<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 MARCH 31, 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 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 May 6, 1997, Apogee, Inc. had 9,871,130 shares of common stock, $0.01 par
value, outstanding.
Page 1 of 15
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APOGEE, INC.
FORM 10-Q - QUARTER ENDED MARCH 31, 1997
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 Statements of
Operations for the Three
Months Ended March 31, 1997
and 1996 3
- Consolidated Balance Sheets
as of March 31, 1997 and
December 31, 1996 4
- Consolidated Statements of
Cash Flows for the Three Months
Ended March 31, 1997 and 1996 5
- Consolidated Statement of
Changes in Stockholders' Equity
for the Three Months Ended
March 31, 1997 6
- Notes to Consolidated Financial
Statements 7 - 8
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
</TABLE>
Page 2 of 15
<PAGE> 3
APOGEE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Net revenues $19,200 $19,668
Cost of revenues 15,497 14,991
--------- ---------
Gross profit 3,703 4,677
Selling and administrative expenses 2,313 2,590
Provision for doubtful accounts 964 983
Amortization of intangible assets and excess
cost over fair value of net assets acquired 539 576
--------- ---------
Loss (income) from operations (113) 528
Non-operating expenses (income):
Interest expense 303 151
Interest (income) (4) (87)
--------- ---------
(Loss) income before income taxes (412) 464
Provision for income taxes 8 116
--------- ---------
Net (loss) income ($420) $348
========= =========
Net (loss) income per common share ($0.04) $0.04
========= =========
Weighted average number of common shares
outstanding 9,915,806 9,881,722
========= =========
</TABLE>
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<PAGE> 4
APOGEE, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
MARCH 31,
ASSETS 1997 DECEMBER 31,
(Unaudited) 1996
----------- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,023 $2,299
Accounts receivable, net of allowance
for doubtful accounts of $9,428 in 1997 and $9,306
in 1996 11,241 11,096
Other accounts receivable 1,230 1,643
Other current assets 1,643 1,407
--------- ---------
Total current assets 16,137 16,445
Property and equipment, net 2,831 3,359
Intangible assets and excess cost over fair value
of net assets acquired, net of accumulated
amortization of $4,569 in 1997 and $4,030 in 1996 78,561 77,381
Other assets, net 483 598
--------- ---------
$98,012 $97,783
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $4,112 $4,584
Accounts payable 1,701 2,196
Accrued expenses and other current liabilities 16,680 16,767
--------- ---------
Total current liabilities 22,493 23,547
Long-term debt 9,754 8,224
Other long-term liabilities 457 485
Deferred income tax liability 346 346
--------- ---------
Total liabilities 33,050 32,602
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares
authorized; issued 9,871,130 in 1997 and
9,822,570 in 1996 99 98
Capital in excess of par value 85,817 85,624
Accumulated deficit (20,909) (20,489)
Deferred compensation (45) (52)
--------- ---------
Total stockholders' equity 64,962 65,181
--------- ---------
$98,012 $97,783
========= =========
</TABLE>
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APOGEE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($420) $348
Adjustments to reconcile net income to net cash
(used in) provided by operations:
Depreciation and amortization 704 821
Provision for doubtful accounts 964 983
Changes in assets and liabilities, net of effects of businesses acquired:
Increase in accounts receivable (1,109) (132)
Decrease (increase) in other current assets 177 (233)
(Decrease) increase in accounts payable (495) 286
Decrease in accrued expenses and
other current liabilities (516) (367)
Decrease (increase) in other assets and other liabilities 87 (105)
------ ------
Net cash (used in) provided by operating
activities (608) 1,601
------ ------
Cash flows from investing activities:
Acquisition of businesses:
Payments for acquisition of businesses, net of
cash acquired of $0 in 1997 and $35 in 1996 (1,818)
Additional payments for businesses acquired
in prior years (562) (3,438)
------ ------
Net cash outlay for acquisition of businesses (562) (5,256)
Disposition of businesses 100
Purchases of property and equipment (179) (415)
------ ------
Net cash used in investing activities (641) (5,671)
------ ------
Cash flows from financing activities:
Proceeds from borrowings 2,450
Principal payments on long-term obligations (1,477) (1,670)
------ ------
Net cash provided by (used in) financing activities 973 (1,670)
------ ------
Net decrease in cash and cash equivalents (276) (5,740)
Cash and cash equivalents at beginning of period 2,299 11,949
------ ------
Cash and cash equivalents at end of period $2,023 $6,209
====== ======
Supplemental disclosures of cash flow information:
Interest paid $357 $95
====== ======
Income taxes paid $20
====== ======
</TABLE>
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APOGEE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Capital in
Common Shares excess of Accumulated Deferred
Number Par value par value deficit compensation Total
------ --------- --------- ------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 9,823 $98 $85,624 ($20,489) ($52) $65,181
Common stock issued in connection with
acquisitions 48 1 193 194
Amortization of deferred compensation 7 7
Net loss (420) (420)
------- ---------- ----------- ------------ ------------- -------
Balance at March 31, 1997 (unaudited) 9,871 $99 $85,817 ($20,909) ($45) $64,962
======= ========== =========== ============ ============= =======
</TABLE>
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APOGEE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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, 1996 included in its Form 10-K filed with the Securities and
Exchange Commission on March 28, 1997. 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 month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for a full year
or any portion thereof.
