<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
File No. 333-3964
2,000,000 SHARES
[AMERICAN HOMEPATIENT LOGO]
COMMON STOCK
---------------------
Of the 2,000,000 shares of Common Stock of American HomePatient, Inc. (the
"Company" or "American HomePatient") offered hereby (the "Offering"), 1,500,000
shares are being offered by the Company and 500,000 shares are being offered by
a selling stockholder. The Company will not receive any proceeds from the sale
of shares by the selling stockholder. See "Selling Stockholder." The Common
Stock of the Company is traded on the Nasdaq Stock Market (National Market)
under the symbol "AHOM." On May 21, 1996, the last sale price of the Company's
Common Stock as reported by the Nasdaq Stock Market was $42.75 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2)(3) STOCKHOLDER(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $42.00 $1.68 $40.32 $40.32
- -------------------------------------------------------------------------------------------------
Total........................ $84,000,000 $3,360,000 $60,480,000 $20,160,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the offering payable by the Company, estimated
at $500,000.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to an additional 150,000 shares of Common Stock on the same
terms and conditions as set forth above, solely to cover over-allotments,
if any. The Selling Stockholder has granted the Underwriters a similar
option to purchase up to an additional 150,000 shares of Common Stock. If
the options are exercised in full, the total "Price to Public,"
"Underwriting Discount," "Proceeds to Company" and "Proceeds to Selling
Stockholder" will be $96,600,000, $3,864,000, $66,528,000 and $26,208,000,
respectively.
---------------------
The Common Stock is offered by the several Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by them and
subject to approval of certain legal matters by counsel for the Underwriters.
The Underwriters reserve the right to reject orders in whole or in part and to
withdraw, to cancel or to modify the offer without notice. It is expected that
delivery of certificates representing the Common Stock will be made on or about
May 24, 1996.
EQUITABLE SECURITIES CORPORATION
LEHMAN BROTHERS
WHEAT FIRST BUTCHER SINGER
BT SECURITIES CORPORATION
The date of this Prospectus is May 21, 1996.
<PAGE> 2
[AMERICAN HOMEPATIENT LOGO]
[MAP]
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING".
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
FOR UNITED KINGDOM PURCHASERS: The shares of Common Stock offered hereby
may not be offered or sold in the United Kingdom other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments, whether as principal or agent (except in circumstances that do not
constitute an offer to the public within the meaning of the Public Offers of
Securities Regulations 1995 or the Financial Services Act 1986) and this
Prospectus may only be issued or passed on to any person in the United Kingdom
if that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or a person to whom
this Prospectus may otherwise lawfully be passed on.
2
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act") with respect to the Common Stock offered
hereby. This Prospectus constitutes a part of the Registration Statement and
does not contain all the information set forth therein, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. Any statements contained herein concerning the provisions of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. For further
information regarding the Company and the securities offered hereby, reference
is made to the Registration Statement and to the exhibits thereto.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Commission. The Registration Statement (with exhibits), as well as such reports,
proxy statements, and other information filed by the Company with the
Commission, may be inspected and copied at the public reference facilities
maintained by the Commission at its principal offices at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
regional offices of the Commission: 75 Park Place, Room 1228, New York, New
York, 10007; and Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates.
The Common Stock is listed on the Nasdaq National Market System ("Nasdaq").
The aforementioned material can also be inspected at the offices of the National
Association of Securities Dealers, Inc. located at 1735 K Street, N.W.,
Washington, D.C. 20006.
---------------------
The Company is organized under the laws of the State of Delaware, its
executive offices are located at 5200 Maryland Way, Suite 400, Brentwood,
Tennessee 37027, and its telephone number is (615) 221-8884.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated and made a part of
this Prospectus by reference, except as superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1995.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996.
3. The Company's Current Reports on Form 8-K dated January 10, 1996, March
18, 1996, and May 16, 1996, and on Form 8-K/A dated April 28, 1995 and
January 10, 1996, and on Form 8-K/A2 dated April 28, 1995.
4. The Company's 1996 Proxy Statement filed on April 15, 1996.
5. The description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the Commission on
September 13, 1991.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference in
this Prospectus and shall be made a part hereof from the date of filing of such
documents. Any statement contained herein or in any document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents described herein (not including exhibits to those documents unless
such exhibits are specifically incorporated by reference into the information
incorporated into this Prospectus). Requests for such copies should be directed
to Kathey Palmer, Vice President, American HomePatient, Inc., 5200 Maryland Way,
Suite 400, Brentwood, Tennessee 37027, (615) 221-8884.
3
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
incorporated by reference into this Prospectus. Investors should carefully
consider the information set forth under "Risk Factors." Except as otherwise
indicated, (i) all information presented assumes no exercise of the
Underwriters' over-allotment options and does not reflect the Company's
announced 3-for-2 stock split and (ii) references to financial data exclude the
Company's discontinued operations. All references in this Prospectus to the
"Company" or "American HomePatient" refer to American HomePatient, Inc., a
Delaware corporation, and its subsidiaries.
THE COMPANY
American HomePatient is one of the leading diversified home health care
companies in the United States. The Company provides a wide range of home health
care services and products with an emphasis on home respiratory services, home
infusion services and home medical equipment and supplies. Since 1992, the
Company has expanded its home health care operations significantly, from 53
centers in ten states to 240 centers in 28 states as of April 29, 1996. From
1992 to 1995, the Company generated a compound annual growth rate of 52.5% in
net revenues, from $45.8 million in 1992 to $162.4 million in 1995, and a
compound annual growth rate of 65.3% in net income from continuing operations,
from $2.0 million in 1992 to $9.1 million in 1995.
The acquisition of home health care companies in both existing and
contiguous markets is a key component of the Company's growth strategy. During
1995, the Company acquired 16 home health care companies with 79 centers and
entered seven new states. Management believes that a substantial number of
acquisition opportunities will continue to exist as competitive and
reimbursement pressures being exerted on the health care industry by managed
care and government-sponsored reimbursement programs encourage further
consolidation among home health care providers. To achieve further market
density and to supplement its acquisition strategy, the Company opened ten new
centers in 1995 in seven states in which the Company had existing operations.
Since 1992, the Company also has pursued joint ventures and strategic alliances
with prestigious hospitals and hospital systems, primarily in larger markets, in
order to position itself as the home health care provider of choice within
particular integrated health care delivery networks.
The Company has successfully integrated acquired home health care companies
by, among other means, (i) standardizing reimbursement, purchasing and
accounting systems, (ii) integrating clinical services, (iii) utilizing the
Company's marketing and managed care programs and (iv) implementing center level
cost controls. To control center level costs more effectively, the Company has
developed a proprietary cost-tracking model, the Allowable Branch Cost
Model(TM), that allows local and regional managers to track the cost of
delivering a specific product or service. Management uses this model to price
its products and services for managed care contracting and to identify staffing,
accounts receivable management and other "best practices" that can be
implemented throughout its center network.
According to the United States Commerce Department, home health care is
among the fastest growing sectors of the health care industry, with total
expenditures for home health care services of approximately $22.5 billion in
1994. Trends driving growth in the home health care industry include (i) the
cost-effectiveness of home health care treatment compared to hospital treatment,
(ii) the adoption by government and private payors of cost containment measures
which encourage reduced hospital admissions and reduced lengths of stay in
hospitals and (iii) the increased acceptance of home health care by the medical
community, patients and third-party payors, especially managed care
organizations. In addition, the demand for home health care services and
products has been expanding due to demographic trends, such as the aging of the
population, and advances in medical technology that facilitate the provision of
sophisticated in-home therapies for complex conditions that previously required
hospitalization.
American HomePatient's strategy is to be the leading provider of
diversified home health care services in the markets in which it operates. To
achieve this objective, management seeks to implement an operating strategy
comprised of the following key elements: (i) targeting small to mid-size
markets; (ii) achieving regional market density; (iii) developing hospital joint
ventures and strategic alliances; (iv) increasing same-store net revenues by
expanding services and emphasizing managed care contracting; and (v) decreasing
operating costs. Management believes these interrelated strategies have enabled
it to develop the market penetration and critical mass necessary to position the
Company as a cost-effective provider of comprehensive home health care services
to managed care payors, as evidenced by the increase in managed care contracts
from 54 to 200 during 1995.
4
<PAGE> 5
RECENT DEVELOPMENTS
From January 1, 1996 through April 29, 1996, the Company acquired ten home
health care companies with 28 new centers in nine states in which the Company
had existing operations for an aggregate purchase price of approximately $27.5
million. In addition, the Company entered into two new hospital joint ventures
in two states and signed strategic alliance agreements with 14 hospitals in
Florida, nine hospitals in Oklahoma and three hospitals in Texas.
On May 1, 1996, the Company entered into an expanded credit facility (the
"New Bank Credit Facility"). The New Bank Credit Facility expands the Company's
borrowing availability under the existing $150.0 million secured revolving line
of credit (the "Line of Credit") to $225.0 million. The New Bank Credit Facility
includes a $100.0 million five-year term loan and a $125.0 million five-year
revolving line of credit. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The Company has announced a planned 3-for-2 stock split for holders of
record on June 28, 1996 which is expected to be distributed to stockholders on
July 12, 1996 following a special meeting of stockholders to approve an increase
in the number of authorized shares of the Company's Common Stock.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................. 1,500,000 shares
Common Stock offered by the Selling Stockholder...... 500,000 shares
Common Stock to be outstanding after the Offering.... 9,316,473 shares(1)
Use of proceeds...................................... The Company intends to use the net proceeds
to reduce outstanding bank indebtedness and
for general working capital purposes. See
"Use of Proceeds."
Nasdaq Symbol........................................ AHOM
</TABLE>
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(1) Excludes vested and unvested options to purchase 1,050,930 shares of Common
Stock under the Company's stock option plans and warrants to purchase
20,409 shares of Common Stock.
5
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ ---------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(1) 1995 1996 1996(1)
--------- ---------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues(2)................ $ 61,315 $ 90,185 $ 162,371 $ 227,728 $ 29,253 $ 55,053 $ 58,131
Cost of sales and related
services, excluding
depreciation and amortization
expenses..................... 13,677 17,445 34,031 51,738 5,699 12,297 12,856
Operating expenses............. 31,307 47,081 81,718 110,905 15,111 27,935 29,263
General and administrative
expenses..................... 5,520 7,829 12,594 14,568 2,443 3,249 3,430
Depreciation and amortization
expenses..................... 4,532 6,656 14,081 19,623 2,333 4,945 5,449
Interest expense............... 542 2,132 4,829 10,248 778 1,855 2,091
--------- ---------- ----------- --------- --------- --------- ---------
Income from continuing
operations before taxes...... 5,737 9,042 15,118 20,646 2,889 4,772 5,042
Income from continuing
operations................... 3,483 5,566 9,089(3) 12,243 1,730 2,930 3,076
Income from continuing
operations per share......... $ 0.69 $ 1.00 $ 1.26 $ 1.69 $ 0.30 $ 0.37 $ 0.38
Weighted average shares
outstanding.................. 5,081,000 5,568,000 7,228,000 7,228,000 5,830,000 7,995,000 7,995,000
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 49,551 $ 49,551
Total assets........................................................ 268,008 268,008
Total debt and capital leases, including current portion............ 123,365 63,385
Stockholders' equity................................................ 124,377 184,357
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------- THREE MONTHS ENDED
1993 1994 1995 MARCH 31, 1996
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
STATISTICAL DATA:
Home health care centers at end of period.......... 76 144 221 240
States of operation at end of period............... 13 20 27 28
Same-store net revenue growth(5)................... 14 % 12 % 11 % 12%
Sources of net revenues:
Home respiratory services........................ 48 % 49 % 53 % 52%
Home infusion services........................... 28 24 20 19
Home medical equipment and supplies.............. 24 27 27 29
---- ---- ---- ---
Total.................................... 100 % 100 % 100 % 100%
==== ==== ==== ===============
</TABLE>
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(1) Pro forma to give effect to the Acquired Operations (as defined), as if such
transactions had occurred on January 1 of each respective period, if
applicable. See "Pro Forma Unaudited Consolidated Financial Data."
(2) Includes the Company's portion of net earnings from hospital joint ventures
of $488, $1,685 and $2,138 for the years ended December 31, 1993, 1994 and
1995, respectively, and $409 and $660 for the three months ended March 31,
1995 and 1996, respectively, and management and administration fees paid to
the Company by the hospital joint ventures of $351, $1,683 and $1,834, for
the years ended December 31, 1993, 1994, and 1995, respectively, and $394
and $470, for the three months ended March 31, 1995 and 1996, respectively.
(3) After a one-time relocation expense of $700,000.
(4) Adjusted to give effect to the estimated net proceeds to the Company from
the Offering at a public offering price of $42.00 per share. See "Use of
Proceeds."
(5) Same-store net revenue growth represents growth in net revenues between
periods for all locations partially or wholly-owned and operated by the
Company for more than 12 months.
6
<PAGE> 7
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the factors set forth below, as well as certain other information set
forth in, or incorporated by reference into, this Prospectus.
MEDICARE REIMBURSEMENT FOR OXYGEN THERAPY SERVICES. In both 1994 and 1995,
oxygen therapy services reimbursement from Medicare accounted for 23% of the
Company's net revenues. In the fall of 1995, Congress proposed reductions in the
Medicare reimbursement rate for home oxygen therapy services and equipment,
which legislation was vetoed by President Clinton. Despite the presidential
veto, Congress continues to consider legislation affecting reimbursement of
these items, and management anticipates that Medicare reimbursement rates for
oxygen services and equipment will be reduced. The Company cannot be certain of
the timing or level of reductions for Medicare oxygen reimbursement. Any such
reductions could have a material adverse effect on the Company's net revenues
and net income. See "Business -- Industry Overview."
DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS. For the period ended
March 31, 1996, the percentage of the Company's net revenues derived from
Medicare, Medicaid and private pay was 47%, 13% and 40%, respectively. The net
revenues and profitability of the Company are affected by the continuing efforts
of all payors to contain or reduce the costs of health care by lowering
reimbursement rates, narrowing the scope of covered services, increasing case
management review of services and negotiating reduced contract pricing. Any
changes in reimbursement levels under Medicare, Medicaid or private pay programs
and any changes in applicable government regulations could have a material
adverse effect on the Company's net revenues. Changes in the mix of the
Company's patients among Medicare, Medicaid and private pay categories and among
different types of private pay sources, may also affect the Company's net
revenues and profitability. There can be no assurance that the Company will
continue to maintain its current payor or revenue mix. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Payor Mix."
