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 June 30, 2004
Or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-26190
US Oncology, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 84-1213501 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
16825 Northchase Drive, Suite 1300
Houston, Texas
77060
(Address of principal executive offices)
(Zip Code)
(832) 601-8766
(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 ¨
Indicate by check mark whether the Registrant (1) is an accelerated filer (as defined in Rule 12(b)-2 of the Securities Exchange Act of 1934.) Yes x No ¨
As of July 16, 2004, 86,475,384 shares of the Registrant’s Common Stock were outstanding. In addition, as of July 16, 2004, the Registrant had agreed to deliver 805,790 shares of its Common Stock on certain future dates for no additional consideration.
FORM 10-Q
JUNE 30, 2004
TABLE OF CONTENTS
| PAGE NO. | ||
| 3 | ||
| 3 | ||
| Condensed Consolidated Statement of Operations and Comprehensive Income |
4 | |
| 5 | ||
| 6 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risks |
33 | |
| Item 4. Controls and Procedures |
33 | |
| Item 1. Legal Proceedings |
35 | |
| Item 6. Exhibits and Reports on Form 8-K |
37 | |
| 38 | ||
-2-
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except par value)
(unaudited)
| June 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and equivalents |
$ | 221,118 | $ | 124,514 | ||||
| Accounts receivable |
316,582 | 304,507 | ||||||
| Other receivables |
61,100 | 47,738 | ||||||
| Prepaid expenses and other current assets |
17,507 | 18,451 | ||||||
| Inventories |
28,768 | 7,481 | ||||||
| Due from affiliates |
40,650 | 43,629 | ||||||
| Total current assets |
685,725 | 546,320 | ||||||
| Property and equipment, net |
362,391 | 356,125 | ||||||
| Service agreements, net |
232,541 | 239,108 | ||||||
| Deferred income taxes |
6,715 | 10,915 | ||||||
| Other assets |
21,820 | 22,551 | ||||||
| $ | 1,309,192 | $ | 1,175,019 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Current maturities of long-term indebtedness |
$ | 74,251 | $ | 79,748 | ||||
| Accounts payable |
201,146 | 160,628 | ||||||
| Due to affiliates |
88,299 | 64,052 | ||||||
| Accrued compensation cost |
20,965 | 26,316 | ||||||
| Income taxes payable |
39,911 | 19,810 | ||||||
| Other accrued liabilities |
42,027 | 41,847 | ||||||
| Total current liabilities |
466,599 | 392,401 | ||||||
| Deferred revenue |
7,290 | 5,349 | ||||||
| Long-term indebtedness |
183,908 | 188,412 | ||||||
| Total liabilities |
657,797 | 586,162 | ||||||
| Minority interest |
10,529 | 10,497 | ||||||
| Commitments and contingencies (Note 9) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred Stock, $.01 par value, 1,500 shares authorized, none issued and outstanding |
||||||||
| Series A Preferred Stock, $.01 par value, 500 shares authorized and reserved, none issued and outstanding |
||||||||
| Common Stock, $.01 par value, 250,000 shares authorized, 95,301 issued, 86,451 and 83,363 outstanding |
953 | 953 | ||||||
| Additional paid in capital |
478,113 | 473,800 | ||||||
| Common Stock to be issued, approximately 820 and 2,102 shares |
9,327 | 21,146 | ||||||
| Treasury Stock, 8,850 and 11,938 shares |
(77,021 | ) | (102,367 | ) | ||||
| Retained earnings |
229,494 | 184,828 | ||||||
| Total stockholders’ equity |
640,866 | 578,360 | ||||||
| $ | 1,309,192 | $ | 1,175,019 | |||||
The accompanying notes are an integral part of this statement.
