<PAGE> 1
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 quarterly period ended June 30, 1997 or
( ) Transition report pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the transition period from to
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Commission file number 0-15416
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RESPONSE ONCOLOGY, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1212264
- ---------------------------- ------------------
(State or Other Jurisdiction (I. R. S. Employer
of Incorporation or Organization) Identification No.)
1775 Moriah Woods Blvd., Memphis, TN 38117
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(Address of principal executive offices) (Zip Code)
(901) 761-7000
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(Registrant's telephone number, including area code)
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 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value, 11,969,143 shares as of August 13, 1997.
This filing consists of 16 sequentially numbered pages.
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
<S> <C> <C>
Consolidated Balance Sheets,
June 30, 1997 and December 31, 1996...................................................................3
Consolidated Statements
of Earnings for the Three Months Ended
June 30, 1997 and June 30, 1996.......................................................................4
Consolidated Statements
of Earnings for the Six Months Ended
June 30, 1997 and June 30, 1996.......................................................................5
Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1997 and June 30, 1996.......................................................................6
Notes to Consolidated
Financial Statements..................................................................................7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................................................................11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders................................................14
Item 5. Market Information and Related Stockholder Matters...................................................15
Item 6. Exhibits and Reports on Form 8-K.....................................................................15
Signatures .....................................................................................................16
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
--------------------------------
June 30, 1997 December 31, 1996
ASSETS (Unaudited) (Note 1)
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,429 $ 415
Accounts receivable, less allowance for doubtful accounts
of $2,446 and $1,774 16,093 14,297
Supplies 2,512 2,415
Prepaid expenses and other current assets 4,147 2,168
Due from affiliated physicians 14,460 12,423
--------- ---------
TOTAL CURRENT ASSETS 40,641 31,718
Property and equipment - at cost, less accumulated
depreciation and amortization of $9,020 and $8,160 3,672 5,406
Deferred charges, less accumulated amortization of $423 and $232 467 490
Management Service Agreements, less accumulated amortization of $2,688 and
$1,345 101,305 101,963
Deferred tax asset 3,198 3,267
Other assets 169 106
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TOTAL ASSETS $ 149,452 $ 142,950
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 9,406 $ 4,863
Accrued expenses and other liabilities 5,757 4,268
Notes payable 1,309 7,847
Capital lease obligations 66 74
--------- ---------
TOTAL CURRENT LIABILITIES 16,538 17,052
Capital lease obligations, less current portion 92 124
Notes payable, less current portion 44,557 62,106
Deferred tax liability 23,231 25,127
Minority interest 835 374
STOCKHOLDERS' EQUITY
Series A convertible preferred stock, $1.00 par value, authorized 3,000,000
shares; issued and outstanding 27,233 shares at each period end,
liquidating preference $11.00 per share 27 27
Common Stock, $.01 par value, authorized 30,000,000 shares; issued and
outstanding 11,967,543 and 8,947,018 shares, respectively 120 89
Paid-in capital 101,376 77,454
Accumulated deficit (37,324) (39,403)
--------- ---------
64,199 38,167
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 149,452 $ 142,950
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollar amounts in thousands except for share data)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
June 30, 1997 June 30, 1996
------------ -------------
<S> <C> <C>
NET REVENUE $ 25,642 $ 15,099
COSTS AND EXPENSES
Salaries and benefits 5,210 3,519
Pharmaceuticals and supplies 12,413 6,463
Other operating costs 2,385 1,812
General and administrative 1,109 1,037
Depreciation and amortization 1,149 754
