<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
CHECK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM _________ TO _________.
AMERICAN HOMEPATIENT, INC.
--------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-19532 62-1474680
- ------------------------------- ------------ ---------------------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) FILE NUMBER)
5200 MARYLAND WAY, SUITE 400, BRENTWOOD, TENNESSEE 37027
--------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(615) 221-8884
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF
CHANGED SINCE LAST REPORT.)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
14,851,076
- --------------------------------------------------------------------------------
(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF NOVEMBER 7, 1997)
TOTAL NUMBER OF SEQUENTIALLY
NUMBERED PAGES IS 20
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,299,000 $ 6,544,000
Restricted cash 425,000 50,000
Accounts receivable, less allowance for doubtful accounts of
$18,755,000 and $47,548,000, respectively 79,460,000 96,969,000
Inventories 21,921,000 21,935,000
Prepaid expenses and other assets 1,353,000 3,355,000
Income tax receivable 872,000 15,747,000
Deferred tax asset 7,470,000 7,470,000
------------- -------------
Total current assets 118,800,000 152,070,000
------------- -------------
PROPERTY AND EQUIPMENT, at cost 95,254,000 123,181,000
Less accumulated depreciation and amortization (38,384,000) (56,591,000)
------------- -------------
Net property and equipment 56,870,000 66,590,000
------------- -------------
OTHER ASSETS
Excess of cost over fair value of net assets acquired, net 198,193,000 238,762,000
Investment in unconsolidated joint ventures 12,405,000 18,158,000
Deferred costs, net 2,761,000 2,621,000
Other assets 6,582,000 16,286,000
------------- -------------
Total other assets 219,941,000 275,827,000
------------- -------------
$ 395,611,000 $ 494,487,000
============= =============
</TABLE>
(Continued)
2
<PAGE> 3
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt and capital leases $ 10,245,000 $ 8,956,000
Trade accounts payable 8,698,000 11,023,000
Other payables 775,000 981,000
Accrued expenses:
Payroll and related benefits 6,672,000 5,689,000
Restructuring accrual -- 17,318,000
Other 8,398,000 8,676,000
------------- -------------
Total current liabilities 34,788,000 52,643,000
------------- -------------
NONCURRENT LIABILITIES
Long-term debt and capital leases, less current portion 139,458,000 247,822,000
Deferred income taxes 4,578,000 4,603,000
Other noncurrent liabilities 1,145,000 1,224,000
------------- -------------
Total noncurrent liabilities 145,181,000 253,649,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000
shares; none issued and outstanding -- --
Common stock, $.01 par value; authorized 35,000,000
shares; issued and outstanding, 14,677,000 and 14,843,000
shares, respectively 147,000 148,000
Paid-in capital 166,780,000 169,987,000
Retained earnings 48,715,000 18,060,000
------------- -------------
Total stockholders' equity 215,642,000 188,195,000
------------- -------------
$ 395,611,000 $ 494,487,000
============= =============
</TABLE>
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these statements.
3
<PAGE> 4
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Sales and related service revenues $ 32,101,000 $ 48,074,000 $ 82,916,000 $ 130,726,000
Rentals and other revenues 38,213,000 52,706,000 102,132,000 145,955,000
Earnings from joint ventures 1,666,000 1,871,000 4,403,000 5,345,000
------------- ------------- ------------- -------------
Total revenues 71,980,000 102,651,000 189,451,000 282,026,000
------------- ------------- ------------- -------------
EXPENSES
Cost of sales and related services, excluding
depreciation and amortization 15,449,000 31,085,000 40,463,000 72,442,000
Operating 36,570,000 70,163,000 96,376,000 162,345,000
General and administrative 4,475,000 4,130,000 12,044,000 11,761,000
Depreciation and amortization 6,544,000 9,013,000 17,093,000 24,526,000
Interest 1,932,000 4,553,000 5,926,000 11,450,000
Restructuring charge -- 33,829,000 -- 33,829,000
Goodwill impairment -- 8,165,000 -- 8,165,000
------------- ------------- ------------- -------------
Total expenses 64,970,000 160,938,000 171,902,000 324,518,000
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS BEFORE
INCOME TAXES 7,010,000 (58,287,000) 17,549,000 (42,492,000)
PROVISION (BENEFIT) FOR INCOME TAXES 2,706,000 (18,091,000) 6,774,000 (11,836,000)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 4,304,000 $ (40,196,000) $ 10,775,000 $ (30,656,000)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 15,010,000 15,022,000 13,414,000 15,030,000
============= ============= ============= =============
INCOME (LOSS) PER SHARE $ 0.29 $ (2.68) $ 0.80 $ (2.04)
============= ============= ============= =============
</TABLE>
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these statements.
