-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L2Vo9FOkbQZ4L911lA3SvlYvypfJFxNg/HVNIVtfHI6HfS4ag+hil7n/cTbkk2Pt cbw2ca//miKPnmK1Ck+kcA== 0000950144-97-012413.txt : 19971117 0000950144-97-012413.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950144-97-012413 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESPONSE ONCOLOGY INC CENTRAL INDEX KEY: 0000763098 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 621212264 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09922 FILM NUMBER: 97721443 BUSINESS ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 BUSINESS PHONE: 9017617000 MAIL ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 FORMER COMPANY: FORMER CONFORMED NAME: RESPONSE TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BIOTHERAPEUTICS INC DATE OF NAME CHANGE: 19891221 10-Q 1 RESPONSE ONCOLOGY, INC. FORM 10-Q FQE: 9/30/97 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) Quarterly report pursuant to Section 13 or 15(d) of the --- Securities Exchange Act of 1934 For the quarterly period ended September 30, 1997 or ( ) Transition report pursuant to Section 13 or 15(d) of the --- Securities Exchange Act of 1934 For the transition period from__________to_____________ Commission file number 0-15416 --------------------------------- RESPONSE ONCOLOGY, INC. ----------------------- (Exact name of registrant as specified in its charter) Tennessee 62-1212264 - --------------------------------- ------------------ (State or Other Jurisdiction (I. R. S. Employer of Incorporation or Organization) Identification No.) 1775 Moriah Woods Blvd., Memphis, TN 38117 - ---------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) (901) 761-7000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 Par Value, 11,972,621 shares as of November 13, 1997. This filing consists of 14 sequentially numbered pages . 2
INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page Consolidated Balance Sheets, September 30, 1997 and December 31, 1996............................................................ 3 Consolidated Statements of Earnings for the Three Months Ended September 30, 1997 and September 30, 1996........................................................... 4 Consolidated Statements of Earnings for the Nine Months Ended September 30, 1997 and September 30, 1996........................................................... 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and September 30, 1996........................................................... 6 Notes to Consolidated Financial Statements................................................................................ 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................................11 PART II. OTHER INFORMATION Item 5. Market Information and Related Stockholder Matters..................................................13 Item 6. Exhibits and Reports on Form 8-K....................................................................13 Signatures ....................................................................................................14
2 3 PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands)
ASSETS September 30, 1997 December 31, 1996 (Unaudited) (Note 1) --------- --------------- CURRENT ASSETS Cash and cash equivalents $ 1,505 $ 415 Accounts receivable, less allowance for doubtful accounts of $2,777 and $1,774 16,119 14,297 Supplies 2,506 2,415 Prepaid expenses and other current assets 4,049 2,168 Due from affiliated physicians 14,527 12,423 --------- --------- TOTAL CURRENT ASSETS 38,706 31,718 Property and equipment - at cost, less accumulated depreciation and amortization of $9,269 and $8,160 3,727 5,406 Deferred charges, less accumulated amortization of $499 and $232 404 490 Management Service Agreements, less accumulated amortization of $3,360 and $1,345 103,947 101,963 Deferred tax asset 3,198 3,267 Other assets 160 106 --------- --------- TOTAL ASSETS $ 150,142 $ 142,950 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 8,180 $ 4,863 Accrued expenses and other liabilities 6,183 4,268 Notes payable 1,617 7,847 Capital lease obligations 63 74 --------- --------- TOTAL CURRENT LIABILITIES 16,043 17,052 Capital lease obligations, less current portion 76 124 Notes payable, less current portion 41,894 62,106 Deferred tax liability 25,996 25,127 Minority interest 863 374 STOCKHOLDERS' EQUITY Series A convertible preferred stock, $1.00 par value, authorized 3,000,000 shares; issued and outstanding 27,233 shares at each period end, liquidating preference $11.00 per share 27 27 Common Stock, $.01 par value, authorized 30,000,000 shares; issued and outstanding 11,972,621 and 8,947,018 shares, respectively 120 89 Paid-in capital 101,402 77,454 Accumulated deficit (36,279) (39,403) --------- --------- 65,270 38,167 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 150,142 $ 142,950 ========= =========
See accompanying notes to consolidated financial statements. 3 4 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (Dollar amounts in thousands except for share data)
