities". In 2001, the Company terminated the interest rate collar agreement prior to its maturity and paid $7,965,000 realizing a loss of $6,004,000.
INCOME TAXES
The Company's effective income tax rate was 38.1% for the years ended December 31, 2001, 2000 and 1999.
ACQUISITIONS
In 2001, the Company acquired, in unrelated acquisitions, certain operating assets of 18 local and regional competitors. The cost of these acquisitions was $173,021,000 and was allocated to acquired assets as follows: $2,114,000 to current assets, $4,978,000 to property and equipment, $6,330,000 to intangible assets and $159,599,000 to goodwill. These acquisitions resulted in the addition of 15 new operating centers.
In 2000, the Company acquired, in unrelated acquisitions, certain operating assets of 15 local and regional competitors. The cost of these acquisitions was $162,387,000 and was allocated to acquired assets as follows: $7,318,000 to current assets, $6,562,000 to property and equipment, $6,142,000 to intangible assets, and $142,365,000 to goodwill. These acquisitions resulted in the addition of 48 new operating centers.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, the Company's working capital, excluding current maturities of the revolving credit agreement totaling $75,000,000, was $74,217,000, as compared to $84,475,000 at December 31, 2000 and $70,179,000 at December 31, 1999.
Net cash provided by operating activities was $233,705,000 for the year ended December 31, 2001, compared with $215,029,000 for the year ended December 31, 2000 and $149,155,000 for the year ended December 31, 1999. A significant portion of the Company's assets consists of accounts receivables from third party payors that are responsible for payment for the equipment and services provided by the Company. The Company's net accounts receivable in terms of days sales outstanding was 60 days as of December 31, 2001 and 56 days as of December 31, 2000.
Net cash used in investing and financing activities was $236,906,000, $215,527,000 and $150,556,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Activity in the year ended December 31, 2001 included the Company's investment of $157,725,000 in business acquisitions, investment in capital equipment of $74,206,000, proceeds of $175,534,000 from its revolving credit agreement and other long-term obligations, and payments of $185,111,000 related to long-term obligations.
As of December 31, 2001, the Company's principal sources of liquidity consisted of $159,500,000 available under its revolving credit agreement. The Company believes that internally generated funds, together with funds that may be borrowed under its revolving credit agreement will be sufficient to meet the Company's anticipated capital requirements and financial obligations. The Company believes that its credit standing provides it with adequate access to financial markets. The Company anticipates refinancing its $240,000,000 revolving credit agreement which is payable in 2002.
On June 11, 1999, the Company's Board of Directors authorized the Company to repurchase up to $200,000,000 of its outstanding common stock. Purchases are made through open market or privately negotiated transactions, subject to market conditions and trading restrictions. As of December 31, 2001, $178,007,000 of common stock had been repurchased under this program. The total common stock held in treasury was $176,053,000 as of December 31, 2001.
The Company's future liquidity will continue to be dependent upon its operating cash flow and management of accounts receivable. The Company does not expect any impact on liquidity due to pending litigation.
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that an entity account for business combinations using the purchase method and eliminates the pooling method. In addition, SFAS No. 141 provides guidance regarding the initial recognition and measurement of goodwill and other intangible assets. The Company adopted SFAS No. 141 on July 1, 2001. In accordance with SFAS No. 141, goodwill resulting from business acquisitions completed after June 30, 2001 has not been amortized. For the six-month period ended December 31, 2001, $96,304,000 of the Company's goodwill was affected by the SFAS No. 141 provisions. Goodwill and other intangible assets resulting from business acquisitions before July 1, 2001 have been amortized through December 31, 2001. SFAS No. 142 requires that goodwill and certain intangible assets with indefinite lives no longer be amortized and instead be tested annually for impairment. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and subsequently, SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets", after its adoption on January 1, 2002. The Company will adopt SFAS No. 142 in the first quarter of 2002.
