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 June 30, 2000
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 52,326,815 shares of common stock, $.001 par value, outstanding at
August 8, 2000.
<PAGE>
APRIA HEALTHCARE GROUP INC.
FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30, DECEMBER 31,
(dollars in thousands) 2000 1999
-----------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents .................................................. $ 40,447 $ 20,493
Accounts receivable, less allowance for doubtful accounts of $50,879
and $44,652 at June 30, 2000 and December 31, 1999, respectively ......... 147,572 149,767
Inventories ................................................................ 20,633 18,505
Deferred income taxes ...................................................... 40,245 42,595
Prepaid expenses and other current assets .................................. 6,232 7,665
--------- ---------
TOTAL CURRENT ASSETS ............................................... 255,129 239,025
PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $296,916
and $277,915 at June 30, 2000 and December 31, 1999, respectively .......... 125,659 126,486
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET .................................... 38,459 41,503
DEFERRED INCOME TAXES ........................................................ 80,328 95,974
INTANGIBLE ASSETS, NET ....................................................... 130,032 125,641
OTHER ASSETS ................................................................. 534 422
--------- ---------
$ 630,141 $ 629,051
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ........................................................... $ 43,786 $ 47,202
Accrued payroll and related taxes and benefits ............................. 24,163 26,478
Accrued insurance .......................................................... 10,963 10,866
Other accrued liabilities .................................................. 41,131 51,307
Current portion of long-term debt .......................................... 31,077 23,528
--------- ---------
TOTAL CURRENT LIABILITIES .......................................... 151,120 159,381
LONG-TERM DEBT ............................................................... 375,286 394,201
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value:
10,000,000 shares authorized; none issued .................................. - -
Common stock, $.001 par value: 150,000,000 shares authorized;
52,379,331 and 52,054,974 shares issued at June 30, 2000 and
December 31, 1999, respectively; 52,293,231 and 52,054,874 outstanding
at June 30, 2000 and December 31, 1999, respectively ....................... 52 52
Additional paid-in capital ................................................. 331,269 328,897
Retained deficit ........................................................... (226,625) (253,477)
Treasury stock, at cost; 86,100 shares at June 30, 2000 and 100 shares
at December 31, 1999 ..................................................... (961) (3)
--------- ---------
103,735 75,469
--------- ---------
$ 630,141 $ 629,051
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED INCOME STATEMENTS
(unaudited)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
(dollars in thousands, except per share data) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues .................................... $252,570 $232,040 $503,292 $460,334
Costs and expenses:
Cost of net revenues:
Product and supply costs .................. 47,019 45,557 96,274 90,882
Patient service equipment depreciation..... 19,410 18,480 38,263 36,226
Nursing services .......................... 417 537 870 1,088
Other ..................................... 2,535 2,175 5,475 4,622
-------- -------- -------- --------
69,381 66,749 140,882 132,818
Selling, distribution and administrative...... 137,737 127,558 271,262 252,007
Provision for doubtful accounts .............. 8,399 7,442 19,018 16,071
Amortization of intangible assets ............ 2,486 1,984 4,926 3,857
-------- -------- -------- --------
218,003 203,733 436,088 404,753
-------- -------- -------- --------
OPERATING INCOME ...................... 34,567 28,307 67,204 55,581
Interest expense, net ........................... 10,307 10,503 20,908 21,815
-------- -------- -------- --------
INCOME BEFORE TAXES ................... 24,260 17,804 46,296 33,766
Income taxes .................................... 10,189 - 19,444 400
-------- -------- -------- --------
NET INCOME ............................ $ 14,071 $ 17,804 $ 26,852 $ 33,366
======== ======== ======== ========
Basic income per common share ................... $ 0.27 $ 0.34 $ 0.51 $ 0.64
======== ======== ======== ========
Diluted income per common share ................. $ 0.26 $ 0.33 $ 0.50 $ 0.63
======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
(dollars in thousands) 2000 1999
--------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income ...................................................................... $ 26,852 $ 33,366
Items included in net income not requiring cash:
Provision for doubtful accounts ............................................... 19,018 16,071
Depreciation and amortization ................................................. 52,242 49,766
Amortization of deferred debt costs ........................................... 1,357 3,174
Deferred income taxes and other ............................................... 17,939 2,298
Changes in operating assets and liabilities, net of effects of acquisitions:
Increase in accounts receivable ............................................... (17,591) (25,263)
Increase in inventories ....................................................... (2,128) (3,522)
