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 September 30, 2001
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 54,496,817 shares of common stock, $.001 par value, outstanding at
November 5, 2001.
APRIA HEALTHCARE GROUP INC.
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2001
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (unaudited)
- Condensed Consolidated Balance Sheets
- Condensed Consolidated Income Statements
- Condensed Consolidated Statements of Cash Flows
- Notes to Condensed 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 and Use of Proceeds
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
----------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
(dollars in thousands) 2001 2000
----------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................. $ 17,552 $ 16,864
Accounts receivable, less allowance for doubtful accounts of $35,790
and $39,787 at September 30, 2001 and December 31, 2000, respectively ... 161,200 145,518
Inventories, net .......................................................... 21,838 22,404
Deferred income taxes ..................................................... 33,321 33,067
Prepaid expenses and other current assets ................................. 12,568 8,617
--------- ---------
TOTAL CURRENT ASSETS .............................................. 246,479 226,470
PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $335,561
and $310,741 at September 30, 2001 and December 31, 2000, respectively .... 160,441 134,812
PROPERTY AND EQUIPMENT, NET ................................................. 43,621 40,630
DEFERRED INCOME TAXES ....................................................... 53,188 75,076
INTANGIBLE ASSETS, NET ...................................................... 175,284 137,928
OTHER ASSETS ................................................................ 8,268 5,416
--------- ---------
$ 687,281 $ 620,332
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .......................................................... $ 54,283 $ 54,250
Accrued payroll and related taxes and benefits ............................ 38,277 28,449
Accrued insurance ......................................................... 9,941 9,980
Income taxes payable ...................................................... 14,448 13,378
Other accrued liabilities ................................................. 30,479 24,555
Current portion of long-term debt ......................................... 26,594 1,999
--------- ---------
TOTAL CURRENT LIABILITIES ......................................... 174,022 132,611
LONG-TERM DEBT, net of current portion ...................................... 293,067 341,479
COMMITMENTS AND CONTINGENCIES (Note H)
STOCKHOLDERS' EQUITY Preferred stock, $.001 par value:
10,000,000 shares authorized; none issued ............................... - -
Common stock, $.001 par value:
150,000,000 shares authorized; 54,479,917 and 53,153,890 shares
issued at September 30, 2001 and December 31, 2000, respectively;
54,393,817 and 53,067,790 outstanding at September 30, 2001 and
December 31, 2000, respectively ......................................... 54 53
Additional paid-in capital ................................................ 365,642 343,621
Accumulated deficit ....................................................... (144,543) (196,471)
Treasury stock, at cost; 86,100 shares at September 30, 2001
and December 31, 2000 ................................................... (961) (961)
--------- ---------
220,192 146,242
--------- ---------
$ 687,281 $ 620,332
========= =========
See notes to condensed consolidated financial statements.
APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
(dollars in thousands, except per share data) 2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------------
Net revenues ............................................... $ 284,025 $ 252,588 $ 838,859 $ 755,880
Costs and expenses:
Cost of net revenues:
Product and supply costs ............................. 50,376 45,230 152,078 141,643
Patient service equipment depreciation ............... 23,127 19,172 66,568 57,435
Nursing services ..................................... 194 467 854 1,337
Other ................................................ 2,780 2,541 8,830 7,877
--------- --------- --------- ---------
TOTAL COST OF NET REVENUES ....................... 76,477 67,410 228,330 208,292
Selling, distribution and administrative ................ 158,750 140,115 465,241 411,377
Provision for doubtful accounts ......................... 9,873 6,767 29,092 25,785
Amortization of intangible assets ....................... 3,244 2,601 9,206 7,527
--------- --------- --------- ---------
TOTAL COSTS AND EXPENSES ......................... 248,344 216,893 731,869 652,981
--------- --------- --------- ---------
OPERATING INCOME ................................. 35,681 35,695 106,990 102,899
Interest expense, net ...................................... 5,093 10,167 21,528 31,075
--------- --------- --------- ---------
INCOME BEFORE TAXES AND
EXTRAORDINARY CHARGE ............................. 30,588 25,528 85,462 71,824
Income taxes ............................................... 11,455 10,722 32,006 30,166
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE ............... 19,133 14,806 53,456 41,658
Extraordinary charge on debt refinancing, net of taxes ..... 1,528 - 1,528 -
--------- --------- --------- ---------
NET INCOME ....................................... $ 17,605 $ 14,806 $ 51,928 $ 41,658
========= ========= ========= =========
Basic income per common share:
Income before extraordinary charge ...................... $ 0.35 $ 0.28 $ 0.99 $ 0.80
Extraordinary charge on debt refinancing, net of taxes... (0.03) - (0.03) -
--------- --------- --------- ---------
Net income ....................................... $ 0.32 $ 0.28 $ 0.96 $ 0.80
========= ========= ========= =========
Diluted income per common share:
Income before extraordinary charge ...................... $ 0.34 $ 0.28 $ 0.96 $ 0.77
Extraordinary charge on debt refinancing, net of taxes... (0.03) - (0.03) -
--------- --------- --------- ---------
Net income ....................................... $ 0.31 $ 0.28 $ 0.93 $ 0.77
========= ========= ========= =========
See notes to condensed consolidated financial statements.