Upon adoption of SFAS No. 142, the Company is required to evaluate its existing goodwill and intangible assets and make any necessary reclassifications in order to conform with the new criteria in SFAS No. 141. The Company will be required to reassess the useful lives and residual values of all intangible assets acquired and make any necessary amortization period adjustments by the end of the first interim period after adoption. For intangible assets determined to have indefinite lives, the Company will be required to test the assets for impairment in accordance with SFAS No. 142 within the first interim period. Impairment is measured as the excess of carrying value over the fair value of an intangible asset with an indefinite life. Any transitional impairment loss will be measured as of January 1, 2002 and would be recognized as a cumulative effect of a change in accounting principle in the first interim period in the Company's statement of operations. Under SFAS No. 142, the Company is also required to evaluate goodwill for impairment as of January 1, 2002. To accomplish this, the Company must identify the operating center(s) ("reportable units") associated with the goodwill and determine the carrying value of these reportable units by assigning assets and liabilities (including the existing goodwill and intangible assets) to those reporting units as of January 1, 2002. The Company will then have six months from January 1, 2002 to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an indication exists that the reporting unit goodwill may be impaired and the Company must perform the second step of the impairment test. The second step is required to be completed as soon as possible, but no later than December 31, 2002. In the second step, the Company must compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of the date of adoption. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Any transitional impairment loss will be recognized as a cumulative effect of a change in accounting principle in the Company's statement of operations. As of January 1, 2002, the Company expects to have $684,771,000 in unamortized goodwill and $3,949,000 in unamortized intangible assets. Because of the extensive effort needed to comply with adopting SFAS No. 142, it is not practicable to reasonably estimate the impact of adopting this Statement on the Company's financial statements at the date of this report, including whether the Company will be required to recognize any transitional impairment losses.
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses
the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. It is effective for fiscal years beginning after June 30, 2002. The Company does not believe the adoption of SFAS No. 143 will have any effect on its financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company will adopt SFAS No. 144 in the first quarter of 2002. The Company has not yet determined the effect SFAS No. 144 will have on its financial statements.
INFLATION
The Company has not experienced large increases in either the cost of supplies or operating expenses due to inflation. With reductions in reimbursement by government and private medical insurance programs and pressure to contain the costs of such programs, the Company bears the risk that reimbursement rates set by such programs will not keep pace with inflation.
QUANTITATIVE AND QUALITATIVE DISCLOSURE REGARDING MARKET RISK
During September 1999 as part of the Company's stock repurchase program, the Company sold European Put Options ("Puts") on underlying shares of the Company's common stock. The Puts had a six-month maturity period and the Company was paid a $4,454,000 premium in advance which was accounted for as additional paid-in capital. The Company had the option to settle the Puts in cash or in shares of common stock. In March 2000, the Company amended the terms of the Puts to extend the maturity date of the Puts by two months. In connection with extending the maturity period of the Puts, the Company was paid an additional cash premium of $280,000. In May 2000, the Puts expired out-of-the-money with no obligation on the part of the Company.
The fair value of the Company's revolving credit agreement and senior secured notes are subject to change as a result of changes in market prices or interest rates. The Company estimates potential changes in the fair value of interest rate sensitive financial instruments based on a hypothetical increase (or decrease) in interest rates. The Company's use of this methodology to quantify the market risk of such instruments should not be construed as an endorsement of its accuracy or the accuracy of the related assumptions. The quantitative information about market risk is necessarily limited because it does not take into account anticipated operating and financial transactions.
The following table sets forth the Company's estimated impact on the fair value of its long-term obligations plus the impact on earnings resulting from a 10% decrease in interest rates.
Estimated fair value of financial instruments (in thousands):
FORWARD-LOOKING STATEMENTS
Statements contained herein that are not based on historical facts are forward-looking statements that are based on projections and estimates regarding the economy in general, the health care industry and other factors which impact the Company. These statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statements. The estimates relate to reimbursement by government and third party payors for the Company's products and services, the costs associated with government regulation of the health care industry and the effects of competition and industry consolidation. In some cases, forward-looking statements that involve risks and uncertainties contain terminology such as "may," "will," "should," "could," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or variations of these terms or other comparable terminology.
