SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the first quarter ended March 31, 1996
Commission file number 0-19878
OPTION CARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3791193
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
100 Corporate North
Suite 212
Bannockburn, Illinois 60015
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (847) 615-1690
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding as of April 30, 1996
Common Stock - .01 par value 9,981,348
<PAGE>
INDEX
OPTION CARE, INC. & SUBSIDIARIES
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) PAGE NO.
Condensed Consolidated Balance Sheets - March 31, 1996
and December 31, 1995........................................ 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and 1995................... 4
Condensed Consolidated Statement of Stockholders' Equity -
Three Months Ended March 31, 1996............................ 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995................... 6
Notes to Condensed Consolidated Financial Statements......... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8
PART II OTHER INFORMATION
Item 6. Exhibits..................................................... 10
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<TABLE>
PART I. FINANCIAL INFORMATION
OPTION CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 456 $ 389
Accounts receivable, net................. 15,868 15,807
Inventories.............................. 1,221 1,292
Deferred income taxes.................... 1,402 1,402
Other current assets..................... 3,299 3,748
------- -------
Total current assets.................. 22,246 22,638
Property and equipment, net................ 3,442 3,260
Goodwill................................... 30,398 30,228
Other assets............................... 3,802 1,642
------- -------
Total assets.......................... $59,888 $57,768
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt........ $ 9,554 $ 1,341
Trade accounts payable................... 2,227 2,849
Accrued wages & related employee benefits 1,607 1,810
Accrued expenses......................... 641 1,193
-------- --------
Total current liabilities............. 14,029 7,193
Long-term debt, excluding current portion.. 937 6,696
Deferred income taxes...................... 1,024 1,024
Minority interest.......................... 332 296
------- -------
Total liabilities..................... 16,322 15,209
Stockholders' equity:
Common stock, $.01 par value, 30,000,000
shares authorized, 9,981,348 and 9,915,460
shares issued and outstanding at March 31,
1996 and December 31, 1995............. 100 100
Additional paid-in capital............... 41,369 41,125
Retained earnings........................ 2,097 1,334
------- -------
Total stockholders' equity............ 43,566 42,559
Total liabilities and stockholders'
equity.............................. $59,888 $57,768
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
OPTION CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In thousands, except per share data)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
March 31,
1996 1995
--------------------
<S> <C> <C>
Revenues:
Royalty fees and other $ 3,131 $ 2,913
Product sales 2,323 3,219
Patient care services 9,572 9,271
------- -------
Total revenues 15,026 15,403
Cost of revenues 10,576 10,873
------- -------
Gross profit 4,450 4,530
Selling, general and
administrative expenses 2,550 2,890
Provision for doubtful accounts 358 368
Amortization of goodwill 220 208
------- -------
Total operating expenses 3,128 3,466
Operating income 1,322 1,064
Other income, net 112 39
------- -------
Income before income taxes 1,434 1,103
Income tax expense 671 548
------- -------
Net income $ 763 $ 555
Net income per common and
common equivalent share $ 0.08 $ 0.06
Weighted average common
and common equivalent
shares outstanding 10,018 9,944
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
OPTION CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(In thousands, except share data)
(Unaudited)
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balances, December 31, 1995... $ 100 $ 41,125 $ 1,334 $ 42,559
Net income................... --- --- 763 763
Issuance of 65,888 shares of
common stock.............. --- 244 --- 244
------- -------- -------- ---------
Balances, March 31, 1996.. $ 100 $ 41,369 $ 2,097 $ 43,566
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
OPTION CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In thousands)
(Unaudited)
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 763 $ 555
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................... 514 460
Provision for doubtful accounts......................... 259 368
Change in assets and liabilities net of effects
from purchase of businesses.......................... (1,654) (954)
------- -----
Net cash provided by operating activities................... (118) 429
Cash flows from investing activities:
Additions to other assets................................. (2,032) ---
Payments for purchases of property and equipment.......... (480) (408)
------ -----
Net cash used in investing activities....................... (2,512) (408)
Cash flows from financing activities:
Net borrowings on revolving credit facility............... 2,300 600
Net (payments) borrowing of other long-term debt.......... 153 (269)
Proceeds from issuance of stock........................... 244 ---
------ ----
Net cash provided by financing activities............... 2,697 331
------ ----
Net increase in cash........................................ 67 352
Cash and cash equivalents, beginning of period.............. 389 231
------ ----
Cash and cash equivalents, end of period.................... $ 456 $ 583
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996 and 1995
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Form 10-K
for the year ended December 31, 1995.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
Discussion of Results of Operations for the First Quarter Ended March 31, 1996.
For the first quarter ended March 31, 1996 Option Care, Inc. reported a $0.2
million or 37.5 percent increase in net income compared to net income for the
similar period in 1995.
Patient care services revenue rose $0.3 million or 3.2 percent due to the
results of acquisitions made by the Company during 1995 as well as the first
three months of 1996. Royalty fees and other revenues for the first quarter of
fiscal 1996 increased 7.5 percent, reflecting increased fees earned from the
sale of six new franchise locations sold during this period. The Company has a
number of franchise contracts up for renewal in 1996 and 1997. The majority of
outstanding contracts extend to 2004 and beyond. Management generally makes
extensive efforts to renew its franchise agreements, since existing franchises
provide a greater royalty stream than new franchises. The terms of the renewal
agreements may not be identical to those under existing agreements. The loss of
larger, mature franchises could lead to a decrease in base royalties, which may
or may not be offset by same store growth. If the loss of a franchise is due to
acquisition by the Company, there may be an increase in patient care services
revenue to offset the decrease in royalty fees and product sales revenue.