NOTE 2 - INCOME TAXES
The provision for income taxes is based on the Company's estimated
effective income tax rate for 1997. At December 31, 1996, the Company had net
operating loss carryforwards for Federal income tax purposes of approximately
$2,000. Their use is limited to future taxable earnings of the Company and, as
specified in the Internal Revenue Code, use of certain of the net operating loss
carryforwards is limited as they were acquired by the Company in a purchase of
the stock of other companies. The carryforwards expire in varying amounts
through 2010. A valuation reserve has been established against the potential
future benefit of the net operating loss carryforwards and other deferred tax
assets.
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APOGEE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 1997
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------ ------
<S> <C> <C> <C>
Furniture, fixtures and equipment.......... $4,186 $5,201
Less: Accumulated depreciation........ 1,355 1,842
------ ------
$2,831 $3,359
------ ------
</TABLE>
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<PAGE> 9
APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
Apogee, Inc. ("Apogee" or the "Company") is one of the largest
multi-disciplinary providers of outpatient behavioral health services in the
United States. The Company provides behavioral health and related services,
principally at free-standing clinics and currently operates 119 behavioral
health clinics located in 13 states and the District of Columbia. The Company
offers full and shared risk arrangements to employers and managed care
organizations to perform behavioral health services on a capitated,
sub-capitated and case rate basis. In addition, Apogee provides an array of
other behavioral health services, including: employee assistance programs;
third party clinical case management and claims adjudication; and management
and staffing for acute and sub-acute inpatient facilities, correctional and
other institutions through contractual agreements.
Apogee's outpatient practices provide a broad range of behavioral
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 some or all of the following
professionals: board certified or board eligible psychiatrists; licensed
clinical psychologists; licensed clinical social workers; registered psychiatric
nurse practitioners; licensed marriage, family and child counselors; and other
allied mental health professionals.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
NET REVENUES
For the three months ended March 31, 1997, the Company's net revenues
decreased to $19,200 from $19,668 in the same period of the prior year, a
decrease in revenues of $468. This decrease is a result of the impact of
operations which were discontinued or downsized in conjunction with the
Company's restructuring in the fourth quarter of 1996. After adjusting for the
impact of these operations, base business revenues increased approximately $525,
primarily as a result of continued expansion of the Company's managed care and
contract services businesses.
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APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 $3,703 for the three months ended March 31
1997 from $4,677 for the comparable period last year. This decrease is primarily
a result of the impact of operations which were discontinued or downsized in
conjunction with the Company's restructuring in the fourth quarter of 1996.
After adjusting for the impact of these operations, gross profit from base
business decreased approximately $500 due largely to continued reimbursement
pressure from managed care and other third party payors.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses are primarily comprised of
corporate office, regional management and centralized billing expenses. Selling
and administrative expenses decreased to $2,313 for the three months ended March
31, 1997 from $2,590 for the same period in 1996, due primarily to a combination
of reduced administrative costs as a result of discontinued or downsized
operations and the Company's ongoing administrative cost containment
initiatives.
PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts decreased to $964 of net revenues
for the three months ended March 31, 1997 from $983 for the same period in 1996.
This decrease results primarily from a decrease in net revenue as the provision
for doubtful accounts has remained consistent at 5% of net revenues.
INTEREST INCOME AND EXPENSE
Interest expense increased to $303 for the three months ended March 31,
1997 from $151 for the same period in 1996 due to a higher average outstanding
debt balance.
