<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 September 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_____________
Commission file number 0-15416
---------------------------------
RESPONSE ONCOLOGY, INC.
-----------------------
(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
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(901) 761-7000
--------------
(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, 11,972,621 shares as of November 13, 1997.
This filing consists of 14 sequentially numbered pages
.
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
<S> <C> <C>
Consolidated Balance Sheets,
September 30, 1997 and December 31, 1996............................................................ 3
Consolidated Statements
of Earnings for the Three Months Ended
September 30, 1997 and September 30, 1996........................................................... 4
Consolidated Statements
of Earnings for the Nine Months Ended
September 30, 1997 and September 30, 1996........................................................... 5
Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 1997 and September 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 5. Market Information and Related Stockholder Matters..................................................13
Item 6. Exhibits and Reports on Form 8-K....................................................................13
Signatures ....................................................................................................14
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, 1997 December 31, 1996
(Unaudited) (Note 1)
--------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,505 $ 415
Accounts receivable, less allowance for doubtful accounts
of $2,777 and $1,774 16,119 14,297
Supplies 2,506 2,415
Prepaid expenses and other current assets 4,049 2,168
Due from affiliated physicians 14,527 12,423
--------- ---------
TOTAL CURRENT ASSETS 38,706 31,718
Property and equipment - at cost, less accumulated
depreciation and amortization of $9,269 and $8,160 3,727 5,406
Deferred charges, less accumulated amortization of $499 and $232 404 490
Management Service Agreements, less accumulated amortization of $3,360
and $1,345 103,947 101,963
Deferred tax asset 3,198 3,267
Other assets 160 106
--------- ---------
TOTAL ASSETS $ 150,142 $ 142,950
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,180 $ 4,863
Accrued expenses and other liabilities 6,183 4,268
Notes payable 1,617 7,847
Capital lease obligations 63 74
--------- ---------
TOTAL CURRENT LIABILITIES 16,043 17,052
Capital lease obligations, less current portion 76 124
Notes payable, less current portion 41,894 62,106
Deferred tax liability 25,996 25,127
Minority interest 863 374
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 11,972,621 and 8,947,018 shares, respectively 120 89
Paid-in capital 101,402 77,454
Accumulated deficit (36,279) (39,403)
--------- ---------
65,270 38,167
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 150,142 $ 142,950
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollar amounts in thousands except for share data)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
September 30, September 30,
1997 1996
--------------------- ----------------------
<S> <C> <C>
NET REVENUE $ 25,710 $ 17,914
COSTS AND EXPENSES
Salaries and benefits 5,541 4,013
Pharmaceuticals and supplies 12,320 7,469
Other operating costs 3,030 2,352
General and administrative 1,158 1,119
Depreciation and amortization 1,030 1,032
Interest 570 739
Provision for doubtful accounts 356 396
------------ -----------
24,005 17,120
------------ -----------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 1,705 794
Minority owners' share of net earnings (19) (120)
------------ -----------
EARNINGS BEFORE INCOME TAXES 1,686 674
Provision for income taxes 641 ---
------------ -----------
NET EARNINGS TO COMMON STOCKHOLDERS $ 1,045 $ 674
============ ===========
EARNINGS PER COMMON SHARE $ 0.09 $ 0.08
============ ===========
Weighted average number of common shares 12,117,439 8,391,461
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollar amounts in thousands except for share data)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------------
September 30, September 30,
1997 1996
--------------------- ---------------------
<S> <C> <C>
NET REVENUE $ 75,710 $ 46,353
COSTS AND EXPENSES
Salaries and benefits 15,711 10,968
Pharmaceuticals and supplies 36,041 19,760
Other operating costs 7,987 5,621
General and administrative 3,403 3,051
Depreciation and amortization 3,490 2,341
Interest 2,466 1,384
Provision for doubtful accounts 1,156 1,218
------------ -----------
70,254 44,343
------------ -----------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 5,456 2,010