-3-
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Product revenues |
$ | 355,454 | $ | 298,895 | $ | 687,929 | $ | 562,426 | ||||||||
| Service revenues |
209,789 | 192,517 | 402,310 | 376,196 | ||||||||||||
| Total revenues |
565,243 | 491,412 | 1,090,239 | 938,622 | ||||||||||||
| Cost of product |
332,783 | 277,153 | 639,549 | 520,461 | ||||||||||||
| Costs of services: |
||||||||||||||||
| Field compensation and benefits |
96,461 | 88,631 | 189,154 | 175,663 | ||||||||||||
| Other field costs |
55,216 | 56,872 | 112,017 | 108,011 | ||||||||||||
| Depreciation and amortization |
15,131 | 12,912 | 28,957 | 25,913 | ||||||||||||
| Total costs of services |
166,808 | 158,415 | 330,128 | 309,587 | ||||||||||||
| Total costs of product and services |
499,591 | 435,568 | 969,677 | 830,048 | ||||||||||||
| General and administrative expense |
16,616 | 16,365 | 29,300 | 31,941 | ||||||||||||
| Depreciation and amortization |
5,205 | 6,054 | 10,333 | 11,866 | ||||||||||||
| 521,412 | 457,987 | 1,009,310 | 873,855 | |||||||||||||
| Income from operations |
43,831 | 33,425 | 80,929 | 64,767 | ||||||||||||
| Other income (expense): |
||||||||||||||||
| Interest expense, net |
(4,541 | ) | (4,952 | ) | (8,923 | ) | (10,084 | ) | ||||||||
| Other income |
622 | — | 622 | — | ||||||||||||
| Income before income taxes |
39,912 | 28,473 | 72,628 | 54,683 | ||||||||||||
| Income tax provision |
(15,366 | ) | (10,820 | ) | (27,962 | ) | (20,780 | ) | ||||||||
| Net income and comprehensive income |
$ | 24,546 | $ | 17,653 | $ | 44,666 | $ | 33,903 | ||||||||
| Net income per share - basic |
$ | 0.28 | $ | 0.19 | $ | 0.52 | $ | 0.37 | ||||||||
| Shares used in per share computation – basic |
87,192 | 91,358 | 86,590 | 92,165 | ||||||||||||
| Net income per share – diluted |
$ | 0.27 | $ | 0.19 | $ | 0.50 | $ | 0.36 | ||||||||
| Shares used in per share computation –diluted |
90,674 | 93,017 | 89,975 | 93,825 | ||||||||||||
The accompanying notes are an integral part of this statement.
-4-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 44,666 | $ | 33,903 | ||||
| Non cash adjustments: |
||||||||
| Depreciation and amortization |
39,290 | 37,779 | ||||||
| Deferred income taxes |
4,200 | 12,222 | ||||||
| Undistributed earnings (losses) in joint ventures |
32 | (900 | ) | |||||
| Non cash compensation expense |
48 | 100 | ||||||
| Changes in operating assets and liabilities: |
41,870 | 33,468 | ||||||
| Net cash provided by operating activities |
130,106 | 116,572 | ||||||
| Cash flows from investing activities: |
||||||||
| Acquisition of property and equipment |
(37,853 | ) | (39,452 | ) | ||||
| Net cash used by investing activities |
(37,853 | ) | (39,452 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Repayment of other indebtedness |
(10,001 | ) | (14,728 | ) | ||||
| Cash payment in lieu of stock issuance |
— | (710 | ) | |||||
| Proceeds from exercise of options |
18,599 | 895 | ||||||
| Purchase of Treasury Stock |
(4,247 | ) | (40,972 | ) | ||||
| Net cash provided (used) by financing activities |
4,351 | (55,515 | ) | |||||
| Increase in cash and equivalents |
96,604 | 21,605 | ||||||
| Cash and equivalents: |
||||||||
| Beginning of period |
124,514 | 75,029 | ||||||
| End of period |
$ | 221,118 | $ | 96,634 | ||||
| Interest paid |
$ | 9,775 | $ | 10,720 | ||||
| Taxes paid |
$ | 575 | $ | 8,755 | ||||
| Non cash transactions: |
||||||||
| Delivery of Common Stock in affiliation transactions |
$ | 6,585 | $ | 6,839 | ||||
The accompanying notes are an integral part of this statement
-5-
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 interi