Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

(1)    Summary of Significant Accounting Policies

(a) Description of Business

Lincare Holdings Inc. and subsidiaries (the "Company") provides oxygen, respiratory and other chronic 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 serviced from locations in 48 U.S. states and Canada. 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 U.S. generally accepted accounting principles. Actual results could differ from those estimates. It is at least reasonably possible that a change in those estimates will occur in the near term.

(c) Basis of Presentation

The consolidated financial statements include the accounts of Lincare Holdings Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 

(d) Revenue Recognition and Accounts Receivable 

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 paid by customers and third-party payors. The Company's billing system contains payor-specific price tables that reflect the fee schedule amounts in effect or contractually agreed upon by various government and commercial payors for each item of equipment or supply provided to a customer. The Company has established an allowance to account for sales adjustments that result from differences between the payment amount received and the expected realizable amount. Actual adjustments that result from differences between the payment amount received and the expected realizable amount are recorded against the allowance for sales adjustments and are typically identified and ultimately recorded at the point of cash application or when otherwise determined pursuant to the Company's collection procedures. The Company reports revenues in its financial statements net of such sales adjustments.

Certain items provided by the Company are reimbursed under rental arrangements that generally provide for fixed monthly payments established by fee schedules for as long as the patient is using the equipment and medical necessity continues (subject to capped rental arrangements which limit the rental payment periods in some instances and which may result in a transfer of title to the equipment at the end of the rental payment period). Once initial delivery of rental equipment is made to the patient, a monthly billing cycle is established based on the initial date of delivery. The Company recognizes rental arrangement revenues ratably over the monthly service period and defers revenue for the portion of the monthly bill that is unearned. No separate payment is earned from the initial equipment delivery and setup process. During the rental period, the Company is responsible for servicing the equipment and providing routine maintenance, if necessary.

The Company recognizes revenue at the time the following criteria are met:

• persuasive evidence of an arrangement exists;

• delivery has occurred;

• the seller's price to the buyer is fixed or determinable; and

• collectibility is reasonably assured.

Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products and/or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such sales adjustments are typically identified and recorded by the Company at the point of cash application, claim denial or account review. Included in accounts receivable are earned but unbilled accounts receivable from earned revenues. Unbilled accounts receivable represent charges for equipment and supplies delivered to customers for which invoices have not yet been generated by the Company's billing system. Prior to the delivery of equipment and supplies to customers, the Company performs certain certification and approval procedures to ensure collection is reasonably assured. Once the items are delivered, unbilled accounts receivable are recorded at net amounts expected to be paid by customers and third-party payors. Billing delays, generally ranging from several days to several weeks, can occur due to delays in obtaining certain required payor-specific documentation from internal and external sources as well as interim transactions occurring between cycle billing dates established for each customer within the billing system, and business acquisitions awaiting assignment of new provider enrollment identification numbers. In the event that a third-party payor does not accept the claim, the customer is ultimately responsible for payment for the products or services. Accounts receivable are reported net of allowances for sales adjustments and uncollectible accounts. Sales adjustments are recorded against revenues and result from differences between the payment amount received and the expected realizable amount. Bad debt is recorded as an operating expense and consists of billed charges that are ultimately deemed uncollectible due to the customer's or third-party payor's inability to pay.

The Company performs analyses to evaluate the net realizable value of accounts receivable. Specifically, the Company considers historical realization data, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that the Company's estimates could change, which could have a material impact on the Company's results of operations and cash flows.

The Company accounts for taxes imposed on revenue producing transactions by government authorities on a net basis.

(e) Fair Value

The Company determines fair value of assets and liabilities using a fair value hierarchy that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity, and the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. "the exit price") in an orderly transaction between market participants at the measurement date.

The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

— Level 1—Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

— Level 2—Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

— Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Refer to Note 2 for the Fair Value of Assets and Liabilities.

(f) Business Acquisition Accounting

The Company applies the acquisition method of accounting for business acquisitions and uses available cash from operations and borrowings under its revolving credit agreement as the consideration for business acquisitions. The Company allocates the purchase price of its business acquisitions based on the fair 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.

(g) Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity of less than three months to be cash equivalents.