ROLE OF MANAGED CARE. As managed care assumes an increasingly significant
role in markets in which the Company operates, the Company's success will, in
part, depend on retaining and obtaining managed care contracts. There can be no
assurance that the Company will retain or continue to obtain such managed care
contracts. In addition, reimbursement rates under managed care contracts are
likely to continue experiencing downward pressure as a result of payors' efforts
to contain or reduce the costs of health care by increasing case management
review of services and negotiating reduced contract pricing. Therefore, even if
the Company is successful in retaining and obtaining managed care contracts,
unless the Company also decreases its cost for providing services and increases
higher margin services, it will experience declining profit margins. See
"Business."
GOVERNMENT REGULATION. The Company is subject to extensive and frequently
changing federal, state and local regulation. In addition, new laws and
regulations are adopted periodically to regulate new and existing products and
services in the health care industry. Changes in laws or regulations or new
interpretations of existing laws or regulations can have a dramatic effect on
operating methods, costs and reimbursement amounts provided by government and
other third-party payors. Federal laws governing the Company's activities
include regulation of the repackaging and dispensing of drugs, Medicare
reimbursement and certification and certain financial relationships with
physicians and other health care providers. Although the Company intends to
comply with all applicable fraud and abuse laws, there can be no assurance that
administrative or judicial interpretation of existing laws or regulations or
enactments of new laws or regulations will not have a material adverse effect on
the Company's business. The Company is subject to state laws governing Medicaid,
professional training, certificates of need, licensure, financial relationships
with physicians and the dispensing and storage of pharmaceuticals. The
facilities operated by the Company must comply with all applicable laws,
regulations and licensing standards. In addition, many of the Company's
employees must maintain licenses to provide some of the services offered by the
Company. There can be no assurance that federal, state or local governments will
not change existing standards or impose additional standards. Any failure to
comply with existing or future standards could have a material adverse effect on
the Company's results of operations, financial condition or prospects.
7
<PAGE> 8
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF ACQUISITIONS OR CONTINUED
GROWTH. The Company intends to continue to expand its business through
acquisitions of home health care companies, growth in same-store net revenues
and the formation of additional hospital joint ventures. There can be no
assurance that suitable acquisitions will be identified, that consent from the
Company's lenders, where required, will be obtained or that acquisitions will be
consummated on acceptable terms. In addition, there can be no assurance that
these companies, once acquired, will be integrated successfully into the
Company's operations or that any acquisition will not have a material adverse
effect upon the Company's results of operations, financial condition or
prospects, especially in the fiscal quarters immediately following such
transactions. In addition, although the Company intends to expand its business
through hospital joint ventures and strategic alliances, there can be no
assurance that the Company will be able to maintain such relationships. Finally,
there can be no assurance that the Company can increase or maintain growth in
same-store net revenues, enter into additional hospital joint ventures and
strategic alliances or increase net revenues at existing hospital joint ventures
and strategic alliances. The price of the Company's Common Stock may fluctuate
substantially in response to quarterly variations in the Company's operating and
financial results, announcements by the Company or other developments affecting
the Company, as well as general economic and other external factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Acquisitions" and
"-- Hospital Joint Ventures and Strategic Alliances."
MANAGEMENT OF GROWTH. As the Company's business develops and expands, the
Company may need to implement enhanced operational and financial systems and may
require additional employees and management, operational and financial
resources. There can be no assurance that the Company will successfully (i)
implement and maintain any such operational and financial systems, or (ii) apply
the human, operational and financial resources needed to manage a developing and
expanding business. Failure to implement such systems successfully and use such
resources effectively could have a material adverse effect on the Company's
results of operations, financial condition or prospects. See
"Business -- Acquisitions" and "-- Operations."
COMPETITION. The home health care market is highly fragmented and
competition varies significantly from market to market. In the small and
mid-size markets in which the Company primarily operates, the majority of its
competition comes from local independent operators or hospital-based facilities,
whose primary competitive advantage is market familiarity. In the larger
markets, regional and national providers account for a significant portion of
competition. Some of the Company's present and potential competitors are
significantly larger than the Company and have, or may obtain, greater financial
and marketing resources than the Company. In addition, there are relatively few
barriers to entry in the local markets served by the Company, and it may
encounter substantial competition from new market entrants. As the industry
consolidates, the Company also faces competition for acquisitions from current
and new market participants that could increase acquisition prices or inhibit
the Company's acquisition strategy. See "Business -- Acquisitions" and
"-- Competition."
IMPACT OF HEALTH CARE REFORM. The health care industry continues to
undergo dramatic changes. Although proposed federal legislation to impose
greater control on health care spending has not been enacted by Congress to
date, there can be no assurance that federal health care legislation will not be
adopted in the future. Some states are adopting health care programs and
initiatives as a replacement for Medicaid. It is also possible that proposed
federal legislation will include language which provides incentives to further
encourage Medicare recipients to shift to Medicare at-risk managed care
programs. There can be no assurance that the adoption of such legislation or
other changes in the administration or interpretation of governmental health
care programs or initiatives will not have a material adverse effect on the
Company.
LIABILITY AND ADEQUACY OF INSURANCE. The provision of health care services
entails an inherent risk of liability. Certain participants in the home health
care industry may be subject to lawsuits which may involve large claims and
significant defense costs. It is expected that the Company periodically will be
subject to such suits as a result of the nature of its business. The Company
currently maintains product and professional liability insurance intended to
cover such claims in amounts which management believes are in keeping with
industry standards. There can be no assurance that the Company will be able to
obtain liability insurance coverage in the future on acceptable terms, if at
all. There can be no assurance that claims in excess of the
8
<PAGE> 9
Company's insurance coverage or claims not covered by the Company's insurance
coverage will not arise. A successful claim against the Company in excess of the
Company's insurance coverage could have a material adverse effect upon the
results of operations, financial condition or prospects of the Company. Claims
against the Company, regardless of their merit or eventual outcome, may also
have a material adverse effect upon the Company's ability to attract patients or
to expand its business. See "Business -- Insurance."
INFLUENCE OF EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDER. Upon
completion of the Offering the Company's executive officers, directors and
principal stockholder, Counsel Corporation ("Counsel"), in the aggregate, will
beneficially own approximately 32.5% of the outstanding shares of the Common
Stock of the Company, if the over-allotment options are not exercised. As a
result of such equity ownership and their positions in the Company, if the
executive officers, directors and principal stockholder were to vote all or
substantially all of their shares in the same manner, they could significantly
influence the management and policies of the Company, including the election of
the Company's directors and the outcome of matters submitted to stockholders of
the Company for approval. The Company is highly dependent upon its senior
management, and competition for qualified management personnel is intense. See
"Selling Stockholder," "Management" and "Stock Ownership of Directors, Executive
Officers and Principal Holders."
9
<PAGE> 10
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,500,000 shares of Common
Stock offered by the Company at a public offering price of $42.00 per share are
estimated to be approximately $60.0 million after deduction of underwriting
discounts, commissions and estimated offering expenses (or approximately $66.0
million if the Company's over-allotment option is exercised in full). The
Company will not receive any proceeds from the sale of 500,000 shares of Common
Stock by the Selling Stockholder. The Company intends to use approximately $59.4
million of the net proceeds to reduce bank indebtedness. As of March 31, 1996,
the weighted average borrowing rate under the Line of Credit was 6.48%. The
Company will use the remaining net proceeds for general working capital
purposes, which may include the funding of potential future acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Underwriting."
Pending the uses set forth above, such net proceeds will be placed in
short-term, interest-bearing, investment-grade debt securities, certificates of
deposit or direct or guaranteed obligations of the United States of America.
SELLING STOCKHOLDER
Counsel, through its indirect, wholly-owned subsidiary AHOM Holdings, Inc.
(the "Selling Stockholder"), intends to sell 500,000 shares (or 650,000 shares
if the over-allotment option is exercised in full) of Common Stock in the
Offering. Prior to the Offering, the Selling Stockholder owns 3,165,750 shares,
representing approximately 40.7% of the outstanding Common Stock of the Company.
Following the Offering, the Selling Stockholder will own 2,665,750 shares,
representing approximately 28.7% of the outstanding Common Stock of the Company,
or, if the over-allotment is exercised in full, 2,515,750 shares, representing
approximately 26.7% of the outstanding Common Stock of the Company.
Allan C. Silber and Morris A. Perlis, directors of the Company, are
officers and directors of the Selling Stockholder and Counsel. Edward Sonshine,
a director of the Company, is a director of Counsel. See "Management" and
"Certain Transactions."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
since inception, and it is the current policy of the Company's Board of
Directors to retain any earnings to finance the operations and expansion of its
business. Further, the New Bank Credit Facility prohibits the payment of cash
dividends. Therefore, the payment of cash dividends on the Common Stock is
unlikely in the foreseeable future.
10
<PAGE> 11
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
March 31, 1996 and (ii) as adjusted to reflect the sale by the Company of the
1,500,000 shares of Common Stock at a public offering price of $42.00 per share,
after deduction of underwriting discounts, commissions and estimated offering
expenses and the application of the net proceeds therefrom as set forth in "Use
of Proceeds." This table should be read in conjunction with the financial
statements of the Company, including the related notes, incorporated by
reference herein.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt and capital leases, including current portion.............. $123,365 $ 63,385
-------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none
issued and outstanding........................................... -0- -0-
Common stock, $0.01 par value; 12,000,000 shares authorized;
7,764,571 shares issued and outstanding and 9,264,571 issued and
outstanding, as adjusted......................................... 78 93
Paid-in capital..................................................... 87,855 147,820
Retained earnings................................................... 36,444 36,444
-------- -----------
Total stockholders' equity....................................... 124,377 184,357
-------- -----------
Total capitalization............................................. $247,742 $ 247,742
======== =========
</TABLE>
11
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
FINANCIAL STATEMENTS PRESENTED AND DERIVATION OF INFORMATION
The following selected historical predecessor financial data of the Company,
insofar as such data relates to the nine months ended September 30, 1991, have
been derived from the audited historical predecessor financial statements of the
Company and should be read in conjunction with those statements, including the
related notes thereto. Effective October 1, 1991, the home health care business
was transferred to the Company by Counsel.
The following selected financial data of the Company for the three months
ended December 31, 1991 and for each of the four years ended December 31, 1992,
1993, 1994 and 1995 have been derived from the audited financial statements of
the Company and should be read in conjunction with those statements, including
the related notes thereto. The audited financial statements of the Company for
the years ended December 31, 1993, 1994 and 1995 are incorporated by reference
into this Prospectus. The addition of new operations through acquisitions during
1992, 1993, 1994 and 1995 materially affects the comparability of the financial
data presented. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The following selected financial data of the Company for the three months
ended March 31, 1995 and 1996 have been derived from the unaudited financial
statements of the Company and should be read in conjunction with the unaudited
statements, including the related notes thereto. The unaudited financial
statements include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary to state fairly the Company's
financial position as of March 31, 1996 and the results of operation for the
three months ended March 31, 1995 and 1996. The results for the quarter ended
March 31, 1996 may not be indicative of the results of operations for the year.
The historical operating data reflects the operations of the Company's home
health care business as continuing operations and its long-term care management
business as discontinued operations.
PREDECESSOR FINANCIAL DATA
The following selected historical predecessor financial data of the Company
reflects the home health care operations under Counsel, on a historical cost
basis. The historical predecessor financial data reflects the operations of the
Company's home health care business and corporate expenses as continuing
operations and the long-term care management business and related corporate and
regional offices expenses as discontinued operations. The historical predecessor
financial statements are not indicative of the future expected revenues and
expenses of the Company.
COMPANY FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR
-------------
NINE MONTHS THREE MONTHS YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
ENDED ENDED ----------------------------------------------------------- MARCH 31,
SEPTEMBER 30, DECEMBER 31, PRO FORMA ---------------------
1991 1991 1991(1) 1992 1993 1994 1995 1995 1996
------------- ------------ --------- --------- --------- --------- ----------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
STATEMENT
DATA:
Net
revenues... $15,465 $5,736 $ 21,201 $ 45,833 $ 61,315 $ 90,185 $ 162,371 $ 29,253 $ 55,053
Cost of
sales and
related
services,
excluding
depreciation
and
amortization
expenses... 4,169 1,427 5,596 10,702 13,677 17,445 34,031 5,699 12,297
Operating
expenses... 7,288 2,933 10,221 22,876 31,307 47,081 81,718 15,111 27,935
General and
administrative
expenses... 1,340 549 1,889 5,617 5,520 7,829 12,594 2,443 3,249
Depreciation
and
amortization
expenses... 839 339 1,178 3,174 4,532 6,656 14,081 2,333 4,945
Interest
expense... 159 50 209 178 542 2,132 4,829 778 1,855
------------- ------ --------- --------- --------- --------- ----------- --------- ---------
Total
expenses... 13,795 5,298 19,093 42,547 55,578 81,143 147,253 26,364 50,281
------------- ------ --------- --------- --------- --------- ----------- --------- ---------
Income from
continuing
operations
before
taxes.... 1,670 438 2,108 3,286 5,737 9,042 15,118 2,889 4,772
Provision
for
income
taxes.... 657 183 840 1,272 2,254 3,476 6,029 1,159 1,842
------------- ------ --------- --------- --------- --------- ----------- --------- ---------
Income from
continuing
operations... $ 1,013 $ 255 $ 1,268 $ 2,014 $ 3,483 $ 5,566 $ 9,089 $ 1,730 $ 2,930
=========== ========== ======== ======== ======== ======== ========== ======== ========
Income from
continuing
operations
per
share.... $0.36 $0.40 $0.69 $1.00 $1.26 $0.30 $0.37
======== ======== ======== ======== ========== ======== ========
Weighted
average
shares
outstanding... 3,557,000 5,046,000 5,081,000 5,568,000 7,228,000 5,830,000 7,995,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
---------- --------- --------- --------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $ 17,466 $ 14,855 $ 14,961 $ 20,848 $ 46,272 $ 32,438 $ 49,551
Total assets................................. 26,066 37,647 60,065 110,965 232,516 127,401 268,008
Total debt and capital leases, including
current portion............................ 1,712 1,778 17,472 35,908 93,606 54,602 123,365
Stockholders' equity......................... 22,374 31,488 36,950 58,096 119,431 61,195 124,377
</TABLE>
- ---------------
(1) Adjusted to reflect 1991 operating results as if the Company had operated
the home health care business effective January 1, 1991.
12
<PAGE> 13
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA
In 1995 and through April 30, 1996, the Company acquired 30 home health
care companies (the "Acquired Operations"). The Acquired Operations include
acquisitions deemed to be significant under federal securities laws (i.e., the
acquisitions of ConPharma Home HealthCare, Inc. ("ConPharma"), Life Support
Products, The Illinois Home Health Business, The Mobile Medical Services
Business, The Homehealth Center Business, The Delcrest Medical Business and The
Homecare Business, each as defined in the notes to the financial statements
incorporated by reference into this Prospectus). Audited financial statements
for each of these significant acquisitions are incorporated by reference herein.
