<PAGE>
UNITED STATES
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 MARCH 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-26190
AMERICAN ONCOLOGY RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1213501
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16825 NORTHCHASE DRIVE, SUITE 1300
HOUSTON, TEXAS
77060
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(713) 873-2674
(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 15, 1996, 14,170,141 SHARES OF THE REGISTRANT'S COMMON STOCK WERE
ISSUED AND OUTSTANDING.
<PAGE>
AMERICAN ONCOLOGY RESOURCES, INC.
FORM 10-Q
MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET 3
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS 4
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 5
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN ONCOLOGY RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents.................. $ 477 $ 14,816
Short-term investments............... 21,080 44,967
Accounts receivable.................. 38,454 31,152
Due from medical groups.............. 1,134 1,271
Prepaids and other current assets.... 5,200 3,575
Deferred income taxes................ 21 11
-------- --------
Total current assets................. 66,366 95,792
Property and equipment, net............. 13,162 11,157
Management service agreements, net...... 190,483 164,522
Other assets............................ 883 888
-------- --------
$270,894 $272,359
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes payable............. $ 12,608
Current maturities of long-term
indebtedness........................ $ 3,770 3,157
Accounts payable..................... 9,651 10,249
Due to medical groups................ 1,276 1,153
Income taxes payable................. 430 4,253
Other accrued liabilities............ 4,852 4,648
-------- --------
Total current liabilities............ 19,979 36,068
Deferred income taxes................... 1,310 921
Long-term indebtedness.................. 47,653 44,190
-------- --------
Total liabilities.................... 68,942 81,179
-------- --------
Stockholders' equity:
Common stock, $.01 par value,
40,000,000 shares authorized,
13,873,130 and 13,738,225 shares
issued and outstanding.............. 139 137
Additional paid-in capital............. 135,554 133,380
Common stock to be issued, 7,805,608
and 7,630,986 shares.................. 50,167 46,018
Retained earnings...................... 16,092 11,645
-------- --------
Total stockholders' equity............. 201,952 191,180
-------- --------
$270,894 $272,359
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
3
<PAGE>
AMERICAN ONCOLOGY RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenue................................ $40,750 $14,600
------- -------
Operating expenses:
Pharmaceuticals and supplies.......... 14,958 5,072
Practice compensation and benefits.... 8,364 3,046
Other practice costs.................. 5,028 1,721
General and administrative............ 2,869 1,892
Depreciation and amortization......... 1,902 741
------- -------
33,121 12,472
------- -------
Income from operations................. 7,629 2,128
Other income (expense):
Interest income....................... 549 73
Interest expense...................... (1,006) (617)
------- -------
Income before income taxes............. 7,172 1,584
Income taxes........................... 2,725 602
------- -------
Net income............................. $ 4,447 $ 982
======= =======
Net income per share................... $0.19 $0.06
======= =======
Shares used in per share calculations.. 23,669 15,890
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
4
<PAGE>
AMERICAN ONCOLOGY RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL COMMON
COMMON STOCK PAID-IN STOCK TO RETAINED
SHARES PAR VALUE CAPITAL BE ISSUED EARNINGS TOTAL
------ --------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,1995............. 13,738 $137 $133,380 $46,018 $11,645 $191,180
Medical practice transactions-value of
174,622 shares to be issued............ 4,149 4,149
Exercise of options to purchase
Common Stock........................... 135 2 216 218
Tax benefit from exercise of
non-qualified stock options............ 1,958 1,958
Net Income.............................. 4,447 4,447
------ ---- -------- ------- ------- --------
Balance at March 31, 1996............... 13,873 $139 $135,554 $50,167 $16,092 $201,952
====== ==== ======== ======= ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
5
<PAGE>
AMERICAN ONCOLOGY RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS
ENDED MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................. $ 4,447 $ 982
Noncash adjustments:
Depreciation and amortization......... 1,902 741
Deferred income taxes................. 379 170
Imputed interest on medical practice
transactions......................... 113
Cash provided (used), net of
effects of medical practice
transactions, by changes in:
Accounts receivable.................. (4,487) (2,429)
Prepaids and other current assets.... (1,559) 2
Other assets......................... (39) (468)
Accounts payable..................... (1,344) 776
Due from/to medical groups........... 954 538
