<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1996
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 000-24224
APOGEE, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3605119
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1018 W. Ninth Avenue - Suite 202
King of Prussia, PA 19406
(Address of principal executive offices) (Zip Code)
(610) 992-7670
(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 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 / /
As of November 4, 1996, Apogee, Inc. had 9,816,905 shares of common stock, $0.01
par value, outstanding.
Page 1 of 20
<PAGE> 2
APOGEE, INC.
FORM 10-Q - QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
FORM 10-Q FORM 10-Q FORM 10-Q
PART NO: ITEM NO. DESCRIPTION PAGE NO.
-------- -------- ----------- --------
<S> <C> <C> <C>
I. FINANCIAL INFORMATION
1 Financial Statements
- Consolidated Balance Sheets
as of September 30, 1996 and
December 31, 1995 3
- Consolidated Statements of
Operations for the Three Months
Ended September 30, 1996 and 1995 4
- Consolidated Statements of
Operations for the Nine Months
Ended September 30, 1996 and 1995 5
- Consolidated Statements of
Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 6
- Consolidated Statement of
Changes in Stockholders' Equity
for the Nine Months Ended
September 30, 1996 7
- Notes to Consolidated Financial
Statements 8 - 10
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 17
II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 18
Signatures 19
Index to Exhibits 20
</TABLE>
<PAGE> 3
APOGEE, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
ASSETS 1996 DECEMBER 31,
(Unaudited) 1995
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,664 $ 11,949
Accounts receivable, net of allowance
for doubtful accounts of $7,758 in 1996 and $8,052
in 1995 13,769 14,555
Other accounts receivable 2,220 1,911
Other current assets 1,349 1,471
--------- ---------
Total current assets 21,002 29,886
Property and equipment, net 5,023 4,671
Intangible assets and excess cost over fair value
of net assets acquired, net of accumulated
amortization of $3,823 in 1996 and $2,320 in 1995 81,022 74,105
Other assets, net 722 389
--------- ---------
$ 107,769 $ 109,051
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 272
Current portion of long-term debt $ 4,712 5,226
Accounts payable 2,098 1,457
Accrued expenses and other current liabilities 12,512 16,350
--------- ---------
Total current liabilities 19,322 23,305
Long-term debt 6,949 5,748
Other long-term liabilities 1,032 516
Deferred income tax liability 614 743
--------- ---------
Total liabilities 27,917 30,312
--------- ---------
Commitments and contingencies
Stockholders' equity :
Common stock, $.01 par value, 20,000,000 shares
authorized; issued 9,813,628 in 1996 and
9,741,050 in 1995 98 97
Capital in excess of par value 85,484 85,612
Accumulated deficit (5,672) (6,895)
Deferred compensation (58) (75)
--------- ---------
Total stockholders' equity 79,852 78,739
--------- ---------
$ 107,769 $ 109,051
========= =========
</TABLE>
<PAGE> 4
APOGEE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Net revenues $ 19,312 $ 17,662
Cost of revenues 15,042 13,070
----------- -----------
Gross profit 4,270 4,592
Selling and administrative expenses 2,241 2,150
Provision for doubtful accounts 931 918
Amortization of intangible assets and excess
cost over fair value of net assets acquired 555 466
----------- -----------
Income from operations 543 1,058
Non-operating expenses (income):
Interest expense 199 137
Interest (income) (10) (238)
----------- -----------
Income before income taxes 354 1,159
Provision for income taxes 74 140
----------- -----------
Net income $ 280 $ 1,019
=========== ===========
Net income per common share $ 0.03 $ 0.11
=========== ===========
Weighted average number of common shares
outstanding 9,852,900 9,482,038
=========== ===========
</TABLE>
<PAGE> 5
APOGEE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Net revenues $ 59,373 $ 50,287
Cost of revenues 45,580 36,218
----------- -----------
Gross profit 13,793 14,069
Selling and administrative expenses 7,248 6,342
Provision for doubtful accounts 2,909 2,495
Amortization of intangible assets and excess
cost over fair value of net assets acquired 1,716 1,229
----------- -----------
Income from operations 1,920 4,003
Non-operating expenses (income):
Interest expense 504 368
Interest (income) (112) (905)
----------- -----------
Income before income taxes 1,528 4,540
Provision for income taxes 305 478
----------- -----------
Net income $ 1,223 $ 4,062
=========== ===========
Net income per common share $ 0.12 $ 0.43
=========== ===========
Weighted average number of common shares
outstanding 9,866,598 9,428,515
=========== ===========
</TABLE>
<PAGE> 6
APOGEE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,223 $ 4,062
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization 2,480 1,736
Provision for doubtful accounts 2,909 2,150
Changes in assets and liabilities, net of
effects of businesses acquired:
