UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-14316
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 51,724,059 shares of Common Stock, $.001 par value,
outstanding at May 12, 1998.
<PAGE>
APRIA HEALTHCARE GROUP INC.
FORM 10-Q
For the period ended March 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1998 1997
--------- -----------
(unaudited)
ASSETS (dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash $ 45,463 $ 16,317
Accounts receivable, less allowance
for doubtful accounts of $50,497 and
$58,413 at March 31, 1998 and December
31, 1997, respectively 229,756 256,845
Inventories 25,269 26,082
Prepaid expenses and other current assets 8,768 12,329
---------- ---------
TOTAL CURRENT ASSETS 309,256 311,573
PATIENT SERVICE EQUIPMENT, less accumulated
depreciation of $255,360 and $245,772 at
March 31, 1998 and December 31, 1997,
respectively 172,674 184,704
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET 83,951 87,583
INTANGIBLE ASSETS, NET 167,915 167,620
OTHER ASSETS 1,484 5,690
---------- ---------
$ 735,280 $ 757,170
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 48,667 $ 50,691
Accrued payroll and related taxes
and benefits 25,990 40,397
Accrued insurance 12,354 12,247
Other accrued liabilities 33,056 30,463
Current portion of long-term debt 7,943 8,685
---------- ----------
TOTAL CURRENT LIABILITIES 128,010 142,483
LONG-TERM DEBT 537,879 540,220
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value:
10,000,000 shares authorized;
none issued - -
Common Stock, $.001 par value:
150,000,000 shares authorized;
51,724,059 and 51,568,525 shares
issued and outstanding at March 31,
1998 and December 31, 1997,
respectively 52 51
Additional paid-in capital 325,620 324,090
Retained deficit (256,281) (249,674)
---------- ---------
69,391 74,467
COMMITMENTS AND CONTINGENCIES - -
---------- ---------
$ 735,280 $ 757,170
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------- ---------
(dollars in thousands,
except per share data)
<S> <C> <C>
Net revenues $250,538 $313,863
Costs and expenses:
Cost of net revenues 85,858 104,679
Selling, distribution and administrative 141,946 147,312
Provision for doubtful accounts 13,795 15,764
Amortization of intangible assets 3,564 4,198
-------- --------
245,163 271,953
-------- --------
OPERATING INCOME 5,375 41,910
Interest expense 11,482 12,759
-------- --------
(LOSS) INCOME BEFORE TAXES (6,107) 29,151
Income taxes 500 9,911
-------- --------
NET (LOSS) INCOME $ (6,607) $ 19,240
======== ========
Net (loss) income per common share $(0.13) $ 0.38
====== ======
Net (loss) income per common share -
assuming dilution $(0.13) $ 0.37
====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (6,607) $ 19,240
Items included in net income not
requiring (providing) cash:
Provision for doubtful accounts 13,795 15,764
Provision for excess/obsolete equipment 3,947 -
Depreciation 27,435 29,947
Amortization of intangible assets 3,564 4,198
Amortization of deferred debt costs 380 279
Gain on disposition of assets (52) (437)
Deferred income taxes - 1,437
Changes in operating assets and liabilities,
net of effects of acquisitions:
Decrease (increase) in accounts receivable 13,564 (47,493)
Increase in inventories (3,074) (2,290)
Decrease in prepaids and other assets 3,665 20,751
Decrease in accounts payable (2,024) (9,384)
Decrease in accruals and other liabilities (11,748) (10,516)
Net purchases of patient service equipment,
net of effects of acquisitions (7,353) (19,515)
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 35,492 1,981
INVESTING ACTIVITIES
Purchases of property, equipment
and improvements, net of effects
of acquisitions (3,445) (6,800)
Proceeds from disposition of assets 68 5,249
Acquisitions and payments of contingent
consideration (745) (732)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,122) (2,283)
FINANCING ACTIVITIES
Proceeds under revolving credit facility - 57,800
Payments under revolving credit facility - (65,250)
Payments of senior and other long-term debt (2,705) (3,059)
Capitalized debt costs, net (1,018) -
Issuances of Common Stock 1,499 1,590
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (2,224) (8,919)
-------- --------
NET INCREASE (DECREASE) IN CASH 29,146 (9,221)
Cash at beginning of period 16,317 26,930
-------- --------
CASH AT END OF PERIOD $ 45,463 $ 17,709
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - 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.