Income taxes payable................. (1,865)
Other accrued liabilities............ (17) 1,023
-------- --------
Net cash provided (used) by operating
activities.......................... (1,516) 1,335
-------- --------
Cash flows from investing activities:
Sales (purchases) of short-term
investments........................... 23,887 380
Acquisition of property and
equipment............................. (2,166) (696)
Net payments in medical practice
transactions.......................... (19,351) (28,502)
-------- --------
Net cash provided (used) by
investing activities................ 2,370 (28,818)
-------- --------
Cash flows from financing activities:
Proceeds from bank indebtedness........ 29,850
Repayment of bank indebtedness......... (7,659)
Repayment of other indebtedness........ (15,411)
Debt financing costs................... (348)
Collection of stockholder notes........ (209)
Net proceeds from issuance of Common
Stock................................. 218 5,253
-------- --------
Net cash provided (used) by financing
activities.......................... (15,193) 26,887
-------- --------
Decrease in cash and equivalents........ (14,339) (596)
Cash and equivalents:
Beginning of period.................... 14,816 3,349
-------- --------
End of period.......................... $ 477 $ 2,753
======== ========
Interest paid........................... $ 1,305 $ 3
Taxes paid.............................. 4,211
Noncash transactions:
Tax benefit from exercise of
non-qualified stock options........... 1,958
Value of Common Stock issued and to
be issued in medical
practice transactions................. 4,149 13,825
Debt issued in medical practice
transactions.......................... 6,815 8,225
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
6
<PAGE>
AMERICAN ONCOLOGY RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and in accordance with Form 10-Q and Rule 10.01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited condensed
consolidated financial statements contained in this report reflect only normal
recurring adjustments considered necessary for a fair presentation of the
financial position and the results of operations for the interim periods
presented. Operating results for interim periods are not necessarily indicative
of results for the full year. The preparation of the Company's financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, as well as disclosures on contingent
assets and liabilities. Because of inherent uncertainties in this process,
actual future results could differ from those expected at the reporting date.
These unaudited condensed consolidated financial statements, footnote
disclosures and other information should be read in conjunction with the
financial statements and the notes thereto included in the Company's Form 10K
filed with the Securities and Exchange Commission on March 25, 1996.
NOTE 2 - MEDICAL SERVICE REVENUE
The following presents the amounts included in the determination of the
Company's revenue (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
-------- --------
<S> <C> <C>
Medical service revenue................. $53,511 $18,890
Amounts retained by medical practices... 12,761 4,290
------- -------
Revenue................................. $40,750 $14,600
======= =======
Management service agreements
at end of period.................... 25 11
</TABLE>
NOTE 3 - MEDICAL PRACTICE TRANSACTIONS
During the first quarter of 1996 and 1995, the Company, through wholly-owned
subsidiaries, acquired certain non-medical assets of, and entered into long-term
management service agreements with, three and four physician practices,
respectively. The transactions have been accounted for as asset purchases. The
following presents the aggregate consideration paid for those transactions (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
-------- --------
<S> <C> <C>
Cash payments and transaction costs.. $19,351 $28,404
Assumption of liabilities............ 967 4,490
Issuance of notes.................... 6,815 8,225
Issuance of Common Stock............. 4,149 13,825
------- -------
$31,282 $54,944
======= =======
</TABLE>
7
<PAGE>
AMERICAN ONCOLOGY RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
In connection with the medical practice transactions occurring in the first
quarter of 1996, the Company is contingently obligated to pay up to an
additional $2,000,000 in future years, depending on the achievement of certain
financial and operational objectives by the affiliated physician groups. Such
liability, if any, will be recorded in the period in which the outcome of the
contingency becomes known. Any payment made will be allocated among the assets
acquired and long-term management services agreements entered into and will not
immediately be charged to expense.
The Company has committed to issue shares of Common Stock pursuant to completed
acquisition transactions as follows: 56,214 in 1996, 1,285,037 in 1997,
1,454,619 in 1998, 2,483,987 in 1999, 2,324,648 in 2000, 138,248 in 2001, 46,032
in 2002 and 16,823 in 2003. Although such shares are not issued or outstanding
for legal purposes, such shares are considered as outstanding for per share
calculations.