Increase in accounts receivable (1,685) (6,693)
Increase in other current assets (676) (831)
Increase (decrease) in accounts payable 641 (56)
Decrease in accrued expenses and
other current liabilities (1,745) (247)
Increase (decrease) in other assets and
other liabilities 77 (820)
-------- --------
Net cash provided by (used in) operating
activities 3,224 (699)
-------- --------
Cash flows from investing activities:
Acquisition of businesses:
Payments for acquisition of businesses, net of
cash acquired of $549 in 1996 and $223 in 1995 (2,590) (8,340)
Additional payments for businesses acquired
in prior years (6,731) (1,684)
-------- --------
Net cash outlay for acquisition of businesses (9,321) (10,024)
Purchases of property and equipment (1,065) (1,405)
-------- --------
Net cash used in investing activities (10,386) (11,429)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 111
Proceeds from exercise of stock options 2
Proceeds from borrowings 3,900 275
Principal payments on long-term obligations (5,023) (2,629)
-------- --------
Net cash used in financing activities (1,123) (2,241)
-------- --------
Net decrease in cash and cash equivalents (8,285) (14,369)
Cash and cash equivalents at beginning of period 11,949 29,281
-------- --------
Cash and cash equivalents at end of period $ 3,664 $ 14,912
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 515 $ 550
======== ========
Income taxes paid $ 255 $ 260
======== ========
</TABLE>
<PAGE> 7
APOGEE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Shares
Capital in
excess of Accumulated Deferred
Number Par value par value deficit compensation Total
------ --------- --------- ------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 9,741 $ 97 $ 85,612 ($6,895) ($75) $78,739
Common stock issued in connection with
acquisitions 113 1 603 604
Common stock reversal (40) (731) (731)
Amortization of deferred compensation 17 17
Net income 1,223 1,223
------ ------- -------- ------- ---- -------
Balance at September 30, 1996 (unaudited) 9,814 $ 98 $ 85,484 ($5,672) ($58) $79,852
====== ======= ======== ======= ==== =======
</TABLE>
<PAGE> 8
APOGEE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Dollars in thousands, except share and per share data)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and should be read in conjunction with
the Company's consolidated financial statements and notes thereto for the year
ended December 31, 1995, included in its Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of Company management, the consolidated
financial statements for the unaudited interim periods presented include all
adjustments, consisting only of normal recurring adjustments, necessary to
present a fair statement of the results for such interim periods.
Operating results for the three and nine month periods ended September
30, 1996 are not necessarily indicative of the results that may be expected for
a full year or any portion thereof.
NOTE 2 - BUSINESS ACQUISITIONS
During the nine month period ended September 30, 1996, the Company
acquired five group practices which have been accounted for using the purchase
method of accounting. Accordingly, the purchase price was allocated to assets
and liabilities acquired based upon their estimated fair values at the dates of
acquisition. The results of operations of the acquired companies are included in
the consolidated financial statements from the respective dates of acquisition.
The following unaudited pro forma consolidated results of operations of
the Company and its subsidiaries for the nine months ended September 30, 1996
give effect on a pro forma basis as if the practices had been acquired as of
January 1, 1996:
Page 8 of 20
<PAGE> 9
APOGEE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(Dollars in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
------------------
<S> <C>
Net revenues $63,364
=======
Net income $ 1,348
=======
Net income per common share $ .14
=======
</TABLE>
The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been made as
of the beginning of the period or results which may occur in the future.
Information with respect to businesses acquired are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
------------------
<S> <C>
Cash paid (net of cash acquired) ............................. $2,590
Common stock issued .......................................... 191
Subordinated promissory notes issued ......................... 1,205
Other deferred purchase price ................................ 115
------
$4,101
Liabilities assumed .......................................... 819
------
$4,920
Fair value of assets acquired, principally
accounts receivable, property and equipment
and certain identifiable intangible assets ................ 559
------
Cost in excess of fair value of net assets
acquired .................................................. $4,361
======
</TABLE>
NOTE 3 - INCOME TAXES
The provision for income taxes is based on the Company's estimated
effective income tax rate.
