<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO.1
ON
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-19854
APRIA HEALTHCARE GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0488566
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3560 HYLAND AVENUE, COSTA MESA, CA 92626
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714)427-2000
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 ____
There were 51,079,608 shares of Common Stock, $.001 par value, outstanding at
August 2, 1996.
<PAGE> 2
Item 1 of Part I and Item 1 of Part II of the Quarterly Report on Form 10-Q
for the period ended June 30, 1996 are amended in their entirety as follows:
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
<PAGE> 3
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ----------
ASSETS (Unaudited)
(Dollars in thousands)
CURRENT ASSETS
<S> <C> <C>
Cash ......................................................... $ 20,089 $ 18,829
Accounts receivable, less allowance for doubtful
accounts of $85,075 and $86,567 at June 30, 1996
and December 31, 1995, respectively ........................ 334,586 258,332
Inventories .................................................. 60,127 45,198
Deferred income taxes ........................................ 47,712 45,883
Refundable income taxes ...................................... 16,360 27,710
Prepaid expenses and other current assets .................... 10,886 7,770
---------- ----------
TOTAL CURRENT ASSETS ........................................... 489,760 403,722
PATIENT SERVICE EQUIPMENT, less accumulated
depreciation of $180,610 and $161,953 at June 30, 1996
and December 31, 1995, respectively .......................... 192,187 167,090
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET ...................... 105,916 80,108
INVESTMENT IN OMNICARE plc ..................................... 1,467 1,504
COVENANTS NOT TO COMPETE, NET .................................. 17,950 20,272
GOODWILL, NET .................................................. 296,135 298,870
OTHER ASSETS ................................................... 8,063 8,419
---------- ----------
$1,111,478 $ 979,985
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................................. $ 62,276 $ 100,653
Accrued payroll and related taxes and benefits ............... 26,825 26,792
Accrued restructuring costs .................................. 11,030 19,085
Other accrued liabilities .................................... 41,578 48,910
Current portion of long-term debt ............................ 11,866 9,652
---------- ----------
TOTAL CURRENT LIABILITIES ...................................... 153,575 205,092
LONG-TERM DEBT ................................................. 609,200 490,655
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value:
10,000,000 shares authorized; none issued .................. -- --
Common Stock, $.001 par value: 150,000,000 shares authorized;
51,014,267 and 49,692,266 shares issued and outstanding at
June 30, 1996 and December 31, 1995, respectively ......... 51 50
Additional paid-in capital ................................... 316,752 294,522
Retained earnings (deficit) .................................. 31,900 (10,334)
---------- ----------
348,703 284,238
COMMITMENTS AND CONTINGENCIES .................................. -- --
---------- ----------
$1,111,478 $ 979,985
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net revenues ........................................... $ 306,579 $ 287,286 $ 601,882 $ 571,895
Costs and expenses:
Cost of net revenues ................................ 96,943 88,270 191,034 173,806
Selling, distribution and administrative ............ 144,493 146,187 285,437 292,090
Provision for doubtful accounts, net of recoveries .. 14,560 13,149 27,858 26,363
Amortization of intangible assets ................... 4,349 4,210 8,451 8,134
Restructuring costs ................................. -- 2,661 -- 2,661
Merger costs ........................................ -- 6,988 -- 6,988
Employee contract settlements ....................... -- 3,206 -- 3,206
Loss on disposition of U.K. subsidiary .............. -- 500 -- 500
--------- --------- --------- ---------
260,345 265,171 512,780 513,748
--------- --------- --------- ---------
OPERATING INCOME .............................. 46,234 22,115 89,102 58,147
Interest expense ....................................... 12,003 11,134 23,111 21,816
--------- --------- --------- ---------
INCOME BEFORE TAXES AND
EXTRAORDINARY CHARGE ......................... 34,231 10,981 65,991 36,331
Income taxes ........................................... 12,323 3,484 23,757 13,042
--------- --------- --------- ---------
INCOME BEFORE
EXTRAORDINARY CHARGE ......................... 21,908 7,497 42,234 23,289
Extraordinary charge on debt refinancing,
net of taxes ........................................ -- 2,998 -- 2,998
--------- --------- --------- ---------
NET INCOME ................................... $ 21,908 $ 4,499 $ 42,234 $ 20,291
========= ========= ========= =========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Income before extraordinary charge ................... $ 0.42 $ 0.15 $ 0.81 $ 0.49
Extraordinary charge on debt refinancing,
net of taxes ...................................... (0.06) (0.06)
--------- --------- --------- ---------
Net income ........................................... $ 0.42 $ 0.09 $ 0.81 $ 0.43
========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding ............... 52,575 48,539 52,286 47,495
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE ASSUMING FULL DILUTION:
Income before extraordinary charge ................... $ 0.42 $ 0.15 $ 0.81 $ 0.47
Extraordinary charge on debt refinancing,
net of taxes ...................................... (0.06) (0.06)
--------- --------- --------- ---------
Net income ........................................... $ 0.42 $ 0.09 $ 0.81 $ 0.41
========= ========= ========= =========
Weighted average number of common
and common equivalent shares outstanding ........... 52,576 51,323 52,399 51,150
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1996 1995
--------- ---------
(Dollars in thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net income ................................................................. $ 42,234 $ 20,291
Items included in net income not requiring (providing) cash:
Provision for doubtful accounts .......................................... 27,858 26,363
Depreciation ............................................................. 44,217 41,207