The accompanying unaudited condensed consolidated financial statements include
the results of operations derived from the management service agreements from
their respective effective dates. The following unaudited pro forma information
presents the results of operations assuming all 1996 and 1995 transactions were
consummated on January 1, 1995. Such pro forma information is based on the
historical financial information of the medical practices and does not include
operational or other changes which might have been effected pursuant to the
Company's management of the nonmedical aspects of such practices.
The pro forma information presented below is for illustrative information only
and is not necessarily indicative of results which would have been achieved or
results which may be achieved in the future (in thousands except share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------
1996 1995
-------- -------
<S> <C> <C>
Revenue................. $43,115 $36,709
Net income.............. 4,586 2,651
Net income per share.... 0.19 0.15
</TABLE>
NOTE 4 - CAPITALIZATION
As part of entering into long-term management agreements with medical practices
described in Note 3, the Company has nonforfeitable commitments to issue shares
of Common Stock at specified future dates for no further consideration. Common
Stock to be issued is shown as a separate component in stockholders' equity and
the amounts, upon issuance of the shares, will be reclassified to par value and
additional paid-in capital.
During the first quarter of 1996, options to purchase 40,000 shares of Common
Stock at exercise prices of $41.35 to $45.67 per share were granted under the
Company's various stock option plans, of which 15,000 were granted to executive
officers and directors. During the first quarter of 1996, options to purchase
134,905 shares of Common Stock at $2.67 to $8.25 per share were exercised. At
March 31, 1996, there were options to purchase 2,796,370 shares of Common Stock
outstanding under the Company's various stock option plans at exercise prices of
$2.67 to $45.67.
Effective May 9, 1996, the Company's shareholders approved an increase in the
authorized number of shares of Common Stock to 60,000,000 shares.
8
<PAGE>
AMERICAN ONCOLOGY RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE 5 - INDEBTEDNESS
Indebtedness consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
--------------- ------------------
<S> <C> <C>
Promissory notes to physicians.. $48,741 $44,443
Other........................... 2,682 2,904
------- -------
51,423 47,347
Less current maturities......... (3,770) (3,157)
------- -------
$47,653 $44,190
======= =======
</TABLE>
The Company has a loan agreement and revolving credit/term facility (Credit
Facility) with First Union National Bank of North Carolina under which the
Company can borrow up to $35,000,000 to finance medical group transactions. At
March 31, 1996, the Company had no outstanding balance under the Credit
Facility.
On May 1, 1995, the Company entered into a $5,000,000 Master Lease Agreement to
provide equipment financing for use in operations. At March 31, 1996, the
Company has no outstanding balance under the Agreement.
NOTE 7 - EARNINGS PER SHARE
The computation of earnings per share is based on the weighted-average number of
Common Stock and Common Stock equivalent shares outstanding during the periods
in accordance with the requirements of the Securities and Exchange Commission
(SEC). All options to purchase Common Stock, issued Common Stock and
commitments to issue Common Stock at specified future dates which were issued or
granted within one year prior to the initial SEC filing at prices less than the
initial public offering price of $21.00 are assumed to have been outstanding
Common Stock equivalents under the treasury stock method for each of the periods
presented up to the effective date of the initial public offering. Fully
diluted earnings per share has not been presented because it does not differ
materially from the primary per share computations.
The table summarizes the determination of shares used in per share calculations
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1996 1995
------ ------
<S> <C> <C>
Outstanding at end of period:
Common Stock............................ 13,873 8,270
Common Stock to be issued............... 7,806 6,133
------ ------
21,679 14,403
Effect of weighting and assumed share
equivalents for grants and issuances
at less than the weighted average
price................................ 1,990 (752)
Effect of weighting and assumed share
equivalents for grants and issuances
at less than the initial public
offering price....................... 2,239
------- ------
Shares used in per share 23,669 15,890
calculations............... ====== ======
</TABLE>
NOTE 8 - SUBSEQUENT EVENTS
In April and May 1996, the Company completed the acquisition of the nonmedical
assets and entered into long-term management agreements with two medical
practices. Total consideration consisted of cash and transaction costs of
$9,802,500, promissory notes aggregating $3,318,500, contingent promissory notes
of $570,000, liabilities assumed of $511,000 and 81,347 shares of Common Stock
to be delivered at specific future dates as follows: 12,237 in 1998, 10,151 in
1999, 16,268 in 2000 and 42,691 in 2001.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
American Oncology Resources, Inc. (the Company) enters into management
agreements with, and purchases the nonmedical assets of, oncology medical
practices. Under the terms of the management agreements, the Company provides
comprehensive management services to its affiliated oncology practices,
including operational and administrative services, and furnishes personnel,
facilities, supplies and equipment. These practices provide a broad range of
medical services to cancer patients, integrating the specialties of medical
oncology, hematology and radiation oncology. The Company's revenue consists of
management fees and includes the reimbursement of all medical practice operating
costs.