Key factors that have an impact on the Company's ability to attain these estimates include potential reductions in reimbursement rates by government and third party payors, changes in reimbursement policies, demand for the Company's products and services, the availability of appropriate acquisition candidates and the Company's ability to successfully complete acquisitions, efficient operations of the Company's existing and future operating facilities, regulation and/or regulatory action affecting the Company or its business, economic and competitive conditions and access to borrowed and/or equity capital on favorable terms.
In developing its forward-looking statements, the Company has made certain assumptions relating to reimbursement rates and policies, internal growth and acquisitions and the outcome of various legal and regulatory proceedings. If the assumptions used by the Company differ materially from what actually occurs, then actual results could vary significantly from the performance projected in the forward-looking statements. The Company is under no duty to update any of the forward-looking statements after the date of this Form 10-K.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are listed in Item 14(a)(1) and are submitted at the end of this Annual Report on Form 10-K. The supplementary data required by this Item is included on page S-1. The financial statements and supplementary data are herein incorporated by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item will be included in the definitive proxy statement for the Annual Meeting of Stockholders to be held May 20, 2002, under "Information Regarding the Board of Directors and Executive Officers" and is herein incorporated by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item will be included in the definitive proxy statement for the Annual Meeting of Stockholders to be held May 20, 2002, under "Executive Compensation" and is herein incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item will be included in the definitive proxy statement for the Annual Meeting of Stockholders to be held May 20, 2002, under "Security Ownership of Principal Stockholders and Management" and is herein incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of Lincare Holdings Inc. and subsidiaries are filed as part of this Form 10-K starting at page:
Independent Auditors' Report
Consolidated Balance Sheets -- December 31, 2001 and 2000
Consolidated Statements of Operations -- Years ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Stockholders' Equity -- Years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows -- Years ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
(2) The following consolidated financial statement schedule of Lincare Holdings Inc. and subsidiaries is included in this Form 10-K at page S-1:
Schedule VIII -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(3) Exhibits included or incorporated herein:
See Exhibit Index.
(b) The Company did not file a Current Report on Form 8-K during the three months ended December 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed effective March 28, 2002 on its behalf by the undersigned, thereunto duly authorized.
LINCARE HOLDINGS INC.
/s/ PAUL G. GABOS -------------------------------------- Paul G. Gabos Secretary, Chief Financial and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
*By: /s/ JOHN P. BYRNES ----------------------------------------- Attorney in fact
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Lincare Holdings Inc.:
We have audited the consolidated financial statements of Lincare Holdings Inc. and subsidiaries as listed in the index on page 19. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule listed in the index on page 19. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used, and significant estimates made, by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lincare Holdings Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
St. Petersburg, Florida February 8, 2002
LINCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000
See accompanying notes to consolidated financial statements.
LINCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
See accompanying notes to consolidated financial statements.
LINCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
See accompanying notes to consolidated financial statements.
LINCARE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
See accompanying notes to consolidated financial statements.
LINCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001, 2000 AND 1999
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Lincare Holdings Inc. and subsidiaries (the "Company") provides oxygen, respiratory therapy services, infusion therapy services and home medical equipment such as hospital beds, wheelchairs and other medical supplies to the home health care market. The Company's customers are located in 44 states. The Company's equipment and supplies are readily available and the Company is not dependent on a single supplier or even a few suppliers.
(B) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
(C) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Lincare Holdings Inc. and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in the prior years financial statements have been reclassified to conform to the current year presentation.
(D) REVENUE RECOGNITION
Revenues are recognized on an accrual basis in the period in which services and related products are provided to customers and are recorded at net realizable amounts estimated to be received from customers and third party payors. If the payment amount received differs from the net realizable amount, an adjustment is made to the net realizable amount in the period that these payment differences are determined. The Company reports revenues in its financial statements net of such adjustments. The Company records bad debt expense and the allowance for uncollectible accounts as a percentage of net revenues.