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, 1997, filed with the
Company's 1997 Form 10-K.
NOTE B - RECLASSIFICATIONS AND USE OF ACCOUNTING ESTIMATES
Certain amounts from prior periods have been reclassified to conform to
the current year presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Such amounts include, among others, the allowance
for doubtful accounts, patient service equipment reserves, other asset
valuation allowances and certain liabilities. Management periodically re-
evaluates the estimates inherent in certain financial statement amounts
and may adjust accordingly. Actual results could differ from these
estimates.
NOTE C - INCOME TAXES
Current income tax expense reflects state tax amounts accrued and paid on
a basis other than or in addition to taxable income.
NOTE D - BUSINESS COMBINATIONS AND DISPOSITIONS
The Company periodically makes acquisitions of complementary businesses
in specific geographic markets. Acquisitions that closed during the
three-month period ended March 31, 1998 resulted in cash payments of
approximately $720,000.
NOTE E - PER SHARE AMOUNTS
The following table sets forth the computation of basic and diluted
per share amounts:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
-------- --------
(in thousands, except
per share data)
(s) <C> <C>
Numerator:
Net (loss) income $(6,607) $19,240
Numerator for basic per share
amounts - income available
to common stockholders $(6,607) $19,240
Numerator for diluted per share
amounts - income available to
common stockholders $(6,607) $19,240
Denominator:
Denominator for basic per share
amounts - weighted average shares 51,654 51,261
Effect of dilutive securities:
Employee stock options - 658
------- -------
Dilutive potential common shares - 658
------- -------
Denominator for diluted per share
amounts - adjusted weighted average
shares 51,654 51,919
======= =======
Basic (loss) earnings per share amounts $(0.13) $ 0.38
====== ======
Diluted (loss) earnings per share amounts $(0.13) $ 0.37
====== ======
Employee stock options excluded from
the computation of diluted per share
amounts:
Exercise price exceeds average
market price of Common Stock 2,154,265 1,338,387
Other 155,395 -
--------- ---------
2,309,660 1,338,387
========= =========
Average exercise price per share
that exceeds average market price
of Common Stock $19.15 $21.66
====== ======
</TABLE>
Due to the net loss incurred for the three months ended March 31,
1998, the impact of employee stock options is antidilutive for that
period and there is no difference between basic and diluted per share
amounts.
NOTE F - EQUITY
The change in stockholders' equity, other than from net loss, resulted
primarily from the exercise of stock options. For the three months ended
March 31, 1998, proceeds from the exercise of stock options amounted to
$1,499,000.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company is engaged in the defense of certain claims and lawsuits, 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, 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 (see Item 1 of Part II).
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: The Company's business
is subject to a number of risks, some of which are beyond the Company's
control. The Company has described certain of those risks in its Form
10-K for the fiscal year ended December 31, 1997, as filed with the
Securities and Exchange Commission on April 15, 1998. Such report may be
used for purposes of the Private Securities Litigation Reform Act of 1995
as a readily available document containing meaningful cautionary
statements identifying important factors that could cause actual results
to differ materially from those projected in any forward-looking
statements the Company may make from time to time. These risks include
ongoing issues pertaining to management stability and recruiting, the
collectibility of its accounts receivable, healthcare reform and the
effect of federal and state healthcare regulations, pricing pressures
(including changes in governmental reimbursement levels), the
effectiveness of its information systems, the highly competitive market,
recent losses, the concentration of large payors, dependence on
relationships with third parties and the availability and adequacy of
insurance.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Background: In June 1997, the Company announced that it retained an
investment banking firm as its financial advisor to explore strategic
alternatives to enhance shareholder value, including the possible sale,
merger, or recapitalization of the Company. During the first quarter of
1998, the Company entered into an agreement for a recapitalization
transaction, however, the agreement was terminated by mutual consent of
the parties on April 3, 1998. At this time, the Company's ultimate
course of action has not been determined (see Recent Developments). The
process has given rise to uncertainty, the impact of which is difficult
to determine, but which has probably affected the Company's financial
results adversely.
