Lincare Holdings Inc. (Lincare), an anesthesia and respiratory devices company, has reported revenues of $371.7 million for the first quarter of 2009, compared with the net revenues of $415.4 million in the year-ago quarter. It has reported a net income of $26 million, or $0.36 per diluted share, for the first quarter of 2009, compared with a net income of $58.2 million or $0.76 per diluted share, in the year-ago quarter.
The reported results include the following items:
The company’s financial results for the first quarter of 2009 were impacted by dramatic reductions in Medicare reimbursement for the company’s primary product lines resulting from the implementation on January 1, 2009 of previously enacted legislation. The legislation included reductions in Medicare payment amounts of 9.5% for certain items of durable medical equipment, including oxygen, additional regulated Medicare price cuts for stationary oxygen equipment of another 2.3% (for a total reduction of 11.8%) and the implementation of a new reimbursement methodology for oxygen equipment from continuous monthly payment for as long as the equipment is in use by a Medicare beneficiary to a capped rental arrangement whereby payment for oxygen equipment may not extend beyond a period of continuous use of 36 months. On February 9, 2009, the company provided an estimate for the full-year impact of these reductions of $240 million to $255 million. Based on activity through the end of the first quarter of 2009, the company does not believe that these estimates need to be revised at this time.
The company had also previously announced that in 2009 it would adopt FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s non-convertible borrowing rate at the date of issuance when interest cost is recognized in subsequent periods. The company implemented the FSP at the beginning of 2009 and that implementation will be reflected in all subsequent interim and annual periods. In accordance with the requirements, the FSP has been applied on a retrospective basis to instruments within its scope that were outstanding during any of the periods presented in the company’s financial statements. Due to the adoption of the FSP, financial results for the first quarter of 2009 include additional non-cash interest expense of $4.1 million before taxes, or $0.03 net income per share. The financial results for the comparable prior year period have been restated to include additional non-cash interest expense of $3.8 million before taxes, or $0.03 net income per share.
The results for the first quarter of 2009, against first quarter of 2008, reflect lower ASP (average sales price) reimbursement for respiratory medications of approximately $22.0 million. Lower Medicare pricing, primarily for the drug albuterol, was implemented on April 1, 2008 by the Centers for Medicare and Medicaid Services pursuant to regulation, so the prior period results for the first quarter of 2008 do not include these price reductions.
During the first quarter of 2009, the company’s executive officers, directors and certain of its employees surrendered a total of approximately 1.1 million unvested, out-of-the money stock options for no compensation in return. The cancellation of these stock options resulted in acceleration of future stock option compensation expense (included in selling, general and administrative expenses) of $4.7 million before taxes, or a non-cash charge of $0.04 net income per share during the period.
John P. Byrnes, Lincare’s chief executive officer, said, “We are pleased with Lincare’s operating and financial performance in the first quarter of 2009. The Medicare changes effective as of January 1st of this year have had an enormous impact on our business. We are confident that we are uniquely positioned to gain market share in our core respiratory business as our competitors struggle to deal with the severe financial consequences of the Medicare cuts.”
Lincare generated $78.3 million of cash from operating activities during the first quarter of 2009 and invested $36.8 million in net capital expenditures. The company repurchased 4.5 million shares of its common stock during the quarter for $100.2 million and common shares outstanding at March 31, 2009 were 69,889,768 shares. For the period ended March 31, 2009, total debt outstanding was $464.9 million and cash and investments were $74.0 million.