The following unaudited pro forma condensed consolidated income statements
for the year ended December 31, 1995 and the three months ended March 31, 1996
have been prepared based on the historical income statements of the Company,
adjusted to reflect the acquisitions of the Acquired Operations, in each case,
as if such transactions had occurred on January 1 of each respective period, if
applicable. The unaudited pro forma condensed consolidated balance sheet as of
March 31, 1996 has been prepared based on the historical balance sheet of the
Company, as adjusted to reflect the acquisition of the Acquired Operations which
were acquired subsequent to March 31, 1996 (the "Subsequent Acquired
Operations"). The following pro forma financial data may not be indicative of
the future results of operations and what the actual results of operations would
have been had such transactions described above actually been effective January
1 of each respective period.
13
<PAGE> 14
AMERICAN HOMEPATIENT, INC.
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------
AMERICAN ACQUIRED PRO
HOMEPATIENT OPERATIONS ADJUSTMENTS FORMA
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues................................ $ 162,371 $ 65,357 $ -- $ 227,728
Cost of sales and related services,
excluding depreciation and amortization
expenses.................................. 34,031 17,707 -- 51,738
Operating expenses.......................... 81,718 28,618 569(1,2) 110,905
General and administrative expenses......... 12,594 6,865 (4,891)(1,2) 14,568
Depreciation and amortization expenses...... 14,081 4,287 1,255(3) 19,623
Interest expense............................ 4,829 689 4,730(4) 10,248
----------- ---------- ----------- ----------
Total expenses.............................. 147,253 58,166 1,663 207,082
----------- ---------- ----------- ----------
Income from continuing operations before
taxes..................................... 15,118 7,191 (1,663) 20,646
Provision for income taxes.................. 6,029 244 2,130(5) 8,403
----------- ---------- ----------- ----------
Income from continuing operations........... $ 9,089 $ 6,947 $(3,793) $ 12,243
========= ======== ========= =========
Income from continuing operations per
share..................................... $ 1.26 $ 1.69
========= =========
Weighted average shares outstanding......... 7,228,000 7,228,000
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------------------------------
AMERICAN ACQUIRED PRO
HOMEPATIENT OPERATIONS ADJUSTMENTS FORMA
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues................................ $ 55,053 $ 3,078 $ -- $ 58,131
----------- ---------- ----------- ----------
Cost of sales and related services,
excluding depreciation and amortization
expenses.................................. 12,297 559 -- 12,856
Operating expenses.......................... 27,935 1,297 31 29,263
General and administrative expenses......... 3,249 454 (273) 3,430
Depreciation and amortization expenses...... 4,945 435 69 5,449
Interest expense............................ 1,855 7 229 2,091
----------- ---------- ----------- ----------
Total expenses.............................. 50,281 2,752 56 53,089
----------- ---------- ----------- ----------
Income from continuing operations before
taxes..................................... 4,772 326 (56) 5,042
Provision for income taxes.................. 1,842 11 113 1,966
----------- ---------- ----------- ----------
Income from continuing operations........... $ 2,930 $ 315 $ (169) $ 3,076
========= ======== ========= =========
Income from continuing operations per
share..................................... $ 0.37 $ 0.38
========= =========
Weighted average shares outstanding......... 7,995,000 7,995,000
========= =========
</TABLE>
- ---------------
(1) Reflects additional general and administrative and operating expenses as a
result of integrating the Acquired Operations. This adjustment includes
additional salaries and personnel expenses for certain acquisitions,
interim operating agreement management fees and other corporate expenses
expected to be incurred in connection with the acquisitions.
(2) Reflects the elimination of corporate overhead charges allocated to
ConPharma, the Medserv Business, the Clasen Companies, the Delcrest Medical
Business and the Homecare Business by each company's respective parent and
the elimination of expenses related to the officers of certain of the
Acquired Operations. In each case, the Company did not acquire the
respective parent's operations and therefore did not assume these
liabilities and expenditures. In addition, the Company did not hire certain
officers of certain of the Acquired Operations.
(3) Reflects amortization of goodwill and adjustment of depreciation methods
associated with the acquisitions.
(4) Reflects additional interest expense as a result of seller notes payable and
borrowings under the Line of Credit in order to fund the cash portion of
the acquisitions, net of the elimination of interest expense of the
acquired operations upon the repayment of debt by the Company immediately
following the acquisition where applicable.
(5) Reflects income taxes for acquired operations at statutory rates.
14
<PAGE> 15
AMERICAN HOMEPATIENT, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
---------------------------------------------------------------
SUBSEQUENT
AMERICAN ACQUIRED PRO
HOMEPATIENT, INC. OPERATIONS ADJUSTMENTS FORMA
----------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $ 7,570 $ 686 $ (441)(1) $ 7,815
Accounts receivable, net................ 54,332 751 55(1) 55,138
Other current assets.................... 22,172 138 -- 22,310
----------------- ---------- ----------- ----------
Total current assets.................... 84,074 1,575 (386) 85,263
Property and equipment, net............. 44,916 406 -- 45,322
Goodwill................................ 124,415 20 4,543(1) 128,978
Other assets............................ 14,603 -- -- $ 14,603
----------------- ---------- ----------- ----------
$ 268,008 $ 2,001 $ 4,157 $ 274,166
============= ======== ========= =========
Current portion of debt and leases...... $ 17,178 $ 136 $ (136)(1) $ 17,178
Trade accounts payable.................. 5,268 165 (23)(1) 5,410
Accrued expenses and other.............. 12,077 148 (1)(1) 12,224
----------------- ---------- ----------- ----------
Total current liabilities............... 34,523 449 (160) 34,812
----------------- ---------- ----------- ----------
Long-term debt and leases............... 106,187 466 5,403(1) 112,056
Other noncurrent liabilities............ 2,921 -- -- 2,921
----------------- ---------- ----------- ----------
Total noncurrent liabilities.......... 109,108 466 5,403 114,977
----------------- ---------- ----------- ----------
Stockholders' equity.................... 124,377 1,086 (1,086)(1) 124,377
----------------- ---------- ----------- ----------
Total liabilities and stockholders'
equity................................ $ 268,008 $ 2,001 $ 4,157 $ 274,166
============= ======== ========= =========
</TABLE>
- ---------------
(1) Reflects the purchase price (including acquisition related expenses) paid or
to be paid for the Subsequent Acquired Operations, the refinancing of
certain assumed debt and the estimated allocation of the purchase price to
the fair value of assets acquired.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the related notes,
and the other financial information incorporated by reference herein.
GENERAL
The Company's home health care services consist primarily of the provision
of home respiratory therapy, the provision of home infusion therapy and the
rental and sale of home medical equipment and supplies. These services and
products are paid for primarily by Medicare, Medicaid and other third-party
payors. The following table sets forth the percentage of the Company's net
revenues represented by each line of business for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER ENDED
31, MARCH 31,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Home respiratory therapy services................. 48 % 49 % 53 % 54 % 52 %
Home infusion therapy services.................... 28 24 20 19 19
Home medical equipment and medical supplies....... 24 27 27 27 29
--- --- --- --- ---
Total........................................ 100 % 100 % 100 % 100 % 100 %
=== === === === ===
</TABLE>
The foregoing table reflects changes in the Company's business mix over the
periods indicated that have resulted primarily from the increase in respiratory
therapy services revenues generated by acquired operations. From 1992 through
1995, the Company acquired 36 home health care companies, all but three of which
derived a greater percentage of their net revenues from respiratory therapy
services at the time of acquisition than did the Company. The Company's
objective is to maintain a diversified offering of home health care services,
including a higher percentage of infusion therapy services, in order to provide
the comprehensive array of services and products that managed care organizations
require. The Company added infusion services to ten of its existing centers in
1995 and expects to continue adding infusion services to additional centers and
to acquire home infusion service companies in 1996 in order to increase net
revenues attributable to infusion therapy services. Management continuously
evaluates new products and services in an effort to diversify its business mix.
The Company continues to implement a variety of initiatives designed to
lower its costs. The Company is focusing its efforts on the following cost
initiatives: (i) leveraging corporate purchasing agreements to reduce supply and
equipment costs; (ii) consolidating same-market and overlapping centers; (iii)
decreasing collection periods and associated billing costs; and (iv)
rationalizing center operations based on comparative data provided by its
proprietary Allowable Branch Cost Model(TM).
The Company reports its net revenues as follows: (i) sales and related
services; (ii) rentals and other; and (iii) earnings from hospital joint
ventures. Sales and related services revenues are derived from the provision of
infusion therapies, the sale of home health care equipment and supplies, the
sale of aerosol and respiratory therapy equipment and supplies and services
related to the delivery of these products. Rentals and other revenues are
derived from the rental of home health care equipment, enteral pumps and
equipment related to the provision of respiratory therapies. Because the
Company's hospital joint ventures are not consolidated for financial statement
reporting purposes, earnings from hospital joint ventures represent the
Company's equity in earnings and management and administrative fees for
unconsolidated hospital joint ventures. Cost of sales and related services
includes the cost of equipment, drugs and related supplies sold to patients.
Operating expenses include center labor costs, delivery expenses, occupancy
costs, costs related to rentals other than depreciation, billing center costs,
other operating costs and provision for doubtful accounts. General and
administrative expenses include corporate, area and regional management expenses
and costs.
16
<PAGE> 17
RESULTS OF OPERATIONS
The Company's net revenues from continuing operations have grown at a
compound annual growth rate of approximately 52.5% during the period from 1992
to 1995. In addition, since 1992, the Company has expanded its operations from
53 home health care centers in ten states to 221 home health care centers in 27
states as of December 31, 1995. This growth has been achieved through a
combination of same-store growth, acquisitions, start-up operations and
strategic hospital joint ventures. Growth in same-store net revenues
(approximately 12%, 14%, 12% and 11% in 1992, 1993, 1994 and 1995, respectively)
resulted from the expansion of the range of services offered at the Company's
centers and the increase in the Company's sources of patient referrals. The
Company acquired 66 centers and 79 centers during 1994 and 1995, respectively.
In order to achieve further market density, the Company also opened ten new
centers in 1995 in seven states in which the Company had existing operations.
Throughout this expansion, the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA") increased from 14.5% in 1992 to 21.0%
in 1995.
The following table sets forth, for the periods indicated, the percentage
of net revenues represented by the respective financial items:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER ENDED
31, MARCH 31,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues.................................. 100 % 100 % 100 % 100 % 100 %
Cost of sales and related services, excluding
depreciation and amortization expenses...... 23 20 21 19 22
Operating expenses............................ 51 52 50 52 51
General and administrative expenses........... 9 9 8 8 6
Depreciation and amortization expenses........ 7 7 9 8 9
Interest expense.............................. 1 2 3 3 3
---- ---- ---- ---- ----
Total expenses................................ 91 90 91 90 91
---- ---- ---- ---- ----
Income from continuing operations before
taxes....................................... 9 10 9 10 9
Provision for income taxes.................... 4 4 4 4 4
---- ---- ---- ---- ----
Income from continuing operations............. 5 % 6 % 5 % 6 % 5 %
==== ==== ==== ==== ====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
During the three months ended March 31, 1996, the Company converted one
previously wholly-owned center to a hospital joint venture accounted for under
the equity method. The effect of this transaction in the comparison of the 1996
period to the 1995 period is referred to as "dissolutions."
NET REVENUES. Net revenues increased from $29.3 million for the quarter
ended March 31, 1995 to $55.1 million in the same period in 1996, an increase of
$25.8 million, or 88%. Same-store net revenues, including net revenues of
same-store hospital joint ventures managed by the Company and accounted for
under the equity method, increased 12%. Net revenues of same-store hospital
joint ventures contributed 2% to this same-store net revenue growth rate.
Following is a discussion of the components of net revenues:
Sales and Related Services Revenues. Sales and related services
revenues increased from $12.6 million for the quarter ended March 31, 1995
to $24.5 million for the same period in 1996, an increase of $11.9 million,
or 95%. This increase was attributable primarily to acquisitions, net of
dissolutions. An increase in sales and related services revenues of $1.0
million was attributable to net revenue growth at the Company's existing
centers (excluding same-store hospital joint ventures accounted for under
the equity method). The remaining $10.9 million increase was attributable
to acquisitions, net of dissolutions.
Rentals and Other Revenues. Rentals and other revenues increased from
$15.9 million for the quarter ended March 31, 1995 to $29.4 million for the
same period in 1996, an increase of $13.5 million, or 85%. Of this increase
$1.6 million was attributable to net revenue growth in the Company's
existing centers (excluding same-store hospital joint ventures accounted
for under the equity method). The remaining $11.9 million increase was
attributable to acquisitions, net of dissolutions.
17
<PAGE> 18
Earnings from Hospital Joint Ventures. Earnings from hospital joint
ventures increased from $803,000 for the quarter ended March 31, 1995 to
$1.1 million for the same period in 1996, an increase of $327,000. Of this
increase, $190,000 was attributable to net growth in the Company's existing
hospital joint ventures.
COST OF SALES AND RELATED SERVICES. Cost of sales and related services
increased from $5.7 million for the quarter ended March 31, 1995, to $12.3
million for the same period in 1996, an increase of $6.6 million. As a
percentage of sales and related services revenues, cost of sales and related
services increased from 45% to 50%. This increase reflects a change in the mix
of sales and related service revenues attributable to acquisitions made during
1995 and 1996 as well as a slight reduction in gross margins of the Company's
existing centers as a result of additional managed care and subcontracted
business.
OPERATING EXPENSES. Operating expenses increased from $15.1 million for
the quarter ended March 31, 1995 to $27.9 million for the same period in 1996,
an increase of $12.8 million or 85%. This increase was attributable to increased
costs associated with acquisitions, net of dissolutions. As a percentage of net
revenues, operating expenses decreased from 51.7% to 50.7%. This decrease was
attributable to lower operating expense levels for acquired businesses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $2.4 million for the quarter ended March 31, 1995, to $3.2
million for the same period in 1996, an increase of $806,000, or 33%. This
increase was primarily attributable to increases in expenses associated with the
acquired home health care businesses and to increases in corporate office
general and administrative expenses. As a percentage of net revenues, general
and administrative expenses have decreased from 8.3% to 5.9%.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased from $2.3 million for the quarter ended March 31, 1995 to
$4.9 million for the same period in 1996, an increase of $2.6 million. An
increase in depreciation and amortization expenses of $1.9 million was
attributable to acquisitions, net of dissolutions.