Amortization of intangible assets ........................................ 8,451 8,134
Amortization of deferred debt costs ...................................... 519 6,061
Loss (gain) on sale of property, equipment and improvements .............. 21 (150)
Impairment loss .......................................................... -- 500
Deferred income taxes .................................................... (1,173) 6,276
Changes in operating assets and liabilities, net of effects of acquisitions:
Increase in accounts receivable .......................................... (103,440) (47,515)
Increase in inventories .................................................. (14,392) (882)
Decrease (increase) in prepaids and other current assets ................. 17,492 (13,037)
Decrease (increase) in other non-current assets .......................... 960 (542)
Decrease in accounts payable ............................................. (38,377) (10,438)
Decrease in accrued payroll and other liabilities ........................ (7,205) (8,885)
Decrease in accrued restructuring costs .................................. (8,055) --
Other ...................................................................... -- 609
Net purchases of patient service equipment,
net of effects of acquisitions ........................................... (56,298) (51,601)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES ............................ (87,188) (23,609)
INVESTING ACTIVITIES
Purchases of property, equipment and improvements,
net of effects of acquisitions ........................................ (30,094) (22,804)
Proceeds from sale of property, equipment and improvements ............... 67 509
Acquisitions and payments of contingent consideration .................... (7,317) (38,587)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ............................ (37,344) (60,882)
FINANCING ACTIVITIES
Proceeds under revolving credit facility ................................. 222,300 397,222
Payments under revolving credit facility ................................. (104,300) (169,694)
Proceeds from senior and other long-term debt ............................ -- 119,857
Payments of senior and other long-term debt .............................. (5,084) (263,333)
Capitalized debt costs, net .............................................. (11) (1,343)
Issuances of Common Stock ................................................ 12,887 7,210
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................ 125,792 89,919
--------- ---------
NET INCREASE IN CASH ....................................................... 1,260 5,428
Cash at beginning of period ................................................ 18,829 21,188
Net activity for Homedco - October 1, 1994 to December 31, 1994 ........... -- 3,697
--------- ---------
CASH AT END OF PERIOD ............................................ $ 20,089 $ 30,313
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - POOLING OF INTERESTS AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Apria
Healthcare Group Inc. ("the Company") and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated. On June 28, 1995,
Homedco Group, Inc. ("Homedco") merged with and into Abbey Healthcare Group
Incorporated ("Abbey") to form Apria Healthcare Group Inc. ("the merger"). The
merger was accounted for as a pooling-of-interests and, accordingly, the
consolidated financial statements reflect the combined financial position and
operating results of Abbey and Homedco and have been adjusted to conform the
differing accounting policies of the separate companies for all periods
presented.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of operations for the
interim periods presented, have been reflected herein. The results of operations
for interim periods are not necessarily indicative of the results to be expected
for the entire year. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 1995,
filed with the Company's Form 10-K.
NOTE B - RECLASSIFICATIONS
Certain amounts from prior periods have been reclassified to conform to the
current year presentation.
NOTE C - INCOME TAXES
Income taxes have been provided at the effective tax rate expected for the year.
The Company's effective tax rate differs from the statutory rate as a result of
state income taxes (net of federal benefit) and the use of net operating loss
carryforwards.
NOTE D - ACQUISITIONS
The Company periodically makes acquisitions of complementary businesses in
specific geographic markets. Acquisitions that closed during the six month
period ended June 30, 1996 resulted in cash payments of approximately
$6,509,000.
NOTE E - RESTRUCTURING COSTS
In connection with the merger, the Company adopted a plan to restructure and
consolidate its operating locations and administrative functions within specific
geographic areas. The plan, which is substantially complete, resulted in a
restructuring charge in 1995 of approximately $68,304,000 consisting of accrued
costs and impairments. The following table summarizes amounts paid through June
30, 1996 and the remaining accrual at June 30, 1996.
<TABLE>
<S> <C>
Accrual at December 31, 1995 ................... $ 19,085,000
Severance amounts paid through June 30, 1996 ... (5,545,000)
Other amounts paid through June 30, 1996 ....... (2,510,000)
------------
Accrual at June 30, 1996 ....................... $ 11,030,000
============
</TABLE>
The remaining accrual balance consists primarily of $3,615,000 for severance and
related personnel costs and $7,562,000 for branch and billing center closure
costs.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - LONG-TERM DEBT
The Company has limited involvement with derivative financial instruments and
does not use them for trading purposes. Interest rate swap and cap agreements
are used as a means of managing the Company's interest rate exposure. In July
1996, the counterparty to the existing $280,000,000 swap agreement exercised
their option to terminate. In August 1996, the Company entered into two new
one-year swap agreements: one for $280,000,000 of notional principal with a
fixed interest rate of 5.69% and one for $100,000,000 of notional principal with
a fixed interest rate of 5.59%. Both agreements allow the counterparty an option
to terminate in February 1997, with termination in August 1997 if these options
are not exercised. The receipt or payment of the interest differential is made
on a monthly and quarterly basis for the $100,000,000 and $280,000,000
agreements, respectively, and recognized monthly in the financial statements as
an adjustment to interest expense.