Decrease (increase) in prepaids and other assets .............................. 1,321 (250)
Decrease in accounts payable .................................................. (3,416) (2,276)
(Decrease) increase in accrued payroll and related taxes and benefits ......... (2,314) 5,221
Decrease in accrued expenses and other liabilities ............................ (8,941) (5,215)
Net purchases of patient service equipment, net of effects of acquisitions....... (37,060) (34,003)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................. 47,279 39,367
INVESTING ACTIVITIES
Purchases of property, equipment and improvements,
net of effects of acquisitions .............................................. (5,684) (4,069)
Proceeds from disposition of assets ........................................... 230 276
Acquisitions and payments of contingent consideration ......................... (10,143) (25,110)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ................................. (15,597) (28,903)
FINANCING ACTIVITIES
Payments on term loan ......................................................... (10,000) (60,938)
Payments on other long-term debt .............................................. (3,143) (3,350)
Capitalized debt costs, net ................................................... - (1,811)
Purchases of treasury stock ................................................... (958) -
Issuances of common stock ..................................................... 2,373 2,180
-------- --------
NET CASH USED IN FINANCING ACTIVITIES ................................. (11,728) (63,919)
-------- --------
NET INCREASE (DECREASE) IN CASH ................................................. 19,954 (53,455)
Cash and cash equivalents at beginning of period ................................ 20,493 75,475
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................................... $ 40,447 $ 22,020
======== ========
</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. ("Apria" or "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 unaudited 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, 1999, included in the company's 1999 Form 10-K.
NOTE B - RECLASSIFICATIONS AND USE OF ACCOUNTING ESTIMATES
Reclassifications: Certain amounts from prior periods have been reclassified to
conform to the current year presentation.
Use of Accounting Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.
NOTE C - REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
Revenues are recognized on the date services and related products are provided
to patients and are recorded at amounts estimated to be received under
reimbursement arrangements with a large number of third-party payors, including
private insurers, managed care organizations, Medicare and Medicaid.
Due to the nature of the industry and the reimbursement environment in which
Apria operates, certain estimates are required to record net revenues and
accounts receivable at their net realizable values. Inherent in these estimates
is the risk that they will have to be revised or updated as additional
information becomes available to management. Specifically, the complexity of
many third-party billing arrangements and the uncertainty of reimbursement
amounts for certain services from certain payors may result in adjustments to
amounts originally recorded. Such adjustments are common and are typically
identified and recorded at the point of cash application, claim denial or upon
account review.
Accounts receivable is reduced by an allowance for doubtful accounts which
provides for those accounts from which payment is not expected to be received,
although services were provided and revenue was earned.
Management performs various analyses to evaluate the net realizable value of
accounts receivable. Specifically, management considers historical realization
data, accounts receivable aging trends, operating statistics and relevant
business conditions. Also, focused reviews of certain large and/or problematic
payors are performed. Because of continuing changes in the healthcare industry
and third-party reimbursement, it is possible that management's estimates could
change in the near term, which could have an impact on operations and cash
flows.
<PAGE>
The company is required to adopt Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements", in the fourth quarter of 2000.
SAB 101 provides guidance on the proper timing of revenue recognition in
accordance with generally accepted accounting principles. Management is
currently in the process of evaluating SAB 101.
NOTE D - BUSINESS COMBINATIONS
Apria periodically makes acquisitions of complementary businesses in specific
geographic markets. The transactions are accounted for as purchases and the
results of operations of the acquired companies are included in the accompanying
statement of operations from the date of acquisition. During the six-month
period ended June 30, 2000, cash paid for acquisitions and related contingent
consideration was $10,143,000. For the acquisitions that closed during that same
period, $8,346,000 was allocated to intangible assets. Goodwill is being
amortized over 20 years and covenants not to compete are being amortized over
the life of the respective agreements.
NOTE E - LONG-TERM DEBT
Apria's credit agreement with Bank of America and a syndicate of banks was
amended for the fifth time in March 2000 to increase the limitation on capital
expenditures.
At June 30, 2000, total borrowings under the credit agreement were $209,062,000,
outstanding letters of credit totaled $1,000,000 and credit available under the
revolving facility was $29,000,000.