APRIA HEALTHCARE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
(dollars in thousands) 2001 2000
----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income .......................................................... $ 51,928 $ 41,658
Items included in net income not requiring cash:
Extraordinary charge on debt refinancing .......................... 2,443 -
Provision for doubtful accounts ................................... 29,092 25,785
Depreciation and amortization ..................................... 87,676 78,091
Amortization of deferred debt costs ............................... 1,552 2,025
Deferred income taxes and other ................................... 28,415 27,037
Changes in operating assets and liabilities, exclusive of
effects of acquisitions:
Accounts receivable ............................................... (44,773) (18,202)
Inventories, net .................................................. 729 155
Prepaid expenses and other assets ................................. (5,173) 998
Accounts payable .................................................. 33 (858)
Accrued payroll and related taxes and benefits .................... 9,828 5,895
Other accrued liabilities ......................................... 4,350 (3,594)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................. 166,100 158,990
INVESTING ACTIVITIES
Purchases of patient service equipment and property
and equipment, exclusive of effects of acquisitions ............. (99,775) (66,553)
Proceeds from disposition of assets ............................... 235 482
Cash paid for acquisitions and payments of
contingent consideration......................................... (49,745) (15,400)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ..................... (149,285) (81,471)
FINANCING ACTIVITIES
Proceeds from revolving credit facilities, net .................... 16,000 -
Proceeds from term loans .......................................... 300,000 -
Payments on term loans ............................................ (140,000) (30,062)
Payment on redemption of senior subordinated notes ................ (200,000) -
Payments on other long-term debt .................................. (1,653) (3,402)
Capitalized debt costs, net ....................................... (5,597) (983)
Repurchases of common stock ....................................... - (958)
Issuances of common stock ......................................... 15,123 2,766
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES ..................... (16,127) (32,639)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................... 688 44,880
Cash and cash equivalents at beginning of period .................... 16,864 20,493
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 17,552 $ 65,373
========= =========
See notes to condensed consolidated financial statements.
APRIA HEALTHCARE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Apria Healthcare Group Inc. ("Apria" or "the company") and its
subsidiaries. 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, 2000, included in the company's 2000 Form 10-K.
For all periods presented herein, there were no differences between net income
and comprehensive income.
NOTE B - RECLASSIFICATIONS, ACCOUNTING ESTIMATES AND RECENT ACCOUNTING
PRONOUNCEMENTS
Reclassifications: Certain amounts from prior periods have been reclassified to
conform to the current period presentation.
Use of Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles 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.
Recent Accounting Pronouncements: During the first quarter of 2001, Apria
adopted Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which was
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133" and further amended
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities". SFAS No. 133, as amended, establishes accounting and
reporting standards for hedging activities and for derivative instruments,
including certain derivative instruments embedded in other contracts. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statements of financial position and measure those
instruments at fair value. Changes in the fair value of derivatives must be
recorded each period. SFAS No. 133 also requires formal documentation,
designation at the time the hedge transaction is initiated and assessment of the
effectiveness of the transactions that receive hedge accounting. At adoption and
at September 30, 2001, Apria had no derivative instruments that require fair
value measurement under SFAS No. 133. Accordingly, adoption of SFAS No. 133 did
not have a material effect on the consolidated financial statements.
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method and eliminates the
pooling of interests method. Adoption of SFAS No. 141 did not have a significant
effect on the company's consolidated financial statements.
SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. Existing
goodwill will continue to be amortized through the remainder of 2001 at which
time amortization will cease and the company will perform a transitional
goodwill impairment test. Goodwill and intangible assets acquired in business
combinations completed after June 30, 2001 must comply with this statement.
Adoption of SFAS No. 142 in its entirety is required for fiscal periods
beginning after December 15, 2001. Apria management is currently evaluating the
impact of the new accounting standard on existing goodwill and other intangible
assets. The ultimate impact of the new accounting standard has yet to be
determined. Goodwill amortization expense for the nine months ended September
30, 2001 was $7,301,000.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 requires that one accounting model
be used for long-lived assets to be disposed of by sale. Discontinued operations
will be measured similar to other long-lived assets classified as held for sale
at the lower of its carrying amount or fair value less cost to sell. Future
operating losses will no longer be recognized before they occur. SFAS No. 144
also broadens the presentation of discontinued operations to include a component
of an entity when operations and cash flows can be clearly distinguished, and
establishes criteria to determine when a long-lived asset is held for sale. The
provisions of SFAS No. 144 are effective for financial statements issued for
years beginning after December 15, 2001. The adoption of this statement will not
have a material effect on Apria's financial statements.
NOTE C - REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
Net revenues are recognized on the date services and related products are
provided to patients and are recorded at amounts expected to be received under
reimbursement arrangements with 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, net revenues and accounts receivable are recorded at their
expected net realizable values. Inherent in this process is the risk that the
expected amounts will have to be revised or updated as additional information
becomes available. 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 typically identified and recorded at the point of cash
application, claim denial or account review.
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.
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
income statements from the date of acquisition. During the nine-month period
ended September 30, 2001, cash paid for acquisitions was $49,745,000. Included
in this amount is contingent consideration of $1,868,000. At September 30, 2001
outstanding contingent consideration totaled $5,001,000.