Page 9 of 20
<PAGE> 10
APOGEE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(Dollars in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
NOTE 4 - PROPERTY AND EQUIPMENT
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Furniture, fixtures and equipment ............ $6,912 $5,796
Less: Accumulated depreciation .......... 1,889 1,125
------ ------
$5,023 $4,671
====== ======
</TABLE>
NOTE 5 - CONTINGENT LIABILITY
Certain Medicare Part B and related co-insurance billings previously
submitted by one of the Company's subsidiary companies are being reviewed by
the Office of Inspector General of the Department of Health and Human Services
("OIG") and the Department of Justice ("DOJ"). The Company has been informed by
the DOJ that the review is a civil matter relating to billings for services to
Medicare patients in long-term care facilities in the State of Florida during
the period from approximately January 1, 1994 through mid-1995. The Company is
fully cooperating with the review.
Due to the preliminary nature of the OIG/DOJ review, the Company cannot
predict when the review will be completed, its ultimate outcome, or its
potential impact on earnings. The Company believes that the ultimate outcome of
the OIG/DOJ review, including repayments, if any, should not have a material
adverse impact on the Company's financial condition. It is the Company's policy
to comply with all federal, state and local laws, including those applicable to
the Medicare program. The Company believes that it has utilization review,
quality assurance and legal compliance programs to assure that billings for its
services are appropriate.
Page 10 of 20
<PAGE> 11
APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
Apogee, Inc. ("Apogee" or the "Company") operates multi-disciplinary,
outpatient mental health group practices. The Company is one of the largest
providers of outpatient mental health services in the United States. Apogee
provides mental health and related services, principally at free-standing,
mental health clinics. In addition, the Company provides mental health services
in a number of inpatient facilities and at long-term care facilities with which
the Company has contractual agreements. The Company currently operates 125
mental health clinics located in 14 states and the District of Columbia.
Apogee's group practices provide a broad range of mental health
services, including diagnosis, psychiatric consultation, psychological
assessment and evaluation, medication monitoring, group and individual
psychotherapy, behavioral management, marriage, family and child therapy and
substance abuse and chemical dependency rehabilitation. The Company's
multi-disciplinary practices typically employ a variety of clinical
professionals.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
NET REVENUES
For the three months ended September 30, 1996, the Company's net
revenues increased 9% to $19,312 from $17,662 in the same period of the prior
year. This increase is a result of acquisitions made subsequent to September
30, 1995. After adjusting for the impact of closing certain long term care
operations as a result of the Company's restructuring in the fourth quarter of
1995, base business revenues decreased approximately $900, primarily as a
result of: 1) reduced revenue volume in certain long term care markets which
the Company continues to service, but is not actively replacing terminated
direct care providers until the reimbursement environment becomes more
favorable; and 2) the loss of several group practice contracts in late 1995,
partially offset by increased volumes from other payors/patients.
Page 11 of 20
<PAGE> 12
APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
GROSS PROFIT
Gross profit comprises net revenues less personnel, field management,
facility and other costs and expenses directly associated with the delivery of
services. Gross profit decreased 7% to $4,270 for the three months ended
September 30, 1996 from $4,592 for the comparable period last year. The gross
profit from acquisitions made subsequent to September 30, 1995 was approximately
$700. After adjusting for the impact of closing certain long term care
operations as a result of the Company's restructuring in the fourth quarter of
1995, gross profit from base business decreased approximately $900, primarily as
a result of: 1) the loss of several group practice contracts in late 1995; 2)
clinician turnover/productivity at certain group practice operations; and 3)
investment in clinical and field support positions.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses are primarily comprised of
corporate office, regional management and centralized billing expenses. Selling
and administrative expenses increased to $2,241 for the three months ended
September 30, 1996 from $2,150 for the same period in 1995, primarily as a
result of acquisitions and, to a lesser extent, an increase in regional
management personnel. Selling and administrative expenses have decreased to
11.6% of net revenues from 12.2% for the same period in 1995 due primarily to
improved leverage of overhead costs.
PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts increased to $931 for the three
months ended September 30, 1996 from $918 for the same period in 1995. This
increase is a result of increased revenues as the provision for doubtful
accounts has remained consistent at 5% of net revenues.
AMORTIZATION OF INTANGIBLE ASSETS AND EXCESS OF COST OVER FAIR VALUE NET ASSETS
ACQUIRED
Amortization of intangible assets and excess of cost over fair value of
net assets acquired increased to $555 for the three months ended September 30,
1996 from $466 for the same period in 1995. This increase was due to additional
acquisitions made subsequent to September 30, 1995.