Minority owners' share of net earnings (416) (275)
------------ -----------
EARNINGS BEFORE INCOME TAXES 5,040 1,735
Provision for income taxes 1,915 ---
------------ -----------
NET EARNINGS TO COMMON STOCKHOLDERS $ 3,125 $ 1,735
============ ===========
EARNINGS PER COMMON SHARE $ 0.28 $ 0.22
============ ===========
Weighted average number of common shares 11,348,883 7,971,115
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------------
September 30, 1997 September 30, 1996
----------------------- ------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 3,125 $ 1,735
Adjustments to reconcile net earnings from operations:
Depreciation and amortization 3,490 2,341
Provisions for doubtful accounts 1,156 1,218
Minority owners' share of net earnings 416 275
Changes in assets and liabilities net of effect of acquisitions:
Accounts receivable (2,978) (4,196)
Supplies, prepaid expenses, and other current assets (1,972) (878)
Deferred charges and other assets (405) (6)
Due from affiliated physician groups (2,780) (3,547)
Accounts payable and accrued expenses 5,870 1,263
------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,922 (1,795)
INVESTING ACTIVITIES
Purchase of equipment (692) (1,198)
Sale of short-term investments --- 362
Investment in joint venture 73 ---
Acquisition of nonmedical assets of affiliated physician practices (787) (37,916)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,406) (38,752)
FINANCING ACTIVITIES
Financing costs incurred (103) ---
Proceeds from exercise of stock options 26 178
Principal payments on notes payable (5,567) (501)
Proceeds from notes payable 1,271 26,917
Proceeds from note payable to parent 1,006 ---
Principal payments on capital lease obligations (59) (31)
Proceeds from issuance of stock to parent --- 10,000
------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,426) 36,563
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,090 (3,984)
Cash and cash equivalents at beginning of period 415 4,204
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,505 $ 220
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine month
periods ended September 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 nine month periods ended September 30, 1997 and 1996.
Patient services revenue is recorded net of contractual allowances and
discounts of $1,629,000 and $1,439,000 for the quarters ended September 30,
1997 and 1996, respectively and $4,827,000 and $3,944,000 for the nine months
ended September 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 Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net patient services revenue $ 8,578 $ 8,648 $ 25,803 $ 25,439
Practice management service fees 11,496 5,484 34,023 10,110
Pharmaceutical sales to physicians 4,843 3,509 13,522 9,947
Physician investigator studies 793 273 2,362 857
--------- --------- --------- ---------
$ 25,710 $ 17,914 $ 75,710 $ 46,353
========= ========= ========= =========
</TABLE>
Management Service Agreements: Costs of obtaining Management Service Agreements
are amortized using the straight-line method over the terms of the
agreements. Certain purchase accounting adjustments were made during the nine
months ended September 30, 1997 which increased the value of management service
agreements, net of accumulated amortization, by $4,000,000 due to changes in
the estimated valuation of certain assets and liabilities that were purchased.
7
<PAGE> 8
Net Earnings Per Common Share: Net earnings per common share for the three and
nine month periods ended September 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 nine month periods ended September 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
Prior to July 25, 1997 Response Oncology 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 Credit
Facility bears interest at a variable rate equal to LIBOR plus a spread between
1.5% and 2.125%, depending upon borrowing levels. At September 30, 1997, $28.8
million aggregate principal was outstanding under the Credit Facility with a
current interest rate of approximately 8.2%. 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 September 30, 1997,
approximately 52% 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.
8
<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 nine month periods ended September 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, 1998, 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 outside 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 September 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
material effect on the Company's financial statements.
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.
9
<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 material impact on the Company's financial
statements.