For the acquisitions that closed during the nine-month period ended September
30, 2001, $46,699,000 was allocated to intangible assets, which includes amounts
not yet paid. The majority of such intangible assets represents goodwill from
business combinations completed prior to June 30, 2001, which is being amortized
over 20 years, and covenants not to compete which are being amortized over the
life of the respective agreements.
NOTE E - LONG-TERM DEBT
On July 20, 2001, Apria closed a new $400,000,000 senior secured credit
agreement with a syndicate of lenders led by Bank of America, N.A. The company's
previous credit agreement and the $200,000,000 9 1/2% senior subordinated notes,
both of which were scheduled to mature in late 2002, were repaid in full
concurrent with the closing of the new senior secured credit agreement. In
connection with the early retirement of its debt, Apria wrote-off the
unamortized balance of deferred financing fees attributable to the subordinated
notes and the previous credit agreement. Accordingly, Apria recorded an
extraordinary charge of $1,528,000, net of tax, in the quarter ended September
30, 2001.
The senior secured credit facilities consist of: a $100,000,000 five-year
revolving credit facility; a $125,000,000 five-year term loan; and a
$175,000,000 six-year term loan. On September 30, 2001, borrowings under the
revolving credit facility were $16,000,000, outstanding letters of credit
totaled $1,000,000 and credit available under the revolving facility was
$83,000,000.
Borrowings under the senior secured credit facilities are collateralized by
substantially all of the assets of Apria. The credit agreement contains numerous
restrictions, including but not limited to, covenants requiring the maintenance
of certain financial ratios, limitations on additional borrowings, capital
expenditures, mergers, acquisitions and investments and, restrictions on cash
dividends, loans and other distributions. The agreement also permits Apria to
expend a maximum of $100,000,000 per year on acquisitions. At September 30,
2001, the company was in compliance with all of the financial covenants required
by the agreement.
The senior secured credit agreement permits Apria to select one of two variable
interest rates. One option is the base rate which is expressed as the higher of
(a) the Federal Funds rate plus 0.50% and (b) the Prime Rate. The other option
is the Eurodollar rate which is based on the London Interbank Offered Rate.
Interest on outstanding balances under the senior secured credit agreement are
determined by adding a margin to the Eurodollar rate or base rate existing at
each interest calculation date. Prior to September 30, 2001, margins on initial
borrowings under the revolving credit facility and the $125,000,000 term loan
were 1.75% for Eurodollar loans and 0.75% for base rate loans. Commencing on
September 30, 2001, the applicable margins for the revolving credit facility and
the $125,000,000 term loan are based on Apria's leverage ratio, which is the
ratio of its funded debt to its last four quarters of EBITDA, as defined. The
applicable margin ranges from 1.50% to 2.25% for Eurodollar loans and from 0.50%
to 1.25% for base rate loans. For the $175,000,000 term loan, the margins are
fixed at 3.00% for Eurodollar loans and at 2.00% for base rate loans. The senior
credit agreement also requires payment of commitment fees ranging from 0.25% to
0.50% (also based on Apria's leverage ratio) on the unused portion of the
revolving credit facility.
The $125,000,000 term loan is repayable in 20 consecutive quarterly installments
of $5,500,000 to $7,000,000 each, commencing December 31, 2001. The $175,000,000
term loan is repayable in 20 consecutive quarterly installments of $437,500
each, commencing December 31, 2001, and four installments of $41,562,500 each,
three of which are payable on the last business day of each calendar quarter
commencing December 31, 2006 and the last of which is payable on July 20, 2007.
NOTE F - EQUITY
The change in stockholders' equity, other than from net income, is attributable
to the exercise of stock options and the tax benefit associated with the
exercise of nonqualified stock options. For the nine months ended September 30,
2001, proceeds from the exercise of stock options amounted to $15,123,000 and
the related tax benefit amounted to $6,899,000.
NOTE G - INCOME TAXES
Income taxes for the nine months ended September 30, 2001 and 2000 have been
provided at the effective tax rates expected to be applicable for the respective
year.
At December 31, 2000, Apria's federal net operating loss carryforwards ("NOLs")
approximated $174,500,000, which will begin expiring in varying amounts in the
years 2003 through 2013. Apria also has various state NOLs which began expiring
in 1997. Additionally, the company's alternative minimum tax credit carryforward
approximated $7,600,000 at December 31, 2000. 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. In 2001, for federal tax
purposes, NOLs are being utilized to the extent of the company's federal taxable
income.
NOTE H - COMMITMENTS AND CONTINGENCIES
Apria and certain of its present and former officers and/or directors are
defendants in a class action lawsuit, In Re Apria Healthcare Group Securities
Litigation, filed in the U.S. District Court for the Central District of
California, Southern Division (Case No. SACV98-217 GLT). This case is a
consolidation of three similar class actions filed in March and April, 1998.
Pursuant to a court order dated May 27, 1998, the plaintiffs in the original
three class actions filed a Consolidated Amended Class Action Complaint on
August 6, 1998. The amended complaint purports to establish a class of plaintiff
shareholders who purchased Apria's common stock between May 22, 1995 and January
20, 1998. No class has been certified at this time. The amended complaint
alleges, among other things, that the defendants made false and/or misleading
public statements regarding Apria and its financial condition in violation of
federal securities laws. The amended complaint seeks compensatory and punitive
damages as well as other relief.