Interest 792 459
Provision for doubtful accounts 423 450
------------ ------------
23,481 14,494
------------ ------------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 2,161 605
Minority owners' share of net earnings (205) (61)
------------ ------------
EARNINGS BEFORE INCOME TAXES 1,956 544
Provision for income taxes 744 --
------------ ------------
NET EARNINGS TO COMMON STOCKHOLDERS $ 1,212 $ 544
============ ============
EARNINGS PER COMMON SHARE $ 0.10 $ 0.07
============ ============
Weighted average number of shares 11,968,123 7,851,520
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollar amounts in thousands except for share data)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
June 30, 1997 June 30, 1996
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<S> <C> <C>
NET REVENUE $ 50,007 $ 28,439
COSTS AND EXPENSES
Salaries and benefits 10,170 6,742
Pharmaceuticals and supplies 23,476 12,034
Other operating costs 5,246 3,756
General and administrative 2,209 1,898
Depreciation and amortization 2,460 1,325
Interest 1,896 646
Provision for doubtful accounts 799 822
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46,256 27,223
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EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 3,751 1,216
Minority owners' share of net earnings (397) (155)
------------ ------------
EARNINGS BEFORE INCOME TAXES 3,354 1,061
Provision for income taxes 1,275 --
------------ ------------
NET EARNINGS TO COMMON STOCKHOLDERS $ 2,079 $ 1,061
============ ============
EARNINGS PER COMMON SHARE $ 0.19 $ 0.14
============ ============
Weighted average number of shares 11,033,462 7,765,641
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 6
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 2,079 $ 1,061
Adjustments to reconcile net earnings from operations:
Depreciation and amortization 2,460 1,325
Provisions for doubtful accounts 799 822
Minority owners' share of net earnings 397 155
Changes in assets and liabilities net of effect of acquisitions:
Accounts receivable (2,595) (4,338)
Supplies, prepaid expenses, and other current assets (2,075) 181
Deferred charges and other assets (367) (305)
Due from affiliated physician groups (2,713) (2,269)
Accounts payable and accrued expenses 6,670 1,084
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,655 (2,284)
INVESTING ACTIVITIES
Purchase of equipment (388) (780)
Sale of short-term investments 262
Investment in joint venture 63 --
Acquisition of nonmedical assets of affiliated physician (238) (23,119)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (563) (23,637)
FINANCING ACTIVITIES
Financing costs incurred (103) --
Proceeds from exercise of stock options -- 175
Principal payments on notes payable (3,212) (402)
Proceeds from notes payable 1,271 12,127
Proceeds from note payable to parent 1,006 10,000
Principal payments on capital lease obligations (40) (28)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ACTIVITIES (1,078) 21,872
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS EQUIVALENTS 3,014 (4,049)
Cash and cash equivalents at beginning of period 415 4,205
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,429 $ 156
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required for complete financial statements by generally accepted accounting
principles. In the opinion of Management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Certain amounts have been reclassified for comparative purposes with
no effect on net earnings. Operating results for the three and six month periods
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in
Response Oncology, Inc. and Subsidiaries' (the "Company's") annual report on
Form 10-K for the year ended December 31, 1996.
Net Revenue: The following table is a summary of net revenue by source for the
respective three and six month periods ended June 30, 1997 and 1996. Patient
services revenue is recorded net of contractual allowances and discounts of
$749,000 and $1,116,000 for the quarters ended June 30, 1997 and 1996,
respectively and $1,889,000 and $2,283,000 for the six months ended June 30,
1997 and 1996, respectively.
The Company's revenue from practice management affiliations includes a fee
equal to practice operating expenses incurred by the Company (which excludes
expenses that are the obligation of the physicians, such as physician salaries
and benefits) and a management fee either fixed in amount or equal to a
percentage of each affiliated oncology group's adjusted net revenue or net
operating income. In certain affiliations, the Company may also be entitled to
a performance fee if certain financial criteria are satisfied.