NOTE G - EQUITY
The change in stockholders' equity, other than from net income, resulted from
shares issued under the employee stock purchase plan, the exercise of stock
options and the tax benefit associated with disqualifying dispositions of
incentive stock options and exercises of nonqualified stock options. For the six
months ended June 30, 1996, shares valued at $440,000 were issued under the
employee stock purchase plan, proceeds from the exercise of stock options
amounted to $12,447,000 and the related tax benefit amounted to $9,344,000.
NOTE H - AGREEMENT AND PLAN OF MERGER
On June 28, 1996, the Company, Apria Number Two, Inc., a wholly owned subsidiary
of the Company ("Apria Sub") and Vitas Healthcare Corporation ("Vitas") entered
into an Agreement and Plan of Merger ("the Agreement") providing for the merger
of Apria Sub with and into Vitas with Vitas being the surviving corporation and
becoming a wholly owned subsidiary of the Company. Under the Agreement, subject
to possible adjustments as provided by the Agreement, (i) each share of Vitas
Common Stock will be converted into the right to receive .290 shares of the
Company's Common Stock, (ii) each share of Vitas 9% Cumulative Nonconvertible
Preferred Stock would remain outstanding and be purchased by the Company for its
stated value plus all accrued and unpaid dividends thereon, (iii) each share of
Vitas Series B Preferred Stock would first be converted into Vitas Common Stock,
which would then be converted into the right to receive .290 shares of the
Company's Common Stock, (iv) each of the Vitas stock purchase warrants would be
exchanged for a number of shares of the Company's Common Stock based on the
exchange ratio of .290 and (v) any Vitas stock options outstanding would be
exchanged for the right to receive shares of the Company's Common Stock based on
the exchange ratio of .290. The transaction is expected to close in the fourth
quarter of 1996 and to be accounted for as a pooling of interests.
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company is engaged in the defense of certain claims and lawsuits arising out
of the ordinary course and conduct of its business, the outcome of which are not
determinable at this time. The Company has insurance policies covering such
potential losses where such coverage is cost effective. In the opinion of
management,
<PAGE> 8
any liability that might be incurred by the Company upon the resolution of these
claims and lawsuits will not, in the aggregate, have a material adverse effect
on the consolidated results of operations or financial position of the Company.
<PAGE> 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is one of nine named defendants in a qui tam lawsuit, which
was filed under seal in the Northern District of Georgia on August 23, 1995, by
Mark Parker, a former employee, and served on the Company on May 31, 1996. The
suit alleges that the Company violated the Civil False Claims Act by paying
illegal kickbacks to certain health care providers in exchange for patient
referrals. The suit also alleges that the Company violated the False Claims Act
by improperly generating "Certificates of Medical Necessity" for certain
products, including oxygen and low air-loss beds, and providing free benefits,
such as pulmonary function testing and pulse oximetry testing, to certain
physicians. Finally, the suit alleges that Mr. Parker's employment was
improperly terminated in violation of the whistleblower protection provisions
of the False Claims Act.
Prior to the service of the lawsuit, the United States Department of
Justice investigated Mr. Parker's allegations and the Company fully cooperated
with that investigation. On June 27, 1996, the United States intervened in the
suit, and on July 10, 1996, it filed an amended complaint, in which it
essentially joined Mr. Parker's allegations concerning illegal kickbacks, but
declined to join any of the other allegations. In conjunction with the qui tam
action, a grand jury also is investigating allegations contained in the qui tam
complaint. Potential remedies under the Civil False Claims Act include recovery
of any actual damages suffered by the government, treble damages, statutory
fines of up to $10,000 per false claim, and certain other remedies. The grand
jury investigation could result in the imposition of administrative, civil or
criminal fines or penalties or restitutionary relief.
The Company intends to defend vigorously against the allegations. In
that regard, on July 25, 1996, the Company filed a motion to dismiss the qui tam
lawsuit, and that motion currently is pending. Regardless of the outcome of that
motion, the Company believes that the outcome of the qui tam lawsuit and the
grand jury investigation will not have a material adverse effect on the
consolidated results of operations or financial position of the Company.
<PAGE> 10
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.
APRIA HEALTHCARE GROUP INC.
---------------------------
Registrant
October 4, 1996 /s/ LAWRENCE H. SMALLEN
------------------------------
Lawrence H. Smallen
Chief Financial Officer,
Senior Vice President, Finance
and Treasurer
(Principal Financial Officer)