NOTE F - EQUITY
The change in stockholders' equity, other than from net income, resulted from
the exercise of stock options and purchases of treasury stock. For the six
months ended June 30, 2000, proceeds from the exercise of stock options amounted
to $2,373,000, and treasury stock purchases totaled $958,000.
NOTE G - INCOME TAXES
Income taxes for the six months ended June 30, 2000 have been provided at the
effective tax rate expected to be applicable for the year.
At December 31, 1999 Apria's federal net operating loss carryforwards ("NOLs")
approximated $225,000,000, expiring in 2003 through 2013. Additionally, the
company has various state NOLs which began expiring in 1997. As a result of an
ownership change in 1992, which met specified criteria of Section 382 of the
Internal Revenue Code, future use of a portion of the federal and state NOLs
generated prior to 1992 are each limited to approximately $5,000,000 per year.
Because of the annual limitation, approximately $57,000,000 of each of Apria's
federal and state NOLs may expire unused. The company excludes the $57,000,000
of potentially expiring NOLs from its deferred tax assets.
NOTE H - COMMITMENTS AND CONTINGENCIES
Apria is engaged in the defense of certain claims and lawsuits arising out of
the ordinary course and conduct of its business, the outcomes of which are not
determinable at this time. 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 Apria's
consolidated results of operations and financial position. Apria provides for
losses related to certain matters when such losses are considered probable and
capable of estimation. No provision for losses is made in respect of claims
which do not meet such requirements.
<PAGE>
NOTE I - PER SHARE AMOUNTS
The following table sets forth the computation of basic and diluted per share
amounts:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
(in thousands, except per share data) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
NUMERATOR:
<S> <C> <C> <C> <C>
Net income ....................................... $14,071 $17,804 $26,852 $33,366
Numerator for basic per share amounts - income
available to common stockholders ............... $14,071 $17,804 $26,852 $33,366
Numerator for diluted per share amounts - income
available to common stockholders ............... $14,071 $17,804 $26,852 $33,366
DENOMINATOR:
Denominator for basic per share
amounts - weighted average shares .............. 52,326 51,896 52,258 51,846
Effect of dilutive securities:
Employee stock options ......................... 1,335 2,013 1,546 1,440
------- ------- ------- -------
Dilutive potential common shares ............... 1,335 2,013 1,546 1,440
------- ------- ------- -------
Denominator for diluted per share amounts -
adjusted weighted average shares ............... 53,661 53,909 53,804 53,286
======= ======= ======= =======
BASIC INCOME PER COMMON SHARE ...................... $ 0.27 $ 0.34 $ 0.51 $ 0.64
======= ======= ======= =======
DILUTED INCOME PER COMMON SHARE .................... $ 0.26 $ 0.33 $ 0.50 $ 0.63
======= ======= ======= =======
Employee stock options excluded from the
computation of diluted per share amounts:
Exercise price exceeds average market
price of common stock ........................ 2,659 877 2,608 1,261
Average exercise price per share that exceeds
average market price of common stock ............. $ 18.34 $ 20.85 $ 18.42 $ 19.34
======= ======= ======= =======
</TABLE>
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995: Apria'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, 1999, as filed with the Securities and Exchange Commission on March
27, 2000. This 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 the
collectibility of Apria's accounts receivable, the ongoing federal
investigations regarding Apria's billing practices, the effectiveness of Apria's
operating systems and controls, healthcare reform and the effect of federal and
state healthcare regulations, pricing pressures from large payors and continued
reductions in Medicare reimbursement, Apria's ability to implement its
acquisition strategy and the upcoming maturity of Apria's long-term debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
NET REVENUES AND GROSS MARGIN. Net revenues were $252.6 million in the
second quarter of 2000, compared to $232.0 million for the same period in 1999.
For the six months ended June 30, 2000, net revenues were $503.3 million,
representing an increase of 9.3% year-to-year. The primary reasons for the
increases are new contracts with regional and national payors, the acquisition
of complementary businesses and price increases in certain managed care
agreements.
The table below sets forth a summary of net revenues by service line. The
largest increase is in the respiratory service line, which is largely due to a
sales focus on this higher-margin line and to the impact of acquisitions
consummated during 1999 and early 2000. The increase between periods in the
infusion therapy service line was due predominantly to volume increases.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------
2000 1999
------------------ ------------------
(dollars in thousands) $ % $ %
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Respiratory therapy..................... $326,207 64.8% $292,709 63.6%
Infusion therapy........................ 95,449 19.0% 86,836 18.9%
HME/other............................... 81,636 16.2% 80,789 17.5%
-------- ------ -------- ------
Total net revenues $503,292 100.0% $460,334 100.0%
======== ====== ======== ======
</TABLE>
Gross margins for the second quarter and six months ended June 30, 2000
were 72.5% and 72.0%, respectively, compared to 71.2% and 71.1% for the same
periods last year. The majority of this improvement is due to the increase in
respiratory revenues as a percentage of total revenues.