In June 1997, the Company decided to reemphasize its traditional
referral-based business and to focus more fully on the core business
lines of respiratory therapy, infusion therapy and home medical
equipment. To this end, the Company began efforts to renegotiate or
terminate certain managed care contracts not meeting minimum
profitability thresholds, as well as to exit certain lower-margin service
lines, including medical supplies, women's health and nursing management.
A consequence of both of these initiatives was the loss of higher-margin
related business.
Net Revenues: Net revenues were $250.5 million for the three-month
period ended March 31, 1998 compared with $313.9 million for the same
period last year. A number of factors impacted revenue, the most
significant of which was the reduction in Medicare reimbursement rates.
The Balanced Budget Act of 1997 contained several provisions affecting
reimbursement rates for products and services provided by the Company.
The reimbursement rates for home oxygen services were reduced by 25%
effective January 1, 1998 with an additional 5% reduction scheduled for
1999, and the reimbursement rates for respiratory drugs were reduced by
5%. Also included in the Balanced Budget Act of 1997 was a freeze on
Consumer Price Index-based reimbursement rate increases for 1998 through
2002. The estimated impact of the rate reductions on first quarter
revenues was approximately $15.4 million.
The strategic decisions discussed above also contributed to the
decline in revenues from the first quarter of 1997 to the first quarter
in 1998. The discontinued service lines of medical supplies, women's
health and nursing management represented combined annual revenues of
approximately $55.8 million. Some portion of the medical supply and
nursing management business is expected to continue due to customer
requirements. The Company exited contracted business representing
approximately $25 million and $8.5 million in annual revenues during 1997
and during the first quarter of 1998, respectively. Also, the Company
disposed of several unprofitable branch locations in California and
Arizona in the latter part of 1997 with annual revenues of approximately
$3.3 million.
Other conditions and factors had an adverse impact on net revenues,
but are difficult to quantify. First, the process discussed above to
identify a strategic alternative to enhance shareholder value has created
uncertainties which adversely affected revenues. Next, formidable
competition at both the local and national levels has affected revenues
and margins, especially in the infusion line. Finally, a shortage in
trained sales personnel also contributed to the decrease in revenues.
During the first quarter of 1998, the Company undertook numerous
initiatives to restore quality, or higher-margin, revenue growth. These
included streamlining and standardizing its managed care contracting
procedures, increasing the size and strength of the field selling
organization, introducing new sales commission programs based on gross
profit contribution and assembling an infusion therapy task force to
evaluate that business line and implement new sales and marketing
programs.
Gross Profit: Gross margins for the first quarter of 1998 were
65.7%, compared to 66.6% for the first quarter of 1997. The primary
cause for the decrease is the Medicare reimbursement rate reduction. If
the effect of this reduction is eliminated, the gross margin for the 1998
period actually improved. In addition to the above-discussed strategy to
renegotiate or exit unprofitable contracts and business lines, the
Company adopted other initiatives to reduce costs and improve its
gross margins. Controls placed on the purchase and use of patient
service equipment resulted in a $12.2 million reduction in net purchases
in the first quarter of 1998 as compared to the same quarter last year.
Also, the phasing out of subrented patient service equipment reduced
expenditures between the two quarters by $3.7 million. In addition to
the initiatives listed above that focus on quality revenue growth (see
Net Revenues), the Company continues to seek opportunities to reduce its
costs to improve its gross margins.