In recent years, there has been a trend among oncologists to form larger group
practices that provide a broad range of services to cancer patients in
outpatient settings, rather than in hospitals or other inpatient settings. The
Company believes that the coordinated delivery of comprehensive cancer care in
an outpatient setting offers high quality care that is more cost-effective than
traditional approaches and is increasingly preferred by patients, payors and
physicians. The Company believes that many of these larger oncology practices
recognize the need for outside managerial, financial and business expertise to
more efficiently manage the increasingly complex, burdensome and time-consuming
nonmedical aspects of their practices and that such practices will increasingly
elect to enter into management relationships with entities such as the Company.
The Company's objective is to be the leading national physician practice
management company providing comprehensive services to an integrated network of
affiliated oncology practices. The Company intends to achieve this objective by
(i) focusing exclusively on oncology, (ii) affiliating with leading oncology
practices throughout the United States, (iii) expanding each affiliated oncology
group's presence in its market, (iv) assisting affiliated oncology practices in
offering coordinated, comprehensive cancer care and (v) negotiating and
expanding managed care relationships. Based on the Company's success in
expanding its business to date, the Company believes that it has effective
strategies for achieving its objective of becoming the leading national oncology
practice management company.
RESULTS OF OPERATIONS
Since the Company's incorporation in October 1992 until March 31, 1996, the
Company has grown rapidly from managing six affiliated physicians in one state
to 174 affiliated physicians and 25 oncology practices in fourteen states. In
the first quarter of 1995, seven of the Company's affiliated physician groups
each contributed more than 10% of the Company's revenue. For the first quarter
of 1996, only one of the Company's affiliated physician groups contributed more
than 10% of the Company's revenue. For the first quarter of 1996, the payor mix
of the affiliated physician groups' medical practice revenue, expressed as a
percentage, was 32% for Medicare and Medicaid, 47% for managed care and 21% for
private insurance and other payors. For the first quarter of 1995, the payor
mix was 29% for Medicare and Medicaid, 48% for managed care and 23% for private
insurance and other payors. As a result of the Company's rapid growth, the
Company's limited period of affiliation with the physician practices and the
different payor and patient mixes of the practices, the Company does not believe
that the period-to-period comparisons and percentage relationships within
periods are meaningful.
10
<PAGE>
The following table sets forth the percentages of revenue represented by certain
items reflected in the Company's Statement of Operations. The information that
follows should be read in conjunction with the Company's unaudited condensed
consolidated financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1996 1995
-------- --------
<S> <C> <C>
Revenue.............................. 100.0% 100.0%
----- -----
Operating expenses:..................
Pharmaceuticals and supplies........ 36.7 34.7
Practice compensation and benefits.. 20.5 20.9
Other practice costs................ 12.3 11.8
General and administrative.......... 7.1 13.0
Depreciation and amortization....... 4.7 5.1
Net interest......................... 1.1 3.7
----- -----
Income before income taxes........... 17.6 10.8
Income taxes......................... 6.7 4.1
----- -----
Net income........................... 10.9% 6.7%
===== =====
</TABLE>
1996 COMPARED TO 1995
The Company entered into management agreements with four oncology practices in
the first quarter of 1995, eleven oncology practices in the remaining nine
months of 1995 and three oncology practices in the first quarter of 1996, the
results of which are included in the Company's operating results from the dates
of affiliation. Changes in results of operations from the first quarter of 1995
to the first quarter of 1996 were caused primarily by affiliations with these
oncology practices.