Three Months Ended ----------------------------------------------- September 30, September 30, 1997 1996 --------------------- ---------------------- NET REVENUE $ 25,710 $ 17,914 COSTS AND EXPENSES Salaries and benefits 5,541 4,013 Pharmaceuticals and supplies 12,320 7,469 Other operating costs 3,030 2,352 General and administrative 1,158 1,119 Depreciation and amortization 1,030 1,032 Interest 570 739 Provision for doubtful accounts 356 396 ------------ ----------- 24,005 17,120 ------------ ----------- EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 1,705 794 Minority owners' share of net earnings (19) (120) ------------ ----------- EARNINGS BEFORE INCOME TAXES 1,686 674 Provision for income taxes 641 --- ------------ ----------- NET EARNINGS TO COMMON STOCKHOLDERS $ 1,045 $ 674 ============ =========== EARNINGS PER COMMON SHARE $ 0.09 $ 0.08 ============ =========== Weighted average number of common shares 12,117,439 8,391,461 ============ ===========
See accompanying notes to consolidated financial statements. 4 5 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (Dollar amounts in thousands except for share data)
Nine Months Ended ---------------------------------------------- September 30, September 30, 1997 1996 --------------------- --------------------- NET REVENUE $ 75,710 $ 46,353 COSTS AND EXPENSES Salaries and benefits 15,711 10,968 Pharmaceuticals and supplies 36,041 19,760 Other operating costs 7,987 5,621 General and administrative 3,403 3,051 Depreciation and amortization 3,490 2,341 Interest 2,466 1,384 Provision for doubtful accounts 1,156 1,218 ------------ ----------- 70,254 44,343 ------------ ----------- EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 5,456 2,010 Minority owners' share of net earnings (416) (275) ------------ ----------- EARNINGS BEFORE INCOME TAXES 5,040 1,735 Provision for income taxes 1,915 --- ------------ ----------- NET EARNINGS TO COMMON STOCKHOLDERS $ 3,125 $ 1,735 ============ =========== EARNINGS PER COMMON SHARE $ 0.28 $ 0.22 ============ =========== Weighted average number of common shares 11,348,883 7,971,115 ============ ===========
See accompanying notes to consolidated financial statements. 5 6 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollar amounts in thousands)
Nine Months Ended ------------------------------------------------- September 30, 1997 September 30, 1996 ----------------------- ------------------------ OPERATING ACTIVITIES Net earnings $ 3,125 $ 1,735 Adjustments to reconcile net earnings from operations: Depreciation and amortization 3,490 2,341 Provisions for doubtful accounts 1,156 1,218 Minority owners' share of net earnings 416 275 Changes in assets and liabilities net of effect of acquisitions: Accounts receivable (2,978) (4,196) Supplies, prepaid expenses, and other current assets (1,972) (878) Deferred charges and other assets (405) (6) Due from affiliated physician groups (2,780) (3,547) Accounts payable and accrued expenses 5,870 1,263 ------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,922 (1,795) INVESTING ACTIVITIES Purchase of equipment (692) (1,198) Sale of short-term investments --- 362 Investment in joint venture 73 --- Acquisition of nonmedical assets of affiliated physician practices (787) (37,916) ------- -------- NET CASH USED IN INVESTING ACTIVITIES (1,406) (38,752) FINANCING ACTIVITIES Financing costs incurred (103) --- Proceeds from exercise of stock options 26 178 Principal payments on notes payable (5,567) (501) Proceeds from notes payable 1,271 26,917 Proceeds from note payable to parent 1,006 --- Principal payments on capital lease obligations (59) (31) Proceeds from issuance of stock to parent --- 10,000 ------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,426) 36,563 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,090 (3,984) Cash and cash equivalents at beginning of period 415 4,204 ------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,505 $ 220 ======= ========
See accompanying notes to consolidated financial statements. 6 7 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements by generally accepted accounting principles. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts have been reclassified for comparative purposes with no effect on net earnings. Operating results for the three and nine month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in Response Oncology, Inc. and Subsidiaries' (the "Company's") annual report on Form 10-K for the year ended December 31, 1996. Net Revenue: The following table is a summary of net revenue by source for the respective three and nine month periods ended September 30, 1997 and 1996. Patient services revenue is recorded net of contractual allowances and discounts of $1,629,000 and $1,439,000 for the quarters ended September 30, 1997 and 1996, respectively and $4,827,000 and $3,944,000 for the nine months ended September 30, 1997 and 1996, respectively. The Company's revenue from practice management affiliations includes a fee equal to practice operating expenses incurred by the Company (which excludes expenses that are the obligation of the physicians, such as physician salaries and benefits) and a management fee either fixed in amount or equal to a percentage of each affiliated oncology group's adjusted net revenue or net operating income. In certain affiliations, the Company may also be entitled to a performance fee if certain financial criteria are satisfied.