Selling, Distribution and Administrative: Selling, distribution and
administrative expenses as a percentage of net revenues were 56.7% for
the first quarter in 1998 and 46.9% for the same period last year. On a
dollar basis, selling, distribution and administrative expenses decreased
by $5.4 million, however, the rate of decrease was not commensurate with
the rate of the decrease in net revenues. In response to the reduction
in revenues, Management has taken steps to reduce costs, the most
significant of which is a reduction in the Company's labor force. From
the end of the first quarter in 1997 to the end of the first quarter in
1998, full-time equivalents have been reduced by approximately 600. The
labor force reduction commenced in the fourth quarter of 1997 and
continued into the first quarter of 1998, therefore the full cost savings
is not yet reflected in the first quarter 1998 expense totals.
Management, along with the assistance of consultants, is currently
evaluating its business model, operating strategies and cost structure to
identify appropriate changes that can be made to further reduce costs and
bring operating costs in line with the lower revenue base.
Provision for Doubtful Accounts: The provision for doubtful
accounts as a percentage of net revenues was 5.5% for the three-month
period ended March 31, 1998 as compared to 5.0% for the same period in
the prior year. The increase can be partially attributable to the
reduction in the revenue base due to Medicare reimbursement rate changes.
The remainder can be attributed to a refinement in the allowance
estimation procedures made in conjunction with the Company's year-end
analysis and audit of accounts receivable (see Accounts Receivable).
Amortization of Intangible Assets: Amortization of intangible
assets was $3.6 million for the first quarter of 1998 compared to $4.2
million for the same quarter last year. The decrease is due to the
$133.5 million write-off of impaired goodwill in the fourth quarter of
1997. The resulting decrease in amortization expense was offset somewhat
by a reduction in the amortization period for a certain class of the
Company's goodwill from 40 years to 20 years.
Interest Expense: Interest expense was $11.5 million for the three-
month period ended March 31, 1998 compared to $12.8 million for the same
period last year. The decrease is due to a reduction in long-term debt
levels between the two periods, as offset by higher effective interest
rates in 1998.
Income Taxes: Income tax expense for the first quarter of 1998 was
$500,000 versus $9.9 million for the same period last year. The
decrease is attributable to the corresponding decrease in pretax income
for the respective periods. The recorded tax expense for the first
quarter of 1998 relates to state taxes payable on a basis other than or
in addition to taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Operating Cash Flow: Cash provided by the Company's operations for
the first quarter of 1998 was $35.5 million versus $2.0 million for the
same period last year. This increase was achieved despite the
significant decrease in net income between the two periods. The primary
reason for the improvement in operating cash flow was the decrease in the
first quarter of 1998 in accounts receivable as compared to a significant
increase in the first quarter of 1997 (see Accounts Receivable). Also
contributing to the increase in operating cash flow was a reduction in
net purchases of patient service equipment. A $12.0 million federal tax
refund received in the first quarter of 1997 contributed to the
difference between periods.
Accounts Receivable: Accounts receivable before allowance for
doubtful accounts decreased by $35.0 million during the first quarter of
1998. The decrease is attributable to the impact of bad debt write-offs,
net of recoveries, totaling $21.8 million and strong cash collections,
which represented 105% of net revenues. The level of accounts receivable
aged in excess of 180 days at March 31, 1998 remained relatively constant
with the level at December 31,1997 (30.5% and 30.2% as a percentage of
total accounts receivable, respectively). Days sales outstanding (DSO -
calculated as of each period-end by dividing accounts receivable less
allowance for doubtful accounts by the 90-day rolling average of net
revenues) decreased from 87 days at December 31, 1997 to 83 days at March
31, 1998.
Despite indications of modest improvement, Management is
aggressively seeking to improve its overall revenue management process.
The major activities completed or in progress include the implementation
of a special quality assurance function in each branch, designed to
improve workflow and billing accuracy, and the introduction of software
enhancements to simplify the order-intake process and thereby reduce
billing errors.