4
<PAGE> 5
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30
------------------------------
1996 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $ 10,775,000 $ (30,656,000)
Adjustments to reconcile net income (loss) from operations
to net cash provided from (used in) operating activities:
Depreciation and amortization 17,093,000 24,526,000
Equity in earnings of unconsolidated joint ventures (2,340,000) (2,806,000)
Minority interest 111,000 147,000
Goodwill impairment and write-off -- 20,305,000
Other non-cash charges -- 26,877,000
Change in assets and liabilities, net of effects from acquisitions:
Receivables, net (10,595,000) (20,298,000)
Restricted cash (50,000) 375,000
Inventories (1,465,000) 631,000
Prepaid expenses and other 14,000 (1,922,000)
Income taxes receivable (547,000) (14,538,000)
Trade accounts payable, accrued expenses
and other current liabilities (7,377,000) (6,108,000)
Restructuring accrual -- 17,320,000
Other assets (420,000) (1,772,000)
------------ -------------
Net cash provided from operating activities 5,199,000 12,081,000
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (74,302,000) (99,326,000)
Additions to property and equipment, net (14,831,000) (24,801,000)
Distributions to unconsolidated joint ventures,
net of advances (1,103,000) (322,000)
Distributions to minority interest owners (9,000) (109,000)
------------ -------------
Net cash used in investing activities (90,245,000) (124,558,000)
------------ -------------
</TABLE>
(Continued)
5
<PAGE> 6
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Continued)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30
------------------------------
1996 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and capital leases (9,248,000) (9,509,000)
Proceeds from issuance of debt 25,300,000 119,345,000
Proceeds from exercise of stock options 2,365,000 2,258,000
Deferred financing costs (1,309,000) (372,000)
Proceeds from equity offering, net 66,032,000 --
------------ -------------
Net cash provided from financing activities 83,140,000 111,722,000
------------ -------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,906,000) (755,000)
CASH AND CASH EQUIVALENTS, beginning of period 4,224,000 7,299,000
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 2,318,000 $ 6,544,000
============ =============
SUPPLEMENTAL INFORMATION:
Cash payments of interest $ 6,058,000 $ 11,418,000
============ =============
Cash payments of income taxes $ 7,588,000 $ 2,493,000
============ =============
</TABLE>
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these statements.
6
<PAGE> 7
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
1. ORGANIZATION AND BACKGROUND:
The registrant is a health care services company engaged in the
provision of home health care services. The Company's home health care
services consist primarily of the provision of respiratory and infusion
therapies and the rental and sale of home medical equipment and home
health care supplies. For the nine months ended September 30, 1997, such
services represented 46%, 18% and 36%, respectively, of net revenues. As
of September 30, 1997, the Company provided these services to patients
primarily in the home through 340 centers in 36 states.
2. OXYGEN REIMBURSEMENT CUT AND RELATED RESTRUCTURING:
In August, Congress enacted and President Clinton signed the Balanced
Budget Act of 1997 which will cut the Medicare reimbursement rate for
oxygen related services by 25 percent on January 1, 1998, and by another
five percent in 1999. In addition, Consumer Price Index increases in
oxygen reimbursement rates will not resume until the year 2003. American
HomePatient is one of the nation's largest providers of home oxygen
services to patients, many of whom are Medicare recipients, and is
therefore significantly affected by this legislation. Medicare oxygen
reimbursements account for approximately 23.5 percent of the Company's
revenues.