Two similar class actions were filed during July 1998 in the Superior Court for
the State of California for the County of Orange: Schall v. Apria Healthcare
Group Inc., et. al. (Case No. 797060) and Thompson v. Apria Healthcare Group
Inc., et al. (Case No. 797580). These two actions were consolidated by a court
order dated October 22, 1998 (Master Case No. 797060). On June 14, 1999, the
plaintiffs filed a Consolidated Amended Class Action Complaint asserting claims
founded on state law and on Sections 11 and 12(2) of the 1933 Securities Act.
Apria and its Chief Executive Officer are also defendants in a class action
lawsuit, J.E.B. Capital Partners, LP v. Apria Healthcare Group Inc. and Philip
L. Carter, filed on August 27, 2001 in the U.S. District Court for the Central
District of California, Southern Division (Case No. SACV01-813 GLT). Among other
things, this complaint alleges that the defendants made false and/or misleading
public statements by not announcing until July 16, 2001 the amount of potential
damages asserted by the U.S. Attorney's office in Los Angeles and counsel for
the plaintiffs in the qui tam actions referred to below.
Apria believes that, in all of these class action cases, it has meritorious
defenses to the plaintiffs' claims, and it intends to vigorously defend itself.
In the opinion of Apria's management, the ultimate disposition of these class
actions will not have a material adverse effect on Apria's results of operations
or financial condition.
As previously reported, since mid-1998 Apria has been the subject of
investigations conducted by several U.S. Attorneys' offices and the U.S.
Department of Health and Human Services, all of which concern the documentation
supporting Apria's billing for services provided to patients whose healthcare
costs are paid by Medicare and other federal programs. Apria is cooperating with
the government in connection with these investigations and is responding to
various document requests and subpoenas. A criminal investigation conducted by
the U.S. Attorney's office in Sacramento was closed in mid-1999 with no charges
being filed. Potential claims resulting from an investigation by the U.S.
Attorney's office in San Diego were settled in mid-2001 in exchange for a
payment by Apria of $95,000.
Apria has been informed by the U.S. Attorney's office in Los Angeles that the
investigation being conducted by that office is the result of civil qui tam
litigation filed on behalf of the government against Apria. The complaints in
the litigation are under seal, however, and the government has not informed
Apria of either the identities of the plaintiffs, the court or courts where the
proceedings are pending, the date or dates instituted or the factual bases
alleged to underlie the proceedings. To date, the U.S. Attorney's office has not
informed Apria of any decision to intervene in the qui tam actions; however, it
could reach a decision with respect to intervention at any time.
On July 12, 2001, government representatives and counsel for the plaintiffs in
the qui tam actions asserted that, by a process of extrapolation from a sample
of 300 patient files to all of Apria's billings to the federal government during
the three-and-one-half year sample period, Apria could be liable to the
government under the False Claims Act for more than $9 billion, consisting of
extrapolated overpayment liability, plus treble damages and penalties of up to
$10,000 for each allegedly false claim derived from the extrapolation.
Apria has acknowledged that there may be errors and omissions in supporting
documentation affecting a portion of its billings. However, it considers the
assertions and amounts described in the preceding paragraph to be unsupported
both legally and factually and believes that most of the alleged documentation
errors and omissions should not give rise to any liability, for overpayment
refunds or otherwise. Accordingly, Apria believes that the claims asserted are
unwarranted and that it is in a position to assert numerous meritorious
defenses. Nevertheless, Apria cannot provide any assurances as to the outcome of
these proceedings. Management cannot estimate the possible loss or range of loss
that may result from these proceedings and therefore has not recorded any
related accruals.
If a judge, jury or administrative agency were to determine that false claims
were submitted to federal healthcare programs or that there were significant
overpayments by the government, Apria could face civil and administrative claims
for refunds, sanctions and penalties for amounts that would be highly material
to its business, results of operations and financial condition, including
exclusion of Apria from participation in federal healthcare programs.
Apria is also 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. Apria 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 Apria upon the resolution of
these claims and lawsuits will not, in the aggregate, have a material adverse
effect on Apria's results of operations or financial condition.
NOTE I - PER SHARE AMOUNTS
The following table sets forth the computation of basic and diluted per share
amounts:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
(in thousands, except per share data) 2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------------
NUMERATOR:
Net income ............................................................ $17,605 $14,806 $51,928 $41,658
Numerator for basic and diluted per share amounts - net
income available to common stockholders ............................. $17,605 $14,806 $51,928 $41,658
DENOMINATOR:
Denominator for basic per share
amounts - weighted average shares ................................... 54,231 52,324 53,790 52,280
Effect of dilutive securities:
Employee stock options ......................................... 1,737 1,380 1,943 1,491
------- ------- ------- -------
Total dilutive potential common shares ......................... 1,737 1,380 1,943 1,491
------- ------- ------- -------
Denominator for diluted per share amounts -
adjusted weighted average shares .................................... 55,968 53,704 55,733 53,771
======= ======= ======= =======
BASIC NET INCOME PER COMMON SHARE ....................................... $ 0.32 $ 0.28 $ 0.96 $ 0.80
======= ======= ======= =======
DILUTED NET INCOME PER COMMON SHARE ..................................... $ 0.31 $ 0.28 $ 0.93 $ 0.77
======= ======= ======= =======
Employee stock options excluded from the computation
of diluted per share amounts:
Exercise price exceeds average market
price of common stock ............................................. 1,827 2,650 1,827 2,607
Average exercise price per share that exceeds
average market price of common stock .................................. $ 27.08 $ 18.31 $ 27.08 $ 18.37
======= ======= ======= =======
NOTE J - SUBSEQUENT EVENTS
During the fourth quarter of 2001, Apria entered into two interest rate swaps
with a total notional amount of $100,000,000 to fix its LIBOR-based variable
rate debt at 3.07% (before the applicable margin). The swap agreements became
effective October 30, 2001 and terminate on October 30, 2003. The swaps will be
accounted for as cash flow hedges under SFAS No. 133. See "Note E".