<TABLE>
<CAPTION>
(In thousands) Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ------------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net patient services revenue $ 8,514 $ 8,677 $17,268 $16,791
Practice management service fees 11,616 2,996 22,491 4,626
Pharmaceutical sales to physicians 4,526 3,215 8,679 6,438
Physician investigator studies 986 211 1,569 584
------- ------- ------- -------
$25,642 $15,099 $50,007 $28,439
======= ======= ======= =======
</TABLE>
Management Service Agreements: Costs of obtaining Service Agreements are
amortized using the straight-line method over the 40-year terms of the
agreements. Certain purchase accounting adjustments were made during the six
months ended June 30, 1997 which increased the value of management service
agreements, net of accumulated amortization, by $685,000. The adjustments made
to the management service agreements include a decrease of $2,361,000 due to a
change in estimated deferred tax liability and a net increase to the value of
management service agreements of $3,046,000 due to changes in the estimated
valuation of certain assets and liabilities that were purchased.
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<PAGE> 8
Net Earnings Per Common Share: Net earnings per common share for the three and
six month periods ended June 30, 1997 and 1996 have been computed based upon the
weighted average number of shares of common stock and common stock equivalents
outstanding during the respective periods. Shares issuable pursuant to the
conversion of the long-term notes delivered by the Company in its management
affiliations are excluded since they would have been anti-dilutive in the three
and six month periods ended June 30, 1997 and 1996. Fully diluted earnings per
share are not disclosed as the effect of assuming the conversion of the
preferred stock is clearly immaterial.
NOTE 2 -- PARENT COMPANY
As of June 30, 1997, Response Oncology, Inc. was a subsidiary of Seafield
Capital Corporation ("Seafield").
On July 1, 1997, Seafield's Board of Directors declared a dividend to Seafield's
shareholders of all shares of common stock of Response owned by Seafield. For
each shareholder of record on July 11, 1997, 1.2447625 shares of Response common
stock were distributed on July 25, 1997 for each share of Seafield common stock
outstanding. The distribution of all shares of Response stock held by Seafield
to Seafield's shareholders was effected as a dividend. The Seafield
shareholders paid no consideration for any shares of Response stock received in
the distribution.
NOTE 3 -- NOTES PAYABLE
The Company has a $45.0 million Credit Facility to fund the Company's
acquisition and working capital needs. The Credit Facility, comprised of a $35.0
million Acquisition Facility and a $10.0 million Working Capital Facility, is
collateralized by the common stock of the Company's subsidiaries. The
Acquisition Facility bears interest at a variable rate equal to LIBOR plus a
spread between 1.5% and 2.625%, depending upon borrowing levels. The Working
Capital Facility bears interest at a variable rate equal to LIBOR plus a spread
between 1.875% and 2.375%. At June 30, 1997, $25.6 million aggregate principal
was outstanding under the Credit Facility with a current interest rate of
approximately 8.1%. The Credit Facility contains affirmative and negative
covenants which, among other things, require the Company to maintain certain
financial ratios, including minimum fixed charges coverage, funded debt to
EBITDA, net worth and current ratio.
In May 1997, the Company entered into a LIBOR based interest rate swap agreement
("Swap Agreement") with an affiliate of the Company's primary lender as required
by the terms of the Credit Facility. As of June 30, 1997, approximately 60% of
the Company's outstanding principal balance under the Credit Facility was hedged
under the Swap Agreement. The Swap Agreement matures in March 1999 and is
cancelable at the lender's option after July 1998.
In October 1996, the Company procured a $23.5 million credit facility from
Seafield (the "Seafield Facility") to finance acquisitions and for working
capital. On February 26, 1997, the $23.5 million loan and accrued interest of
$.7 million was exchanged for 3,020,536 shares of the Company's common stock at
a rate of $8 per share. In connection with the conversion of the Seafield
Facility, $82,000 of unamortized financing costs were charged to paid-in
capital.