(h) Investments

The Company determines the appropriate classification of investments at the time of purchase based upon management's intent with regard to such investments. Based upon the Company's intentions and ability to hold certain assets until maturity, the Company classifies certain debt securities as held-to-maturity and measures them at amortized cost. The Company classifies certain other debt securities and equity securities that have readily determinable fair values as available-for-sale and measures them at fair value with unrealized gains or losses recorded in other comprehensive income. The Company classifies certain other debt securities and equity securities that have readily determinable fair values as trading securities and measures them at fair value with unrealized gains or losses recorded in net income. Realized gains and losses from the sale of all three categories of investments are included in net income and are determined on a specific identification basis. Interest income and dividend income, if any, for all three categories of investments are included in net income.

(i) Financial Instruments

The Company believes that the book values of its cash equivalents, investments, restricted cash, accounts receivable, income taxes receivable, current installments of long-term obligations and accounts payable approximate fair value due to the short-term maturities of these instruments. Refer to Note 2 for Fair Value of Assets and Liabilities.

(j) Inventories

Inventories, consisting of equipment, supplies and replacement parts, are stated at the lower of cost or market value. Cost is determined using the first-in, first-out ("FIFO") method. These finished goods are charged to cost of goods and services in the period in which products and related services are provided to customers.

(k) Property and Equipment

Property and equipment is stated at cost. Depreciation on property and equipment is calculated using the straight-line method, over the estimated useful lives of the assets as set forth in the table below.

Building and improvements	1 year to 39 years
Medical rental equipment	1.5 years to 11 years
Other equipment and furniture	3 years to 25 years

Leasehold improvements are amortized using the straight-line method over the lesser of the lease term or estimated useful life of the asset. Amortization of leasehold improvements is included with depreciation and amortization expense.

(l) Goodwill and Other Indefinite-Lived Intangible Assets

In accordance with U.S. GAAP for goodwill and other indefinite-lived intangibles, the Company tests these assets for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. For the purposes of that assessment, the Company has determined that the Company has a single reporting unit, and all goodwill and indefinite-lived intangible assets acquired in business combinations have been assigned to that single reporting unit as of the acquisition date.

Goodwill results from the excess of cost over identifiable net assets of acquired businesses. The first step of the goodwill impairment analysis compares the Company's fair value to its net book value to determine if there is an indicator of impairment. If the assessment in the first step indicates impairment then the Company performs step two. The second step compares the implied fair value of goodwill to its carrying amount in a manner similar to a purchase price allocation for a business combination. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The Company evaluated its fair value using the market approach. This approach utilizes the closing market price of its common stock at the annual impairment testing date and the number of shares of common stock outstanding on that date.

The Company completed the annual goodwill impairment test on September 30, 2011 and determined that the fair value of the reporting unit exceeded its carrying value indicating no impairment existed at the date of the impairment test. No recent events or circumstances have occurred to indicate that impairment may exist.

The Company tests its indefinite-lived intangible assets, comprised of tradenames, using a "relief-from-royalty" valuation method compared to the carrying value. Significant assumptions inherent in this valuation methodology include, but are not limited to, such estimates as projected business results, growth rates, the Company's weighted-average cost of capital, royalty and discount rates. The Company completed the annual indefinite-lived intangible assets impairment test on December 31, 2011 and determined that the fair value exceeds its carrying value indicating no impairment existed at the date of the impairment test. No recent events or circumstances have occurred to indicate that impairment may exist. Refer to Note 6 for the components of the Company's intangible assets other than goodwill.

(m) Other Assets

Other assets principally include capitalized costs of borrowing, which are being amortized over the term of the respective debt using the effective interest method, and other intangible assets. Other intangible assets are comprised of customer and contract relationships, tradenames, covenants not-to-compete and technology recorded in connection with business acquisitions. Indefinite-lived intangible assets, comprised of tradenames, are not subject to amortization and are assessed at least annually for impairment during the fourth quarter, or more frequently if certain events or circumstances warrant. Other intangible assets subject to amortization are amortized on a straight-line basis over their expected period of benefit. Refer to Note 6 for the components of the Company's intangible assets other than goodwill.