REVENUE
Revenue for the first quarter of 1996 increased $26.1 million, or 179%, over
the comparable prior year period. Of the first quarter 1996 increase in revenue,
$22.5 million was attributable to the addition of fourteen affiliated oncology
practices since March 31, 1995. The remaining increase in revenue of $3.6
million for the first quarter was attributable to increases in medical practice
revenue of the physician practices affiliated with the Company prior to March
31, 1995. This growth in practice revenue resulted primarily from the
recruitment of new physicians, the expansion of services and increases in
patient volume.
PHARMACEUTICALS AND SUPPLIES
Pharmaceuticals and supplies, which include drugs, medications and other
supplies used by the affiliated physician practices, for the first quarter 1996
increased $9.9 million, or 195%, over the comparable prior year period. Of the
first quarter increase, $6.3 million was attributable to the addition of
fourteen affiliated oncology practices since March 31, 1995. The remaining
increase was principally the result of the expansion of services and increase in
patient volume of practices affiliated with the Company prior to March 31, 1995.
As a percentage of revenue, pharmaceuticals and supplies increased from 34.7% in
the first quarter of 1995 to 36.7% in the first quarter of 1996. The increase
was primarily the result of a shift in payor mix caused by a higher percentage
of Medicare patients in the physician practices that have affiliated with the
Company since the first quarter of 1995. This change in payor mix resulted in a
lower average reimbursement for the affiliated physician practices.
PRACTICE COMPENSATION AND BENEFITS
Practice compensation and benefits, which include the salaries, wages and
benefits of the affiliated physician practices' employees (excluding affiliated
physicians) and the Company's employees located at the affiliated physician
practice sites, for the first quarter of 1996 increased $5.3 million, or 175%,
over the comparable prior year period. Of the first quarter 1996 increase, $3.5
million was attributable to the addition of fourteen affiliated oncology
practices after March 31, 1995. As a percentage of revenue, practice
compensation and benefits decreased slightly from 20.9% in the first quarter of
1995 to 20.5% in the first quarter of 1996.
11
<PAGE>
OTHER PRACTICE COSTS
Other practice costs, which consist of rent, utilities, repairs and
maintenance, insurance and other direct practice costs, for the first quarter of
1996 increased $3.3 million, or 192%, over the comparable prior year period. Of
the first quarter 1996 increase, $1.9 million was attributable to the addition
of fourteen affiliated oncology practices after March 31, 1995. As a percentage
of revenue, other practice costs increased slightly from 11.8% in the first
quarter of 1995 to 12.3% in the first quarter of 1996.
GENERAL AND ADMINISTRATIVE
General corporate expenses for the first quarter of 1996 increased $977,000,
or 52%, over the comparable prior year period. This increase was primarily
attributable to the addition of personnel and greater support costs associated
with the Company's rapid growth since March 31, 1995. As a percentage of
revenue, general and administrative expenses decreased from 13.0% in the first
quarter of 1995 to 7.0% in the first quarter of 1996, primarily as a result of
economies of scale.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for the first quarter of 1996 increased
$1.2 million, or 157%, over the comparable prior year period. Of the first
quarter 1996 increase, $718,000 was attributable to the addition of fourteen
affiliated oncology practices after March 31, 1995.
INTEREST
Net interest expense for the first quarter of 1996 decreased $87,000, or 16%,
over the comparable prior year period. The decrease was primarily attributable
to interest earnings in the first quarter of 1996 on higher cash and short-term
investment balances than during the first quarter of 1995 offset by interest
expense on higher levels of debt incurred to finance transactions with oncology
practices. As a percentage of revenue, net interest expense decreased from 3.7%
in the first quarter of 1995 to 1.1% in the first quarter of 1996.