(E) FINANCIAL INSTRUMENTS
The Company believes the book value of its cash equivalents, accounts and notes receivable, income taxes receivable, accounts payable and accrued expenses approximate fair value due to their short-term nature. The book value of the Company's revolving credit agreement and deferred acquisition obligations approximate their fair value as the current interest rates approximate rates at which similar types of borrowing arrangements could be currently obtained by the Company. The fair value of the Company's senior secured notes are estimated based on the discounted value of the future cash flows expected to be paid over the maturity period of the notes. The estimated fair value of the senior secured notes at December 31, 2001 and 2000 was $126,931,000 and $125,820,000, respectively.
(F) INVENTORIES
Inventories, consisting of equipment, supplies and replacement parts, are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.
LINCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(G) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets as set forth in the table below.
Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or estimated useful life of the asset. Amortization is included with depreciation expense.
(H) OTHER ASSETS
Goodwill results from the excess of cost over net assets of acquired businesses and until December 31, 2001 was amortized on a straight-line basis over 40 years.
Intangible assets (customer base) are amortized on a straight-line basis over the estimated life of three years.
Covenants not to compete are amortized on a straight-line basis over the life of the respective covenants, one to five years.
The Company periodically evaluates the ability to recover goodwill and other intangible assets by utilizing an undiscounted cash flow from operating income test. In addition, the Company considers the effects of external changes to the Company's business environment, including competitive pressures, market changes and technological and regulatory changes. If goodwill and other intangible assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
(I) INCOME TAXES
Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date.
(J) PENSION PLAN
The Company has a defined contribution pension plan covering substantially all employees. The Company makes monthly contributions to the plan equal to the amount accrued for pension expense. Employer contributions (net of applied forfeitures) were approximately $5,527,000 in 2001, $4,093,000 in 2000, and $3,537,000 in 1999.
(K) STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all short-term investments with a purchased maturity of three months or less to be cash equivalents.
(L) STOCK OPTIONS
The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, in accounting for its fixed plan stock options. As such, compensation expense would be recorded on the
LINCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123.
(M) SEGMENT INFORMATION
The Company follows Financial Accounting Standards Board Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 utilizes the "management" approach for determining reportable segments. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. The Company maintains a decentralized approach to management of its local business operations. Decentralization of managerial decision-making enables the Company's operating centers to respond promptly and effectively to local market demands and opportunities. The Company provides home health care equipment and services through 564 operating centers in 44 states. The Company views each operating center as a distinct part of a single "operating segment," as each operating center provides the same products to customers. Management reporting and analysis occurs at an individual operating center level and senior management reviews statements of operation for each of the Company's operating centers on a monthly basis. As a result, all of the Company's operating centers are aggregated into one reportable segment.
(N) NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that an entity account for business combinations using the purchase method and eliminates the pooling method. In addition, SFAS No. 141 provides guidance regarding the initial recognition and measurement of goodwill and other intangible assets. The Company adopted SFAS No. 141 on July 1, 2001. In accordance with SFAS No. 141, goodwill resulting from business acquisitions completed after June 30, 2001 has not been amortized. For the six-month period ended December 31, 2001, $96,304,000 of the Company's goodwill was affected by the SFAS No. 141 provisions. Goodwill and other intangible assets resulting from business acquisitions before July 1, 2001 have been amortized through December 31, 2001. SFAS No. 142 requires that goodwill and certain intangible assets with indefinite lives no longer be amortized and instead be tested annually for impairment. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and subsequently, SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets", after its adoption on January 1, 2002. The Company will adopt SFAS No. 142 in the first quarter of 2002.