Other Balance Sheet Changes: The decrease in accrued payroll and
related taxes and benefits at March 31, 1998, compared to December 31,
1997 is due to the difference in the number of days' costs accrued at
each period-end. At December 31, 1997, other assets was primarily
comprised of payments for businesses acquired late in the year. During
the first quarter of 1998, the payments were allocated to the various
underlying acquired assets.
The Company periodically makes acquisitions of complementary
businesses in specific geographic markets. Acquisitions that closed
during the three-month period ended March 31, 1998 totaled approximately
$720,000.
Long-term Debt: The Company's credit agreement with a syndicate of
banks was amended twice in 1997 and further amended in January, March and
April of 1998. Total availability under the facility was reduced from an
original maximum of $800 million to $400 million. Further reductions to
$385 million, $350 million and $300 million are scheduled for December
31, 1998, 1999 and 2000, respectively. As a result of these amendments,
borrowings under the credit agreement are secured by substantially all
the assets of the Company. Additionally, amounts available for
acquisitions were reduced, tighter restrictions were imposed on dividends
and other distributions and interest rates and commitment fees were
increased. At March 31, 1998, availability under the credit facility,
after giving consideration to the subsequent reduction in the loan
commitment, was $51.7 million.
Under the Indenture governing the Company's $200 million 9 1/2% Senior
Subordinated Notes due 2002, the Company's ability to incur indebtedness
becomes restricted at times when the Company's "Fixed Charge Coverage
Ratio" (as defined in the Indenture) is less than 3.0 to 1.0. Charges
taken against revenues in the second and fourth quarters of 1997 resulted
in the Fixed Charge Coverage Ratio being less than 3.0 to 1.0. This
condition is expected to continue for at least the balance of 1998. The
Company has changed its cash management procedures so as to avoid the
need to incur indebtedness which would otherwise require a modification
of the terms of the Indenture and has accumulated a cash balance of $45.5
million as of March 31, 1998. The Company believes that cash provided by
operations will be sufficient to finance its current operations for at
least the next 12 months or until the borrowing restriction is
eliminated. However, the lack of borrowing ability may restrict the
Company's ability to make major acquisitions during 1998, and the Company
may attempt to obtain consent to an amendment to the Indenture which
would permit borrowings for acquisitions and other purposes.
Year 2000 Issue: As the year 2000 approaches, an issue ("Year 2000
Issue") impacting all companies has emerged regarding how existing
application software programs and operating systems can accommodate this
date value. In brief, many existing application programs in the
marketplace were designed to accommodate a two digit date position which
represents the year (e.g., "95" is stored on the system and represents
the year 1995). Consequently, the year 1999 could be the maximum date
value systems would be able to accurately process.
Beginning in late 1997, the Company conducted a comprehensive review
of its existing computer systems, including an assessment of the nature
and potential extent of the impact of the Year 2000 Issue. As a result,
the Company has begun the modification process of its software in order
for its computer systems to function properly in the year 2000 and
thereafter. The Company is utilizing internal resources to reprogram and
test the software for the year 2000 modifications. The total cost of the
project is not expected to have a material effect on the Company's
results of operations. The project is currently on schedule and the
Company anticipates all phases of the project, including the testing and
implementation phases, to be completed by December 31, 1998. Further, the
Company's systems underwent two external assessments of the Year 2000
Issue and received a "low" risk rating.
The Company has committed to a plan to replace its existing field
information systems with a large-scale fully integrated enterprise
resource planning system. The new system, which will be year 2000-
compliant from the outset, is not expected to be fully functional at all
locations by the beginning of the year 2000.
Additionally, a formal process has been instituted to assess other
potential risks the Company may face in light of the Year 2000 Issue.
Examples of such issues include, but are not limited to, electronic
interfaces with external agents such as payors, banks and suppliers and
internal operational issues such as date-sensitive security systems and
elevators. Another area of potential risk is with certain patient service
equipment items that have microprocessors with date functionality which
could malfunction in the year 2000. Among other steps, the Company has
initiated formal communications with all its significant suppliers of its
patient service equipment to ensure those third parties are also working
to remediate their own year 2000 issues, if applicable. The Company
believes that it will be able to resolve these issues and any others it
may identify by the year 2000. The cost of such remediation has not yet
been quantified.