10
<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 Septemer 30, 1997, the Company's network consisted of 48 IMPACT(R) Centers,
including 25 wholly owned centers, 13 managed programs, and 10 centers owned and
operated in joint venture with a host hospital. In January 1996, the Company
commenced execution of a diversification strategy into physician practice
management. Such diversification included the affiliation during 1996 and 1997
with 43 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 nine months ended
September 30, 1997 of $1,045,000 or $.09 per share, and $3,125,000 or $.28 per
share, compared to net earnings of $674,000 or $.08 per share, and $1,735,000,
or $.22 per share, for the same periods in 1996. Earnings before income taxes
for the quarter and nine months ended September 30, 1997 were $1,686,000 and
$5,040,000 compared to $674,000 and $1,735,000 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 September 30, 1997 was $25,710,000 compared
to $17,914,000 for the quarter ended September 30, 1996, an increase of
$7,796,000 or 44%. Net revenue for the nine months ended September 30, 1997 was
$75,710,000 compared to $46,353,000 for the corresponding period in 1996, an
increase of $29,357,000 or 63%. Growth in net revenue for both the third
quarter and nine months ended September 30, 1997 was largely driven by an
increase in revenue from the Practice Management Division. For the third
quarter, practice management fees increased by 110%, from $5,484,000 in 1996 to
$11,496,000 in 1997; practice management fees for the nine month period
increased 237%, from $10,110,000 in 1996 to $34,023,000 in 1997. The number of
physicians in practice management relationships with the Company increased from
21 on September 30, 1996 to 43 on September 30, 1997. In the Company's Clinical
Division, pharmaceutical sales to physicians and revenue from contract outcomes
research increased 38% and 190%, respectively from the third quarter of 1996 to
the third quarter of 1997 for a combined increase of $1,854,000. Revenue from
pharmaceutical sales to physicians and contract outcomes research increased 36%
and 176%, respectively from the nine months ended September 30, 1996 to the
nine months ended September 30, 1997 for a combined increase of $5,080,000.
11
<PAGE> 12
EBITDA (earnings before interest, taxes, depreciation and amortization)
increased $841,000 or 34% to $3,286,000 and $5,536,000 or 101% to $10,996,000,
respectively, for the quarter and nine months ended September 30, 1997. This
compares with EBITDA of $2,445,000 and $5,460,000 for the quarter and nine
months ended September 30, 1996.
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 $4,851,000 and $16,281,000,
respectively, for the three and nine month periods ended September 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 24% for the
nine months ended September 30, 1996 to 21% for the nine months ended September
30, 1997. During the second quarter of 1996 the Company increased personnel in
order to support the diversification into practice management.
Other operating expenses increased $678,000, or 29%, from $2,352,000 in the
third quarter of 1996 to $3,030,000 for the corresponding period in 1997. Other
operating expenses increased $2,366,000, or 42%, from $5,621,000 for the nine
months ended September 30, 1996 to $7,987,000 for the nine months ended
September 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 12% and 13%
for the quarters ended September 30, 1997 and 1996, respectively and 11% and 12
% for the nine months ended September 30, 1997 and 1996 respectively.
Interest expense was $570,000 for the third quarter of 1997 as compared to
$739,000 for the third quarter of 1996, a decrease of $169,000 as a result of
the note payable to Seafield which was converted to common stock during the
first quarter of 1997. Interest expense was $2,466,000 for the nine months
ended September 30, 1997 as compared to $1,384,000 for the same period in 1996,
an increase of $1,082,000. 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.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's working capital was $22.7 million with
current assets of $38.7 million and current liabilities of $16.0 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 Credit
Facility bears interest at a variable rate equal to LIBOR plus a spread between
1.5% and 2.125%, depending upon borrowing levels. At September 30, 1997, $28.8
million aggregate principal was outstanding under the Credit Facility with a
current interest rate of approximately 8.2%. 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 September 30, 1997,
approximately 52% 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.
PART II - OTHER INFORMATION
ITEM 5 MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS
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)
13
<PAGE> 14
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 Accounting Officer
Date: November 14, 1997
By: /s/ Dena L. Mullen
---------------------------------
Dena L. Mullen
Director of Finance
Date: November 14, 1997
By: /s/ Peter A. Stark
---------------------------------
Peter A. Stark
Controller
Date: November 14, 1997
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RESPONSE ONCOLOGY, INC. FOR THE 3 MONTHS PERIOD ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,505
<SECURITIES> 0
<RECEIVABLES> 18,896
<ALLOWANCES> 2,777
<INVENTORY> 2,506
<CURRENT-ASSETS> 38,706
<PP&E> 12,996
<DEPRECIATION> 9,269
<TOTAL-ASSETS> 150,142
<CURRENT-LIABILITIES> 16,043
<BONDS> 43,511
0
27
<COMMON> 120
<OTHER-SE> 65,123
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<TOTAL-REVENUES> 25,710
<CGS> 15,350
<TOTAL-COSTS> 23,079
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<LOSS-PROVISION> 356
<INTEREST-EXPENSE> 570
<INCOME-PRETAX> 1,686
<INCOME-TAX> 641
<INCOME-CONTINUING> 1,045
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,045
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
</TABLE>