INTEREST EXPENSE. Interest expense increased from $778,000 for the quarter
ended March 31, 1995, to $1.9 million for the same period in 1996, an increase
of $1.1 million. The increase was primarily due to interest expense associated
with increased borrowings used to fund acquisitions of home health care
businesses.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
During 1995, the Company converted three previously wholly-owned centers to
hospital joint ventures accounted for under the equity method. The effect of
these transactions in the comparison of the 1995 period to the 1994 period is
referred to as "dissolutions."
NET REVENUES. Net revenues increased from $90.2 million in 1994 to $162.4
million in 1995, an increase of $72.2 million, or 80%. Same-store net revenues
grew 11% in 1995 compared to 12% in 1994, including net revenue growth generated
by the Company's 50%-owned hospital joint ventures. Following is a discussion of
the components of net revenues:
Sales and Related Services Revenues. Sales and related services
revenues increased from $38.7 million in 1994 to $70.2 million in 1995, an
increase of $31.5 million, or 81%. Of this increase, $2.9 million was
attributable to net revenue growth in the Company's existing centers
(excluding same-store hospital joint ventures accounted for under the
equity method), representing an increase of 8% over the prior year on a
same-store basis. Increases in sales and related services revenues in the
Company's existing centers were attributable primarily to growth in net
revenues from the provision of respiratory therapies and the sale of home
medical equipment and supplies.
Rentals and Other Revenues. Rentals and other revenues increased from
$47.9 million in 1994 to $88.2 million in 1995, an increase of $40.3
million, or 84%. Of this increase, $4.4 million was attributable to net
revenue growth in the Company's existing centers (excluding same-store
hospital joint ventures accounted for under the equity method),
representing an increase of 10% over the prior year on a same-store basis.
Increases in rentals and other revenues in the Company's existing centers
were attributable primarily to growth in net revenues from the provision of
respiratory therapies, which increased 11% over the prior year.
18
<PAGE> 19
Earnings from Hospital Joint Ventures. Earnings from hospital joint
ventures increased from $3.5 million in 1994 to $4.0 million in 1995, an
increase of $500,000, which was attributable principally to acquired and
newly-formed hospital joint ventures, net of dissolutions. On a same-store
basis, net revenue of hospital joint ventures grew 23% in 1995 compared to
1994, increasing the Company's total same-store growth rate by two
percentage points.
COST OF SALES AND RELATED SERVICES. Cost of sales and related services
increased from $17.4 million in 1994 to $34.0 million in 1995, an increase of
$16.6 million, or 95%. Of this increase, $15.0 million was attributable to
acquisitions, net of dissolutions. As a percentage of sales and related services
revenues, cost of sales and related services increased from 45% in 1994 to 48%
in 1995. This percentage increase was attributable primarily to the change in
the mix of sales and related service revenues of acquisitions made during 1995.
OPERATING EXPENSES. Operating expenses increased from $47.1 million in
1994 to $81.7 million in 1995, an increase of $34.6 million, or 73%. This
increase was attributable to increased costs associated with the Company's
increased net revenues. As a percentage of net revenues, operating expenses
decreased from 52% in 1994 to 50% in 1995. This decrease is primarily
attributable to lower operating expense levels of same-store centers and
acquired businesses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $7.8 million in 1994 to $12.6 million in 1995, an increase of
$4.8 million, or 62%. This increase was attributable primarily to increases in
personnel expenses associated with providing support for acquisitions and
continued growth. Approximately $700,000 of the increase is a result of the
relocation of the corporate headquarters from Franklin, Tennessee to Brentwood,
Tennessee due to the Company's rapid expansion and need for additional space. As
a percentage of net revenues, general and administrative expenses decreased from
9% in 1994 to 8% in 1995.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased from $6.7 million in 1994 to $14.1 million in 1995, an
increase of $7.4 million. This increase was attributable primarily to
depreciation expense and the amortization of goodwill recorded in connection
with acquisitions.
INTEREST EXPENSE. Interest expense increased from $2.1 million in 1994 to
$4.8 million in 1995, an increase of $2.7 million. This increase was due
primarily to interest expense on borrowings used to fund acquisitions of home
health care companies during 1994 and 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Effective January 1, 1994, the Company sold its majority ownership in a
consolidated non-hospital joint venture and entered into a separate transaction
that converted a previously wholly-owned center to a hospital joint venture
accounted for under the equity method. In addition, the Company sold its
interest in a wholly-owned center effective March 1, 1994. The effect of these
transactions in the comparison of the 1994 period to the 1993 period is referred
to as "dissolutions."
NET REVENUES. Net revenues increased from $61.3 million in 1993 to $90.2
million in 1994, an increase of $28.9 million, or 47%. Same-store net revenues
grew 12% in 1994 compared to 14% in 1993, including net revenue growth generated
by the Company's 50%-owned hospital joint ventures. Following is a discussion of
the components of net revenues:
Sales and Related Services Revenues. Sales and related services
revenues increased from $28.9 million in 1993 to $38.7 million in 1994, an
increase of $9.8 million, or 34%. Of this increase, $6.7 million was
attributable to acquisitions, net of dissolutions, and $3.1 million was
attributable to net revenue growth in the Company's existing centers
(excluding same-store hospital joint ventures accounted for under the
equity method), representing an increase of 12% over the prior year on a
same-store basis. Increases in sales and related services revenues in the
Company's existing centers were attributable primarily to growth in net
revenues from the provision of infusion therapies, which increased 17% over
the prior year.
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<PAGE> 20
Rentals and Other Revenues. Rentals and other revenues increased from
$31.5 million in 1993 to $47.9 million in 1994, an increase of $16.4
million, or 52%. Of this increase, $13.6 million was attributable to
acquisitions, net of dissolutions, and $2.8 million was attributable to net
revenue growth in the Company's existing centers (excluding same-store
hospital joint ventures accounted for under the equity method),
representing an increase of 9% over the prior year on a same-store basis.
Increases in rentals and other revenues in the Company's existing centers
were attributable primarily to growth in net revenues from the provision of
respiratory therapies, which increased 8% over the prior year. Beginning
January 1, 1994, the Company experienced Medicare reimbursement reductions
as a result of the Omnibus Reconciliation Act of 1993, which primarily
affected respiratory therapy revenues. The reductions totaled approximately
$1.8 million in net revenues for the year, which reductions were partially
offset by an adjustment in Medicare reimbursement resulting from an
increase in the Consumer Price Index of approximately 2.9% in 1994.
Earnings from Hospital Joint Ventures. Earnings from hospital joint
ventures increased from $839,000 in 1993 to $3.5 million in 1994, an
increase of $2.7 million, which was attributable principally to acquired
and newly-formed hospital joint ventures, net of dissolutions. On a
same-store basis, net revenue of hospital joint ventures grew 41% in 1994
compared to 1993, increasing the Company's total same-store growth rate by
two percentage points.
COST OF SALES AND RELATED SERVICES. Cost of sales and related services
increased from $13.7 million in 1993 to $17.4 million in 1994, an increase of
$3.7 million, or 28%. Of this increase, $2.0 million was attributable to
acquisitions, net of dissolutions. As a percentage of sales and related services
revenues, cost of sales and related services decreased from 47% in 1993 to 45%
in 1994. This percentage decrease was attributable primarily to the Company's
strategy of de-emphasizing less profitable product lines and leveraging
corporate purchasing to reduce supply and equipment costs.
OPERATING EXPENSES. Operating expenses increased from $31.3 million in
1993 to $47.1 million in 1994, an increase of $15.8 million, or 50%. This
increase was attributable to increased costs associated with the Company's
increased net revenues. As a percentage of net revenues, operating expenses
increased from 51% in 1993 to 52% in 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $5.5 million in 1993 to $7.8 million in 1994, an increase of $2.3
million, or 42%. This increase was attributable primarily to increases in
personnel expenses associated with providing support for acquisitions and
continued growth. As a percentage of net revenues, general and administrative
expenses remained constant at 9% from 1993 to 1994.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased from $4.5 million in 1993 to $6.7 million in 1994, an
increase of $2.2 million, or 47%. This increase was attributable primarily to
depreciation expenses and the amortization of goodwill recorded in connection
with acquisitions.
INTEREST EXPENSE. Interest expense increased from $542,000 in 1993 to $2.1
million in 1994, an increase of $1.6 million. This increase was due primarily to
interest expense on borrowings used to fund acquisitions of home health care
companies during 1993 and 1994.
DISCONTINUED OPERATIONS
SALE OF LONG-TERM CARE MANAGEMENT BUSINESS. Prior to May 1994, the
Company's long-term care management subsidiary, Diversicare Management Services
Co. ("DMS"), provided management services to nursing homes and retirement
centers in the United States and Canada (the "Long-Term Care Management
Business"). As compensation for its services, the Company received a base
management fee typically ranging from 3.5% to 7.0% of the net revenues of the
facilities. In May 1994, the Company transferred the capital stock of DMS to
Advocat Inc. ("Advocat"), a newly formed company, in exchange for proceeds of
approximately $22.3 million before certain expenses and income taxes (all of the
foregoing is herein referred to as the "Advocat Transaction"). The Advocat
Transaction was approved by an independent committee of the Company's Board of
Directors, which determined that the terms of the transaction and the proceeds
the Company received were fair to the minority stockholders of the Company. The
Company reported a gain of $7.9 million, net of income taxes, in connection with
the Advocat Transaction.
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<PAGE> 21
At December 31, 1993 and March 31, 1994, DMS represented approximately 9%
of the identifiable assets of the Company. For the year ended December 31, 1993,
DMS contributed approximately 12% of the Company's net revenues and
approximately 29% of earnings before interest and taxes ("EBIT"). For the three
months ended March 31, 1994, DMS contributed approximately 11% of the Company's
net revenues and approximately 24% of EBIT. The net assets and results of
operations of DMS and its share of corporate expenses are reflected in the
accompanying financial statements and financial information as discontinued
operations. Net accounts receivable attributable to the provision of long-term
care management services are included in net assets of discontinued operations
and totaled $2.4 million at March 31, 1994, representing approximately 90 days
of management fee revenues; this amount included $2.0 million due from
affiliates.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company's working capital was $49.6 million, and the
current ratio was 2.4, compared to working capital of $46.3 million and a
current ratio of 2.8 at December 31, 1995. The Company had current maturities of
long-term debt of approximately $17.2 million at March 31, 1996.
The Company's future liquidity will continue to be dependent upon the
relative amounts of current assets (principally cash, accounts receivable and
inventories) and current liabilities (principally accounts payable and accrued
expenses). In that regard, accounts receivable can have a significant impact on
the Company's liquidity. Accounts receivable are generally outstanding for
longer periods of time in the health care industry than many other industries
because of requirements to provide third party payors with additional
information subsequent to billing and the time required by such payors to
process claims. Certain accounts receivable frequently are outstanding for more
than 90 days, particularly where the accounts receivable relates to services for
a patient (i) receiving a new medical therapy or (ii) covered by Medicare or
Medicaid. Net patient accounts receivable were $44.3 million and $50.3 million
at December 31, 1995 and March 31, 1996, respectively. This increase was
primarily attributable to the acquisition of home health care businesses in the
first quarter of 1996. This represented an average of approximately 91 and 90
days' sales in accounts receivable at December 31, 1995 and March 31, 1996,
respectively.
Net cash used in operating activities was $7.3 million for the three months
ended March 31, 1995, and net cash provided from operating activities was
$361,000 for the three months ended March 31, 1996. These amounts primarily
represent net income plus depreciation and amortization and provisions for
doubtful accounts and changes in the various components of working capital. Also
included in net cash used in operating activities for the three months ended
March 31, 1995 was $5.5 million for payments of taxes on the sale of
discontinued operations. Net cash used in investing activities was $15.4 million
and $24.2 million for the three months ended March 31, 1995 and 1996,
respectively. These amounts primarily represent acquisitions of home health care
businesses and property and equipment additions. Net cash provided from
financing activities was $21.7 million and $27.2 million for the three months
ended March 31, 1995 and 1996, respectively. These amounts primarily represent
proceeds from the issuance of long-term debt, the issuance of common stock due
to stock option exercises and principal repayments on debt.
The Company's principal capital requirements are for acquisitions of
additional home health care companies and expansion of the services provided
through its existing home health care centers. The Company has financed and
intends to continue to finance these requirements, its net revenue growth and
working capital needs with net cash provided by operations and with bank
borrowings. On May 1, 1996, the Company expanded its Line of Credit to increase
its borrowing availability thereunder to $225.0 million. The New Bank Credit
Facility includes a $100.0 million five-year term loan and a $125.0 million
five-year revolving line of credit. The New Bank Credit Facility increases the
Bank Consent Thresholds (as defined herein) and contains financial and operating
covenants substantially similar to those under the Line of Credit. Borrowings
under the New Bank Credit Facility may be used to finance acquisitions and for
other general corporate purposes, subject to the terms and conditions of the
credit and security agreements. Most of the Company's operating assets have been
pledged as security for borrowings under the New Bank Credit Facility. Interest
is payable on borrowings under the Line of Credit, at the election of the
Company, at either a "Base Lending Rate" or an "Adjusted Eurodollar Rate" (each
as defined in the New Bank Credit Facility), plus a margin from 0% to 1.00% and
from 0.5% to 2.00%, respectively. The Company's ability to borrow under the
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<PAGE> 22
New Bank Credit Facility terminates on May 1, 2001, subject to exceptions set
forth therein. As of March 31, 1996 the weighted average borrowing rate was
6.48%. A commitment fee of up to 0.375% per annum (0.25% as of March 31, 1996)
is payable by the Company on the undrawn balance. The interest rate and
commitment fee vary depending on the Company's ratio of total debt to adjusted
pro forma earnings before interest, taxes, depreciation and amortization, as
such ratio is defined in the New Bank Credit Facility.
The New Bank Credit Facility contains various financial covenants, the most
restrictive of which relate to measurements of stockholders' equity, leverage
ratios and interest coverage ratios. The Company was in compliance with these
covenants at March 31, 1996. The New Bank Credit Facility also contains certain
covenants which, among other things, impose certain limitations or prohibitions
on the Company with respect to the incurrence of certain indebtedness, the
creation of security interest on the assets of the Company, the payment of
dividends on and the redemption or repurchase of securities of the Company,
investments, acquisitions, investments in joint ventures, capital expenditures
and sales of Company assets. The Company must generally obtain bank consent for
any single acquisition with an aggregate purchase price of $15.0 million or
more, and any acquisition which, when combined with all acquisitions completed
in the prior 12 months, exceeds $75.0 million ("Bank Consent Thresholds"). Upon
the consummation of the Offering, the Bank Consent Thresholds will increase to
$20.0 million for any single acquisition and $80.0 million for all acquisitions
completed in the prior 12 months.