Page 12 of 20
<PAGE> 13
APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
INTEREST EXPENSE AND INCOME
Interest expense increased to $199 for the three months ended September
30, 1996 from $137 for the same period in 1995. Interest expense relates
primarily to acquisition related debt which has increased as a result of
acquisitions made subsequent to September 30, 1995.
Interest income is primarily related to the Company's portfolio of
short-term investments. Interest income decreased to $10 from $238 for the three
month period ending September 30, 1996 and 1995, respectively. This decrease is
primarily a result of a lower average outstanding investment portfolio balance
in 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
NET REVENUES
For the nine months ended September 30, 1996, the Company's net
revenues increased 18% to $59,373 from $50,287 in the same period of the prior
year. This increase is a result of acquisitions made subsequent to September 30,
1995. After adjusting for the impact of closing certain long term care
operations as a result of the Company's restructuring in the fourth quarter of
1995, base business revenues decreased approximately $2,400, primarily as a
result of: 1) reduced revenue volume in certain long term care markets which
the Company continues to service, but is not actively replacing terminated
direct care providers until the reimbursement environment becomes more
favorable; and 2) the loss of several group practice contracts in late 1995,
partially offset by increased volumes from other payors/patients.
Page 13 of 20
<PAGE> 14
APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
GROSS PROFIT
Gross profit comprises net revenues less personnel, field management,
facility and other costs and expenses directly associated with the delivery of
services. Gross profit decreased to $13,793 for the nine months ended September
30, 1996 from $14,069 for the comparable period last year. The gross profit from
acquisitions made subsequent to September 30, 1995 was approximately $3,000.
After adjusting for the impact of closing certain long term care operations as a
result of the Company's restructuring in the fourth quarter of 1995, gross
profit from base business decreased approximately $2,800, primarily as a result
of: 1) the loss of several group practice contracts in late 1995; 2) clinician
turnover/productivity at certain group practice operations; and 3) investment in
clinical and field support positions.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses are primarily comprised of
corporate office, regional management and centralized billing expenses. Selling
and administrative expenses increased to $7,248 for the nine months ended
September 30, 1996 from $6,342 for the same period in 1995, primarily as a
result of acquisitions and, to a lesser extent, an increase in regional
management personnel. Selling and administrative expenses decreased to 12% of
net revenues from 13% for the same period in 1995 due primarily to improved
leverage of overhead costs.
PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts increased to $2,909 for the nine
months ended September 30, 1996 from $2,495 for the same period in 1995. This
increase is a result of increased revenues as the provision for doubtful
accounts has remained consistent at 5% of net revenues.
AMORTIZATION OF INTANGIBLE ASSETS AND EXCESS OF COST OVER FAIR VALUE NET ASSETS
ACQUIRED
Amortization of intangible assets and excess of cost over fair value of
net assets acquired increased to $1,716 for the nine months ended September 30,
1996 from $1,229 for the same period in 1995. This increase was due to
additional acquisitions made subsequent to September 30, 1995.
Page 14 of 20
<PAGE> 15
APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
INTEREST EXPENSE AND INCOME
Interest expense increased to $504 for the nine months ended
September 30, 1996 from $368 for the same period in 1995. Interest expense
relates primarily to acquisition related debt which has increased as a result
of acquisitions subsequent to September 30, 1995.
Interest income is primarily related to the Company's portfolio of
short-term investments. Interest income decreased to $112 from $905 for the nine
month period ending September 30, 1996 and 1995, respectively. This decrease is
primarily a result of a lower average outstanding investment portfolio balance
during 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's working capital decreased to
$1,680 from $6,581 at December 31, 1995. The decrease in working capital was
principally a result of: 1) payments for businesses acquired and related
transaction costs; 2) principal payments on acquisition debt; and 3) to a
lesser extent, payments for property and equipment.
Net cash provided by operations was $3,224 for the nine months ended
September, 1996 compared to net cash used by operations of $699 for the same
period in 1995. The increase in net cash flows from operations was mainly due to
increases in noncash expenses and improvement in the Company's accounts
receivable days sales outstanding ("DSO"). Cash and cash equivalents decreased
$8,285 from December 31, 1995 to September 30, 1996 due primarily to payments
for acquisitions of businesses, principal payments on acquisition debt and
purchases of property and equipment.
Accounts receivable decreased approximately $786 without including the
impact of accounts receivable acquired in acquisitions completed during 1996,
and the Company's overall DSO has decreased to 65 days at September 30, 1996
from 75 days at December 31, 1995.