INCOME TAXES
For the quarter ended March 31, 1995 and 1996, the Company recognized a tax
provision of $602,000 and $2.7 million, respectively, resulting from an
estimated annual effective rate of 38%.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily to obtain management agreements with,
and to purchase the nonmedical assets of, oncology medical practices. From its
incorporation through March 31, 1996, the Company entered into management
agreements with 25 oncology practices. To fund this rapid growth and
development, the Company funded its capital needs prior to its initial public
offering (IPO) through a recapitalization, private debt and equity financings
and borrowings under the Credit Facility with First Union. In March 1995, the
Company filed a registration statement with the Securities and Exchange
Commission and subsequently sold 5,462,500 shares of its Common Stock in June
1995 in its IPO, realizing net proceeds of approximately $105.8 million after
commissions and expenses. The Company used a portion of the proceeds of the IPO
to retire debt and is using the remainder to satisfy its medical practice
transaction and working capital needs. Pending such use, the remaining IPO
proceeds are invested in highly liquid, short-term investments.
Net cash used by operations for the first quarter of 1996 was $1.5 million.
This amount reflects the payment of the entire anticipated 1995 income tax
liability and the increase in accounts receivable due to growth in the oncology
practices affiliated with the Company after March 31, 1995. Net cash used by
financing activities was the result of payments on short-term notes payable that
originated in the fourth quarter of 1995 from medical practice transactions. As
of March 31, 1996, the Company had no outstanding balance in short-term notes
payable.
On January 31, 1996, the Company's $35 million revolving credit facility with
First Union National Bank of North Carolina (Credit Facility) was amended to
alter the fees and interest payable under the agreement and to amend certain of
the financial and other covenants in the agreement to make them more favorable
to the Company. Borrowings under the Credit Facility bear interest at a rate
equal to a rate based on prime rate or the London Interbank Offer Rate, based on
a defined formula. The Credit Facility contains affirmative and negative
covenants, including the maintenance of certain ratios, restrictions on sales,
leases or other dispositions of properties, restrictions on other indebtedness
and prohibitions on the payment of dividends. The Company's Management Service
Agreements and its equity ownership in its subsidiaries are pledged as security
under the Credit Facility. The Company is currently in compliance with the
Credit Facility covenants. There were no borrowings in the first quarter and as
of March 31, 1996, the entire $35 million was available under the Credit
Facility.
At March 31, 1996, the Company had working capital of $46.4 million and cash
equivalents and short-term investments of $21.6 million. The Company also had
$20 million of current liabilities, including approximately $3.8 million of
long-term indebtedness maturing before March 31, 1997. The Company currently
expects that its principal use of funds in the near future will be in connection
with future transactions with affiliated physician groups and the purchase of
furniture and equipment. The Company expects that the existing cash and
investment balances, cash generated from operations, amounts available under the
Credit Facility and a $5 million leasing facility will be adequate to satisfy
the Company's cash requirements for the next 12 months.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation of the Company, as amended
3.2 Bylaws of the Company, as amended
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on January 5, 1996 reporting
under item 2 that dated December 21, 1995 but effective December 1, 1995, it
had acquired, through a wholly-owned subsidiary, the nonmedical assets of, and
entered into a long-term management agreement with, Triad Hematology-Oncology
Associates, P.L.L.C.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 1996 AMERICAN ONCOLOGY RESOURCES, INC.
By: /s/ R. DALE ROSS
---------------------
R. Dale Ross, Chairman of the Board
and Chief Executive Officer
By: /s/ L. FRED POUNDS
-----------------------
L. Fred Pounds, Vice President of Finance
and Chief Financial Officer
15
<PAGE>
AMERICAN ONCOLOGY RESOURCES, INC.
EXHIBIT INDEX
Exhibit Number Description of Exhibits
- - -------------- -----------------------
3.1 Certificate of Incorporation of the Company, as amended
3.2 (A) Bylaws of the Company, as amended
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
- - -----------------
(A) - Filed as an exhibit to the Company's Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
16
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ASCEND MEDICAL CORP.
THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the
provisions of the General Corporation Law of Delaware, does hereby certify as
follows:
FIRST: The name of the Corporation is Ascend Medical Corp.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County. The name of the
Corporation's registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is two million (2,000,000) shares, divided into two classes
consisting of one million (1,000,000) Preferred Shares, and the other class
consisting of one million (1,000,000) Common Shares, each or which shall have
the par value of $.01 per share.
The Board of Directors or the Corporation shall have the power by resolution
to (a) provide for the issuance of shares of preferred stock in series, (b)
determine the number of shares of such stock in such series, and (c) fix the
designations, preferences, qualifications, limitations, restrictions and special
or relative rights of shares of preferred stock or any series thereof.
