Industry earnings down at Apria, Lincare, Rotech

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Sunday, October 30, 2005

YARMOUTH, Maine - Reimbursement cuts, market uncertainty and Hurricane Katrina took their toll on Lincare, Apria and Rotech in the most recent financial quarter.

APRIA

Apria reported earnings of $19.3 million for the quarter that ended Sept. 30, compared to $29.8 million for the same period last year. Revenues were $367.6 million in the third quarter of 2005, a 1% increase over revenues of $364.6 million for the third quarter of 2004.

As previously reported, management now estimates full year 2005 revenue growth in the 2% to 3% range. The company's 2004 revenues increased 5.1% over 2003. Management estimates revenue growth will be approximately 5% in 2006.

Apria officials expect that several contract wins and expansions will help accelerate its organic growth. The national recently signed a new three-year contract with Cigna HealthCare, effective February 2006, and renewed an existing five-year contract with Kaiser Permanente. In addition, a national contract with Aetna has been expanded.

"With these new contracts in hand and our recent success in gaining Medicare oxygen business, we believe we have the basis for solid organic growth in 2006," CEO Larry Higby stated in a release. "We also expect to benefit from expanded Medicare Advantage business as new beneficiaries become eligible for Medicare."

Apria's third quarter sales, distribution and administrative expenses increased $1.8 million or 0.8% from the second quarter due entirely to recent acquisitions, higher fuel prices and health benefit expense increases.

During the third quarter, Apria acquired five small businesses for $4.1 million. For the year, the company acquired 19 companies for $99.5 million.

"The company has a strong future ahead of it," Higby said. "Throughout the summer, we have remained focused on implementing various initiatives related to logistics, revenue management, centralized Medicare billing and centralized pharmacy management - all of which have made good progress," Higby said. "Given our third quarter revenues, we will redouble our focus on revenue growth while continuing to pursue the operating initiatives which should further enhance long-term shareholder value."

LINCARE

Lincare also reported lower earnings, $53.9 million compared to the third quarter earnings of $70.4 million in 2004. Revenues were $320.1 million, similar to revenues of $322.0 million for the third quarter of 2004.

Revenues for the nine months ended Sept. 30, 2005, were $940.5 million, similar to revenues of $944.3 million for the comparable period in 2004. Net income for the nine months ended Sept. 30, 2005, was $158.6 million compared to net income of $200.7 million for the first nine months of 2004.

Like Apria, Lincare attributed their lower third-quarter results reductions in Medicare reimbursement for oxygen equipment that took effect on April 1, 2005, and for respiratory medications and certain items of durable medical equipment that took effect on Jan. 1, 2005.

Lincare estimates that revenues in the third quarter of 2005 were reduced by $51.8 million as a result of these Medicare price changes.

Third quarter expansions at Lincare included the acquisition of two companies with total annual revenues of approximately $20 million and the addition of 10 new operating centers, bringing Lincare's total number of locations to 871.

ROTECH

Rotech Healthcare reported net earnings of $3.1 million, a decline from $5.1 million in third quarter 2004. In addition to reimbursement cuts for respiratory medications and DME, the company blamed additional operating expenses and losses incurred by Hurricanes Katrina and Rita.

Respiratory therapy equipment and services revenues represented 87.4% and 87.8% of total revenue for the third quarter and the nine month period ended September 30, 2005, respectively, versus 87.8% and 87.6% for the third quarter and the nine month period ended September 30, 2004, respectively. Durable medical equipment revenues represented 11.7% and 11.2% of total revenue for the third quarter and nine month period ended September 30, 2005, respectively, versus 11.1% and 11.3% for the same periods last year, respectively.

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