On September 25, 1997, the Company announced initiatives to aggressively
respond to planned Medicare reimbursement cuts by fundamentally
reshaping the Company for long-term growth and value creation. More than
100 of the Company's total operating and billing locations will be
impacted by the planned activities. The specific actions resulted in
pre-tax accounting charges in the third quarter of 1997 of $65.0 million
due to the closure, consolidation, or scaling back of approximately 20
percent of the Company's total operating centers, the closure or scaling
back of nine billing centers, the elimination of four operating regions,
the scaling back or elimination of marginal products and services at
numerous locations, and the related termination of approximately 313
employees in the affected operating and billing centers. These
activities are expected to be substantially completed by June 1998.
The $65.0 million pre-tax charges recorded in the third quarter of 1997
specifically related to the write-down of goodwill and other non current
assets ($8.2 million), the closure, consolidation, scaling back, or
elimination of services at selected locations ($44.8 million), and
the negative impact on the remaining operating locations ($12.0
million).
The write-off of goodwill and other non current assets is required under
SFAS No. 121 based upon management's estimate of the impact of the
announced oxygen cuts on the Company's continuing operations.
Management's projections of future operations considering the reduced
reimbursement rates for oxygen indicated that the carrying value of
goodwill and other non current assets should be written down by $8.2
million.
The closure, consolidation, scaling back, or elimination of services at
more than 100 of the Company's operating and billing centers resulted in
the write-off of goodwill and other intangible assets specifically
identified with affected locations ($12.2 million), the accrual of
estimated employee severance and related exit costs ($6.7 million), the
accrual of estimated facility exit costs including future lease costs,
the write-off of leasehold improvements, and the write-down of
furniture and equipment ($6.1 million), the write-down of accounts
receivable to estimated realizable value ($8.7 million), the write-down
of inventory to estimated realizable value ($2.2 million), the
write-down of rental equipment to estimated realizable value ($2.8
million), the termination of related management contracts ($3.0
million), and other exit costs ($3.1 million).
Due to the comprehensive nature of this restructuring, including the
consolidation of regional responsibilities and additional management
attention required to accomplish the restructuring in the desired
timeframe, negative impacts are anticipated in the remaining operating
7
<PAGE> 8
businesses relative to realization of accounts receivable, inventories
and rental equipment, for which an additional $12.0 million charge was
recorded.
The cash portion of the pre-tax accounting charge is estimated to be
approximately $17.3 million. No material amounts were charged against
the related accruals in the third quarter of 1997.
The accounting charges discussed above are recorded in the accompanying
third quarter of 1997 interim condensed consolidated statements of
operations in the following classifications:
<TABLE>
<S> <C>
Cost of sales $ 5,255,000
Operating expenses 17,751,000
Restructuring charge 33,829,000
Goodwill impairment 8,165,000
-----------
Total unusual charges $65,000,000
===========
</TABLE>
8
<PAGE> 9
3. BASIS OF FINANCIAL STATEMENTS:
The interim condensed consolidated financial statements of the Company
for the three and nine months ended September 30, 1997 and 1996 included
herein have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management of the Company, the
accompanying unaudited interim consolidated financial statements reflect
all adjustments (consisting of only normally recurring accruals)
necessary to present fairly the financial position at September 30, 1997
and the results of operations and the cash flows for the three and nine
months ended September 30, 1997 and 1996.
The results of operations for the three and nine months ended September
30, 1997 and 1996 are not necessarily indicative of the operating
results for the entire respective years. These interim consolidated
financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
4. ACQUISITIONS:
During 1997 and effective through September 30, 1997, the Company
acquired 27 home health care companies with combined annualized revenue
of approximately $77 million for total consideration of approximately
$94 million, including cash, satisfaction of certain liabilities, and
notes payable issued to sellers.
Since January 1, 1996 and effective through September 30, 1997, American
HomePatient has acquired 67 home health care companies.
The terms of the 1996 and 1997 acquisitions, including the consideration
paid, were the result of arm's-length negotiations. The acquisitions
were funded via a combination of cash from Company reserves,
seller-financed notes, and draws on the Company's Bank Credit Facility
(see below).