--------------------------------------------------------------------------------
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 which are partly or entirely 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, 2000, as filed with the Securities and Exchange
Commission on March 22, 2001 and Amendment No. 3 to Form S-3 Registration
Statement, as filed on August 7, 2001. 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. Those risks include: whether the company will be able to resolve issues
pertaining to the collectibility of its accounts receivable, healthcare reform
and the effect of federal and state healthcare regulations, the ongoing
government investigations regarding patients covered by Medicare and other
federal programs, pricing pressures from large payors and changes in
governmental reimbursement levels, the effectiveness of the company's operating
systems and controls, and the successful implementation of the company's
acquisition strategy. In addition, the terrorist attacks of September 11, 2001
and the military and security activities which followed, their impacts on the
United States economy and government spending priorities, and the effects of any
further such developments pose risks and uncertainties to all United States
businesses, including Apria. Among other things, deficit spending by the
government as the result of adverse developments in the economy and costs of the
government's response to the terrorist attacks could lead to the increased
pressure to reduce government expenditures for other purposes, including
governmentally-funded programs such as Medicare.
--------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
NET REVENUES. Net revenues were $284.0 million and $838.9 million in the
third quarter and first nine months of 2001, respectively, compared to $252.6
million and $755.9 million for the corresponding periods in 2000. The increases
in net revenues are primarily due to new contracts with regional and national
payors, the acquisition of complementary businesses and price increases in
certain managed care contracts.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ -------------------------------------
2001 2000 2001 2000
--------------- ---------------- ---------------- -----------------
(dollars in thousands) $ % $ % $ % $ %
------------------------------------------------------------------------------------------------------------------
Respiratory therapy............ $186,069 65.5% $162,394 64.3% $549,480 65.5% $488,601 64.6%
Infusion therapy............... 54,570 19.2% 49,532 19.6% 161,829 19.2% 144,981 19.2%
HME/other...................... 43,386 15.3% 40,662 16.1% 127,550 15.3% 122,298 16.2%
-------- ------ -------- ------ -------- ------ -------- ------
Total net revenues $284,025 100.0% $252,588 100.0% $838,859 100.0% $755,880 100.0%
======== ====== ======== ====== ======== ====== ======== ======
Recording of Net Revenues. Substantially all of Apria's revenues are
reimbursed by third party payors, including private insurers, Medicare, Medicaid
and managed care organizations. Due to the nature of the industry and the
reimbursement environment in which Apria operates, net revenues are recorded at
their expected net realizable values. Inherent in this process is the risk that
the expected amounts will have to be revised or updated as additional
information becomes available.
Medicare Reimbursement Update. The Medicare, Medicaid and SCHIP Benefits
Improvement and Protection Act of 2000 provides reinstatement of the Consumer
Price Index-based reimbursement increase in 2001 for certain durable medical
equipment products and services. The increase, which went into effect July 1,
2001 and continues through December 31, 2001, includes a transitional allowance
that will effectively compress a full year's Consumer Price Index update into
six months.
GROSS MARGIN. Gross margins for the third quarter of 2001 and the nine
months ended September 30, 2001 were 73.1% and 72.8%, respectively, compared to
73.3% and 72.4% for the same periods last year. The improvement in the
year-to-date margin is attributable to better utilization of inventory and
patient service equipment, the increase in the share of higher-margin
respiratory revenues to total net revenues and the price increases reflected in
net revenues.
SELLING, DISTRIBUTION AND ADMINISTRATIVE. Selling, distribution and
administrative expenses, as percentages of net revenue, were 55.9% and 55.5% for
the third quarter and the nine months ended September 30, 2001, respectively,
versus 55.5% and 54.4% for the corresponding periods in 2000. The increases are
mainly attributable to merit and other compensation increases.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts was
3.5% of net revenues for the third quarter and the first nine months of 2001
compared to 2.7% and 3.4% for the corresponding periods in 2000. The provision
percentage in the third quarter of 2000 was positively impacted by higher than
normal collections. See "Liquidity and Capital Resources - Accounts Receivable".
AMORTIZATION OF INTANGIBLE ASSETS. Amortization expense was $3.2 million and
$9.2 million for the third quarter and first nine months of 2001, respectively,
compared to $2.6 million and $7.5 million in the corresponding periods of 2000.