FIFTH: The name and mailing address of the incorporator is as follow:
Name Mailing Address
---- ---------------
Kyle M. Fink, M.D. c/o HOA
2005 Franklin Street
Suite 150
Denver, Colorado 80205
<PAGE>
SIXTH: In furtherance and not in limitation of the general powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to make, alter or repeal the Bylaws of the Corporation, except as
specifically otherwise provided therein.
SEVENTH: A director of the Corporation shall have no personal liability to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except to the extent that Section 102(b)(7) (or any successor
provision) of the Delaware General Corporation Law, as amended from time to
time, expressly provides that the liability of a director not be eliminated or
limited.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be
2
<PAGE>
binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation as the case may be,
and also on this Corporation.
NINTH: The term of existence of the Corporation shall be perpetual.
TENTH: Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares entitled to vote at an
election of directors.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinabove named,
does hereby execute this Certificate of Incorporation this 30th day of October,
1992.
/s/ Kyle M. Fink, M.D.
----------------------------------------
Kyle M. Fink, M.D., Incorporator
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ASCEND MEDICAL CORP.
Ascend Medical Corp., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the Sole Director of the corporation, by written consent, filed
with the minutes of the Board, adopted a resolution proposing and declaring
advisable the following amendment to the Certificate of Incorporation of the
corporation:
RESOLVED, that the amendment of Article FIRST of the Corporation's
Certificate of Incorporation to read in its entirety as follows (the
"Amendment") is hereby proposed and declared to be advisable and in the
best interests of the Corporation:
"FIRST, the name of the corporation is AMERICAN ONCOLOGY RESOURCES, INC."
SECOND: That the sole stockholder has given a written consent to said
amendment in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: That the amendment has been duly adopted in accordance with the
provisions of Section 242 and 228 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the corporation has caused its corporate seal to be
hereunto affixed and this certificate to be signed by its President and attested
by its Secretary, this 10th day of November, 1992.
ASCEND MEDICAL CORP.
By: /s/ Kyle M. Fink, M.D.
--------------------------------
Kyle M. Fink, M.D., President
Attest: /s/ Kyle M. Fink, M.D.
----------------------------
Kyle M. Fink, M.D., Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN ONCOLOGY RESOURCES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
AMERICAN ONCOLOGY RESOURCES, INC.
2. The certificate of incorporation of the Corporation is hereby amended by
striking out the first paragraph of the fourth article thereof and by
substituting in lieu of said paragraph the following new paragraph:
"The total number of shares of capital stock which the Corporation
shall have authority to issue is twenty-six million (26,000,000)
shares, consisting of one million (1,000,000) shares of preferred
stock, par value $.01 per share, and twenty-five million (25,000,000)
shares of common stock, par value $.01 per share."
3. The amendment of the certificate of incorporation herein certified has been
duly adopted in accordance with the provisions of Section 228 and 242 of the
General Corporation Law of the State of Delaware. The holders of a majority of
outstanding stock entitled to vote thereon, by written consent in accordance
with the provisions of Section 228 of the General Corporation Law of the State
of Delaware, voted in favor of the amendment. Prompt written notice of the
adoption of the amendment herein certified has been given to those stockholders
who have not consented in writing thereto, as provided in Section 228 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by its Chairman of the Board and Chief Executive Officer and attested to by its
Secretary, this 9th day of March, 1994.
AMERICAN ONCOLOGY RESOURCES, INC.
By: /s/ R. Dale Ross
---------------------------------------
R. Dale Ross, Chairman of the Board and
Chief Executive Officer
ATTEST:
/s/ Leo E. Sands
- - ------------------------
Leo E. Sands, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN ONCOLOGY RESOURCES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
AMERICAN ONCOLOGY RESOURCES, INC.
2. The certificate of incorporation of the Corporation is hereby amended by
striking out the first paragraph of the fourth article thereof and by
substituting in lieu of said paragraph the following new paragraph:
"The total number of shares of capital stock which the Corporation
shall have authority to issue is forty-one million (41,000,000)
shares, consisting of one million (1,000,000) shares of preferred
stock, par value $.01 per share, and forty million (40,000,000) shares
of common stock, par value $.01 per share."