On June 6, 1997, the Company entered into a Third Amended and Restated
Bank Credit Facility ("Bank Credit Facility") to increase commitments
thereunder to $325.0 million. This Facility includes a $150.0 million
five-year term loan and a $175.0 million five-year revolving line of
credit. The various financial and operating covenants are substantially
similar to those under the second amended and restated Bank Credit
Facility. Borrowings under the Bank Credit Facility may be used for
acquisitions and other general corporate purposes, subject to the terms
and conditions of the respective credit and security agreements. Most of
the Company's operating assets have been pledged as security for
borrowings under the Bank Credit Facility. The Bank Credit Facility
contains various financial covenants, the most restrictive of which
relate to measurements of shareholders' equity, leverage ratios, and
interest coverage ratios.
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<PAGE> 10
5. NET INCOME (LOSS) PER SHARE:
Net income per share is based on the weighted average number of the
Company's common and common equivalent shares outstanding or subscribed
which pertain to the respective operations included in each period.
Common stock equivalents result from stock options issued to management,
employees, and directors as well as from warrants to acquire common
shares issued by the Company, and are determined using the treasury
stock method.
Statement of Financial Accounting Standards No. 128, "Earnings per
Share", ("SFAS 128"), has been issued effective for fiscal periods
ending after December 15, 1997. SFAS No. 128 establishes standards for
computing and presenting earnings per share. The Company is required to
adopt the provisions of SFAS No. 128 in the fourth quarter of 1997.
Under the standards established by SFAS 128, earnings per share is
measured at two levels: basic earnings per share and diluted earnings
per share. Basic earnings per share is computed by dividing net income
by the weighted average number of common shares outstanding during the
year. Diluted earnings per share is computed by dividing net income by
the weighted average number of common shares after considering the
additional dilution related to preferred stock, convertible debt,
options and warrants.
The following pro forma amounts present the basic earnings per share and
diluted earnings per share as if the Company had adopted SFAS 128 for
the periods presented:
<TABLE>
<CAPTION>
(Unaudited Pro Forma)
-----------------------------------------------------------
Three Months ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE $0.29 $(2.70) $0.83 $(2.07)
----- ------ ----- --------
DILUTED EARNINGS PER SHARE $0.29 $(2.68) $0.80 $(2.04)
----- ------ ----- --------
</TABLE>
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<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RISK FACTORS - IN CONNECTION WITH THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY HEREBY
MAKES REFERENCE TO ITEMS SET FORTH UNDER THE HEADING "RISK FACTORS" IN
THE COMPANY'S REGISTRATION STATEMENT ON FORM S-2, AS AMENDED
(REGISTRATION NO. 33-89568). SUCH CAUTIONARY STATEMENTS IDENTIFY
IMPORTANT FACTS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS MADE BY OR
ON BEHALF OF THE COMPANY IN THIS OR ANY OTHER SECTION OF THIS FORM 10-Q.
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>
Nine Months Ended September 30,
-------------------------------
1996 1997
---- ----
<S> <C> <C>
Home respiratory therapy services 50% 46%
Home infusion therapy services 18 18
Home medical equipment and medical supplies 32 36
---- ----
Total 100% 100%
==== ====
</TABLE>
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 sale
of aerosol and respiratory therapy equipment and supplies and services
related to the delivery of these products, the provision of infusion
therapies, and the sale of home health care equipment and supplies.
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. 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 from
unconsolidated hospital joint ventures 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, selling costs, 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 and area management expenses
and costs.
Since its inception, the Company has experienced substantial growth.
This growth is primarily attributable to the Company's pursuit of an
acquisition strategy targeting successful, operating home health care
businesses, through both 100% ownership and joint venture partnerships.
Since the Company's initial public offering in November 1991, the
Company
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<PAGE> 12
has expanded operations from 24 home health care centers in four states
to 340 home health care centers in 36 states as of September 30, 1997.
Effective during 1996, the Company acquired 40 home health care
companies and effective during the nine months ended September 30, 1997
the Company acquired 27 home health care companies. The Company
continues its integration of recently acquired home health care centers.
The Company's experience and management expertise is applied wherever
possible to improve the operating efficiency of the new centers. Quality
methods and ideas from the acquired centers become part of the systems
and procedures of the combined Company. Profitable services that were
not formerly provided are being added where such opportunities exist. As
the Company grows, economies of scale are realized in purchasing goods
and services used in the Company's business and, to some extent, its
management of overhead expenses.