Recent Developments: In April 1998, George L. Argyros, a director
and chairman of the board of the Company, stated in a filing with the
Securities and Exchange Commission his intentions to explore strategic
alternatives, including transactions that might involve a change of
control in the Company in which he would be a participant. In light of
this decision, Mr. Argyros resigned from his post as chairman, as well as
from the three-person board committee formed recently to conduct an
assessment of the Company's future course. Mr. Argyros remains as a
member of the board of directors.
In May 1998, the board of directors appointed Philip L. Carter as
Chief Executive Officer and director of the Company. The board also
appointed Richard H. Koppes as director. These appointments bring the
number of directors on the board to 11.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and certain of its present and former officers
and/or directors are defendants in three "class action"
lawsuits which allege, among other things, that the defendants
made false and/or misleading public statements regarding the
Company and its financial condition in violation of federal
securities laws. Lasker v. Apria Healthcare, Inc., et al., was
filed on or about March 5, 1998 in the U.S. District Court for
the Central District of California, Southern Division (Case No.
SACV 98-217 GLT). Miladin v. Apria Healthcare Group Inc., et
al., was filed in the same court (Case No. SACV 98-318 AHS) on
or about April 2, 1998. Schiller v. Apria Healthcare Group
Inc., et al., was filed in the same court (Case No. SACV 98-349
GLT) on or about April 9, 1998. Two of the complaints purport
to establish a class of shareholders who purchased Apria stock
between March 2, 1995 and January 20, 1998. The third
complaint purports to establish a class of shareholders who
purchased Apria stock between April 30, 1997 and March 11,
1998. No class has been certified at this time. The
complaints allege, among other things, that the defendants made
false and/or misleading public statements regarding the Company
and its financial condition in violation of federal securities
laws. All three complaints seek compensatory as well as other
relief. Two of the complaints include a claim for punitive
damages.
On or about May 4, 1998, a motion was filed by plaintiffs'
counsel seeking to have the Court appoint the "Miladin Group",
a group of certain plaintiffs and other shareholders in the
three actions, as lead plaintiffs, and the firms of Stull,
Stull & Brody and Weiss & Yourman as co-lead counsel. On May
4, 1998, plaintiffs' counsel also filed a motion to consolidate
the three actions. Both motions are presently set for hearing
on June 1, 1998.
Items 2-5. Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Reference
------- ---------
10.1 Resignation and General Release Agreement dated
January 19, 1998, between Apria Healthcare Group
Inc. and Jeremy M. Jones. Incorporated by
reference to Apria Healthcare Group Inc.'s Form
10-K for the year ended December 31, 1997.
10.2 Executive Employment Agreement dated January 26,
1998, between Apria Healthcare Group Inc. and
Lawrence M. Higby. Incorporated by reference to
Apria Healthcare Group Inc.'s Form 10-K for the
year ended December 31, 1997.
10.3 Third Amendment to Credit Agreement and Waiver,
dated January 30, 1998, among Apria Healthcare
Group Inc. and certain of its subsidiaries, Bank
of America National Trust and Savings
Association, NationsBank of Texas, N.A. and
other financial institutions party to the Credit
Agreement. Incorporated by reference to Apria
Healthcare Group Inc.'s Form 10-K for the year
ended December 31, 1997.
10.4 Stock Purchase Agreement dated February 3, 1998,
by and among, JLL Argosy Apria, LLC, CIBC WG
Argosy Merchant Fund 2, LLC, Joseph Littlejohn
& Levy Fund III, LP and Apria Healthcare Group
Inc. Incorporated by reference to Registrant's
Current Report on Form 8-K, as filed on February
6, 1998.
10.5 Stockholder Agreement dated February 3, 1998, by
and among, JLL Argosy Apria, LLC, CIBC WG Argosy
Merchant Fund 2, LLC, Joseph Littlejohn & Levy
Fund III, LP, Relational Investors, LLC, HBI
Financial, Inc. and Apria Healthcare Group Inc.