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<PAGE> 9
NOTE 4 -- INCOME TAXES
Upon the consummation of the physician practice management affiliations, the
Company recognized deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of purchased assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
During the three and six month periods ended June 30, 1997, the Company
recognized income tax expense due to the exhaustion of net operating loss
carryovers for the year. The Company had utilized net operating losses to fully
offset income tax expense during 1996. These net operating losses had not
previously been recognized in the financial statements as deferred tax assets
due to doubts of their recoverability. Therefore, no deferred tax expense was
recognized upon the utilization thereof.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
With respect to professional and general liability risks, the Company currently
maintains an insurance policy that provides coverage during the policy period
ending August 1, 1997, on a claims-made basis, for $1,000,000 per claim in
excess of the Company retaining $25,000 per claim, and $3,000,000 in the
aggregate. Costs of defending claims are in addition to the limit of liability.
In addition, the Company maintains a $10,000,000 umbrella policy with respect to
potential general liability claims. Since inception, the Company has incurred no
professional or general liability losses and as of June 30, 1997, the Company
was not aware of any pending professional or general liability claims.
NOTE 6 -- DUE FROM AFFILIATED PHYSICIANS
Due from affiliated physicians consists of management fees earned and payable
pursuant to the management service agreements ("Service Agreements"). In
addition, the Company may also fund certain working capital needs of the
affiliated physicians from time to time.
NOTE 7 -- NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" which revised the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 31, 1997. Retroactive application will be required. The Company
believes the adoption of Statement No. 128 will not have a significant effect on
its reported earnings per share.
Statement of Financial Accounting Standards No. 129 "Disclosure of Information
about Capital Structure" is required to be implemented for periods ending after
December 15, 1997. The adoption of this standard is not expected to have a
significant impact on the Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income." Statement No. 130 is effective for fiscal
years beginning after December 15, 1997. Retroactive application will be
required. The adoption of this standard is not expected to have a significant
impact on the Company's financial position or results of operations.
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<PAGE> 10
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Statement
No. 131 is effective for fiscal years beginning after December 15, 1997.
Retroactive application will be required. The adoption of this standard is not
expected to have a significant impact on the Company's financial position or
results of operations.
NOTE 8 -- SUBSEQUENT EVENT
On August 3, 1997, the Company accepted the resignation of Jack O. Bovender, Jr.
as director of the Company necessitated by his recent appointment as President
and Chief Operating Officer of a national healthcare company.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Response Oncology, Inc. ("The Company"), is a comprehensive cancer management
company. The Company provides advanced cancer treatment services through
outpatient facilities known as IMPACT(R) Centers under the direction of
practicing oncologists; owns the assets of and manages the nonmedical aspects of
oncology practices; and conducts outcomes research on behalf of pharmaceutical
manufacturers. Approximately 400 medical oncologists are associated with the
Company through these programs.
At June 30, 1997, the Company's network consisted of 47 IMPACT(R) Centers,
including 25 wholly owned, 12 managed programs, and 10 owned and operated in
joint venture with a host hospital. In January 1996, the Company commenced
execution of a diversification strategy into practice management. Such
diversification included the affiliation during 1996 with 38 physicians in 10
medical oncology practices in Florida and Tennessee. The Company has sought deep
geographic penetration in those markets believing that significant market share
is crucial to achieving efficiencies, revenue enhancements, and marketing of
complete cancer services to diverse payors including managed care. Pursuant to
Service Agreements, the Company provides management services that extend to all
nonmedical aspects of the operations of the affiliated practices. The Company is
responsible for providing facilities, equipment, supplies, support personnel,
and management and financial advisory services. The Company's resulting
revenues from Service Agreements include a fee equal to practice operating
expenses incurred by the Company and a management fee either fixed in amount or
equal to a percentage of each affiliated practice's adjusted net revenue or
operating income. In certain affiliations, the Company may also be entitled to
a performance fee if certain financial criteria are satisfied.