Product sales revenues decreased $0.9 million or 27.8 percent due primarily to
the Company's continued transition to have franchises billed directly by
selected manufacturers. The administrative fees that the Company recognizes
from such sales are recorded as other income rather than as revenue. Management
expects the transition to continue to have a negative effect on gross profit
but an immaterial effect on net income. As a result of declining product sales,
total revenues for the first quarter of fiscal 1996 decreased $0.4 million or
2.4 percent.
Gross profit for the first quarter of fiscal 1996 decreased $0.1 million or 1.8
percent from gross profit for the same period in fiscal 1995. This decline was
primarily due to the planned reduction in product sales. Gross profit as a
percentage of revenues ("gross margin") increased slightly to 29.6 percent in
the first quarter of fiscal 1996 from 29.4 percent in the comparable period of
fiscal 1995. The increase in gross margin during the first quarter 1996 was
due primarily to increased franchise origination fees offset by the decline in
product sales revenue. The effect of this combination was enough to counter the
growth in revenues from patient care services (associated with Company-owned
Option Care offices) which have a higher cost of revenue than the Company's
franchise business.
Operating expenses in the first quarter of fiscal 1996 decreased $0.3 million
or 9.8 percent compared to the same period in fiscal 1995. Selling, general
and administrative expenses decreased 11.8 percent as a result of increased
personnel productivity and streamlining of headquarters operations.
Pretax income for the first quarter of fiscal 1996 increased $0.3 million or
30.0 percent over the comparable period of fiscal 1995, primarily as a result of
the decrease in operating expenses.
The effective combined federal and state income tax rate was 46.8 percent in the
first quarter of fiscal 1996 versus 49.7 percent for the first quarter of fiscal
1995. The effective tax rate is higher than the federal statutory tax rate of
34% due to non-tax deductible expenses, primarily goodwill amortization, and
state income taxes. The non-deductible portion of the Company's expenses is
essentially fixed, resulting in a decreasing effective tax rate with increasing
pre-tax income.
Liquidity and Capital Resources
The Company's working capital was $8.2 million at March 31, 1996, compared with
$15.4 million on December 31, 1995. The decrease is due to the reclassification
of the Company's bank line of credit to a short term liability.
The existing credit facility provides the Company with a maximum borrowing
capacity of $12.0 million through January, 1997 subject to certain financial
covenants. The Company's most recent revolving credit extension received in
December, 1995 increased the total line of credit availability and allows for
the issuance of subordinated debt. Management believes that cash flow from
operations, in conjunction with borrowing availability under its credit
facility, will be sufficient to meet the cash needs of the business for the
immediate future, but that additional long-term financing will be needed to
meet the Company's acquisition plans. There are no guarantees that such
financing will be available or available at an acceptable cost.
Agreements relating to the purchase of certain franchises in 1993 and 1992
provide the minority shareholders of such franchises the option to require the
Company to purchase the remaining minority interest ownership of such
subsidiaries, or alternatively, to exchange their subsidiary stock for the
Company's common stock. The Company is unable to predict the likelihood of
these options being exercised by the minority shareholders, however, the
Company believes the exercise of such options could require the Company to seek
additional debt or equity financing for which there are no guarantees that the
Company will have such sources available or at an acceptable cost.
There are currently various proposals under development to enact health care a
reform on national, state and local level. It is not possible at this time to
predict the impact which any such changes may have on providers of home infusion
therapy and on the Option Care offices.
<PAGE>
PART II OTHER INFORMATION
Item 4 Submissions of Matters to a Vote of Security Holders
None.
Item 6 (a) Exhibits
11. Computations of Per Share Earnings
27. Financial Data Schedule
Item 6 (b) Reports on Form 8-K or Form 8
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
OPTION CARE, INC.
By: J. Jeffrey Fox
J. Jeffrey Fox, Vice President and
Chief Financial Officer
Date: May 10, 1996
<PAGE>
<TABLE>
Exhibit 11
OPTION CARE, INC. AND SUBSIDIARIES
COMPUTATIONS OF PER SHARE EARNINGS
(In thousands, except share data)
<CAPTION>
THREE MONTHS ENDED
March 31
------------------
1996 1995
-------- --------
<S> <C> <C>
Net income............................. $ 763 $ 555
Weighted average shares issued......... 9,981 9,936
Additional shares included assuming
exercise of stock options using
treasury stock method................ 37 8
Weighted average common shares and
common share equivalents.............. 10,018 9,944
Net income per common and common
equivalent share...................... $ 0.08 $ 0.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 456
<SECURITIES> 0
<RECEIVABLES> 15,868
<ALLOWANCES> 0
<INVENTORY> 1,221
<CURRENT-ASSETS> 22,246
<PP&E> 3,442
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,888
<CURRENT-LIABILITIES> 14,029
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 43,466
<TOTAL-LIABILITY-AND-EQUITY> 59,888
<SALES> 0
<TOTAL-REVENUES> 15,026
<CGS> 0
<TOTAL-COSTS> 10,576
<OTHER-EXPENSES> 2,770
<LOSS-PROVISION> 358
<INTEREST-EXPENSE> (112)
<INCOME-PRETAX> 1,434
<INCOME-TAX> 671
<INCOME-CONTINUING> 763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 763
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