The Company has budgeted capital expenditures of approximately $24.5
million for 1996 primarily for purchases of home health care rental equipment
and routine capital purchases at its regional and corporate offices. Through
March 31, 1996, $4.9 million of capital expenditures had been incurred.
At March 31, 1996, the Company had approximately $7.6 million of cash and
cash equivalents and $47.6 million available under the Line of Credit.
Management believes the combination of these sources, together with the proceeds
of the Offering, the additional borrowing availability under the New Bank Credit
Facility and funds generated from operations, will be sufficient to satisfy the
Company's acquisition expenditure, capital expenditure, working capital and debt
repayment requirements for the next 12 months. In order to provide funds to
continue its growth strategy, the Company will incur, from time to time,
additional bank indebtedness and may issue, in public or private transactions,
equity or debt securities, the availability and terms of which will depend on
market and other conditions. There can be no assurance that any such additional
financing will be available on terms acceptable to the Company.
IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards Number 121 ("SFAS 121") "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." Adoption of SFAS 121 is required for fiscal years beginning after December
15, 1995. The Company has adopted SFAS 121 in 1996, and the adoption did not
have a material effect on the Company's financial position.
In October 1995, the FASB issued Statement No. 123 ("SFAS 123") "Accounting
for Stock-Based Compensation." This statement requires new disclosures in the
notes to the financial statements about stock-based compensation plans based on
the fair value of equity instruments granted. Companies also may base the
recognition of compensation cost for instruments issued under stock-based
compensation plans on these fair values. The Company will adopt the disclosure
requirements of SFAS 123 in 1996.
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<PAGE> 23
BUSINESS
GENERAL
American HomePatient is one of the leading diversified home health care
companies in the United States. The Company provides a wide range of home health
care services and products with an emphasis on home respiratory services, home
infusion services and home medical equipment and supplies. Since 1992, the
Company has expanded its home health care operations significantly, from 53
centers in ten states to 240 centers in 28 states as of April 29, 1996. From
1992 to 1995, the Company generated a compound annual growth rate of 52.5% in
net revenues, from $45.8 million in 1992 to $162.4 million in 1995, and a
compound annual growth rate of 65.3% in net income from continuing operations,
from $2.0 million in 1992 to $9.1 million in 1995.
The acquisition of home health care companies in both existing and
contiguous markets is a key component of the Company's growth strategy. During
1995, the Company acquired 16 home health care companies with 79 centers and
entered seven new states. Management believes that a substantial number of
acquisition opportunities will continue to exist as competitive and
reimbursement pressures being exerted on the health care industry by managed
care and government-sponsored reimbursement programs will encourage further
consolidation among home health care providers. To achieve further market
density and to supplement its acquisition strategy, the Company opened ten new
centers in 1995 in seven states in which the Company had existing operations.
Since 1992, the Company also has pursued joint ventures and strategic alliances
with prestigious hospitals and hospital systems, primarily in larger markets, in
order to position itself as the home health care provider of choice within
particular integrated health care delivery networks.
The Company has successfully integrated acquired home health care companies
by, among other means, (i) standardizing reimbursement, purchasing and
accounting systems, (ii) integrating clinical services, (iii) utilizing the
Company's marketing and managed care programs and (iv) implementing center level
cost controls. To control center level costs more effectively, the Company has
developed a proprietary cost-tracking model, the Allowable Branch Cost
Model(TM), that allows local and regional managers to track the cost of
delivering a specific product or service. Management uses this model to price
its products and services for managed care contracting and to identify staffing,
accounts receivable management and other "best practices" that can be
implemented throughout its center network.
INDUSTRY OVERVIEW
According to the United States Commerce Department, home health care is
among the fastest growing sectors of the health care industry, with total
expenditures for home health care services of approximately $22.5 billion in
1994. Trends driving growth in the home health care industry include (i) the
cost-effectiveness of home health care treatment compared to hospital treatment,
(ii) the adoption by government and private payors of cost containment measures
which encourage reduced hospital admissions and reduced lengths of stay in
hospitals and (iii) the increased acceptance of home health care by the medical
community, patients and third-party payors, especially managed care
organizations. In addition, the demand for home health care services and
products has been expanding due to demographic trends, such as the aging of the
population, and advances in medical technology that facilitate the provision of
sophisticated in-home therapies for complex conditions that previously required
hospitalization.
In the fall of 1995, Congress proposed reductions in Medicare reimbursement
rates for home oxygen therapy services and price freezes on certain other
reimbursement rates for parenteral and enteral services and equipment sales and
services. Although this particular legislation was vetoed, Congress continues to
consider legislation affecting reimbursement of these items, and management
anticipates that Medicare reimbursement rates for oxygen services and equipment
will be reduced. In addition, other third-party payors are likely to continue
efforts to contain or reduce costs of health care by lowering reimbursement
rates, increasing case management review of services and negotiating reduced
contract pricing.
The growth of the home health care industry has attracted thousands of
providers, few of which have a national or multi-regional presence. As a result,
the industry is highly fragmented with a relatively small
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number of providers capable of offering a broad range of services. In recent
years, the home health care industry has experienced increased consolidation as
a result of several factors, including the following:
- The health care industry is facing greater regulatory and market pressure
on pricing and cost containment. Managed care pricing and potential
reductions in Medicare reimbursement rates are placing increasing pressure
on operating margins. Providers that can leverage purchasing and
distribution, contain costs, and meet increasing regulatory, reporting and
billing requirements will have a competitive advantage.
- The high cost of sophisticated equipment required to care for higher
acuity patients in the home is often prohibitive for smaller providers.
- Managed care payors are reducing the number of home health care providers
with which they contract in an effort to join with providers who offer a
wide range of sophisticated products and services and broad geographic
coverage. Small, independent providers, which traditionally have comprised
a majority of the market, typically cannot offer this breadth of service
and geographic coverage.
Management believes that the competitive and pricing pressures that are being
exerted on the health care industry by managed care and government-sponsored
reimbursement programs, such as Medicare and Medicaid, will encourage further
consolidation among home health care providers.
OPERATING STRATEGY
American HomePatient's objective is to be the leading provider of
diversified home health care services in the markets in which it operates.
Management seeks to establish a regional concentration of centers to develop the
market penetration and critical mass necessary to position the Company as a
cost-effective provider of diversified home health care services to managed care
and other third-party payors. Following are the key elements of the Company's
strategy:
- Targeting Small to Mid-Size Markets. The Company focuses its
acquisitions and start-up operations on small to mid-size markets where
there is generally less competition from national competitors, which tend
to be concentrated in larger urban markets. Management believes the
Company is able to compete effectively against smaller local competitors
in these markets by delivering clinical expertise and technology typically
available only in larger, more urban markets and by providing a broader
range of services. Approximately 80% of the Company's markets have
populations of less than 100,000. The Company generally targets small
independent operators with under $10.0 million in annual revenues.
- Achieving Regional Market Density. The Company identifies acquisition
targets that will solidify its position in a market and enable it to
develop a strong regional network of home health care centers. The
Company's current acquisition efforts typically fall into one of two
categories: (i) fill-in acquisitions that enable the Company to strengthen
its position in selected markets and (ii) acquisitions in new contiguous
markets. This focus on developing regional market density allows the
Company to achieve the geographic coverage necessary to compete
effectively for managed care contracts and hospital joint venture and
strategic alliance partners. In addition, this strategy enables the
Company to capitalize on operating efficiencies and economies of scale in
purchasing, marketing and corporate overhead. In targeted markets where
the Company is unable to identify suitable acquisition candidates, the
Company may choose to open new centers.
- Developing Hospital Joint Ventures and Strategic Alliances. The
development of hospital joint ventures and strategic alliances has emerged
as an increasingly important component of the Company's growth strategy.
The Company intends to continue forming these relationships in order to
(i) enter larger markets with reduced financial risk and (ii) capitalize
on the trend toward integrated health care delivery networks that provide
a full range of health care services, including physician services, in-
patient hospital care, out-patient surgery and diagnostics and home health
care. Management believes that, as a result of these relationships, the
Company will be better positioned to compete for managed care contracts.
Additionally, since the Company's hospital partners typically draw
patients from surrounding communities where the Company has existing
centers, management believes that existing
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<PAGE> 25
centers also benefit from referrals of patients who are discharged from
these hospitals and require home health care. The Company is currently a
joint venture partner with hospitals or hospital systems such as Baylor
Health System in Dallas, Texas, Columbia/HCA in Nashville, Tennessee, and
Baptist Medical Center in Little Rock, Arkansas.
- Increasing Same-Store Net Revenues. The Company seeks to increase
same-store net revenues by: (i) expanding services at its existing
centers, (ii) capitalizing on hospital joint ventures and strategic
alliances to increase referrals, and (iii) emphasizing managed care
contracting. The Company has expanded services by adding infusion,
rehabilitation, pediatric and other services to existing centers and by
packaging and marketing existing services as branded products, such as the
Company's Aermeds(TM) and EnterCare(TM) programs. The Company also targets
referrals from hospital joint venture partners for patients who require
home health care upon hospital discharge and reside in surrounding
communities where American HomePatient has an owned center. The Company
increased the number of its managed care contracts from 54 to 200 in 1995
and anticipates that managed care contracting will continue to be an
important factor in future same-store net revenue growth.
- Decreasing Operating Costs. The Company is focusing its efforts on the
following cost initiatives: (i) leveraging corporate purchasing agreements
to reduce supply and equipment costs; (ii) consolidating overlapping
centers; (iii) consolidating field management functions; (iv) decreasing
collection periods and associated billing costs; and (v) rationalizing
center operations based on comparative data provided by its proprietary
Allowable Branch Cost Model(TM). In April 1995, the Company instituted its
"Preferred Products Program" to improve its purchasing power by reducing
the number of its suppliers and vendors in exchange for volume discounts
from its remaining suppliers. In 1995, the Company also consolidated the
operations of 21 centers that serviced overlapping geographic areas.
Additionally, the Company has consolidated certain regional management and
sales functions by giving top general managers additional managerial
responsibility and certain account executives larger territories. The
Company also has begun to regionalize certain billing and collection
functions in order to reduce expenses, increase efficiencies, provide
greater billing expertise and position the Company to handle centralized
managed care billing. Finally, the Allowable Branch Cost Model(TM), a
proprietary tool of the Company, allows local and regional managers to
track the cost of delivering a specific product or service. This model is
currently in use in approximately 120 centers, which account for
approximately 50% of the Company's revenues. Management uses this model to
control center level costs more effectively, to price its products and
services for managed care contracting and to identify staffing, accounts
receivable management and other "best practices" that can be implemented
throughout its center network.
ACQUISITIONS
The Company maintains an active acquisition program in order to increase
its penetration of existing markets and to capitalize on the increasing
competitive and pricing pressures being exerted on smaller providers in the
fragmented home health care industry. The Company relies upon its acquisition
team, consisting of certain members of its Board of Directors and senior
management, which generally meets at least monthly, to review prospective
targets. The Company's acquisition efforts historically have focused on
respiratory and home medical equipment companies; however, the Company expects
to acquire more home infusion services companies in 1996 in order to increase
the percentage of its net revenues attributable to infusion therapy services.
Strategic acquisitions typically fall into one of two categories: (i) fill-in
acquisitions which enable the Company to become a leading provider in selected
markets and (ii) acquisitions in new markets which the Company considers
attractive. The Company prefers to acquire independent operators, with strong
existing management, that have significant potential to grow in their respective
regions.
As the industry consolidates, the Company will continue to face competition
for acquisitions. This competition could come from current market participants,
industry participants seeking new markets and new entrants to the industry.
Increased competition for acquisitions could increase acquisition prices or
inhibit the Company's acquisition strategy.
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SERVICES AND PRODUCTS
The Company provides home respiratory services, home infusion services and
home medical equipment and supplies through 240 centers in 28 states as of April
29, 1996. As a part of its integrated approach to home health care, the Company
provides a range of services that are crucial to full service patient care,
including comprehensive training for patients and their caregivers regarding
equipment use, ongoing monitoring of patient compliance with the treatment plan
and extensive equipment maintenance and repair. The Company's local health care
professionals are available 24 hours a day to assist patients with emergency
services, counseling or additional information. The following table sets forth
the percentage of net revenues represented by each line of business for the
periods presented:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Home respiratory services......................... 48 % 49 % 53 % 54 % 52 %
Home infusion services............................ 28 24 20 19 19
Home medical equipment and supplies............... 24 27 27 27 29
---- ---- ---- ---- ----
Total................................... 100 % 100 % 100 % 100 % 100 %
==== ==== ==== ==== ====
</TABLE>
Home Respiratory Services. The Company provides a wide variety of home
respiratory services primarily to patients with severe and chronic pulmonary
diseases. Industry analysts estimate that the United States home respiratory
therapy market generated revenues of approximately $1.8 billion in 1994, or 8%
of the total home health care market.
Patients are referred to a Company center most often by primary care and
pulmonary physicians as well as by hospital discharge planners and case
managers. After reviewing pertinent medical records on the patient and
confirming insurance coverage information, a Company respiratory therapist or
technician visits the patient's home to deliver and to prepare the prescribed
therapy or equipment. Company representatives coordinate the prescribed therapy
with the patient's physician, train the patient and caregiver in the correct use
of the equipment and make periodic follow-up visits to the home to provide
additional instructions, required equipment maintenance and oxygen and other
supplies.
The respiratory services that the Company provides include the following:
- Oxygen systems to assist patients with breathing. There are three types
of oxygen systems: (i) oxygen concentrators, which are stationary units
that filter ordinary air to provide a continuous flow of oxygen; (ii)
liquid oxygen systems, which are portable, thermally-insulated containers
of liquid oxygen; and (iii) high pressure oxygen cylinders, which are used
for portability with oxygen concentrators. Oxygen systems are used to
treat patients with chronic obstructive pulmonary disease, cystic fibrosis
and neurologically-related respiratory problems.
- Nebulizers to deliver aerosol medication to patients. Nebulizers are used
to treat patients with asthma, chronic obstructive pulmonary disease,
cystic fibrosis and neurologically-related respiratory problems.
- Home ventilators to sustain a patient's respiratory function mechanically
in cases of severe respiratory failure when a patient can no longer
breathe normally.
- Continuous positive airway pressure therapy ("CPAP") to force air through
respiratory passage-ways during sleep. This treatment is used on adults
with sleep apnea, a condition in which a patient's normal breathing
patterns are disturbed during sleep.
- Apnea monitors to monitor and warn parents of apnea episodes in newborn
infants as a preventive measure against sudden infant death syndrome.
- Home sleep screenings and studies to detect sleep disorders and the
magnitude of such disorders.