Upon adoption of SFAS No. 142, the Company is required to evaluate its existing goodwill and intangible assets and make any necessary reclassifications in order to conform with the new criteria in SFAS No. 141. For intangible assets determined to have indefinite lives, the Company will be required to test the assets for impairment in accordance with SFAS No. 142 within the first interim period. Impairment is measured as the excess of carrying value over the fair value of an intangible asset with an indefinite life. Any transitional impairment loss will be measured as of January 1, 2002 and would be recognized as a cumulative effect of a change in accounting principle in the first interim period in the
LINCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's statement of operations. Under SFAS No. 142, the Company is also required to evaluate goodwill for impairment as of January 1, 2002. To accomplish this, the Company must identify the operating center(s) ("reportable units") associated with the goodwill and determine the carrying value of these reportable units by assigning assets and liabilities (including the existing goodwill and intangible assets) to those reporting units as of January 1, 2002. The Company will then have six months from January 1, 2002 to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an indication exists that the reporting unit goodwill may be impaired and the Company must perform the second step of the impairment test. The second step is required to be completed as soon as possible, but no later than the December 31, 2002. In the second step, the Company must compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of the date of adoption. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Any transitional impairment loss will be recognized as a cumulative effect of a change in accounting principle in the Company's statement of operations. As of January 1, 2002, the Company expects to have $684,771,000 in unamortized goodwill and $3,949,000 in unamortized intangible assets. Because of the extensive effort needed to comply with adopting SFAS No. 142, it is not practicable to reasonably estimate the impact of adopting this Statement on the Company's financial statements at the date of this report, including whether the Company will be required to recognize any transitional impairment losses.
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. It is effective for fiscal years beginning after June 30, 2002. The Company does not believe the adoption of SFAS No. 143 will have any effect on its financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 144, " Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company will adopt SFAS No. 144 in the first quarter of 2002. The Company has not yet determined the effect SFAS No. 144 will have on its financial statements.
(O) CONTINGENCIES
The Company is involved in certain claims and legal matters arising in the ordinary course of its business. The Company uses Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies", as guidance on the application of generally accepted accounting principles related to contingencies. The Company evaluates and records liabilities for contingencies based on known claims and legal actions when it is probable a liability has been incurred and the liability can be reasonably estimated.
LINCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at December 31, 2001 and 2000 consist of:
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2001 and 2000 consist of:
Rental equipment of approximately $324,327,000 in 2001 and $267,812,000 in 2000 is included with equipment and furniture.
(4) LEASES
The Company has several noncancelable operating leases, primarily for buildings, office equipment and vehicles, that expire over the next five years and provide renewal options. Operating lease expense was approximately $31,078,000 in 2001, $27,763,000 in 2000 and $24,118,000 in 1999.
Future minimum lease payments under noncancelable operating leases as of December 31, 2001 are as follows:
LINCARE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM OBLIGATIONS
Long-term obligations at December 31, 2001 and 2000 consist of:
The Company's current revolving credit agreement with several lenders and Bank of America N.A. as agent, dated August 23, 1999, as amended, permits the Company to borrow amounts up to $240,000,000 on a three year revolving credit facility. The three year revolving credit facility contains a $20,000,000 letter of credit sub facility which reduces the principal amount available under the three year revolving credit facility by the amount of outstanding letters of credit. As of December 31, 2001, $5,500,000 was outstanding under the letter of credit sub facility. The revolving credit agreement has a termination date of August 22, 2002. Upon entering into the revolving credit agreement, an origination fee of $1,840,000 was paid and is being amortized over three years. Commitment fees on the unused portion of the facility (.425% at December 31, 2001) are based upon the Company's consolidated leverage ratio for the most recent four fiscal quarters. Interest accrued on the outstanding principal balance that is not termed for repayment is payable monthly. The revolving credit agreement contains several financial and other covenants and is secured by a pledge of the stock of the wholly-owned subsidiaries of Lincare Holdings Inc.