Incorporated by reference to Registrant's
Current Report on Form 8-K, as filed on February
6, 1998.
10.6 Resignation and General Release Agreement dated
February 4, 1998, between Apria Healthcare Group
Inc. and Jerome J. Lyden. Incorporated by
reference to Apria Healthcare Group Inc.'s Form
10-K for the year ended December 31, 1997.
10.7 Fourth Amendment to Credit Agreement and Waiver,
dated March 13, 1998, among Apria Healthcare
Group Inc. and certain of its subsidiaries, Bank
of America National Trust and Savings
Association, NationsBank of Texas, N.A. and
other financial institutions party to the Credit
Agreement. Incorporated by reference to Apria
Healthcare Group Inc.'s Form 10-K for the year
ended December 31, 1997.
10.8 Security Agreement, dated March 13, 1998,
between Apria Healthcare Group Inc., Apria
Healthcare, Inc., and certain of its
subsidiaries and Bank of America National Trust
and Savings Association. Incorporated by
reference to Apria Healthcare Group Inc.'s Form
10-K for the year ended December 31, 1997.
10.9 Fifth Amendment to Credit Agreement and Waiver,
dated April 15, 1998 among Apria Healthcare
Group Inc. and certain of its subsidiaries, Bank
of America National Trust and Savings
Association, NationsBank of Texas, N.A. and
other financial institutions party to the Credit
Agreement. Incorporated by reference to Apria
Healthcare Group Inc.'s Form 10-K for the year
ended December 31, 1997.
10.10 First Amendment to Security Agreement dated
April 15, 1998 among Apria Healthcare Group Inc.
and certain of its subsidiaries, Bank of America
National Trust and Savings Association,
NationsBank of Texas, N.A. and other financial
institutions party to the Credit Agreement.
Incorporated by reference to Apria Healthcare
Group Inc.'s Form 10-K for the year ended
December 31, 1997.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated
February 6, 1998, with the Securities and Exchange
Commission reporting that the Registrant had entered into
a Stock Purchase Agreement ("the JLL Agreement") with JLL
Argosy Apria, LLC, Joseph Littlejohn & Levy Fund III, LP
and CIBC WG Argosy Merchant Fund 2, LLC (together, the
"JLL Group"). Pursuant to the terms of the JLL Agreement,
among other things, the Company had agreed to issue and
sell 12,300,000 shares of Common Stock and warrants to
purchase 5,000,000 additional shares, exercisable at
$20.00 per share, in consideration for a cash investment
of $172.2 million by the JLL Group. The Company was to
have used the proceeds, together with $70.0 million in new
borrowings under the Company's credit facility, to
purchase 17,300,000 shares of Common Stock. On April 3,
1998, the parties agreed to terminate the JLL Agreement
without any further obligation to any party.
<PAGE>
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
May 15, 1998 /s/ Lawrence H. Smallen
-------------------------------
Lawrence H. Smallen
Chief Financial Officer,
Senior Vice President, Finance and
Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 (UNAUDITED) AND CONSOLIDATED
INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 45,463
<SECURITIES> 0
<RECEIVABLES> 280,253
<ALLOWANCES> 50,497
<INVENTORY> 25,269
<CURRENT-ASSETS> 309,256
<PP&E> 601,816
<DEPRECIATION> 345,191
<TOTAL-ASSETS> 735,280
<CURRENT-LIABILITIES> 128,010
<BONDS> 537,879
0
0
<COMMON> 52
<OTHER-SE> 69,339
<TOTAL-LIABILITY-AND-EQUITY> 735,280
<SALES> 250,538
<TOTAL-REVENUES> 250,538
<CGS> 85,858
<TOTAL-COSTS> 85,858
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,795
<INTEREST-EXPENSE> 11,482
<INCOME-PRETAX> (6,107)
<INCOME-TAX> 500
<INCOME-CONTINUING> (6,607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,607)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