The increases are directly attributable to intangible assets that were recorded
in conjunction with acquisitions consummated after the subject periods of 2000.
INTEREST EXPENSE. Interest expense was $5.1 million for the third quarter of
2001, down from $10.2 million in the third quarter of 2000. For the nine months
ended September 30, 2001 interest expense was $21.5 million compared to $31.1
million in the same period in 2000. The decreases are due to the reduction in
long-term debt and decreases in interest rates between the periods.
INCOME TAXES. Income taxes for the nine months ended September 30, 2001, and
in the corresponding period of 2000, have been provided at the effective tax
rates expected to be applicable for the respective year.
At December 31, 2000, Apria's federal net operating loss carryforwards
("NOLs") approximated $174.5 million, which will begin expiring in varying
amounts in the years 2003 through 2013. Apria also has various state NOLs which
began expiring in 1997. Additionally, the company's alternative minimum tax
credit carryforward approximated $7.6 million at December 31, 2000. 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. In 2001, for federal tax
purposes, NOLs are being utilized to the extent of the company's federal taxable
income.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
CASH FLOW. Operating cash flow was $166.1 million in the first nine months
of 2001 compared with $159.0 million in the corresponding period of 2000. The
cash flow increase was primarily attributable to the increase in net income
before items not requiring cash. The larger increase in accounts receivable in
the first nine months of 2001, when compared to the same period in 2000, was
partially offset by decreases in other working capital requirements.
Cash used in investing activities increased to $149.3 million for the first
nine months of 2001, compared to $81.5 million during the same period last year.
The increase is attributable to an increase in patient service equipment
purchases to support the revenue growth and increased acquisition activity.
Cash used in financing activities was $16.1 million during the first nine
months of 2001 compared to $32.6 million during the corresponding period of
2000. The long-term debt refinancing is reflected in the financing activities
section of the 2001 statement of cash flows, but the net decrease in cash used
between the periods presented is primarily attributable to the following two
items: (1) Apria made no scheduled term loan payments on the former credit
agreement in 2001 prior to the refinancing due to large prepayments made in the
latter part of 2000, and (2) in 2001, proceeds from the exercise of stock
options increased. See "Long-term Debt".
ACCOUNTS RECEIVABLE. Accounts receivable, before allowance for doubtful
accounts, was $197.0 million at September 30, 2001 and $185.3 million at
December 31, 2000. The increase is due to continued quarter-over-quarter net
revenue increases. Days sales outstanding (calculated as of each period-end by
dividing net accounts receivable by the 90-day rolling average of net revenues)
were 51 days at September 30, 2001 and at December 31, 2000. Accounts aged in
excess of 180 days as a percentage of total accounts receivable decreased to
21.1% at September 30, 2001 from 23.8% at December 31, 2000.
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. Delays between the date of service and billing can
occur due to delays in obtaining certain required payor-specific documentation
from internal and external sources. Such earned but unbilled receivables are
aged from date of service and are considered in Apria's analysis of historical
performance and collectibility. Earned but unbilled receivables were $27.5
million and $17.9 million at September 30, 2001 and December 31, 2000,
respectively. The increase is largely due to the acquisitions effected during
2001. The time-consuming processes of converting patient files onto Apria's
systems and obtaining provider numbers from government payors routinely delay
billing of the newly acquired business.
LONG-TERM DEBT. On July 20, 2001, Apria closed a new $400 million senior
secured credit agreement with a syndicate of lenders led by Bank of America,
N.A. The previous credit agreement and Apria's $200 million 9 1/2% senior
subordinated notes, both of which were scheduled to mature in late 2002, were
repaid in full concurrent with the closing of the new credit agreement. In
connection with the early retirement of its debt, Apria wrote-off the
unamortized balance of deferred financing fees attributable to the subordinated
notes and the previous credit agreement, resulting in an extraordinary charge of
$1.5 million, net of tax.
The senior secured credit facilities consist of: a $100 million five-year
revolving credit facility; a $125 million five-year term loan; and a $175
million six-year term loan. On September 30, 2001, borrowings under the
revolving credit facility were $16 million, outstanding letters of credit
totaled $1 million and credit available under the revolving facility was $83
million.
During the fourth quarter of 2001, Apria entered into two interest rate
swaps with a total notional amount of $100 million to fix its LIBOR-based
variable rate debt at 3.07% (before the applicable margin). The swap agreements
became effective October 30, 2001 and terminate on October 30, 2003. The swaps
will be accounted for as cash flow hedges under SFAS No. 133. See "Note E to the
Condensed Consolidated Financial Statements".
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 income statements from the date of
acquisition. During the nine-month period ended September 30, 2001, cash paid
for acquisitions was $49.7 million. Included in this amount is contingent
consideration of $1.9 million. Outstanding contingent consideration at September
30, 2001 totaled $5.0 million.
For acquisitions that closed during the first nine months of 2001,
approximately $46.7 million was allocated to intangible assets, which includes
amounts not yet paid. The majority of such intangible assets represents goodwill
from business combinations completed prior to June 30, 2001, which is being
amortized over 20 years, and covenants not to compete which are being amortized
over the life of the respective agreements.