(In thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ----------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Net patient services revenue $ 8,578 $ 8,648 $ 25,803 $ 25,439 Practice management service fees 11,496 5,484 34,023 10,110 Pharmaceutical sales to physicians 4,843 3,509 13,522 9,947 Physician investigator studies 793 273 2,362 857 --------- --------- --------- --------- $ 25,710 $ 17,914 $ 75,710 $ 46,353 ========= ========= ========= =========
Management Service Agreements: Costs of obtaining Management Service Agreements are amortized using the straight-line method over the terms of the agreements. Certain purchase accounting adjustments were made during the nine months ended September 30, 1997 which increased the value of management service agreements, net of accumulated amortization, by $4,000,000 due to changes in the estimated valuation of certain assets and liabilities that were purchased. 7 8 Net Earnings Per Common Share: Net earnings per common share for the three and nine month periods ended September 30, 1997 and 1996 have been computed based upon the weighted average number of shares of common stock and common stock equivalents outstanding during the respective periods. Shares issuable pursuant to the conversion of the long-term notes delivered by the Company in its management affiliations are excluded since they would have been anti-dilutive in the three and nine month periods ended September 30, 1997 and 1996. Fully diluted earnings per share are not disclosed as the effect of assuming the conversion of the preferred stock is clearly immaterial. NOTE 2 -- PARENT COMPANY Prior to July 25, 1997 Response Oncology was a subsidiary of Seafield Capital Corporation ("Seafield"). On July 1, 1997, Seafield's Board of Directors declared a dividend to Seafield's shareholders of all shares of common stock of Response owned by Seafield. For each shareholder of record on July 11, 1997, 1.2447625 shares of Response common stock were distributed on July 25, 1997 for each share of Seafield common stock outstanding. The distribution of all shares of Response stock held by Seafield to Seafield's shareholders was effected as a dividend. The Seafield shareholders paid no consideration for any shares of Response stock received in the distribution. NOTE 3 -- NOTES PAYABLE The Company has a $45.0 million Credit Facility to fund the Company's acquisition and working capital needs. The Credit Facility, comprised of a $35.0 million Acquisition Facility and a $10.0 million Working Capital Facility, is collateralized by the common stock of the Company's subsidiaries. The Credit Facility bears interest at a variable rate equal to LIBOR plus a spread between 1.5% and 2.125%, depending upon borrowing levels. At September 30, 1997, $28.8 million aggregate principal was outstanding under the Credit Facility with a current interest rate of approximately 8.2%. The Credit Facility contains affirmative and negative covenants which, among other things, require the Company to maintain certain financial ratios, including minimum fixed charges coverage, funded debt to EBITDA, net worth and current ratio. In May 1997, the Company entered into a LIBOR based interest rate swap agreement ("Swap Agreement") with an affiliate of the Company's primary lender as required by the terms of the Credit Facility. As of September 30, 1997, approximately 52% of the Company's outstanding principal balance under the Credit Facility was hedged under the Swap Agreement. The Swap Agreement matures in March 1999 and is cancelable at the lender's option after July 1998. In October 1996, the Company procured a $23.5 million credit facility from Seafield (the "Seafield Facility") to finance acquisitions and for working capital. On February 26, 1997, the $23.5 million loan and accrued interest of $.7 million was exchanged for 3,020,536 shares of the Company's common stock at a rate of $8 per share. In connection with the conversion of the Seafield Facility, $82,000 of unamortized financing costs were charged to paid-in capital. 