The Company's $60,000,000 364-day revolving credit agreement expired on August 22, 2000 and was replaced on September 6, 2000 by $125,000,000 of senior secured notes offered through a private placement. The senior secured notes have a fixed interest rate and mature over three, four and five years: $30,000,000 at 8.91% due September 15, 2003, $50,000,000 at 9.01% due September 15, 2004 and $45,000,000 at 9.11% due September 15, 2005. Upon entering into the senior secured note agreement, a placement fee of $893,000 was paid and is being amortized over the periods of the notes. The senior secured notes contain several financial and other covenants and are secured by a pledge of the stock of the wholly-owned subsidiaries of Lincare Holdings Inc. On September 6, 2000, the Company entered into an interest swap agreement whereby the interest rate on its $125,000,000 of senior secured notes were effectively converted to variable interest rates. On December 14, 2000, the Company terminated the interest rate swap agreement prior to its maturity at a realized gain of $3,018,000. The gain was deferred and is being recognized over the maturity period of the senior secured notes.
In addition, the Company entered into an interest rate collar transaction with an initial notional amount of $125,000,000. The collar had a floor and cap rate with a floating rate option based on three-
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
month LIBOR. At December 31, 2000, the collar was recorded at a fair value by the Company for $1,961,000 in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". On November 27, 2001, the Company terminated the interest rate collar agreement prior to their maturity and paid $7,965,000 realizing a loss of $6,004,000.
The aggregate maturities of long-term obligations for each of the five years subsequent to December 31, 2001 are as follows:
(6) INCOME TAXES
The tax effects of temporary differences that account for significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2001 and 2000 are presented below:
There is no valuation allowance for deferred tax assets. The Company expects that the results of future operations will generate sufficient taxable income to allow for the utilization of deferred tax assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense attributable to operations consists of:
Total income tax expense differs from the amounts computed by applying a U.S. federal income tax rate of 35% to income before income taxes as a result of the following:
(7) STOCKHOLDERS' EQUITY
The Company has 5,000,000 authorized shares of preferred stock, all of which are unissued. The Board of Directors has the authority to issue up to such number of shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof without any further vote or action by the stockholders but subject to restrictions imposed by the Company's revolving credit agreement and senior secured note agreement.
During September 1999 as part of the Company's stock repurchase program, the Company sold European Put Options ("Puts") on underlying shares of the Company's common stock. The Puts had a six-month maturity period and the Company was paid a $4,454,000 premium in advance which was accounted for as additional paid-in capital. The Company had the option to settle the Puts in cash or in shares of common stock. In March 2000, the Company amended the terms of the Puts to extend the maturity date of the Puts by two months. In connection with extending the maturity period of the Puts, the Company was paid an additional cash premium of $280,000. In May 2000, the Puts expired out-of-the-money with no obligation on the part of the Company.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) STOCK OPTIONS
The Company has seven stock option plans that provide for the grant of options to directors, officers and employees. To date, stock options have been granted with an exercise price equal to the stock's fair value at the date of grant. Stock options generally have ten-year terms and generally vest over four years.
The Company has reserved a total of 11,895,072 shares of common stock for issuance under its Non-Qualified Stock Option Plan (the "Plan"). At December 31, 2001, there were options for 10,000 shares outstanding and no options available for issuance under the Plan. The Company has reserved a total of 6,400,000 shares of common stock for issuance under its 1991 Stock Plan (the "1991 Plan"). At December 31, 2001, there were options for 168,800 shares outstanding and no options available for issuance under the 1991 Plan. The Company has reserved a total of 2,000,000 shares of common stock for issuance under its 1994 Stock Plan (the "1994 Plan"). At December 31, 2001, there were options for 370,000 shares outstanding and no options available for issuance under the 1994 Plan. The Company has reserved a total of 4,000,000 shares of common stock for issuance under its 1996 Stock Plan (the "1996 Plan"). At December 31, 2001, there were options for 2,313,200 shares outstanding and no options available for issue under the 1996 Plan. The Company has reserved a total of 3,000,000 shares of common stock for issuance under its 1998 stock plan (the "1998 Plan"). At December 31, 2001, there were options for 2,587,350 shares outstanding and no options available for issue under the 1998 Plan. The Company has reserved a total of 2,000,000 shares of common stock for issuance under the 2000 Stock Plan (the "2000 Plan"). At December 31, 2001, there were options for 1,980,000 shares outstanding and options for 20,000 shares available for issuance under the 2000 Plan. The Company has reserved a total of 3,000,000 shares of common stock for issuance under the 2001 Stock Plan (the "2001 Plan"). At December 31, 2001, there were options for 2,532,000 shares outstanding and options for 468,000 shares available for issuance under the 2001 Plan.