The Office of Inspector General of the Department of Health and Human
Services ("OIG") has expanded its auditing of the healthcare industry in
an effort to better detect and remedy fraud and abuse and irregularities
in Medicare and Medicaid billing. The Company has been notified that the
OIG plans to audit the Company for the period of time from 1990 to the
present. While management does not believe such an audit will have a
material impact on the Company, this matter is in its preliminary stages
and its outcome cannot be predicted with certainty.
MEDICARE REIMBURSEMENT FOR OXYGEN THERAPY SERVICES
In August, Congress enacted and President Clinton signed the Balanced
Budget Act of 1997 which will cut the Medicare reimbursement rate for
oxygen related services by 25 percent on January 1, 1998, and by another
five percent in 1999. In addition, Consumer Price Index increases in
oxygen reimbursement rates will not resume until the year 2003. American
HomePatient is one of the nation's largest providers of home oxygen
services to patients, many of whom are Medicare recipients, and is
therefore significantly affected by this legislation. Medicare oxygen
reimbursements account for approximately 23.5 percent of the Company's
revenues.
On September 25, 1997, the Company announced initiatives to aggressively
respond to planned Medicare reimbursement cuts by fundamentally
reshaping the Company for long-term growth and value creation. More than
100 of the Company's total operating and billing locations will be
impacted by the planned activities. The specific actions resulted in
pre-tax accounting charges in the third quarter of 1997 of $65.0 million
due to the closure, consolidation, or scaling down of approximately 20
percent of the Company's total operating centers, the closure or scaling
back of nine billing centers, the elimination of four operating regions,
the scaling back or elimination of marginal products and services at
numerous locations, and the related termination of approximately 313
employees.
RESULTS OF OPERATIONS
As fully discussed in Note 2 of the September 30, 1997 interim financial
statements, the Company recorded $65.0 million of accounting charges in
the quarter ended September 30, 1997 related to the oxygen reimbursement
cut and related restructuring.
In addition to the $65.0 million charge, the Company also recorded the
following unusual non-recurring charges in the third quarter of 1997.
The Company finalized the results of physical inventory counts for
certain acquired locations primarily in Oklahoma and Texas and recorded
a charge to income of $1.0 million.
In connection with the Company's analysis of locations during the
planning for the restructuring discussed above, management determined
that an additional charge of $1.0 million was required to appropriately
state the required franchise tax accrual.
The impact of these charges on the various classifications within the
interim condensed statements of operations is as follows:
<TABLE>
<S> <C>
Cost of sales $ 6,255,000
Operating expenses 18,751,000
Restructuring charge 33,829,000
Goodwill impairment 8,165,000
-----------
$67,000,000
===========
</TABLE>
12
<PAGE> 13
The following table and discussion set forth items from the income
statement as a percentage of net revenues before the unusual charges for
the periods indicated:
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales and related services 21.5 24.2 21.4 23.4
Operating expenses 50.8 50.1 50.9 50.9
General and administrative 6.2 4.0 6.3 4.2
Depreciation and amortization 9.1 8.8 9.0 8.7
Interest 2.7 4.4 3.1 4.1
------ ------ ------ ------
Total costs and expenses 90.3% 91.5% 90.7% 91.3%
------ ------ ------ ------
Income from operations before income taxes 9.7% 8.5% 9.3% 8.7%
====== ====== ====== ======
</TABLE>
The operations of acquired centers are included in the operations of the
Company from the effective date of each acquisition. Because of the
substantial acquisition activity, the comparison of the results of
operations between 1997 and 1996 is materially impacted by the
operations of these acquired businesses. For comparative purposes, the
Company separates operations into "same-store" and "acquisitions." An
acquired center becomes "same-store" beginning with its thirteenth month
of operations as part of the Company.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
NET REVENUES. Net revenues increased from $72.0 million for the quarter
ended September 30, 1996 to $102.7 million for the same period in 1997,
an increase of $30.7 million, or 43%. 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 9%. Net
revenues of same-store hospital joint ventures contributed 3% to this
total 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 $32.1 million for the quarter ended
September 30, 1996 to $48.1 million for the same period in 1997, an
increase of $16.0 million, or 50%. This increase is primarily
attributable to the acquisition of home health care businesses and
same-store revenue growth.