Use of Estimates in Recording Net Revenues. Substantially all of Apria's
revenues are reimbursed by third party payors, including Medicare, Medicaid and
managed care organizations. Due to the nature of the industry and the
reimbursement environment in which Apria operates, certain estimates are
required in recording net revenues. Inherent in these estimates is the risk that
they will have to be revised or updated as additional information becomes
available to management. Specifically, the complexity of many third-party
billing arrangements and the uncertainty of reimbursement amounts for certain
services from certain payors may result in adjustments to amounts originally
recorded. Such adjustments are common and are typically identified and recorded
at the point of cash application, claim denial or upon account review.
Possible Medicare Reimbursement Reductions. The Secretary of the U.S.
Department of Health and Human Services ("HHS") has recently indicated that she
intends to recommend that the Medicare claims processors base their payments for
certain drugs on pricing schedules other than the Average Wholesale Price
listing, which historically has been the industry's basis for drug
reimbursement. The alternate pricing the Secretary intends to propose would
reduce reimbursement levels on certain drugs to more closely approximate a
provider's acquisition cost without an accompanying service fee offset. If the
alternative pricing is implemented by all the Medicare claims processors,
Apria's management estimates that the impact to revenues would be less than 5%
on an annual basis. The healthcare industry has taken issue with HHS's approach
for several reasons, primarily because it fails to consider the accompanying
costs of delivering and administering these types of drugs. Patient access to
these drug therapies may also be affected if providers choose to discontinue
providing these services.
Despite HHS's intention to provide instructions to the Medicare claims
processors in June 2000, the company does not believe HHS has provided any such
information or made any further public comments regarding alternate pricing.
Additionally, certain members of Congress have requested that HHS delay the
implementation of the pricing changes pending further study and an appropriate
comment period.
SELLING, DISTRIBUTION AND ADMINISTRATIVE. Selling, distribution and
administrative expense, as a percentage of net revenue, was 54.5% and 53.9% for
the second quarter and six months ended June 30, 2000, respectively, versus
55.0% and 54.7% for the same periods in 1999. This is primarily due to
management's ability to maintain fixed and controllable expense levels as
revenues increase.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts was
3.3% and 3.8% of net revenues for the three and six-month periods ended June 30,
2000, respectively, compared to 3.2% and 3.5% for the same periods in 1999. The
increase in 2000 is largely attributable to an increase in accounts receivable
aged in excess of 180 days, which were 27.2% and 22.1% at June 30, 2000 and June
30, 1999, respectively, as a percentage of total accounts receivable.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization expense was $2.5 million
and $4.9 million for the second quarter and six months ended June 30, 2000,
respectively, compared to $2.0 million and $3.9 million in the same periods of
1999. The increase is directly attributable to intangible assets that were
recorded in conjunction with acquisitions that were consummated in 1999 and
2000.
INTEREST EXPENSE. Interest expense was $10.3 million for the second quarter
ended June 30, 2000, down from $10.5 million for the same period last year. For
the six months ended June 30, 2000, interest expense was $20.9 million compared
to $21.8 million in the prior year. This decrease is primarily due to the
reduction in long term debt levels from 1999 to 2000 which was partially offset
by an increase in interest rates and a decrease in year-to-date interest income
due to lower cash investment balances.
INCOME TAXES. Income taxes were $19.4 million for the first six months of
2000 versus $400,000 for the same period last year. At December 31, 1999,
management concluded that it was more likely than not that Apria would realize
its net deferred tax assets. As a result, the company released the remaining
deferred tax valuation allowance during the fourth quarter of 1999. The increase
in income tax expense for the first six months of 2000, as compared to the first
six months of 1999, is primarily attributable to Apria's partial release of its
deferred tax valuation allowance in 1999.