The per share weighted average fair value of stock options granted during 2001, 2000, and 1999 was $12.32, $8.35 and $8.81 on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions: 2001 -- expected dividend yield 0%, risk-free interest rate of 3.7%, expected life of 4 years, and volatility of 61.4%; 2000 -- expected dividend yield 0%, risk-free interest rate of 4.9%, expected life of 7 years, and volatility of 62.6%; 1999 -- expected dividend yield 0%, risk-free interest rate of 6.9%, expected life of 8 years, and volatility of 60.6%.
The Company applies Accounting Principles Board Opinion No. 25 in accounting for its stock plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its stock options under Statement of Financial Accounting Standards No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
Pro forma net income reflects only options granted since December 31, 1994. Therefore, the full impact of calculating compensation cost for stock options under Statement of Financial Accounting Standards No. 123 is not reflected in the pro forma net income or per share amounts presented above because compensation cost is reflected over the options vesting period of four years and compensation cost for options granted prior to January 1, 1995 are not considered.
Information related to the plans is as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2001, the range of exercise prices and weighted average remaining contractual life of outstanding options were as follows:
At December 31, 2001, 2000 and 1999, the number of options exercisable was 3,028,350, 2,761,500 and 4,148,000, respectively, and the weighted average exercise price of those options was $11.05, $9.59 and $7.05, respectively.
In connection with the exercise of certain stock options, the Company receives a tax deduction for the difference between the fair value of the common stock at the date of exercise and the exercise price. The related income tax benefit of approximately $7,659,000 in 2001, $18,142,000 in 2000 and $612,000 in 1999 has been recorded as a reduction of income taxes payable and an increase to additional paid-in capital.
(9) NET REVENUES
Included in the Company's net revenues is reimbursement from the federal government under Medicare, Medicaid and other federally funded programs, which aggregated approximately 62% in 2001, 61% in 2000, and 62% in 1999 of such net revenues.
The following table sets forth for the periods indicated a summary of the Company's net revenues by source:
(10) INCOME PER COMMON SHARE
Basic income per common share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income per common share reflects the potential dilution of securities that could share in earnings, including stock options. When the exercise of stock options is anti-dilutive, they are excluded from the calculation. There were no anti-dilutive stock options excluded from the calculation at December 31, 2001 and 2000. At December 31, 1999, 689,500 shares of outstanding stock options (granted at $17.82 price) were anti-dilutive.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the numerators and the denominators of the basic and diluted per common share computations is as follows:
(11) SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) BUSINESS COMBINATIONS
The Company's strategy is to increase its market share through internal growth and strategic acquisitions. Lincare focuses primarily on growth in existing and nearby geographic markets, which the Company believes is generally more profitable than adding additional operating centers in distant markets. In addition, the Company expands into new geographic markets on a selective basis, either through acquisitions or by opening new operating centers, when it believes such expansion will enhance its business.
During 2001, the Company acquired certain assets of 18 businesses in separate transactions. During 2000, the Company acquired certain assets of 15 businesses in separate transactions. Consideration for the acquisitions generally included cash, unsecured non-interest bearing obligations and the assumption of certain liabilities.
None of the businesses acquired were related to the Company prior to acquisition. Each acquisition during 2001 and 2000 was accounted for as a purchase. The results of operations of the acquired companies are included in the accompanying consolidated statements of operations since the respective dates of acquisition. Each of the acquired companies conducted operations similar to that of the Company.