Rentals and Other Revenue. Rentals and other revenues increased
from $38.2 million for the quarter ended September 30, 1996 to
$52.7 million for the same period in 1997, an increase of $14.5
million or 38%. This increase is primarily attributable to the
acquisition of home health care businesses and same-store revenue
growth.
Earnings from Hospital Joint Ventures. Earnings from hospital joint
ventures increased from $1.7 million for the quarter ended
September 30, 1996 to $1.9 million for the same period in 1997, an
increase of $200,000, or 12%. This increase is primarily
attributable to net growth in the Company's existing hospital joint
ventures.
13
<PAGE> 14
COST OF SALES AND RELATED SERVICES. Cost of sales and related services
increased from $15.4 million for the quarter ended September 30, 1996 to
$24.8 million for the same period in 1997, an increase of $9.4 million,
or 61%. As a percentage of sales and related services revenues, cost of
sales and related services increased from 48% to 52%. This increase is
attributable to a change in the mix of sales and related services
revenues attributable primarily to the acquired home health care
businesses.
OPERATING EXPENSES. Operating expenses increased from $36.6 million for
the quarter ended September 30, 1996 to $51.4 million for the same
period in 1997, an increase of $14.8 million, or 40%. This increase is
primarily attributable to the acquired home health care businesses. As a
percentage of revenue, operating expenses decreased from 51% to 50%
despite the fact that certain expenses which were classified as general
and administrative expenses in the quarter ended September 30, 1996 were
classified as operating expenses in the quarter ended September 30,
1997. As a percentage of net revenues, combined operating and general
and administrative expenses have decreased from 57% to 54%. This
decrease is primarily attributable to operating and general and
administrative expense improvement and lower operating expense levels of
the acquired home health care businesses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased from $4.5 million for the quarter ended September 30, 1996 to
$4.1 million for the same period in 1997, a decrease of $400,000. This
decrease is primarily attributable to the reclassification of certain
expenses which were classified as general and administrative for the
quarter ended September 30, 1996 but were classified as operating
expenses for the quarter ended September 30, 1997. As a percentage of
net revenues, combined operating and general and administrative expenses
have decreased from 57% to 54%. This decrease is primarily attributable
to operating and general and administrative expense improvement and
lower operating expense levels of the acquired home health care
businesses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased from $6.5 million for the quarter ended September 30, 1996 to
$9.0 million for the same period in 1997, an increase of $2.5 million.
This increase is primarily attributable to the acquired home health care
businesses.
INTEREST. Interest expense increased from $1.9 million for the quarter
ended September 30, 1996 to $4.6 million for the same period in 1997, an
increase of $2.7 million. The increase is due to additional interest
expense associated with increased borrowings used to fund acquisitions
of home health care businesses.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
NET REVENUES. Net revenues increased from $189.5 million for the nine
months ended September 30, 1996 to $282.0 million for the same period in
1997, an increase of $92.5 million, or 49%. 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 10%.
Same-store hospital joint ventures contributed 2% of this total
same-store growth rate. Following is a discussion of the components of
net revenues:
Sales and Related Services Revenues. Sales and related services
revenues increased from $82.9 million for the nine months ended
September 30, 1996 to $130.7 million for the
14
<PAGE> 15
same period in 1997, an increase of $47.8 million or 58%. This
increase is primarily attributable to the acquired home health care
businesses and same-store revenue growth.
Rentals and Other Revenue. Rentals and other revenues increased
from $102.1 million for the nine months ended September 30, 1996 to
$146.0 million for the same period in 1997, an increase of $43.9
million, or 43%. This increase is primarily attributable to the
acquired home health care businesses and same-store revenue growth.
Earnings from Joint Ventures. Earnings from joint ventures
increased from $4.4 million for the nine months ended September 30,
1996 to $5.3 million for the same period in 1997, an increase of
$900,000, or 20%. Of this increase, $700,000 is attributable to net
growth in the existing hospital joint ventures. The remainder of
the increase is attributable to acquired joint ventures.