The provision of oxygen-related services and systems comprised
approximately 65% of the Company's respiratory net revenues for 1995, with the
balance generated from nebulizers and related aerosol medication
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<PAGE> 27
services, home ventilators, CPAP therapy, home sleep studies and infant apnea
monitors. The Company provides respiratory therapy services at all but one of
its centers, and, until recently, has historically focused its acquisition
strategy almost entirely on home respiratory services companies. The Company
will continue to acquire home respiratory services companies but also expects to
increasingly evaluate the acquisition of home infusion services companies.
Home Infusion Services. The Company provides a wide range of home infusion
services. Industry analysts estimate that the United States home infusion market
generated revenues of approximately $3.6 billion in 1994, or 16% of the total
home health care market.
Patients are referred to a Company center most often by primary care and
specialist physicians as well as by hospital discharge planners and case
managers. After confirming the patient's treatment plan with the physician, the
pharmacist mixes the medications and coordinates with the nurse the delivery of
necessary equipment, medication and supplies to the patient's home. The Company
provides the patient and caregiver with detailed instructions on the patient's
prescribed medication, therapy, pump and supplies. The Company also schedules
follow-up visits and deliveries in accordance with a physician's orders.
Home infusion therapy involves the administration of nutrients, antibiotics
and other medications intravenously (into the vein), subcutaneously (under the
skin), intramuscularly (into the muscle), intrathecally or epidurally (via
spinal routes) or through feeding tubes into the digestive tract. The primary
infusion therapy services that the Company provides include the following:
- Enteral nutrition is the infusion of nutrients through a feeding tube
inserted directly into the functioning portion of a patient's digestive
tract. This long-term therapy is often prescribed for patients who are
unable to eat or to drink normally as a result of a neurological
impairment such as a stroke or cancer.
- Antibiotic therapy is the infusion of antibiotic medications into a
patient's bloodstream typically for two to four weeks to treat a variety
of serious infections and diseases.
- Total parenteral nutrition ("TPN") is the long-term provision of
nutrients through central vein catheters that are surgically implanted
into patients who cannot absorb adequate nutrients enterally due to a
chronic gastrointestinal condition.
- Pain management involves the infusion of certain drugs into the
bloodstream of patients, primarily terminally or chronically ill patients,
suffering from acute or chronic pain.
During 1995, enteral nutrition services accounted for approximately 38% of
the Company's infusion revenues, while antibiotic therapy, TPN, pain management
and other medications accounted for approximately 17%, 13% and 15%,
respectively. The Company's remaining infusion revenues were derived from the
provision of infusion nursing services, prescription drug sales and other
miscellaneous infusion therapies. The Company continues to expand its infusion
therapy offerings in the home setting to include additional services such as
growth hormone, IVIG, prolastin and baclafin therapies.
Enteral nutrition services are provided at most of the Company's centers,
and the Company provides other infusion therapies in 107 of its 240 centers. The
Company added infusion services to ten of its existing centers in 1995 and
expects to acquire additional home infusion services companies in 1996 in order
to increase net revenues attributable to infusion services.
Home Medical Equipment and Supplies. The Company provides a full line of
medical equipment and supplies to serve the needs of home healthcare patients.
Net revenues from medical equipment are derived principally from the rental and
sale of wheelchairs, hospital beds, ambulatory aids, bathroom aids and safety
equipment, patient lifts and rehabilitation equipment. In many of the Company's
markets, the Company maintains a retail store and showroom where patients may
purchase or rent supplies and miscellaneous equipment.
The Company benefits from cross-selling opportunities to provide home
medical equipment to its customers who also are receiving respiratory therapy or
infusion therapy. Published reports estimate that home
27
<PAGE> 28
medical equipment market revenues were approximately $1.6 billion in 1994, or 7%
of the total home health care market.
New Product Initiatives. In an effort to increase same-store net revenues
by offering value-added services, the Company has placed special emphasis on
packaging and marketing existing services as branded products. Examples of these
product initiatives include:
- Aermeds(TM). This program is designed to increase the Company's level of
aerosol medications business for both adult and pediatric patients, to
reduce associated costs in the delivery of this service and to ensure
optimum patient therapy compliance. The Aermeds(TM) program was introduced
in February 1996.
- EnterCare(TM). This program is the Company's comprehensive patient
management program designed specifically for enteral nutrition patients
who are suffering from a variety of neurological impairments or cancer.
Management believes this program provides opportunity for revenue
enhancement, particularly in newly acquired centers, and market share
increases in existing centers. The EnterCare(TM) program was implemented
in all centers in April 1995.
PAYOR MIX
The Company derives substantially all of its net revenues from third-party
payors, including Medicare, Medicaid and private insurers. The following table
sets forth the percentage of the Company's net revenues from each source
indicated for the years presented:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------- ------------
1993 1994 1995 1996
--- --- --- ------------
<S> <C> <C> <C> <C>
Medicare........................................... 51% 50% 46% 47%
Private pay, primarily private insurance and
managed care..................................... 40 39 42 40
Medicaid........................................... 9 11 12 13
--- --- --- ---
Total............................................ 100% 100% 100% 100%
=== === === ==========
</TABLE>
SALES AND MARKETING
Local Sales. The general manager at each Company center has primary
responsibility for net revenue development, cost control and coordination of
local sales efforts. Local sales generally are handled by a sales account
executive or a clinician. These individuals are responsible for building local
market share through traditional referral sources such as physicians, hospital
discharge planners, nursing agencies and hospice organizations. In addition, the
centers are responsible for cultivating managed care and strategic alliance
relationships in their local markets with guidance from regional and corporate
management.
Managed Care Sales. The Company's approach to managed care sales utilizes
its local operating and market strengths, supplemented by regional and corporate
managed care expertise. As a result of this strategy, American HomePatient
tripled the number of managed care contracts in 1995 from 54 contracts to 200
contracts. In addition, in 1996, the Company expects to begin utilizing the
CURE(TM) Report (Comprehensive Utilization Report and Evaluation), the Company's
managed care reporting system that provides a detailed accounting of home health
care utilization and cost indicators, to keep managed care organizations
informed of physician home health care related practice patterns and costs.
Hospital Joint Ventures and Strategic Alliances Development. The Company
has established a senior level, experienced operating team to lead its efforts
to develop additional hospital joint ventures and strategic alliances. An
executive officer of the Company assumed the responsibilities of Senior Vice
President -- Strategic Alliances in February 1996, and reports directly to the
Chief Executive Officer. The team also consists of two operations
vice-presidents and a financial analyst. In targeting hospital joint ventures
and strategic alliances, this team markets arrangements to regional and senior
executives in hospital systems and the chief executive officers of hospitals.
28
<PAGE> 29
Corporate Marketing Support. The Company's corporate marketing department
provides product and services planning and development, market research,
marketing communications, public and community relations and educational program
development for all of the Company's centers. The Company has primarily expanded
services by adding infusion, rehabilitation, pediatric and other services as
well as packaging and marketing existing services as branded products, such as
the Company's Aermeds(TM) and EnterCare(TM) programs. All marketing programs
introduced by the corporate marketing department are designed to meet the needs
of the Company's traditional referral sources as well as managed care
organizations and integrated health care delivery networks. Another recent
market initiative undertaken by the Company is the Professional Educational
Series, which provides local centers with both prepackaged and custom health
care seminars, lectures and in-service programs.
OPERATIONS
Organization. The Company's operations are divided into five geographic
areas, each headed by an area vice president. Each area vice president manages
three to five regional vice presidents or regional managers who each supervise
the operations of six to ten centers. Management believes this regional
organizational structure gives the Company expanded management flexibility and
enables it to accommodate continued growth. Specifically, it provides for a
greater focus on local market operations and control at the regional level,
while enabling area vice presidents to concentrate on achieving the Company's
strategic goals. Area vice presidents focus on consolidating certain functions
above the local level, identifying and integrating new acquisitions and
decentralizing certain management decisions to improve responsiveness in local
markets.
Each of the Company's centers typically is staffed with a general manager,
a business office manager, a director of patient services (normally a registered
nurse or respiratory therapist), registered nurses, clinical coordinators,
respiratory therapists, service technicians and customer service
representatives. In addition, the Company employs a licensed pharmacist in all
centers that provide a significant amount of infusion therapy.
The Company has achieved what management believes is a successful balance
between centralized and decentralized management. Management believes that home
health care is a local business dependent in large part on personal
relationships and, therefore, provides the Company's operating managers with a
significant degree of autonomy to encourage prompt and effective responses to
local market demands. In conjunction with this local operational authority, the
Company provides, through its corporate support center and area vice presidents,
sophisticated management support, marketing and managed care expertise, sales
training and support, product development services and financial and information
systems that typically are not readily available to independent operators. The
Company retains centralized control over those functions necessary to monitor
quality of patient care and to maximize operational efficiency. Services
performed at the corporate level include quality improvement oversight,
financial and accounting functions, policy and procedure development, system
design and corporate acquisitions and development.
Commitment to Quality. The Company's quality improvement programs are
designed to ensure that its service standards are properly implemented.
Management believes that the Company has developed and implemented service and
procedure standards that not only comply with, but often exceed, the standards
required by the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO"). All of the Company's centers are JCAHO-accredited or are in the
process of being reviewed for accreditation by JCAHO. The Company's goal is for
all newly-acquired centers to become accredited within one year of joining the
Company. The Company has Quality Advisory Boards at many of its centers, and
center general managers conduct quarterly quality improvement reviews. Quality
compliance audits are conducted by corporate or regional officers annually at
each center to ensure compliance with state, JCAHO and internal standards. The
Company's corporate philosophy for service excellence is its Personal Caring
Service Promise, which characterizes the Company's standards for quality care
and customer service.
Training and Retention of Quality Personnel. Management recognizes that
home health care is inherently a local business. In addition to retaining its
existing management team, the Company seeks to retain certain members of
management from its acquisitions. General managers aggressively recruit
knowledgeable local account executives capable of gaining new business from the
local medical community. In
29
<PAGE> 30
addition, the Company provides training to all new nurses, respiratory
therapists and pharmacy personnel as well as continuing education for existing
employees. In preparation for the expansion of managed care, the Company also
has implemented educational procedures designed to prepare employees to compete
in a managed care environment.
Management Information Systems. Management believes that an important
factor in the Company's continuing success will be the periodic refinement and
upgrading of its management information systems, which permit management to
monitor closely the activities of the Company's centers. These systems provide
monthly budget analyses, financial comparisons to prior periods and comparisons
among Company centers, thus enabling management to identify areas requiring
improvement. Medicare and many third-party payor claims are billed
electronically, thereby facilitating the collection of accounts receivable. In
addition, the Company's financial reporting system monitors certain key data for
each center, such as accounts receivable, payor mix, cash collections, net
revenues and operating trends. The Company also has focused upon quickly
integrating the systems of acquired centers as a part of its overall integration
efforts.
The Allowable Branch Cost Model(TM) is a productivity tool that allows
local managers to track the cost of delivering a specific product or service.
Because of the Company's rapid growth, it is impractical to attempt to have all
centers on the system, but it is the Company's goal to have, by the end of 1996,
at least the number of centers that account for approximately 60% of its revenue
using the Allowable Branch Cost Model.
HOSPITAL JOINT VENTURES AND STRATEGIC ALLIANCES
As of April 29, 1996, the Company had 16 home health care joint ventures
with hospitals or hospital systems. The Company intends to continue forming
joint ventures with hospitals and hospital systems in order to enter larger
markets with reduced financial risk and capitalize on the trend toward
integrated health care delivery networks that provide a full range of health
care services, including physician services, in-patient hospital care,
out-patient surgery, diagnostics and home health care.
The hospital joint ventures set forth below typically are 50/50% equity
partnerships with an initial term of between three and ten years and with the
following typical provisions: (i) the Company contributes assets of an existing
business in the designated market or contributes cash to fund half of the
initial working capital required for the hospital joint venture to commence
operations; (ii) the hospital partner contributes an amount of cash equal to the
Company's contribution; (iii) the Company is the managing partner for the
hospital joint venture and receives a monthly management and administrative fee;
(iv) all services of the hospital joint venture are provided by employees of the
Company; (v) all policies and procedures of the hospital joint venture are those
of the Company; and (vi) distributions, to the extent made, are generally made
on a quarterly basis. Within the hospital joint venture's designated market, all
net revenues generated by the Company from the provision of those services for
which the joint venture was formed are deemed to be net revenues of the hospital
joint venture, including revenues from sources other than the hospital joint
venture partner.
30
<PAGE> 31
The following table lists the Company's hospital joint venture partners and
locations:
<TABLE>
<CAPTION>
HOSPITAL JOINT VENTURE PARTNER LOCATION
--------------------------------------------------- -------------------
<S> <C>
Baptist Medical Center Montgomery, AL
Baptist Medical System (3 hospitals) Little Rock, AR
Baylor Health System (10 hospitals) Dallas, TX
Columbia/HCA Gainesville, FL
Columbia/HCA Jackson, TN
Columbia/HCA (11 hospitals) Nashville, TN
Columbia/HCA (5 hospitals) Richmond, VA
Columbia/HCA Roanoke, VA
Conway Hospital Conway, SC
Cooper Medical Center Camden, NJ
Fort Sanders Alliance (5 hospitals) Knoxville, TN
High Plains Baptist Hospital Amarillo, TX
Otsego Memorial Hospital Gaylord, MI
Piedmont Medical Center Rock Hill, SC
Spruce Pine Community Hospital Spruce Pine, NC
Tolfree Memorial Hospital West Branch, MI
</TABLE>
To further its strategy of aligning with hospitals and hospital systems,
the Company also has developed numerous multi-year strategic alliance contracts.
These contracts enable the Company to be the preferred provider of home
respiratory services, home infusion services and medical equipment for patients
referred from certain hospitals in selected markets. Recent contracts include
Columbia/HCA North Florida Division (eight hospitals), Scottsdale, Arizona
Memorial (two hospitals), Columbia/HCA Jacksonville, Florida (three hospitals),
Columbia/HCA Treasure Coast, Florida (three hospitals), Columbia/HCA Oklahoma
(nine hospitals) and Lubbock Methodist Hospital System (three hospitals).
COMPETITION
The home health care market is highly fragmented and competition varies
significantly from market to market. In the small and mid-size markets in which
the Company primarily operates, the majority of its competition comes from local
independent operators or hospital-based facilities, whose primary competitive
advantage is market familiarity. In the larger markets, regional and national
providers account for a significant portion of the competition. Management
believes that the competitive factors most important in the Company's lines of
business are quality of care and service, reputation with referral sources, ease
of doing business with the provider, ability to develop and to maintain
relationships with referral sources, competitive prices and the range of
services offered. Some of the Company's present and potential competitors are
significantly larger than the Company and have, or may obtain, greater financial
and marketing resources than the Company. In addition, there are relatively few
barriers to entry in the local markets served by the Company, and it may
encounter substantial competition from new market entrants.