Page 15 of 20
<PAGE> 16
APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
In April 1996, the Company finalized an agreement with a bank
establishing a two year credit facility ("credit facility") for up to a maximum
of $15,000. Borrowings availability under this credit facility are: based on the
Company's earnings before interest, income taxes, depreciation and amortization
and the value of selected assets, principally accounts receivable and property
and equipment; subject to various financial and non-financial covenants; and
secured by substantially all of the assets of the Company. Borrowings under this
facility bear interest at the bank's prime rate plus 1.0% or LIBOR plus 2.85%.
The proceeds of this credit facility are available for future acquisitions,
working capital and general corporate purposes. As of September 30, 1996, the
Company had borrowings of $3,900 under this credit facility.
The Company's current ratio, working capital and debt to equity ratio
are set forth below for the dates indicated.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Current ratio 1.09:1 1.28:1
Working capital $1,680 $6,581
Debt to equity .15:1 .14:1
</TABLE>
The Company believes that the cash flows generated by the Company's operations,
together with its existing cash and credit facility, will be sufficient to meet
the Company's cash requirements during the next year.
CONTINGENT LIABILITY
Certain Medicare Part B and related co-insurance billings previously
submitted by one of the Company's subsidiary companies are being reviewed by the
Office of Inspector General of the Department of Health and Human Services
("OIG") and the Department of Justice ("DOJ"). The Company has been informed by
the DOJ that the review is a civil matter relating to billings for services to
Medicare patients in long-term care facilities in the State of Florida during
the period from approximately January 1, 1994 through mid-1995. The Company is
fully cooperating with the review.
Page 16 of 20
<PAGE> 17
APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
Due to the preliminary nature of the OIG/DOJ review, the Company
cannot predict when the review will be completed, its ultimate outcome, or its
potential impact on earnings. The Company believes that the ultimate outcome of
the OIG/DOJ review, including repayments, if any, should not have a material
adverse impact on the Company's financial condition. It is the Company's policy
to comply with all federal, state and local laws, including those applicable to
the Medicare program. The Company believes that it has utilization review,
quality assurance and legal compliance programs to assure that billings for its
services are appropriate.
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Such statements are
based on management's estimates, assumptions and projections. Major factors that
could cause results to differ materially from those expected by management
include the timing and nature of reimbursement changes, the nature of changes in
laws and regulations that govern various aspects of behavioral health care, new
criteria adopted to determine medical necessity for behavioral health services,
the outcome of the OIG/DOJ review, changes in procedures by third party payors
including Medicare intermediaries, the availability, retention and productivity
of clinicians, decisions by managed care and other third party payors, the
availability of acquisition candidates at purchase prices the Company believes
to be fair market, the direction and success of competitors, management
retention and unanticipated market changes.
Page 17 of 20
<PAGE> 18
APOGEE, INC.
FORM 10-Q - QUARTER ENDED SEPTEMBER 30, 1996
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) The exhibits required to be filed as part of this Quarterly
Report on Form 10-Q are contained in the attached Index to
Exhibits.
b) Current Reports on Form 8-K
None.
Page 18 of 20
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
APOGEE, INC.
--------------------------
(registrant)
November 11, 1996 /s/ Alan N. Vinick
- ----------------- -------------------------
(Date) By: Alan N. Vinick
Senior Vice President, Finance
and Administration and Chief
Financial Officer
Page 19 of 20
<PAGE> 20
INDEX TO EXHIBITS
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE
CONDENSED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,664
<SECURITIES> 0
<RECEIVABLES> 21,527
<ALLOWANCES> 7,758
<INVENTORY> 0
<CURRENT-ASSETS> 21,002
<PP&E> 6,912
<DEPRECIATION> 1,889
<TOTAL-ASSETS> 107,769
<CURRENT-LIABILITIES> 19,322
<BONDS> 6,949
98
0
<COMMON> 0
<OTHER-SE> 79,754
<TOTAL-LIABILITY-AND-EQUITY> 107,769
<SALES> 0
<TOTAL-REVENUES> 59,373
<CGS> 0
<TOTAL-COSTS> 45,580
<OTHER-EXPENSES> 1,716
<LOSS-PROVISION> 2,909
<INTEREST-EXPENSE> 504
<INCOME-PRETAX> 1,528
<INCOME-TAX> 305
<INCOME-CONTINUING> 1,223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,223
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