8 9 NOTE 4 -- INCOME TAXES Upon the consummation of the physician practice management affiliations, the Company recognized deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of purchased assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. During the three and nine month periods ended September 30, 1997, the Company recognized income tax expense due to the exhaustion of net operating loss carryovers for the year. The Company had utilized net operating losses to fully offset income tax expense during 1996. These net operating losses had not previously been recognized in the financial statements as deferred tax assets due to doubts of their recoverability. Therefore, no deferred tax expense was recognized upon the utilization thereof. NOTE 5 -- COMMITMENTS AND CONTINGENCIES With respect to professional and general liability risks, the Company currently maintains an insurance policy that provides coverage during the policy period ending August 1, 1998, on a claims-made basis, for $1,000,000 per claim in excess of the Company retaining $25,000 per claim, and $3,000,000 in the aggregate. Costs of defending claims are outside the limit of liability. In addition, the Company maintains a $10,000,000 umbrella policy with respect to potential general liability claims. Since inception, the Company has incurred no professional or general liability losses and as of September 30, 1997, the Company was not aware of any pending professional or general liability claims. NOTE 6 -- DUE FROM AFFILIATED PHYSICIANS Due from affiliated physicians consists of management fees earned and payable pursuant to the management service agreements ("Service Agreements"). In addition, the Company may also fund certain working capital needs of the affiliated physicians from time to time. NOTE 7 -- NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" which revised the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. Statement No. 128 is effective for the Company's fiscal year ending December 31, 1997. Retroactive application will be required. The Company believes the adoption of Statement No. 128 will not have a significant effect on its reported earnings per share. Statement of Financial Accounting Standards No. 129 "Disclosure of Information about Capital Structure" is required to be implemented for periods ending after December 15, 1997. The adoption of this standard is not expected to have a material effect on the Company's financial statements. In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income." Statement No. 130 is effective for fiscal years beginning after December 15, 1997. Retroactive application will be required. The adoption of this standard is not expected to have a significant impact on the Company's financial position or results of operations. 9 10 In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." Statement No. 131 is effective for fiscal years beginning after December 15, 1997. Retroactive application will be required. The adoption of this standard is not expected to have a material impact on the Company's financial statements. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Response Oncology, Inc. ("The Company"), is a comprehensive cancer management company. The Company provides advanced cancer treatment services through outpatient facilities known as IMPACT(R) Centers under the direction of practicing oncologists; owns the assets of and manages the nonmedical aspects of oncology practices; and conducts outcomes research on behalf of pharmaceutical manufacturers. Approximately 400 medical oncologists are associated with the Company through these programs. At Septemer 30, 1997, the Company's network consisted of 48 IMPACT(R) Centers, including 25 wholly owned centers, 13 managed programs, and 10 centers owned and operated in joint venture with a host hospital. In January 1996, the Company commenced execution of a diversification strategy into physician practice management. Such diversification included the affiliation during 1996 and 1997 with 43 physicians in 10 medical oncology practices in Florida and Tennessee. The Company has sought deep geographic penetration in those markets believing that significant market share is crucial to achieving efficiencies, revenue enhancements, and marketing of complete cancer services to diverse payors including managed care. Pursuant to Service Agreements, the Company provides management services that extend to all nonmedical aspects of the operations of the affiliated practices. The Company is responsible for providing facilities, equipment, supplies, support personnel, and management and financial advisory services. The Company's resulting revenues from Service Agreements include a fee equal to practice operating expenses incurred by the Company and a management fee either fixed in amount or equal to a percentage of each affiliated practice's adjusted net revenue or operating income. In certain affiliations, the Company may also