Competition within the industry has been affected by the decision of
third-party payors and their case managers to become more active in monitoring
and directing the care delivered to their beneficiaries. Accordingly,
relationships with such payors and their case managers and inclusion within
preferred provider and other networks of approved or accredited providers may
become a prerequisite to the Company's ability to service a particular patient
base. Similarly, the ability of the Company and its competitors to align
themselves with other health care providers may increase in importance as
managed care providers and provider networks seek out providers who offer a
broad range of services and geographic coverage.
31
<PAGE> 32
INSURANCE
The Company maintains a professional liability policy in the amount of $1.0
million per occurrence and an annual aggregate limit of $3.0 million. American
HomePatient also carries an excess liability umbrella policy in the amount of
$25.0 million per occurrence and up to $25.0 million annual aggregate. Hospital
joint ventures and partnership arrangements typically have an additional product
liability policy in the amount of $1.0 million per occurrence and an aggregate
limit of $2.0 million, and a professional liability policy in the amount of $1.0
million per occurrence and an aggregate limit of $3.0 million. Hospital joint
ventures also are covered under the Company's liability umbrella coverage. The
Company maintains a product liability policy on the medical equipment that it
sells or rents with coverage limits of up to $1.0 million per occurrence and an
annual aggregate limit of $2.0 million.
32
<PAGE> 33
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Morris A. Perlis(1).......................... 47 Chairman
Edward K. Wissing(1)......................... 58 President and Chief Executive Officer,
Director
Thomas E. Mills.............................. 41 Senior Vice President -- Strategic
Alliances
Mary Ellen Rodgers........................... 44 Senior Vice President, Chief Financial
Officer, Secretary
Allan C. Silber(1)(2)........................ 47 Director
Henry T. Blackstock(2)(3)(4)................. 52 Director
Edward Sonshine(3)(4)........................ 49 Director
Joseph F. Furlong III(3)..................... 47 Director
Thomas Dattilo(2)............................ 44 Director
Mark Manner.................................. 44 Director
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) Member of Disinterested Stock Option Committee.
Mr. Perlis has been Chairman of the Company since May 1994 and a director
since March 1993. He has served as a director of and consultant to Counsel, a
publicly traded Ontario, Canada corporation primarily engaged in health care and
real estate asset management, since September 1992 as Chief Executive Officer
and a director of the Selling Stockholder since February 1995, and as President
of Counsel and Chairman and President of Counsel Healthcare Assets Inc. ("CHA")
since January 1994. He has served as a director of NOMA, Inc., a manufacturer of
consumer wire and cable, since September 1993 and as a director of Capstone
Pharmacy Services, Inc. ("Capstone"), an institutional pharmacy company, since
December 1994. Mr. Perlis was President of Morris A. Perlis & Assoc., an
executive management consulting firm, from September 1992 until January 1994 and
President of American Express Canada, Inc. from September 1988 until September
1992.
Mr. Wissing, a founder of the Company in 1983, became the President and
Chief Executive Officer of the Company in May 1994. From September 1991 until
May 1994, he served as Executive Vice President of the Company as well as
President and Chief Executive Officer of the Company's subsidiary, American
HomePatient, Inc., a Tennessee corporation ("AHP") that had been the Company's
home health care subsidiary. Mr. Wissing served as President and Chief Executive
Officer of DCAmerica Inc. ("DCA"), a wholly-owned subsidiary of Counsel, from
June 1988 to September 1991.
Mr. Mills has served as Senior Vice President -- Strategic Alliances since
February 1996. He served as Senior Vice President and Chief Operating Officer of
the Company from June 1994 until February 1996 and served as the Secretary of
the Company from May 1994 until June 1994. Mr. Mills served as Senior Vice
President of AHP from February 1992 until August 1992 and as Chief Operating
Officer of AHP from August 1992 until June 1994. Mr. Mills has served as Vice
President of American HomePatient Ventures, Inc. since July 1992. Mr. Mills
served as President of Marquest Health Services, Inc., a home health care
provider, from August 1983 until February 1992.
Ms. Rodgers became Senior Vice President, Chief Financial Officer and
Secretary of the Company on April 1, 1996. She served as Financial
Director/Controller of Eli Lilly and Company, Information Technology
33
<PAGE> 34
Division, an international pharmaceutical company, from September 1994 until
October 1995, and Controller of Eli Lilly and Company, Lilly Research
Laboratories, from March 1990 until May 1994. Ms. Rodgers has been a director of
Peoples Bank & Trust Company of Indianapolis, Indiana since April 1991.
Mr. Silber has served as a director of the Company since September 1991 and
served as its Chairman from September 1991 to May 1994. Mr. Silber has been
Chairman, Chief Executive Officer and a director of Counsel since August 1979.
He served as President of Counsel from August 1979 until January 1994. Mr.
Silber also has served as Chairman of Counselcare Ltd. ("Limited"), DCA and
certain other subsidiaries of Counsel since October 1988; as President of DCA
since May 1994; as Chairman and President of the Selling Stockholder since
February 1995; and as a director of CHA since March 1983. Mr. Silber has served
as a director of Advocat, a long term health care company, since January 1994
and as a director of Capstone since December 1994. Mr. Silber has also been a
member of the Advisory Committee of RioCan Real Estate Investment Trust since
July 1995 and a director of O&Y Properties, Inc. since November 1995.
Mr. Blackstock has served as a director of the Company since September
1991. He has served as Chairman and Chief Executive Officer of Tucker Management
Group, a hedge fund management firm, since July 1989. He served as Chairman of
Ansley Investments, Incorporated, an investment banking firm, from June 1988
until July 1989.
Mr. Sonshine has served as a director of the Company since September 1991.
Mr. Sonshine served as Executive Vice President of Counsel from February 1987
until January 1994; as Chairman, President and Chief Executive Officer of
Counsel Management Services, Inc. since October 1993; as Vice Chairman of
Counsel since January 1994; as a director of Counsel since August 1979; and as a
director of CHA since March 1983. Mr. Sonshine served as President and Chief
Executive Officer of Icarus Realty Corp. from February 1987 until September 1993
and has been a director of Capstone since December 1994 and Advocat since May
1995.
Mr. Furlong has served as a director of the Company since June 1994. Mr.
Furlong has been a partner with Colman Furlong & Co. ("Colman Furlong"), a
merchant banking firm, since February 1991. Mr. Furlong has served as a director
of Capstone since December 1994.
Mr. Dattilo has served as a director of the Company since June 1994. Mr.
Dattilo has served as President of Dana Corporation, Victor Products Division, a
manufacturer and distributor of sealing products, since January 1994. From March
1990 until March 1993, Mr. Dattilo served as President and a director of Hayes-
Dana, Inc., a manufacturer of automotive parts.
Mr. Manner has served as a director of the Company since May 1995. Mr.
Manner has been a partner of Harwell Howard Hyne Gabbert & Manner, P.C.
("Harwell Howard"), a Nashville, Tennessee law firm, for more than five years.
The Certificate of Incorporation and Bylaws provide for the Board of
Directors of the Company to be divided into three classes, as nearly equal in
number as possible. The term of the Class 2 directors, Messrs. Perlis and
Furlong, will expire at the 1996 annual meeting of stockholders; the term of the
Class 3 directors, including Messrs. Wissing, Silber and Sonshine, will expire
at the 1997 annual meeting of stockholders; and the term of the Class 1
directors, Messrs. Blackstock, Dattilo and Manner, will expire at the 1998
annual meeting of stockholders (and in all cases when their respective
successors are duly elected and qualified). At each annual meeting of
stockholders, successors to the class of directors whose terms expire at such
meeting will be elected to serve for three-year terms or until their successors
are duly elected and qualified.
34
<PAGE> 35
CERTAIN TRANSACTIONS
Joseph F. Furlong III, a director of the Company, is a partner of the
merchant banking firm Colman Furlong. During 1995, the Company engaged Colman
Furlong to assist in the acquisition of ConPharma and the structuring of the
Line of Credit for which Colman Furlong was paid approximately $600,000. Mark
Manner, a director of the Company, is a partner of the law firm of Harwell
Howard which the Company engaged during 1995 to render legal advice in a variety
of activities for which Harwell Howard was paid approximately $1.1 million.
Harwell Howard continues to render legal advice to the Company and has, during
1996, been paid in excess of $60,000. The terms of Harwell Howard's employment
are reviewed and approved by members of the Board of Directors not affiliated
with Mr. Manner.
The Company has entered into a consulting agreement (the "Consulting
Agreement") with Mr. Silber, a director of the Company and Chairman of the Board
of Directors, Chief Executive Officer and principal stockholder of Counsel, to
provide certain services to the Company, including the identification and
analysis of potential new businesses to be considered for acquisition. The
Consulting Agreement had an initial term of one year beginning January 1992 and
is renewable by agreement of Mr. Silber and the Company, subject to approval by
a majority of the disinterested members (currently Messrs. Blackstock, Sonshine,
Furlong, Dattilo and Manner) of the Company's Board of Directors. The Consulting
Agreement was most recently renewed on March 7, 1996 for an additional one-year
term. The Consulting Agreement provides for a base monthly consulting fee of
$20,000, with a bonus at the discretion of the Board of Directors of up to
$60,000 annually based on performance. Mr. Silber received a bonus of $60,000 in
1995 in connection with services performed in 1994, and an additional $240,000
for services performed in 1995 pursuant to the Consulting Agreement. Mr. Silber
is eligible for a $60,000 bonus in 1996 in connection with services performed in
1995.
The Company entered into an agreement with MedServ Corporation ("MedServ")
and certain of its stockholders dated March 31, 1995 ("Option Agreement")
whereunder the Company was granted a six month option to purchase certain home
care assets from MedServ located in Wisconsin and agreed to settle certain
claims for indemnification arising out of the purchase by the Company of certain
assets from MedServ in July 1994 (the "MedServ Acquisition"). Pursuant to the
terms of the Option Agreement, the Company received approximately $110,000 from
MedServ in settlement of its claims against MedServ arising out of the MedServ
Acquisition, and the Company and MedServ executed mutual general releases of all
claims arising out of the MedServ Acquisition or otherwise, except for certain
on-going agreements between them arising out of the MedServ Acquisition relating
to office space and billing services. The transactions agreed to by the Company
in the Option Agreement were approved by the Executive Committee of the Board of
Directors of the Company without regard to the vote of those members of the
Executive Committee (Messrs. Silber and Perlis) affiliated with Counsel, DCA,
the Selling Stockholder and its affiliates. At the time of closing of the
MedServ Acquisition, DCA acquired a 33% ownership interest in MedServ and
engaged in certain other transactions with MedServ, including the election to
the Board of Directors of MedServ of Allan C. Silber, a director of the Company.
Prior to the MedServ Acquisition, no affiliate of the Company was affiliated
with MedServ. Subsequent to the purchase of the MedServ shares by DCA, DCA
transferred such shares to Counsel, its indirect parent. Pursuant to an
agreement with MedServ dated March 31, 1995 ("Counsel -- MedServ Agreement"),
Counsel sold all shares of MedServ owned by it to MedServ for a cash payment,
and the parties executed mutual releases. Following closing of the transactions
under the Counsel-MedServ Agreement, Counsel has no further equity or other
interest in MedServ and Mr. Silber no longer serves on the Board of Directors of
MedServ.
Mr. Sonshine, a director of the Company, is also a director of Counsel and
CHA and President and Chief Executive Officer of Counsel Management Services,
Inc. Mr. Perlis, the Chairman of the Company's Board of Directors, is also a
director and President of Counsel and a director, Chairman of the Board of
Directors and President of CHA. Mr. Perlis has also been a consultant to Counsel
and its affiliates under the terms of an agreement which terminated in March
1994. Mr. Perlis receives a fee of $8,500 per month from the Company in
connection with his services thereto, including serving as Chairman of the
Company's Board of Directors.
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<PAGE> 36
The Company believes that any past transactions with its affiliates have
been at prices and on terms no less favorable to the Company than transactions
with independent third parties would have been. The Company may enter into
transactions with its affiliates in the future. However, the Company intends to
enter into such transactions only at prices and on terms no less favorable to
the Company than transactions with independent third parties and with approval
of the disinterested members of the Board of Directors or a committee thereof.
In addition, the Company's debt instruments generally prohibit the Company from
entering into any such affiliate transaction on other than arm's length terms.
36
<PAGE> 37
STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The table below sets forth, as of April 29, 1996 and as adjusted for the
Offering, the number and percentage of outstanding shares of the Company's
Common Stock owned by all persons known to the Company to be holders of 5% or
more of such securities, by all directors, by each of the executive officers of
the Company and by all directors and executive officers of the Company as a
group. Unless otherwise indicated, all holdings are of record and beneficial.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE SHARES TO OWNED AFTER THE
OFFERING(1) BE SOLD OFFERING(1)
---------------------- IN THE ------------------------
NAME NUMBER PERCENT(2) OFFERING(1) NUMBER PERCENT(2)
- ----------------------------------------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Counsel Corporation(3)................... 3,165,750 40.7% 500,000 2,665,750 28.7%
Two First Canadian Place
Suite 1300
Toronto, Ontario M5X 1E3
Nicholas Company, Inc.(4)................ 447,390 5.7 -- 447,390 4.8
700 North Water Street
Milwaukee, Wisconsin 53202
Metropolitan Life Insurance Company(5)... 424,400 5.4 -- 424,400 4.6
One Madison Avenue
New York, New York 10010
Allan C. Silber(3)(8).................... 102,000 1.3 -- 102,000 1.1
Henry T. Blackstock(9)................... 7,000 * -- 7,000 *
Edward Sonshine(10)...................... 2,000 * -- 2,000 *
Morris A. Perlis(11)..................... 102,000 1.3 -- 102,000 1.1
Edward K. Wissing(6)..................... 155,237 2.0 -- 155,237 1.6
Joseph F. Furlong III(13)................ 33,701 * -- 33,701 *
Thomas A. Dattilo(12).................... 17,000 * -- 17,000 *
Thomas E. Mills(7)....................... 21,369 * -- 21,369 *
Mary Ellen Rodgers(14)................... 6,667 * -- 6,667 *
Mark Manner(15).......................... 12,000 * -- 12,000 *
All directors and executive officers as a
group(16) (10 persons)................. 458,974 5.6 -- 458,974 4.7
</TABLE>
- ---------------
(1) Unless otherwise indicated, the persons or entities identified in this
table have sole voting and investment power with respect to all shares
shown as beneficially owned by them, subject to community property laws,
where applicable. Shares assume the over-allotment options are not
exercised.