(n) Impairment or Disposal of Long-Lived Assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are 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 estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted 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. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

In addition to consideration of impairment upon the events or changes in circumstances described above, management regularly evaluates the remaining lives of its long-lived assets. If estimates are revised, the carrying value of affected assets is depreciated or amortized over the remaining lives.  The Company did not recognize an impairment charge related to our long-lived assets during 2011, 2010 or 2009.

(o) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities 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 and operating loss and credit carryforwards. Such amounts are classified in the consolidated statement of financial position as current or noncurrent assets or liabilities based on the classification of the related assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date.

The Company has elected to treat its portion of all foreign subsidiary earnings through December 31, 2011 as permanently reinvested under the accounting guidance and accordingly, has not provided for any U.S. federal or state tax thereon. As of December 31, 2011, approximately $0.04 million of retained earnings attributable to foreign subsidiaries was considered to be indefinitely invested. The Company's intention is to reinvest the earnings permanently or to repatriate the earnings when it is tax effective to do so. It is not practicable to determine the amount of incremental taxes that might arise were these earnings to be remitted. However, the amount of cash for all foreign subsidiaries permanently reinvested, and the amount of incremental taxes that might arise were these earnings to be remitted, is not material.

Valuation allowances are established when necessary to reduce deferred tax assets to amounts that the Company believes are more likely than not to be recovered. The Company evaluates its deferred tax assets quarterly to determine whether adjustments to its valuation allowance are appropriate. In making its evaluation, the Company considers all available positive and negative evidence and relies on its recent history of pre-tax earnings, estimated timing of future deductions and benefits represented by the deferred tax assets and its forecast of future earnings, the latter two of which involve the exercise of significant judgment.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.

(p) Advertising Costs

Advertising costs are charged to expense as incurred and are included in selling, general and administrative expenses.

(q) Cost of Goods and Services

Cost of goods and services includes the cost of non-capitalized medical equipment, drugs and supplies sold to patients and certain operating costs related to the Company's respiratory drug product line. These operating costs include an allocation of customer service, distribution and administrative costs relating to the respiratory drug product line of approximately $55.2 million, $53.7 million and $51.3 million in 2011, 2010 and 2009, respectively. Included in cost of goods and services are salary and related expenses of pharmacists and other service professionals of $11.1 million, $10.7 million and $11.8 million in 2011, 2010 and 2009, respectively.

(r) Operating Expenses

The Company manages over 1,100 operating centers from which customers are provided equipment, supplies and services. An operating center averages approximately seven to eight employees and is typically comprised of a center manager, two customer service representatives (referred to as "CSR's"—telephone intake, scheduling, documentation), two or three service representatives (referred to as "Service Reps"—delivery, maintenance and retrieval of equipment and delivery of disposables), a respiratory therapist (non-reimbursable and discretionary clinical follow-up with the customer and communication to the prescribing physician) and a sales representative (marketing calls to local physicians and other referral sources).

The Company includes in operating expenses the costs incurred at the Company's operating centers for certain service personnel (center manager, CSR's and Service Reps), facilities (rent, utilities, communications, property taxes, etc.), vehicles (vehicle leases, gasoline, repair and maintenance), and general business supplies and miscellaneous expenses. Operating expenses for the years ended December 31, 2011, 2010 and 2009 within these major categories were as follows:

Operating Expenses (in thousands)	Year Ended December 31,
	2011		2010		2009
Salary and related	$	279,058	$	259,854	$	261,035
Facilities		60,747		62,886		58,446
Vehicles		54,555		47,143		42,851
General supplies/miscellaneous		33,598		29,510		27,427
Total	$	427,958	$	399,393	$	389,759

Included in operating expenses during the year ended December 31, 2011 are salary and related expenses for Service Reps in the amount of $113.4 million. Such salary and related expenses for the years ended December 31, 2010 and 2009 were $108.9 million and $104.6 million, respectively.

(s) Lease Commitments

The Company leases office space, vehicles and equipment under non-cancelable operating leases, which expire at various dates through 2016. The Company's operating leases generally have one to five year terms and may have renewal options. The Company records rent expense and amortization of leasehold improvements on a straight-line basis over the initial term of the lease and the Company does not negotiate rent holidays, rent concessions or leasehold improvements in its office leases. The lease period is determined as the original lease term without renewals, unless and until the exercise of lease renewal options is reasonably assured.