RESULTS OF OPERATIONS
The Company recorded net earnings for the quarter and six months ended June 30,
1997 of $1,212,000 or $.10 per share, and $2,079,000 or $.19 per share, compared
to net earnings of $544,000 or $.07 per share, and $1,061,000, or $.14 per
share, for the same periods in 1996. Earnings before income taxes for the
quarter and six months ended June 30, 1997 were $1,956,000 and $3,354,000
compared to $544,000 and $1,061,000 for the same periods of 1996. The Company
utilized net operating loss carryforwards in 1996 to fully offset its income tax
provision.
Net revenue for the quarter ended June 30, 1997 was $25,642,000 compared to
$15,099,000 for the quarter ended June 30, 1996, an increase of $10,543,000 or
70%. Net revenue for the six months ended June 30, 1997 was $50,007,000 compared
to $28,439,000 for the corresponding period in 1996, an increase of $21,568,000
or 76%. Growth in net revenue for both the second quarter and six months ended
June 30, 1997 was largely driven by an increase in revenue from the Practice
Management Division. For the second quarter, practice management fees increased
by 288%, from $2,996,000 in 1996 to $11,616,000 in 1997; practice management
fees for the six month period increased 386%, from $4,626,000 in 1996 to
$22,491,000 in 1997. The number of physicians in practice management
relationships with the Company increased from 12 on June 30, 1996 to 40 on June
30, 1997. In the Company's Clinical Division, pharmaceutical sales to physicians
and revenue from contract outcomes research increased 41% and 369%,
respectively, in the second quarter, for a combined increase of $2,086,000.
EBITDA (earnings before interest, taxes, depreciation and amortization)
increased $2,140,000 or 122% to $3,897,000 and $4,678,000 or 154% to
$7,710,000, respectively for the quarter and six months ended June 30, 1997.
This compares with EBITDA of $1,757,000 and $3,032,000 for the quarter and six
months ended June 30, 1996.
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<PAGE> 12
EBITDA is not intended to represent net income, cash flow, or any other measure
of performance in accordance with generally accepted accounting principles, but
is included because the Company believes it is useful for measuring and
identifying trends with respect to the Company's operating performance and
creditworthiness. The increase in EBITDA is primarily due to the increase in
revenues related to Service Agreements with affiliated physicians.
Pharmaceuticals and Supplies increased by $5,950,000 and $11,442,000 for the
three and six month periods ended June 30, 1997 over the corresponding periods
in 1996. The Company attributes the increases primarily to the expansion into
practice management as well as a significant increase in pharmaceutical sales to
physicians.
Salaries and Benefits as a percentage of Net Revenue decreased from 23% and 24%
for the quarter and six months ended June 30, 1996, respectively, to 20% for the
quarter and six months ended June 30, 1997. During 1996 the Company increased
personnel in order to support the diversification into practice management.
Other Operating Expenses increased $573,000, or 32%, from 1,812,000 in the
second quarter of 1996 to $2,385,000 for the corresponding period in 1997. Other
Operating Expenses increased $1,490,000, or 40%, from $3,756,000 for the six
months ended June 30, 1996 to $5,246,000 for the six months ended June 30, 1997
This increase is primarily due to the Company's diversification strategy into
practice management. Other Operating Expenses consist primarily of medical
director fees, rent expense, and other operational costs. Other Operating
Expenses as a percentage of net revenue were 9% and 12% for the quarters ended
June 30, 1997 and 1996, respectively and 10% and 13 % for the six months ended
June 30, 1997 and 1996 respectively.
Depreciation and Amortization increased $395,000 from $754,000 for the quarter
ended June 30, 1996 to $1,149,000 for the same period in 1997 and increased
$1,135,000 from $1,325,000 for the six months ended June 30, 1996 to $2,460,000
for the same period in 1997. The increase is primarily attributable to the
amortization of the Service Agreements purchased in practice management
affiliations consummated during 1996.