The aggregate cost of the acquisitions described above was as follows:
The aggregate purchase price of the acquisitions described above was allocated as follows:
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". The Company adopted SFAS No. 141 on July 1, 2001 and will adopt SFAS No. 142 in the first quarter of 2002 (see previous discussion in note (1)(n)).
As of January 1, 2002, the Company expects to have $684,771,000 in unamortized goodwill and $3,949,000 in unamortized intangible assets. All the goodwill recorded for 2001 and 2000 was fully deductible for tax purposes. Because of the extensive effort needed to comply with adopting SFAS No. 142, it is not practicable to reasonably estimate the impact of adopting this Statement on the Company's financial statements at the date of this report, including whether the Company will be required to recognize any transitional impairment losses.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma supplemental information on the results of operations for the years ended December 31, 2001 and 2000 includes the acquisitions as if they had been combined at the beginning of 2000.
This unaudited pro forma financial information is not necessarily indicative of either the results of operations that would have occurred had the transactions been affected at the beginning of 2000 or of future results of operations of the combined companies.
(13) OTHER CHARGES
In 2001, the Company recorded other charges of $10,650,000 of which $4,150,000 was related to the settlement of an investigation by the U.S. Attorneys' Office in Sacramento, California, without any admission by the Company of wrongdoing, including a $1,000,000 reserve for related legal expenses. The remaining $6,500,000 of other charges related to the execution by the Company of employment agreements with 16 mid-level management employees as well as the modifying and extension of certain executive officer employment agreements.
(14) CONTINGENCIES
From time to time, the Company receives inquiries from various government agencies requesting patient records and other documents. It has been Lincare's policy to cooperate with all such requests for information. The government has not instituted any proceedings or served Lincare with any complaints as a result of these inquiries.
Private litigants may also make claims against the Company for violations of health care laws in actions known as qui tam suits and the government may intervene in, and take control of, such actions. The Company is a defendant in certain qui tam proceedings. Lincare intends to vigorously defend these suits should they proceed. The government has declined to intervene in all unsealed qui tam actions of which the Company is aware.
As a health care provider, Lincare is subject to extensive government regulation, including numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various government programs. The marketing, billing, documentation and other practices of health care companies are all subject to government scrutiny. To ensure compliance with Medicare and other regulations, regional carriers often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of services rendered to patients. Similarly, government agencies periodically open investigations and obtain information from health care providers pursuant to legal process (see note 13 above). Violations of federal and state regulations can result in severe criminal, civil and administrative penalties and sanctions, including disqualification from Medicare and other reimbursement programs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is also involved in certain other claims and legal actions in the ordinary course of its business.
The ultimate disposition of all such matters is not expected to have a material adverse impact on the Company's financial position, results of operations or liquidity.
(15) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial results for the years ended December 31, 2001 and 2000:
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(1) The 2001 fourth quarter operating income included other charges of $10,650,000 ($6,592,000 after-tax) (see note 13).
SCHEDULE VIII
LINCARE HOLDINGS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
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(1) To record allowance on business combinations
(2) To record write-offs
S-1
INDEX OF EXHIBITS
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A Incorporate by reference to the corresponding exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-44672) B Incorporate by reference to the Registrant's Form 10-K dated March 22, 1994. C Incorporate by reference to the Registrant's Form 10-K dated March 27, 1996. D Incorporate by reference to the Registrant's Form 10-K dated March 25, 1997. E Incorporate by reference to the Registrant's Form 10-K dated March 26, 1998. F Incorporate by reference to the Registrant's Form 10-Q dated August 12, 1998. G Incorporate by reference to the Registrant's Form 10-Q dated November 12, 1999. H Incorporate by reference to the Registrant's Form 10-Q dated November 13, 2000. I Incorporate by reference to the Registrant's Form 10-K dated March 29, 2001. J Incorporate by reference to the Registrant's Form 10-Q dated August 1, 2001.