At December 31, 1999 Apria's federal NOLs approximated $225 million,
expiring in the years 2003 through 2013. Additionally, Apria has various state
NOLs which began expiring in 1997. As a result of an ownership change in 1992,
which met specified criteria of Section 382 of the Internal Revenue Code, future
use of a portion of the federal and state NOLs generated prior to 1992 are each
limited to approximately $5 million per year. Because of the annual limitation,
approximately $57 million of each of Apria's federal and state NOLs may expire
unused. Apria excludes the $57 million of potentially expiring NOLs from its
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
OPERATING CASH FLOW. Operating cash flow was $47.3 million for the
six-month period ended June 30, 2000, compared with $39.4 million for the same
period in 1999. The increase is largely attributable to an increase in net
income after adding back items not providing or requiring cash. Improved cash
collections also had a positive impact on operating cash flow period-to-period.
ACCOUNTS RECEIVABLE. Accounts receivable, before allowance for doubtful
accounts, increased to $198.5 million at June 30, 2000 from $194.4 million at
December 31, 1999. The increase is primarily attributable to revenue growth.
Days sales outstanding (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 to 53 days at June 30, 2000 from 56 days at
December 31, 1999. Accounts aged in excess of 180 days as a percentage of total
accounts receivable increased to 27.2% at June 30, 2000 compared to 24.1% at
December 31, 1999.
Collection of its accounts receivable remains one of Apria's primary
focuses. Two factors impacting the collectibility of accounts receivable are (1)
continued high turnover among accounts receivable personnel in many of Apria's
locations and (2) the inability to collect contractually-due receivables from
certain large managed care payors on a timely basis, or at all.
Evaluation of Net Realizable Value. Management performs various analyses to
evaluate the net realizable value of accounts receivable. Specifically,
management considers historical realization data, accounts receivable aging
trends, operating statistics and relevant business conditions. Also, focused
reviews of certain large and/or problematic payors are performed. Because of
continuing changes in the healthcare industry and third-party reimbursement, it
is possible that management's estimates could change in the near term, which
could have an impact on operations and cash flows.
Unbilled Receivables. Included in accounts receivable are earned but
unbilled receivables of $21.6 million and $23.0 million at June 30, 2000 and
December 31, 1999, respectively. Delays in billings can occur, from a few days
to several weeks or more, from the date of service due to delays in obtaining
certain required payor-specific documentation from internal and external
sources. Such documentation would include internal records of proof-of-service
and written authorizations from physicians and other referral sources. Earned
but unbilled receivables are aged from date of service and are considered in
Apria's analysis of historical performance and collectibility.
LONG-TERM DEBT. Apria's credit agreement was amended for the fifth time in
March 2000. This latest amendment increases the amount of capital expenditures
permitted by the credit agreement.
At June 30, 2000, total borrowings under the credit agreement were $209.1
million (none of which were advanced from the revolving credit facility),
outstanding letters of credit totaled $1.0 million and credit available under
the revolving facility was $29.0 million.
BUSINESS COMBINATIONS. Apria periodically makes acquisitions of
complementary businesses in specific geographic markets. The transactions are
accounted for as purchases and the results of operations of the acquired
companies are included in the accompanying statement of operations from the date
of acquisition. During the six-month period ended June 30, 2000, cash paid for
acquisitions and related contingent consideration was $10.1 million. For
acquisitions that closed during the same period, approximately $8.4 million was
allocated to intangible assets. Goodwill is being amortized over 20 years and
covenants not to compete are being amortized over the life of the respective
agreements.
OTHER. Apria's management believes that cash provided by operations
together with cash invested in its money market account and amounts available
under its existing credit facility will be sufficient to finance its current
operations for at least the next year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Apria currently utilizes no material derivative financial instruments that
expose the company to significant market risk. However, Apria is subject to
interest rate changes on its variable rate term loan under the company's bank
credit agreement that may affect the fair value of that debt and cash flow and
earnings. Based on the term debt outstanding at June 30, 2000 and the current
market perception, a 50 basis point increase in the applicable interest rates
would decrease Apria's annual cash flow and earnings by approximately $1.1
million. Conversely, a 50 basis point decrease in the applicable interest rates
would increase annual cash flow and earnings by $1.1 million.
<PAGE>
PART II - OTHER INFORMATION
ITEMS 1-5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Reference
------- ---------
10.1 Description of Two-Year Incentive Plan for Executive
Officers.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this report is filed.
<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.
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Registrant
August 11, 2000 /s/ JOHN C. MANEY
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John C. Maney
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