Interest expense was $792,000 for the second quarter of 1997 as compared to
$459,000 for the second quarter of 1996, an increase of $333,000. Interest
expense was $1,896,000 for the six months ended June 30, 1997 as compared to
$646,000 for the same period in 1996, an increase of $1,250,000. The increase is
related to borrowings under the Company's Credit Facility and debt assumed
and/or issued in connection with practice management affiliations.
The increase in the Provision for Income Taxes resulted from the exhaustion of
net operating loss carryforwards for the year. The Company had utilized net
operating losses to fully offset tax expense during 1996. These net operating
losses had never been recognized in the financial statements as deferred tax
assets due to doubts of their recoverability. Therefore, no deferred tax expense
was recognized upon utilization thereof.
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<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company's working capital was $24.1 million with current
assets of $40.6 million and current liabilities of $16.5 million. The current
portion of notes payable decreased from December 31, 1996 due to the maturity of
a short term note to physicians which was financed through the note payable to
the Company's parent.
The Company has a $45.0 million Credit Facility to fund the Company's
acquisition and working capital needs. The Credit Facility, comprised of a $35.0
million Acquisition Facility and a $10.0 million Working Capital Facility, is
collateralized by the common stock of the Company's subsidiaries. The
Acquisition Facility bears interest at a variable rate equal to LIBOR plus a
spread between 1.5% and 2.625%, depending upon borrowing levels. The Working
Capital Facility bears interest at a variable rate equal to LIBOR plus a spread
between 1.875% and 2.375%. At June 30, 1997, $25.6 million aggregate principal
was outstanding under the Credit Facility with a current interest rate of
approximately 8.1%. The Credit Facility contains affirmative and negative
covenants which, among other things, require the Company to maintain certain
financial ratios, including minimum fixed charges coverage, funded debt to
EBITDA, net worth and current ratio.
In May 1997, the Company entered into a LIBOR based interest rate swap agreement
("Swap Agreement") with an affiliate of the Company's primary lender as required
by the terms of the Credit Facility. As of June 30, 1997, approximately 60% of
the Company's outstanding principal balance under the Credit Facility was hedged
under the Swap Agreement. The Swap Agreement matures in March 1999 and is
cancelable at the lender's option after July 1998.
In October 1996, the Company procured a $23.5 million credit facility from
Seafield (the "Seafield Facility") to finance acquisitions and for working
capital. On February 26, 1997, the $23.5 million loan and accrued interest of
$.7 million was exchanged for 3,020,536 shares of the Company's common stock at
a rate of $8 per share. In connection with the conversion of the Seafield
Facility, $82,000 of unamortized financing costs were charged to paid-in
capital.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" which revised the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal year
ending December 31, 1997. Retroactive application will be required. The Company
believes the adoption of Statement No. 128 will not have a significant effect on
its reported earnings per share.
Statement of Financial Accounting Standards No. 129 "Disclosure of Information
about Capital Structure" is required to be implemented for periods ending after
December 15, 1997. The adoption of this standard is not expected to have a
significant impact on the Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income." Statement No. 130 is effective for fiscal
years beginning after December 15, 1997. Retroactive application will be
required. The adoption of this standard is not expected to have a significant
impact on the Company's financial position or results of operations.
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<PAGE> 14
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Statement
No. 131 is effective for fiscal years beginning after December 15, 1997.
Retroactive application will be required. The adoption of this standard is not
expected to have a significant impact on the Company's financial position or
results of operations.
PART II - OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The annual meeting of shareholders was held on June
5, 1997 for the purpose of electing a board of directors,
approving the appointment of auditors, and approving an
amendment to the Company's 1996 Stock Incentive Plan. Proxies
for the meeting were solicited and there was no solicitation
in opposition to management's solicitations. Holders of
11,967,543 shares were eligible to vote and 9,308,250 shares
were represented at the meeting either in person or by proxy.