be entitled to a performance fee if certain financial criteria are satisfied. RESULTS OF OPERATIONS The Company recorded net earnings for the quarter and nine months ended September 30, 1997 of $1,045,000 or $.09 per share, and $3,125,000 or $.28 per share, compared to net earnings of $674,000 or $.08 per share, and $1,735,000, or $.22 per share, for the same periods in 1996. Earnings before income taxes for the quarter and nine months ended September 30, 1997 were $1,686,000 and $5,040,000 compared to $674,000 and $1,735,000 for the same periods of 1996. The Company utilized net operating loss carryforwards in 1996 to fully offset its income tax provision. Net revenue for the quarter ended September 30, 1997 was $25,710,000 compared to $17,914,000 for the quarter ended September 30, 1996, an increase of $7,796,000 or 44%. Net revenue for the nine months ended September 30, 1997 was $75,710,000 compared to $46,353,000 for the corresponding period in 1996, an increase of $29,357,000 or 63%. Growth in net revenue for both the third quarter and nine months ended September 30, 1997 was largely driven by an increase in revenue from the Practice Management Division. For the third quarter, practice management fees increased by 110%, from $5,484,000 in 1996 to $11,496,000 in 1997; practice management fees for the nine month period increased 237%, from $10,110,000 in 1996 to $34,023,000 in 1997. The number of physicians in practice management relationships with the Company increased from 21 on September 30, 1996 to 43 on September 30, 1997. In the Company's Clinical Division, pharmaceutical sales to physicians and revenue from contract outcomes research increased 38% and 190%, respectively from the third quarter of 1996 to the third quarter of 1997 for a combined increase of $1,854,000. Revenue from pharmaceutical sales to physicians and contract outcomes research increased 36% and 176%, respectively from the nine months ended September 30, 1996 to the nine months ended September 30, 1997 for a combined increase of $5,080,000. 11 12 EBITDA (earnings before interest, taxes, depreciation and amortization) increased $841,000 or 34% to $3,286,000 and $5,536,000 or 101% to $10,996,000, respectively, for the quarter and nine months ended September 30, 1997. This compares with EBITDA of $2,445,000 and $5,460,000 for the quarter and nine months ended September 30, 1996. EBITDA is not intended to represent net income, cash flow, or any other measure of performance in accordance with generally accepted accounting principles, but is included because the Company believes it is useful for measuring and identifying trends with respect to the Company's operating performance and creditworthiness. The increase in EBITDA is primarily due to the increase in revenues related to Service Agreements with affiliated physicians. Pharmaceuticals and supplies increased by $4,851,000 and $16,281,000, respectively, for the three and nine month periods ended September 30, 1997 over the corresponding periods in 1996. The Company attributes the increases primarily to the expansion into practice management as well as a significant increase in pharmaceutical sales to physicians. Salaries and benefits as a percentage of Net Revenue decreased from 24% for the nine months ended September 30, 1996 to 21% for the nine months ended September 30, 1997. During the second quarter of 1996 the Company increased personnel in order to support the diversification into practice management. Other operating expenses increased $678,000, or 29%, from $2,352,000 in the third quarter of 1996 to $3,030,000 for the corresponding period in 1997. Other operating expenses increased $2,366,000, or 42%, from $5,621,000 for the nine months ended September 30, 1996 to $7,987,000 for the nine months ended September 30, 1997. This increase is primarily due to the Company's diversification strategy into practice management. Other operating expenses consist primarily of medical director fees, rent expense, and other operational costs. Other operating expenses as a percentage of net revenue were 12% and 13% for the quarters ended September 30, 1997 and 1996, respectively and 11% and 12 % for the nine months ended September 30, 1997 and 1996 respectively. Interest expense was $570,000 for the third quarter of 1997 as compared to $739,000 for the third quarter of 1996, a decrease of $169,000 as a result of the note payable to Seafield which was converted to common stock during the first quarter of 1997. Interest expense was $2,466,000 for the nine months ended September 30, 1997 as compared to $1,384,000 for the same period in 1996, an increase of $1,082,000. The increase is related to borrowings under the Company's Credit Facility and debt assumed and/or issued in connection with practice management affiliations. The increase in the Provision for income taxes resulted from the exhaustion of net operating loss carryforwards for the year. The Company had utilized net operating losses to fully offset tax expense during 1996. These net operating losses had never been recognized in the financial statements as deferred tax assets due to doubts of their recoverability. Therefore, no deferred tax expense was recognized upon utilization thereof. 12 13 LIQUIDITY AND CAPITAL RESOURCES At September 30, 1997, the Company's working capital was $22.7 million with current assets of $38.7 million and current liabilities of $16.0 million. The current portion of notes payable decreased from December 31, 1996 due to the maturity of a short term note to physicians which was financed through the note payable to the Company's parent. The Company has a $45.0 million Credit Facility to fund the Company's acquisition and working capital needs. The Credit Facility, comprised of a $35.0 million Acquisition Facility and a $10.0 million Working Capital Facility, is collateralized by the common stock of the Company's subsidiaries. The Credit Facility bears interest at a variable rate equal to LIBOR plus a spread between 1.5% and 2.125%, depending upon borrowing levels. At September 30, 1997, $28.8 million aggregate principal was outstanding under the Credit Facility with a current interest rate of approximately 8.2%. The Credit Facility contains affirmative and negative covenants which, among other things, require the Company to maintain certain financial ratios, including minimum fixed charges coverage, funded debt to EBITDA, net worth and current ratio. In May 1997, the Company entered into a LIBOR based interest rate swap agreement ("Swap Agreement") with an affiliate of the Company's primary lender as required by the terms of the Credit Facility. As of September 30, 1997, approximately 52% of the Company's outstanding principal balance under the Credit Facility was hedged under the Swap Agreement. The Swap Agreement matures in March 1999 and is cancelable at the lender's option after July 1998. In October 1996, the Company procured a $23.5 million credit facility from Seafield (the "Seafield Facility") to finance acquisitions and for working capital. On February 26, 1997, the $23.5 million loan and accrued interest of $.7 million was exchanged for 3,020,536 shares of the Company's common stock at a rate of $8 per share. In connection with the conversion of the Seafield Facility, $82,000 of unamortized financing costs were charged to paid-in capital. PART II - OTHER INFORMATION ITEM 5 MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS On July 1, 1997, Seafield's Board of Directors declared a dividend to Seafield's shareholders of all shares of common stock of Response owned by Seafield. For each shareholder of record on July 11, 1997, 1.2447625 shares of Response common stock were distributed on July 25, 1997 for each share of Seafield common stock outstanding. The distribution of all shares of Response stock held by Seafield to Seafield's shareholders was effected as a dividend. The Seafield shareholders paid no consideration for any shares of Response stock received in the distribution. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 27 Financial Data Schedule (for SEC use only) 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Response Oncology, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RESPONSE ONCOLOGY, INC. By: /s/ Mary E. Clements --------------------------------- Mary E. Clements Chief Financial Officer and Principal Accounting Officer Date: November 14, 1997 By: /s/ Dena L. Mullen --------------------------------- Dena L. Mullen Director of Finance Date: November 14, 1997 By: /s/ Peter A. Stark --------------------------------- Peter A. Stark Controller Date: November 14, 1997 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF RESPONSE ONCOLOGY, INC. FOR THE 3 MONTHS PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JUL-1-1997 SEP-30-1997 1,505 0 18,896 2,777 2,506 38,706 12,996 9,269 150,142 16,043 43,511 0 27 120 65,123 150,142 0 25,710 15,350 23,079 19 356 570 1,686 641 1,045 0 0 0 1,045 .09 0
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