FEDERAL INVESTIGATIONS. The U.S. Attorney's office in Los Angeles is
conducting an investigation of Apria's billing documentation. The U.S.
Attorney's office has informed Apria that this investigation is the result of
qui tam litigation filed by one or more individuals on behalf of the government,
but has not yet informed Apria whether it will intervene in the qui tam actions;
however, it could reach a decision with respect to intervention at any time. If
the U.S. Attorney were to intervene in the qui tam cases, or if qui tam actions
were to proceed without such intervention, the amount of the claim could be
highly material. On July 12, 2001, government representatives and counsel for
the plaintiffs in the qui tam actions asserted that, by a process of
extrapolation from a sample of 300 patient files to all of Apria's billings to
the federal government during the three-and-one-half year sample period, Apria
could be liable to the government under the False Claims Act for more than $9
billion, consisting of extrapolated overpayment liability, plus treble damages
and penalties of up to $10,000 for each allegedly false claim derived from the
extrapolation. Although Apria believes that such assertions are unwarranted, and
is prepared to vigorously defend against any attempt to impose material
liabilities or penalties, Apria can provide no assurance as to the outcome of
these proceedings. In the event Apria was found liable or otherwise reached
settlement on any such claim in a material amount, Apria's liquidity and capital
resources could be adversely affected. See "Note H to the Condensed Consolidated
Financial Statements".
RECENT ACCOUNTING PRONOUNCEMENTS. During the first quarter of 2001, Apria
adopted Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which was
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133" and further amended
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities". SFAS No. 133, as amended, establishes accounting and
reporting standards for hedging activities and for derivative instruments,
including certain derivative instruments embedded in other contracts. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statements of financial position and measure those
instruments at fair value. Changes in the fair value of derivatives must be
recorded each period. SFAS No. 133 also requires formal documentation,
designation at the time the hedge transaction is initiated and assessment of the
effectiveness of the transactions that receive hedge accounting. At adoption and
at September 30, 2001, Apria had no derivative instruments that require fair
value measurement under SFAS No. 133. Accordingly, adoption of SFAS No. 133 did
not have a material effect on the consolidated financial statements.
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method and
eliminates the pooling of interests method. Adoption of SFAS No. 141 did not
have a significant effect on the company's consolidated financial statements.
SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. Existing
goodwill will continue to be amortized through the remainder of 2001 at which
time amortization will cease and the company will perform a transitional
goodwill impairment test. Goodwill and intangible assets acquired in business
combinations completed after June 30, 2001 must comply with this statement.
Adoption of SFAS No. 142 in its entirety is required for fiscal periods
beginning after December 15, 2001. Apria management is currently evaluating the
impact of the new accounting standard on existing goodwill and other intangible
assets. The ultimate impact of the new accounting standard has yet to be
determined. Goodwill amortization expense for the nine months ended September
30, 2001 was $7.3 million.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 requires that one accounting
model be used for long-lived assets to be disposed of by sale. Discontinued
operations will be measured similar to other long-lived assets classified as
held for sale at the lower of its carrying amount or fair value less cost to
sell. Future operating losses will no longer be recognized before they occur.
SFAS No. 144 also broadens the presentation of discontinued operations to
include a component of an entity when operations and cash flows can be clearly
distinguished, and establishes criteria to determine when a long-lived asset is
held for sale. The provisions of SFAS No. 144 are effective for financial
statements issued for years beginning after December 15, 2001. The adoption of
this statement will not have a material effect on Apria's financial statements.
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 is subject to interest rate changes on its variable rate term loans
under the company's bank credit agreement. Based on the term debt outstanding at
September 30, 2001 and the current market perception, a 100 basis point change
in the applicable interest rates would increase or decrease Apria's annual cash
flow and pretax earnings by approximately $3.0 million. At September 30, 2001,
Apria did not have any derivative financial instruments.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Apria and certain of its present and former officers and/or
directors are defendants in a class action lawsuit, In Re Apria
Healthcare Group Securities Litigation, filed in the U.S. District
Court for the Central District of California, Southern Division
(Case No. SACV98-217 GLT). This case is a consolidation of three
similar class actions filed in March and April, 1998. Pursuant to a
court order dated May 27, 1998, the plaintiffs in the original
three class actions filed a Consolidated Amended Class Action
Complaint on August 6, 1998. The amended complaint purports to
establish a class of plaintiff shareholders who purchased Apria's
common stock between May 22, 1995 and January 20, 1998. No class
has been certified at this time. The amended complaint alleges,
among other things, that the defendants made false and/or
misleading public statements regarding Apria and its financial
condition in violation of federal securities laws. The amended
complaint seeks compensatory and punitive damages as well as other
relief.
Two similar class actions were filed during July 1998 in the
Superior Court for the State of California for the County of
Orange: Schall v. Apria Healthcare Group Inc., et. al. (Case No.
797060) and Thompson v. Apria Healthcare Group Inc., et al. (Case
No. 797580). These two actions were consolidated by a court order
dated October 22, 1998 (Master Case No. 797060). On June 14, 1999,
the plaintiffs filed a Consolidated Amended Class Action Complaint
asserting claims founded on state law and on Sections 11 and 12(2)
of the 1933 Securities Act.