3. The amendment of the certificate of incorporation herein certified has been
duly adopted in accordance with the provisions of Section 228 and 242 of the
General Corporation Law of the State of Delaware. The holders of a majority of
outstanding stock entitled to vote thereon, by written consent in accordance
with the provisions of Section 228 of the General Corporation Law of the State
of Delaware, voted in favor of the amendment. Prompt written notice of the
adoption of the amendment herein certified has been given to those stockholders
who have not consented in writing thereto, as provided in Section 228 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by its Chairman of the Board and Chief Executive Officer and attested to by its
Secretary, this 2nd day of May, 1995.
AMERICAN ONCOLOGY RESOURCES, INC.
By: /s/ R. Dale Ross
----------------------------------------
R. Dale Ross, Chairman of the Board and
Chief Executive Officer
ATTEST:
/s/ Leo E. Sands
- - ------------------------
Leo E. Sands, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN ONCOLOGY RESOURCES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
AMERICAN ONCOLOGY RESOURCES, INC.
2. The certificate of incorporation of the Corporation is hereby amended by
striking out the first paragraph of the fourth article thereof and by
substituting in lieu of said paragraph the following new paragraph:
"The total number of shares of capital stock which the Corporation
shall have authority to issue is sixty-one million (61,000,000)
shares, consisting of one million (1,000,000) shares of preferred
stock, par value $.01 per share, and sixty million (60,000,000) shares
of common stock, par value $.01 per share."
3. The amendment of the certificate of incorporation herein certified has been
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware; the amendment was duly adopted by
resolution of the Board of Directors on February 8, 1996, and the necessary
shares as required by statute were voted in favor of the amendment of the Annual
Meeting of Stockholders held on May 9, 1996.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by its Chairman of the Board and Chief Executive Officer and attested to by its
Secretary, this 9th day of May, 1996.
AMERICAN ONCOLOGY RESOURCES, INC.
By: /s/ R. Dale Ross
---------------------------------------
R. Dale Ross, Chairman of the Board and
Chief Executive Officer
ATTEST:
/s/ Leo E. Sands
- - ----------------
Leo E. Sands, Secretary
<PAGE>
EXHIBIT 11
AMERICAN ONCOLOGY RESOURCES, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
---------- --------
<S> <C> <C>
NET INCOME.............................. $ 4,447 $ 982
------- -------
OUTSTANDING AT END OF PERIOD:
Shares of Common Stock 13,873 8,270
Commitments to issue
Common Stock at 7,806 6,133
specific future dates
Effect of weighting (101) (1,175)
------- -------
21,578 13,228
------- -------
Options to purchase Common Stock 2,796
Effect of treasury stock method (705)
Dilutive effect of options to purchase
Common Stock granted April 1, 1994 and
prior 423
------- -------
Additional assumed shares for 1994 and
1995 grants and issuances at less than
the initial public offering price of $21
per share:
Issued Common Stock 637
Commitments to issue Common Stock
at specified future dates 811
Options to purchase Common Stock 1,816
Effect of treasury stock method (1,025)
------- -------
2,239
------- -------
Total shares used in per share 23,669 15,890
calculation ======= =======
Net income per share $ 0.19 $0.06
======= =======
ASSUMING FULL DILUTION:
Outstanding per above 23,669 15,890
Additional dilution resulting
from use of period end price per - 185
share if higher than average ------- -------
Total shares used in per share 23,669 16,075
calculation ======= =======
Net income per share $ 0.19 $0.06
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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> 477
<SECURITIES> 21,080
<RECEIVABLES> 38,454
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 66,366
<PP&E> 16,337
<DEPRECIATION> 3,175
<TOTAL-ASSETS> 270,894
<CURRENT-LIABILITIES> 19,979
<BONDS> 0
0
0
<COMMON> 139
<OTHER-SE> 201,813
<TOTAL-LIABILITY-AND-EQUITY> 270,894
<SALES> 0
<TOTAL-REVENUES> 40,750
<CGS> 0
<TOTAL-COSTS> 33,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,006
<INCOME-PRETAX> 7,172
<INCOME-TAX> 2,725
<INCOME-CONTINUING> 4,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,447
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