COST OF SALES AND RELATED SERVICES. Cost of sales and related services
increased from $40.5 million for the nine months ended September 30,
1996 to $66.2 million for the same period in 1997, an increase of $25.7
million, or 63%. As a percentage of sales and related services revenues,
cost of sales and related services increased from 49% to 51%. This
increase is attributable to a change in the mix of sales and related
services revenues attributable primarily to the acquired home health
care businesses.
OPERATING EXPENSES. Operating expenses increased from $96.4 million for
the nine months ended September 30, 1996 to $143.6 million for the same
period in 1997, an increase of $47.2 million, or 49%. This increase is
primarily attributable to the acquired home health care businesses. As a
percentage of net revenues, operating expenses remained constant at 51%
despite the fact that certain expenses which were classified as general
and administrative expenses for the nine months ended September 30, 1996
were classified as operating expenses for the nine months ended
September 30, 1997. As a percentage of net revenues, combined operating
and general and administrative expenses decreased from 57% to 55%. This
decrease is primarily attributable to operating and general and
administrative expense improvement and lower operating expense levels of
the acquired home health care businesses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased from $12.0 million for the nine months ended September 30,
1996 to $11.8 million for the same period in 1997, a decrease of
$200,000. As a percentage of net revenue, general and administrative
expenses have decreased from 6% to 4%. This decrease is attributable to
the reclassification of certain expenses which were classified as
general and administrative for the nine months ended September 30, 1996
but were classified as operating expenses for the nine months ended
September 30, 1997. As a percentage of net revenues, combined operating
and general and administrative expenses decreased from 57% to 55%. This
decrease is primarily attributable to operating and general and
administrative expense improvement and lower operating expense levels of
the acquired home health care businesses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased from $17.1 million for the nine months ended September 30,
1996 to $24.5 million for the same period in 1997, an increase of $7.4
million, or 43%. This increase is primarily attributable to the acquired
home health care businesses.
15
<PAGE> 16
INTEREST. Interest expense increased from $5.9 million for the nine
months ended September 30, 1996 to $11.4 million for the same period in
1997, an increase of $5.5 million. The increase is due to additional
interest expense associated with increased borrowings used to fund
acquisitions of home health care businesses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's working capital was $99.4 million
and the current ratio was 2.9x as compared to working capital of $84.0
million and a current ratio of 3.4x at December 31, 1996. The Company
had current maturities of long-term debt of approximately $9.0 million
at September 30, 1997.
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 account 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
$76.1 million and $89.8 million at December 31, 1996 and September 30,
1997, respectively. This increase was primarily attributable to the
acquisition of home health care businesses and the same-store revenue
growth for the nine months ended September 30, 1997 net of $17.7
million in accounts receivable related charges incurred in the current
quarter associated with the restructuring plan as described in Note 2
of the interim financial statements. This represented an average of
approximately 93 and 98 days' sales in accounts receivable at December
31, 1996 and September 30, 1997, respectively.
Net cash provided from operating activities was $5.2 million and $12.1
million for the nine months ended September 30, 1996 and 1997,
respectively. These amounts primarily represent net income plus
depreciation and amortization and provisions for doubtful accounts and
changes in the various components of working capital. Net cash used in
investing activities was $90.2 million and $124.6 million for the nine
months ended September 30, 1996 and 1997, respectively. These amounts
primarily represent acquisitions of home health care businesses and
property and equipment additions. Net cash provided from financing
activities was $83.1 million and $111.7 million for the nine months
ended September 30, 1996 and 1997, respectively. These amounts primarily
represent proceeds from the issuance of long-term debt, the issuance of
common stock in connection with an equity offering and stock option
exercises offset by principal repayments of 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 borrowings under the Bank Credit Facility. On June
6, 1997, the Company amended and restated the Bank Credit Facility to
increase commitments thereunder to $325.0 million. The Bank Credit
Facility includes a $150.0 million five-year term loan and a $175.0
million five-
16
<PAGE> 17
year revolving line of credit. Borrowings under the 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 Bank Credit Facility. Interest is
payable on borrowings under the Bank Credit Facility, at the election of
the Company, at either a "Base Lending Rate" or an "Adjusted Eurodollar
Rate" (each as defined in the Bank Credit Facility), plus a margin from
0% to 0.5% and from 0.375% to 1.25%, respectively. The Company's ability
to borrow under the Bank Credit Facility terminates on June 6, 2002,
subject to exceptions set forth therein. As of September 30, 1997 the
weighted average borrowing rate was 6.96%. A commitment fee of up to
.375% per annum (.375% as of September 30, 1997) is payable by the
Company on the undrawn balance. The interest rate and commitment fee are
based on the leverage ratio as defined in the Bank Credit Facility.