Apria and its Chief Executive Officer are also defendants in a
class action lawsuit, J.E.B. Capital Partners, LP v. Apria
Healthcare Group Inc. and Philip L. Carter, filed on August 27,
2001 in the U.S. District Court for the Central District of
California, Southern Division (Case No. SACV01-813 GLT). Among
other things, this complaint alleges that the defendants made false
and/or misleading public statements by not announcing until July
16, 2001 the amount of potential damages asserted by the U.S.
Attorney's office in Los Angeles and counsel for the plaintiffs in
the qui tam actions referred to below.
Apria believes that, in all of these class action cases, it has
meritorious defenses to the plaintiffs' claims, and it intends to
vigorously defend itself. In the opinion of Apria's management, the
ultimate disposition of these class actions will not have a
material adverse effect on Apria's results of operations or
financial condition.
As previously reported, since mid-1998 Apria has been the subject
of investigations conducted by several U.S. Attorneys' offices and
the U.S. Department of Health and Human Services, all of which
concern the documentation supporting Apria's billing for services
provided to patients whose healthcare costs are paid by Medicare
and other federal programs. Apria is cooperating with the
government in connection with these investigations and is
responding to various document requests and subpoenas. A criminal
investigation conducted by the U.S. Attorney's office in Sacramento
was closed in mid-1999 with no charges being filed. Potential
claims resulting from an investigation by the U.S. Attorney's
office in San Diego were settled in mid-2001 in exchange for a
payment by Apria of $95,000.
Apria has been informed by the U.S. Attorney's office in Los
Angeles that the investigation being conducted by that office is
the result of civil qui tam litigation filed on behalf of the
government against Apria. The complaints in the litigation are
under seal, however, and the government has not informed Apria of
either the identities of the plaintiffs, the court or courts where
the proceedings are pending, the date or dates instituted or the
factual bases alleged to underlie the proceedings. To date, the
U.S. Attorney's office has not informed Apria of any decision to
intervene in the qui tam actions; however, it could reach a
decision with respect to intervention at any time.
On July 12, 2001, government representatives and counsel for the
plaintiffs in the qui tam actions asserted that, by a process of
extrapolation from a sample of 300 patient files to all of Apria's
billings to the federal government during the three-and-one-half
year sample period, Apria could be liable to the government under
the False Claims Act for more than $9 billion, consisting of
extrapolated overpayment liability, plus treble damages and
penalties of up to $10,000 for each allegedly false claim derived
from the extrapolation.
Apria has acknowledged that there may be errors and omissions in
supporting documentation affecting a portion of its billings.
However, it considers the assertions and amounts described in the
preceding paragraph to be unsupported both legally and factually
and believes that most of the alleged documentation errors and
omissions should not give rise to any liability, for overpayment
refunds or otherwise. Accordingly, Apria believes that the claims
asserted are unwarranted and that it is in a position to assert
numerous meritorious defenses. Nevertheless, Apria cannot provide
any assurances as to the outcome of these proceedings. Management
cannot estimate the possible loss or range of loss that may result
from these proceedings and therefore has not recorded any related
accruals.
If a judge, jury or administrative agency were to determine that
false claims were submitted to federal healthcare programs or that
there were significant overpayments by the government, Apria could
face civil and administrative claims for refunds, sanctions and
penalties for amounts that would be highly material to its
business, results of operations and financial condition, including
exclusion of Apria from participation in federal healthcare
programs.
Apria is also 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. Apria 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 Apria upon the resolution of
these claims and lawsuits will not, in the aggregate, have a
material adverse effect on Apria's results of operations or
financial condition.
ITEMS 2-3. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting of Stockholders of the company on July 18, 2001.
(b) Directors re-elected at the Annual Meeting for a term of one
year:
David H. Batchelder
Philip L. Carter
David L. Goldsmith
Richard H. Koppes
Philip R. Lochner, Jr.
Beverly Benedict Thomas
Ralph V. Whitworth
(c) Matters Voted Upon at Annual Meeting:
Election of Directors
---------------------
The company's Board of Directors consists of seven members who
will serve for one year or until the election and qualification
of their successors. The results of the Stockholder voting were
as follows:
FOR WITHHOLD
---------- --------
David H. Batchelder 49,541,275 440,828
Philip L. Carter 49,541,275 440,828
David L. Goldsmith 49,541,275 440,828
Richard H. Koppes 49,541,275 440,828
Philip R. Lochner, Jr. 49,541,275 440,828
Beverly Benedict Thomas 49,541,275 440,828
Ralph V. Whitworth 49,541,275 440,828
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Reference
------ ---------
10.1 Building Lease, dated December 6, 2000 and commencing
on December 1, 2001, between MSGW California I, LLC
and Apria Healthcare, Inc. for two buildings within
the MSGW/Pacific Commercentre Business Park, Lake
Forest, California.
10.2 Credit Agreement dated July 20, 2001, among Registrant
and certain of its subsidiaries, Bank of America
National Association and other financial institutions
party to the Credit Agreement.
10.3 Underwriting Agreement dated August 9, 2001, between
Registrant and Relational Investors, LLC.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this report is filed.
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
November 14, 2001 /s/ JAMES E. BAKER
--------------------------------------------
James E. Baker
Chief Financial Officer
(Principal Financial and Accounting Officer)