Interest income is primarily related to the Company's cash and cash
equivalents and portfolio of short-term investments. Interest income decreased
to $4 for the three month period ended March 31, 1997 from $87 for the same
period in 1996.
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APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MEDICARE REVIEW
During 1996, certain of the Company's Medicare Part B and related
co-insurance billings previously submitted by one of Apogee's subsidiaries were
selected for review by the Office of the Inspector General of the Department of
Health and Human Services ("OIG") and the Department of Justice ("DOJ"). Apogee
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 1994 through
March 1996. During the pendency of this review, the Medicare intermediary has
suspended all Medicare payments to this subsidiary. It is the Company's policy
to comply with all federal, state and local laws including those applicable to
the Medicare program and the Company is fully cooperating with the review. Due
to the preliminary nature of the review, the Company cannot predict when the
review will be completed, its ultimate outcome, or its potential impact on
earnings but believes the outcome of the review, including repayments, if any,
should not have a material adverse impact on the Company's financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Net cash generatedby operations was approximately $400 for the three
months ended March 31, 1997 after excluding the impact of the downsized and
discontinued operations. In total, net cash used in operations was $608 for the
three months ended March 31, 1997, compared to net cash provided by operations
of $1,601 for the same period in 1996. Cash and cash equivalents remained fairly
consistent at $2,023 at March 31, 1997, compared to $2,299 at December 31, 1996.
At March 31, 1997, the Company's working capital was ($6,356)
compared to ($7,102) at December 31, 1996. The improvement in working capital
was principally a result of a reduction in the accrued reserve for
restructuring, which decreased to $2,836 at March 31, 1997 from $4,003 at
December 31, 1996.
In April, 1996, the Company entered into an agreement with a bank
establishing a two year revolving 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
general corporate purposes, including working capital and future acquisitions.
Page 11 of 15
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APOGEE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Borrowings outstanding under the Credit Facility were $8,100 at March 31, 1997.
The Credit Facility was amended in March 1997 to extend the maturity to June 30,
1998. The Amendment generally resets various financial covenants to reflect the
Company's restructuring and related non-recurring charges incurred in 1996. In
addition, the bank retains discretion for borrowings in excess of $12,000.
The Company's current ratio, working capital and debt to equity ratio
are set forth below for the dates indicated:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Current Ratio .72:1 .70:1
Working Capital ($6,356) ($7,102)
Debt to equity .21:1 .20:1
</TABLE>
The Company believes that the cash flows generated by the Company's
operations, together with its existing cash and availability of borrowings under
the amended Credit Facility, will be sufficient to meet the Company's cash
requirements in 1997.
CAUTIONARY STATEMENT
Matters discussed above contain forward-looking statements that are based on
management's estimates, assumptions and projections. Major factors which could
cause results to differ materially from those expected by management include the
timing and nature of reimbursement charges, the nature of changes in laws and
regulations that govern various aspects of the Company's business, new criteria
adopted to determine medical necessity for behavioral health service, the
outcome of the Department of Justice review, changes in procedures by third
party payors, pricing of managed care and other third party contracts, the
number and productivity of clinicians, the direction and success of competitors,
management retention and unanticipated market changes. The Company does not
undertake any obligation to update the information contained herein, which
speaks only as of this date.
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FORM 10-Q - QUARTER ENDED MARCH 31, 1997
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.
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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)
May 12, 1997 /s/ Alan N. Vinick
- ------------------ ----------------------------------------
(Date) By: Alan N. Vinick
Senior Vice President - Finance,
and Chief Financial Officer
Page 14 of 15
<PAGE> 15
INDEX TO EXHIBITS
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange commission for information only and not filed.
Page 15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 AND THE CONDENSED
STATEMENTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 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> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,023
<SECURITIES> 0
<RECEIVABLES> 20,669
<ALLOWANCES> 9,428
<INVENTORY> 0
<CURRENT-ASSETS> 16,137
<PP&E> 4,186
<DEPRECIATION> 1,355
<TOTAL-ASSETS> 98,012
<CURRENT-LIABILITIES> 22,493
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 64,863
<TOTAL-LIABILITY-AND-EQUITY> 98,012
<SALES> 0
<TOTAL-REVENUES> 19,200
<CGS> 15,497
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 539
<LOSS-PROVISION> 964
<INTEREST-EXPENSE> 303
<INCOME-PRETAX> (412)
<INCOME-TAX> 8
<INCOME-CONTINUING> (420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (420)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