(t) Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") include costs related to sales and marketing activities, corporate overhead and other business support functions. Included in SG&A during the years ended December 31, 2011, 2010 and 2009 are salary and related expenses of $255.5 million, $253.7 million and $257.4 million, respectively. These salary and related expenses include the cost of the Company's respiratory therapists in the amount of $69.4 million, $68.4 million and $66.0 million during the respective periods. The Company's respiratory therapists generally provide non-reimbursable and discretionary clinical follow-up with the customer and communication, as appropriate, to the prescribing physician with respect to the customer's plan of care. The Company includes the salaries and related expenses of its respiratory therapist personnel (licensed respiratory therapists or, in some cases, registered nurses) in SG&A because it believes that these personnel enhance the Company's business relative to its competitors that do not employ respiratory therapists.

(u) Employee Benefit Plans

The Company has a defined contribution plan covering substantially all employees subject to specific plan requirements. The Company also sponsors an employee stock purchase plan that enables eligible employees to purchase shares of the Company's common stock at the lower of 85 percent of the fair market value of the Company's stock price on: (i) the last day of the offering period; or (ii) the last day of the prior offering period. Employees are able to elect to have up to 10% of their base salary withheld on an after-tax basis. Under the employee stock purchase plan, 1.8 million shares were authorized for issuance. To date, 1,044,543 shares have been issued under this authorization. During 2011, the Company issued 73,674 shares at an average price of $20.86; during 2010, the Company issued 62,739 shares at an average price of $20.49 and during 2009, the Company issued 93,390 shares at an average price of $12.79 per share.

(v) Stock Plans

The Company has multiple stock-based employee compensation plans, which are more fully described in Note 12.

(w) Segment Information

The Company provides home health care equipment and services through 1,108 operating centers in 48 U.S. states and Canada. The Company's operating centers exhibit similar long-term financial performance and have similar economic characteristics, having similar products and services, types of customers and methods used to distribute their products and services. The Company has determined that it has one operating segment based on the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ASC 280, "Segment Reporting." The Company views each operating center as a component of a single operating segment as each operating center generally provides the same products to customers and exhibits similar economic characteristics. As a result, all of the Company's component operating centers are aggregated into one operating segment which is our reportable segment.

(x) Self-Insurance Risk

The Company is subject to workers' compensation, professional liability, auto liability and employee health benefit claims, which are primarily self-insured; however, the Company maintains certain stop-loss and other insurance coverage which it believes to be appropriate. Provisions for estimated settlements relating to the workers' compensation and health benefit plans are provided in the period of the related claim on a case-by-case basis plus an amount for incurred but not reported claims. Differences between the amounts accrued and subsequent settlements are recorded in operations in the period of settlement.

(y) Contingencies

The Company is involved in certain claims and legal matters arising in the ordinary course of its business. 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.

(z) Concentration of Credit Risk

The Company's revenues are generated through locations in 48 U.S. states and Canada. The Company generally does not require collateral or other security in extending credit to its customers; however, the Company routinely obtains assignment of (or is otherwise entitled to receive) benefits receivable under the health insurance programs, plans or policies covering its customers. Included in the Company's net revenues is reimbursement from government sources under Medicare, Medicaid and other federally and state funded programs, which aggregated approximately 61% of net revenues in 2011 and 60% of net revenues in 2010 and 2009.

(aa) Comprehensive Income

The objective for the reporting and display of comprehensive income and its components in the Company's consolidated financial statements is to report a measure (comprehensive income (loss)) of all changes in equity of an enterprise that result from transactions and other economic events in a period other than transactions with owners.

Net income equals comprehensive income as the one component of comprehensive income is not material.

(ab) Foreign Currency Translation

The functional currency of the Company-operated foreign location is the respective local currency. Assets and liabilities are translated into United States dollars using the current period-end exchange rate and income and expense amounts are translated using the average exchange rate for the period in which the transaction occurred. Resulting translation adjustments are reported as a component of accumulated other comprehensive income within shareholders' equity.