The 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 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 was in compliance with these
covenants at September 30, 1997.
The Company's capital expenditures consist of purchases of home health
care rental equipment and routine capital purchases at its regional and
corporate offices. Through September 30, 1997, $24.8 million of capital
expenditures had been incurred.
IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128") has been issued effective for fiscal periods ending
after December 15, 1997. SFAS 128 establishes standards for computing
and presenting earnings per share. The Company is required to adopt the
provisions of SFAS 128 in the fourth quarter of 1997 and does not expect
adoption thereof to have a material effect on the Company's financial
position or results of operations.
Summary
Management believes that the impact of the Medicare oxygen reimbursement
rate reductions contained in the Balanced Budget Act of 1997 will
require actions to help assure that available cash, funding available
under the Bank Credit Facility and funds generated from operations will
be sufficient for the Company to satisfy its capital expenditures,
acquisition activities, working capital and debt requirements for the
next twelve months. The Company's future operating results could differ
materially from those historically achieved or previously projected in
forward looking statements made by or on behalf of the Company.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Office of Inspector General of the Department of Health and
Human Services ("OIG") has expanded its auditing of the healthcare
industry in an effort to better detect and remedy fraud and abuse
and irregularities in Medicare and Medicaid billing. The Company
has been notified that the OIG plans to audit the Company for the
period of time from 1990 to the present. While management does not
believe such an audit will have a material impact on the Company,
this matter is in its preliminary stages and its outcome cannot be
predicted with certainty.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits. The exhibits filed as part of this Report are listed on
the Index to Exhibits immediately following the signature page.
(B) Reports on Form 8-K. A report on Form 8-K dated September 23,
1997 was filed to report the Company's reorganization efforts in
response to the Medicare Oxygen reimbursement rate reductions
included in the Balanced Budget Act of 1997. No financial
statements were included.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN HOMEPATIENT, INC.
November 13, 1997 By: /s/Mary Ellen Rodgers
----------------------------------------------
Mary Ellen Rodgers
Chief Financial Officer and An Officer Duly
Authorized to Sign on Behalf of the registrant
19
<PAGE> 20
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
27 Financial Data Schedule (for SEC use only)
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN HOMEPATIENT, INC. FOR THE DATA FROM THE 9
MONTHS ENDED SEPTEMBER 1, 1997 AMD IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,544,000
<SECURITIES> 0
<RECEIVABLES> 144,517,000
<ALLOWANCES> 47,548,000
<INVENTORY> 21,935,000
<CURRENT-ASSETS> 152,070,000
<PP&E> 123,181,000
<DEPRECIATION> 56,591,000
<TOTAL-ASSETS> 494,487,000
<CURRENT-LIABILITIES> 52,643,000
<BONDS> 256,778,000
0
0
<COMMON> 148,000
<OTHER-SE> 188,047,000
<TOTAL-LIABILITY-AND-EQUITY> 494,487,000
<SALES> 130,726,000
<TOTAL-REVENUES> 282,026,000
<CGS> 72,442,000
<TOTAL-COSTS> 72,442,000
<OTHER-EXPENSES> 240,626,000
<LOSS-PROVISION> 9,278,000
<INTEREST-EXPENSE> 11,450,000
<INCOME-PRETAX> (42,492,000)
<INCOME-TAX> (11,836,000)
<INCOME-CONTINUING> (30,656,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,656,000)
<EPS-PRIMARY> (2.04)
<EPS-DILUTED> 0
</TABLE>
