Apria May Restructure or Put Self on Market

COSTA MESA —  Apria Healthcare Group Inc. may be put up for sale.

The wayward company, a major provider of home health care services, said Thursday it has hired investment bank Goldman, Sachs & Co. to help explore alternatives that include a possible buyout or a capital restructuring.

Apria--the product of a merger of two Orange County rivals two years ago--has been beset by breakdowns in its collections systems, unprofitable business ventures and rapid changes in its industry.

Apria said it will take charges of $95 million--about $1.21 a share--in the second quarter from billing and collection difficulties as well as unprofitable businesses. As a result, the company expects to post a second-quarter loss of 83 to 86 cents a share, a far cry from analysts’ estimates of a profit of 37 cents per share.

“We have not been as successful as we had hoped in delivering earnings per share,” Jeremy M. Jones, Apria’s chairman and chief executive, said in an interview.

The company’s announcement that it plans to consider a sale apparently blunted investors’ concern over the dismal earnings projection.

The double-barreled announcement Thursday triggered heavy trading, with more than 2.4 million shares of Apria stock changing hands on the New York Stock Exchange. But the price was unchanged, closing at $18 a share.

Analysts said investors’ hopes that the company will find a suitable buyer offset their disappointment over news of expected quarterly loss.

Likewise, Standard & Poor’s took a wait-and-see approach. The rating agency put Apria on its list of companies whose credit rating may change soon, reflecting the possibility that the company’s fortunes may improve or decline in the next few months.

The agency presently gives the company an overall rating of BBB minus--the lowest possible for a company considered investment grade.

Jones expressed frustration in his efforts to fix multiple glitches in the company’s billing and collection systems--an unexpectedly costly problem that surfaced when the two competitors, Costa Mesa-based Abbey Healthcare Group and Homdeco Group of Fountain Valley, merged two years ago, forming Apria.

Apria said $75 million of the second-quarter charges stem from problems in the far-flung billing and collection systems of the merged companies. Though management has pledged to correct them for more than a year, the problems have continued.

In hindsight, Jones noted, the company might have fared better if it hadn’t tried to consolidate hundreds of branch offices so quickly.

The cost-saving effort, which resulted in many layoffs, may have backfired when information on billings and collections got lost in the process.

Jones also acknowledged that Apria pursued a strategy shortly after the companies combined that never panned out.

He tried to make Apria into a “one-stop shop” for insurers looking for home health services for their members. But he discovered the company couldn’t make a buck on the $75 million in business it built after the merger in trying to become that one-stop shop.

As a result, Apria now aims to shed its home nursing and medical supplies businesses and focus, once again, on its main businesses of respiratory services, home infusion therapy and home medical equipment.

Its second-quarter charges will include $20 million for potential write-offs and accruals associated with existing unprofitable business lines and to increase its reserve for excess and obsolete inventory.

The company expects to release final results for the quarter late next month.

In the meantime, Jones says, the company’s cash collections have increased.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Apria’s Troubles

Costa Mesa-based Apria Healthcare Group has had its share of problems since it was formed by the merger of two competitors in Orange County. Some examples:

1995

* June 27: Homedco Group and Abbey Healthcare Group merge to form Apria Healthcare Group, the nation’s largest home health company. Consolidation later results in 1,200 layoffs. Some business defects to competitors; firm’s accounting system breaks down under combined business volume; Apria’s bills go unpaid.

1996

* Aug. 6: U.S. Food and Drug Administration warns Apria about inadequate testing and documentation of oxygen shipped from New Mexico and Kentucky facilities.

* Sept. 26: Stock dips 16% on news that fiscal year and third quarter earnings will fall below analyst expectations.

* Oct. 1: Company denies allegations in lawsuit filed May 31 by ex-employee accusing Apria of receiving kickbacks from doctors in exchange for patient referrals. U.S. Justice Department investigating for possible civil and criminal violations.

* Nov. 7: Stock slump forces Apria to forgo acquiring Vitas Healthcare Corp. of Miami for $212 million in cash and stock.

* Nov. 15: Federal grand jury launches criminal investigation into Apria’s alleged kickback schemes. Company discloses it is involved in preliminary settlement talks with Justice Department.

1997

* Feb. 4: Company agrees to pay $1.65 million in civil case relating to kickback accusation, admits no wrongdoing.

* Feb. 28: Fourth-quarter earnings announcement reveals billing errors, legal settlements and write-offs totaling $76 million dropped annual profit to $33.3 million on net revenue of $1.2 billion.

* March 4: FDA again warns Apria about failure to properly test and document liquid oxygen before filling patient units, this time at Lima, Ohio, facility.

* June 17: FDA discloses it issued warning to Apria on May 21 regarding oxygen handling and testing at its Sacramento facility.

Source: Times reports