(2) The percentages shown are based on 7,787,474 shares of Common Stock
outstanding on April 29, 1996, plus, as to each individual and group
listed, the number of shares of Common Stock deemed to be owned by such
holder pursuant to Rule 13d-3 under the Exchange Act, which includes shares
subject to stock options and warrants held by such holder which are
exercisable within sixty (60) days of April 29, 1996. The percentages shown
after the Offering are based on the assumption that 9,287,474 shares of
common stock will be outstanding at the closing of the Offering.
(3) Counsel owns 100% of CHA, which owns 100% of Limited, which owns 100% of
DCA, which owns 100% of the Selling Stockholder, which directly
beneficially owns the shares of Common Stock listed above. Directors
Silber, Sonshine and Perlis are directors of Counsel and CHA, and directors
Silber and Perlis are directors of Limited, DCA and the Selling
Stockholder. Director Silber beneficially owns or controls approximately
25% of the common stock of Counsel, a majority of which is pledged to a
lender. Directors Sonshine and Perlis own in the aggregate less than 5% of
Counsel's common stock. All of the directors listed in this footnote (3)
disclaim beneficial ownership of shares of Common Stock in their capacity
as directors of Counsel, CHA, Limited, DCA and the Selling Stockholder. Mr.
Silber also disclaims beneficial ownership of shares of Common Stock in his
capacity as a stockholder of Counsel.
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<PAGE> 38
(4) Information included was derived from a Schedule 13G filed jointly by
Nicholas Company, Inc. and Albert O. Nicholas claiming sole dispositive
power with respect to 447,390 shares for which Nicholas Company, Inc.
provides investment advisory services. Mr. Nicholas disclaims beneficial
ownership of such securities.
(5) Information included was derived from a Schedule 13G filed by Metropolitan
Life Insurance Company claiming sole voting and dispositive power with
respect to 424,400 shares, including 419,500 shares beneficially owned by
its subsidiary, State Street Research and Management Company, Inc., a
registered investment adviser.
(6) Includes 25,000, 25,000, 50,000 and 50,000 shares purchasable upon exercise
of options at $15.00, $23.75, $24.75, and $26.25 per share, respectively,
issued under the 1991 Nonqualified Option Plan (the "1991 Option Plan") and
2,000 shares purchasable upon exercise of options at $29.50 issued under
the 1995 Nonqualified Stock Option Plan for Directors (the "1995 Director
Plan").
(7) Includes 18,000 and 2,666 shares purchasable upon exercise of options at
$24.75 and $26.25 per share, respectively, issued under the 1991 Option
Plan.
(8) Includes 50,000 and 50,000 shares purchasable upon exercise of options at
$24.75 and $26.25 per share, respectively, issued under the 1991 Option
Plan and 2,000 shares purchasable upon exercise of options at $29.50 issued
under the 1995 Director Plan. Does not include shares of Common Stock
beneficially owned by Counsel. See note (3) above.
(9) Includes 5,000 shares purchasable upon exercise of options at $9.00 per
share issued under 1991 Option Plan and 2,000 shares purchasable upon
exercise of options at $29.50 issued under the 1995 Director Plan.
(10) Includes 2,000 shares purchasable upon exercise of options at $29.50 per
share issued under the 1995 Director Plan.
(11) Includes 50,000 and 50,000 shares purchasable upon exercise of options at
$24.75 and $26.25 per share, respectively, issued under the 1991 Option
Plan and 2,000 shares purchasable upon exercise of options at $29.50 issued
under the 1995 Director Plan.
(12) Includes 10,000 and 5,000 shares purchasable upon exercise of options at
$15.0625 and $24.75 per share, respectively, issued under the 1991 Option
Plan and 2,000 shares purchasable upon exercise of options at $29.50 issued
under the 1995 Director Plan.
(13) Includes 6,030 restricted shares and another 10,671 shares subject to a
stock purchase warrant at $11.00 per share in connection with consulting
services provided to the Company. Also includes 10,000 and 5,000 shares
purchasable upon exercise of options at $15.0625 and $24.75 per share,
respectively, issued under the 1991 Option Plan and 2,000 shares
purchasable upon exercise of options at $29.50 issued under the 1995
Director Plan.
(14) Includes 6,667 shares purchasable upon exercise of options at $33.75 per
share issued under the 1991 Option Plan.
(15) Includes 5,000 shares purchasable upon exercise of options at $31.00 issued
under the 1991 Option Plan and 5,000 and 2,000 shares purchasable upon
exercise of options at $31.00 and $29.50, respectively, issued under the
1995 Director Plan.
(16) Includes 417,167 and 21,000 shares purchasable upon exercise of options
issued under the 1991 Option Plan and the 1995 Director Plan, respectively,
and 10,671 shares purchasable upon exercise of a warrant.
38
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 12,000,000 shares of Common Stock $0.01
par value per share (the "Common Stock") and 1,000,000 shares of Serial
Preferred Stock par value $0.01 per share (the "Preferred Stock"). At April 29,
1996, there were 7,787,474 shares of Common Stock outstanding, and no shares of
Preferred Stock outstanding. The Company intends to seek stockholder approval to
increase the number of authorized shares of Common Stock from 12,000,000 to
35,000,000 and shares of Preferred Stock from 1,000,000 to 5,000,000 in order to
allow the Company to, among other things, effectuate a planned 3-for-2 stock
split.
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Certificate of Incorporation and
the Bylaws, copies of which are filed as exhibits to the Company's Registration
Statement on Form S-2 (File No. 33-89568) filed April 10, 1995.
COMMON STOCK
The Company's Certificate of Incorporation authorizes 12,000,000 shares of
$0.01 par value Common Stock. Holders of the Common Stock are entitled to one
vote per share on all matters to be voted on by the stockholders. The
Certificate of Incorporation does not provide for cumulative voting and,
accordingly, the holders of a majority of the outstanding shares have the power
to elect all directors and to control the resolution of all issues put to a vote
of the stockholders. The quorum required at a stockholders' meeting for
consideration of any matter is a majority of the shares entitled to vote on that
matter, represented in person or by proxy. If a quorum is present, the
affirmative vote of a plurality of the shares voting at the meeting will
determine election of directors and a majority of the shares voting at the
meeting on any other matter is required for stockholder approval.
The shares of Common Stock have the following rights, subject, in each
case, to the rights of the holders of any outstanding Preferred Stock: (i) to
receive dividends, if any, as may be declared and paid from time to time by the
Board of Directors, in its discretion, from funds legally available therefor,
and (ii) upon liquidation, dissolution or winding up of the Company, to receive
pro rata all assets remaining available for distribution. See, however,
"Dividend Policy." There are no preemptive or other subscription rights,
conversion rights, or redemption or sinking fund provisions with respect to
shares of the Common Stock. All shares of the Common Stock outstanding upon
consummation of the Offering will be validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company's Board of Directors may authorize the issuance of up to
1,000,000 shares of Preferred Stock in one or more series, and may fix by
resolution, to the extent permitted by the DGCL, the terms and rights of each
such series, including the voting powers, full or limited, if any, of the shares
of such series and the designations, preferences, and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof. The issuance of Preferred Stock by action of the Board of
Directors could adversely affect the voting power, dividend rights and other
rights of holders of the Common Stock. Issuance of a series of Preferred Stock
could also, depending on the terms of such series, either impede or facilitate
the completion of a merger, tender offer or other takeover attempt. Although the
Board of Directors is required to make a determination as to the best interests
of the stockholders of the Company when issuing Preferred Stock, the Board of
Directors could act in a manner that would discourage an acquisition attempt or
other transaction that some, or a majority, of the stockholders might believe to
be in the best interests of the Company or in which stockholders might receive a
premium for their stock over the then prevailing market price. Although there
are currently no plans to issue shares of Preferred Stock, or rights to purchase
such shares, management believes that the availability of the Preferred Stock
will provide the Company with increased flexibility in structuring possible
future financings and acquisitions and in meeting other corporate needs that may
arise. The authorized shares of Preferred Stock are available for issuance
without further action by the Company's stockholders, unless such action is
required by applicable law or the rules of any stock exchange on which the
Common Stock may then be listed.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is SunTrust Bank,
N.A.
39
<PAGE> 40
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Equitable
Securities Corporation, Lehman Brothers Inc., Wheat, First Securities, Inc. and
BT Securities Corporation are acting as Representatives, have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock set forth below
opposite their respective names:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Equitable Securities Corporation..................................... 500,000
Lehman Brothers Inc.................................................. 500,000
Wheat, First Securities, Inc......................................... 500,000
BT Securities Corporation............................................ 500,000
----------------
Total...................................................... 2,000,000
=============
</TABLE>
The Company and the Selling Stockholder are obligated to sell 1,500,000 and
500,000 shares, respectively, and the Underwriters are obligated to purchase all
of the 2,000,000 shares of Common Stock offered hereby, if any shares are
purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholder that they propose to offer the shares of Common
Stock to the public at the public offering price set forth on the cover page of
this Prospectus; that the Underwriters may allow to selected dealers at such
price less a concession not in excess of $1.00 per share of Common Stock; and
that such selected dealers may reallow a concession not in excess of $.10 per
share of Common Stock to certain other brokers and dealers. After the public
offering, the offering price and the concessions may be changed by the
Representatives.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase at the public offering price, less
the underwriting discount, as set forth on the cover page of this Prospectus, up
to 150,000 additional shares of Common Stock. The Selling Stockholder has
granted the Underwriters an option, exercisable for 30 days from the date of
this Prospectus, to purchase at the public offering price, less the underwriting
discount, as set forth on the cover page of this Prospectus, up to 150,000
additional shares of Common Stock. If the Underwriters exercise their options to
purchase any of the additional shares of Common Stock, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by each of them as shown in the above table bears to the
Underwriters' initial commitment. The Underwriters may exercise such options
only to cover over-allotments in connection with the sale of Common Stock
offered hereby. The Underwriters, should they exercise their over-allotment
options, will exercise such options on a pro rata basis.
In connection with this Offering, certain Underwriters and selling group
members, if any, or their respective affiliates who are qualified registered
market makers on the Nasdaq Stock Market may engage in passive market making on
the Nasdaq Stock Market in accordance with Rule 10b-6A under the Exchange Act
during the two business day period before the commencement of the offers or
sales of the Common Stock. The passive market making transactions must comply
with applicable volume and price limits and be identified as such. In general, a
passive market maker may display its bid of a price not in excess of the highest
independent bid for such security if all independent bids are lowered when
certain purchase limits are exceeded.
The Selling Stockholder, the Company and the Company's directors and
executive officers have agreed that they will not offer, pledge, issue, sell,
contract to sell, grant any option for the sale of or otherwise dispose of any
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock for a period of 90 days after the
date of this Prospectus without the prior written consent of the
Representatives, subject to certain exceptions.
The Underwriting Agreement provides that the Company and the Selling
Stockholder will severally indemnify the several Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
40
<PAGE> 41
Bankers Trust, an affiliate of BT Securities Corporation, an Underwriter,
is the agent and one of the lenders under the Company's Line of Credit, for
which it receives interest income and customary fees.
Some or all of the net proceeds to the Company from this Offering will be
applied to reduce indebtedness on the Company's Line of Credit. See "Use of
Proceeds." Because more than 10% of the net proceeds of the Offering will be
paid to an affiliate of BT Securities Corporation, a member of the National
Association of Securities Dealers, Inc. (the "NASD") and a participant in the
distribution of the Common Stock being offered hereby, this Offering is being
made pursuant to the provisions of Article III, Section 44(c)(8) of the NASD
Rules of Fair Practice.
The Underwriters have represented and agreed that (i) they have not offered
or sold and will not offer to sell any shares of Common Stock to persons in the
United Kingdom, except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purpose of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 or the
Financial Services Act 1986 (the "Act"), (ii) they have complied and will comply
with all applicable provisions of the Act with respect to anything done by them
in relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom and (iii) they have only issued or passed on, and will only issue
or pass on, in the United Kingdom, any document which consists of or any part of
listing particulars, supplementary listing particulars, or any other document
required or permitted to be published by listing rules under Part IV of the Act,
to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a
person to whom the document may otherwise lawfully be issued or passed on.
LEGAL MATTERS
The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company by Harwell Howard Hyne Gabbert &
Manner, P.C., Nashville, Tennessee. A partner of such law firm is a director of
the Company. See "Certain Transactions." Certain legal matters in connection
with the Offering will be passed upon for the Underwriters by Stroock & Stroock
& Lavan, New York, New York.
EXPERTS
The capitalized terms used below, which are not otherwise defined in this
Prospectus, are defined in the notes to the financial statements incorporated
herein by reference.
The audited financial statements of the Company, the Illinois Home Health
Business, the Mobile Medical Services Business, the Homehealth Center Business
and the Delcrest Medical Business, incorporated by reference into this
Prospectus and elsewhere in this Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto and are incorporated herein in reliance upon the authority of said firm
as experts in giving said reports.
The audited financial statements of ConPharma Home HealthCare, Inc. and
subsidiaries incorporated by reference in this Prospectus and elsewhere in this
Registration Statement, to the extent and for the periods indicated in their
report, have been audited by Coopers & Lybrand L.L.P., independent public
accountants, and are incorporated herein in reliance upon the authority of such
firm as experts in giving said reports.
The audited financial statements of Life Support Products incorporated by
reference in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, to the extent and for the periods
indicated in their report, also incorporated by reference. Such financial
statements have been incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The audited financial statements of The Homecare Business incorporated by
reference in this Prospectus and elsewhere in this Registration Statement, to
the extent and for the period indicated in their report, have been audited by
KPMG Peat Marwick LLP, independent public accountants, and are incorporated
herein in reliance upon the authority of such firm as experts in accounting and
auditing.
41
<PAGE> 42
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO
CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO
THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................ 3
Incorporation of Certain Information
by Reference....................... 3
Prospectus Summary................... 4
Risk Factors......................... 7
Use of Proceeds...................... 10
Selling Stockholder.................. 10
Dividend Policy...................... 10
Capitalization....................... 11
Selected Consolidated Financial
Data............................... 12
Pro Forma Unaudited Consolidated
Financial Data..................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 16
Business............................. 23
Management........................... 33
Certain Transactions................. 35
Stock Ownership of Directors,
Executive Officers and Principal
Holders............................ 37
Description of Capital Stock......... 39
Underwriting......................... 40
Legal Matters........................ 41
Experts.............................. 41
</TABLE>
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2,000,000 SHARES
[AMERICAN HOMEPATIENT LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
EQUITABLE SECURITIES CORPORATION
LEHMAN BROTHERS
WHEAT FIRST BUTCHER SINGER
BT SECURITIES CORPORATION
May 21, 1996
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