All of management's nominees for directors as listed
in the proxy statement were elected with the following vote:
<TABLE>
<CAPTION>
SHARES VOTED SHARES SHARES
DIRECTOR FOR WITHHELD NOT VOTED
-------- --------- -------- ---------
<S> <C> <C> <C>
P. Anthony Jacobs 9,294,913 13,337 0
Jack O. Bovender, Jr. 9,295,150 13,100 0
Lawrence N. Kugelman 9,294,568 13,682 0
Joseph T. Clark 9,295,088 13,162 0
W. Thomas Grant, II 9,294,913 13,337 0
James R. Seward 9,294,265 13,985 0
</TABLE>
The shareholders approved the appointment of KPMG
Peat Marwick LLP as independent auditors for the year ending
December 31, 1997 by the following vote:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES SHARES
FOR AGAINST ABSTAINING NOT VOTED
------------ ------------ ---------- ---------
<S> <C> <C> <C>
9,301,965 5,862 423 0
</TABLE>
The shareholders approved an amendment to the
Company's 1996 Stock Incentive Plan approving an additional
500,000 shares of Common Stock for issuance pursuant thereto
by the following vote:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES SHARES
FOR AGAINST ABSTAINING NOT VOTED
------------ ------------ ---------- ---------
<S> <C> <C> <C>
9,203,316 82,186 22,748 0
</TABLE>
-14-
<PAGE> 15
ITEM 5 MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS
Securities Issued to Controlling Shareholder
In October 1996, the Registrant obtained a $23.5 million credit
facility from Seafield to be used to finance practice affiliations and
for working capital. The facility was evidenced by a convertible note
payable upon the earlier of the closing of an equity offering or August
1, 1998. The note provided for interest at a rate of 8% escalating at
certain points during the term of the note, was unsecured, and was
convertible at the election of Seafield into shares of the Company's
common stock at a conversion price equal to the market price of the
common stock at the date of conversion; provided, however, that after
December 31, 1996, the conversion price would be the lower of market or
$11.00 per share. The entire credit facility, as well as $.7 million of
accrued interest was exchanged for 3,020,536 shares of common stock
during February 1997.
On July 1, 1997, Seafield's Board of Directors declared a dividend to
Seafield's shareholders of all shares of common stock of Response owned
by Seafield. For each shareholder of record on July 11, 1997, 1.2447625
shares of Response common stock were distributed on July 25, 1997 for
each share of Seafield common stock outstanding. The distribution of
all shares of Response stock held by Seafield to Seafield's
shareholders was effected as a dividend. The Seafield shareholders
paid no consideration for any shares of Response stock received in
the distribution.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27 Financial Data Schedule (for SEC use only)
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Response
Oncology, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESPONSE ONCOLOGY, INC.
By: /s/ Mary E. Clements
--------------------------------
Mary E. Clements
Chief Financial Officer
and Principal Financial Officer
Date: August 14, 1997
By: /s/ Dena L. Mullen
--------------------------------
Dena L. Mullen
Director of Finance
Date: August 14, 1997
By: /s/ Peter A. Stark
--------------------------------
Peter A. Stark
Controller
Date: August 14, 1997
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RESPONSE ONCOLOGY, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1,000
<CASH> 3,429
<SECURITIES> 0
<RECEIVABLES> 18,539
<ALLOWANCES> (2,446)
<INVENTORY> 2,512
<CURRENT-ASSETS> 40,641
<PP&E> 12,692
<DEPRECIATION> 9,020
<TOTAL-ASSETS> 149,452
<CURRENT-LIABILITIES> 16,538
<BONDS> 45,866
0
27
<COMMON> 120
<OTHER-SE> 64,052
<TOTAL-LIABILITY-AND-EQUITY> 149,452
<SALES> 25,642
<TOTAL-REVENUES> 25,642
<CGS> 12,413
<TOTAL-COSTS> 9,853
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 423
<INTEREST-EXPENSE> 792
<INCOME-PRETAX> 1,956
<INCOME-TAX> 744
<INCOME-CONTINUING> 1,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,212
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
