-----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, RI/EyZjf8nS8U9Wt3L07ecfY89ztBGCXyYeDaKMEFAFCpJi4pphtcuUNWj6fuF6K jyEj4QNquZJY+T9/Jxj0rg== 0000950109-97-002960.txt : 19970416 0000950109-97-002960.hdr.sgml : 19970416 ACCESSION NUMBER: 0000950109-97-002960 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970301 FILED AS OF DATE: 19970415 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUBURBAN OSTOMY SUPPLY CO INC CENTRAL INDEX KEY: 0001016872 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 042675674 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28850 FILM NUMBER: 97580517 BUSINESS ADDRESS: STREET 1: 75 OCTOBER HILL RD CITY: HOLLISTON STATE: MA ZIP: 01746 BUSINESS PHONE: 5084291000 MAIL ADDRESS: STREET 1: 75 OCTONBER HILL RD CITY: HOLLISTON STATE: MA ZIP: 01746 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 1, 1997. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBURBAN OSTOMY SUPPLY CO., INC. (Exact name of registrant as specified in its charter)
MASSACHUSETTS 5047 04-2675674 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
75 OCTOBER HILL ROAD HOLLISTON, MA 01746 (508) 429-1000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12 (g) of the Act: Title of each class Name of each exchange on which registered Common Stock, no par value per share NASDAQ 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 and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-Q or any amendment to this Form 10-Q. [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the last practical date. As of March 1, 1997 there were 10,417,135 shares of the Registrant's Common Stock outstanding. PART I ITEM 1. FINANCIAL STATEMENTS SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
MARCH 1, 1997 AUGUST 31, 1996 --------------------------------- ASSETS (unaudited) Current Assets Cash and cash equivalents $ 7,177 $ 1,995 Accounts receivable, less allowances of $479 and $416 8,146 8,625 Merchandise inventory 7,804 6,918 Prepaid expenses and other current assets 389 667 Deferred income taxes 348 474 -------- -------- Total current assets 23,864 18,679 Fixed assets, net 990 1,113 Goodwill 12,909 13,039 Other long-term assets 316 298 -------- -------- Total assets $ 38,079 $ 33,129 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt $ 431 $ 582 Accounts payable and accrued expenses 6,925 7,713 Accrued interest -- 381 Income taxes payable 474 175 -------- -------- Total current liabilities 7,830 8,851 -------- -------- Long-term Liabilities: Long-term debt, less current maturities 11 24,455 Subordinated debt to related parties -- 6,750 Notes payable to officers -- 2,500 St. Louis Note payable, less current portion -- 1,112 Deferred income taxes 71 71 -------- -------- Total long-term liabilities 82 34,888 -------- -------- Redeemable Preferred Stock: $.01 par value, $100 redemption value plus 10% cumulative return--Authorized - 1,000,000 shares, Issued and outstanding--0 shares at 03/01/97 and 66,500 shares at 8/31/96 -- 7,437 Stockholders' Equity (Deficit:) Common Stock, no par value Authorized - 40,000,000 shares; issued and outstanding - 10,416,350 and 6,223,250 shares 46,180 162 Accumulated deficit (16,013) (18,209) -------- -------- Total stockholders' equity (deficit) 30,167 (18,047) Total liabilities and stockholders' equity (deficit) $ 38,079 $ 33,129 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 2 SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- ----------------------------- MARCH 1,1997 MARCH 2, 1996 MARCH 1, 1997 MARCH 2, 1996 Net sales $22,806 $16,457 $44,769 $29,988 Cost of goods sold 17,353 12,589 34,197 22,785 ------- ------- ------- ------- Gross margin 5,453 3,868 10,572 7,203 Operating expenses 2,910 1,977 5,707 3,614 Depreciation and amortization 219 92 432 147 Operating income 2,324 1,799 4,433 3,442 Interest income 112 40 185 92 Interest expense 10 603 425 1,120 Other expense 73 50 100 115 Income before income taxes 2,353 1,186 4,093 2,299 Provision for income taxes 1,028 496 1,797 951 Net income 1,325 690 2,296 1,348 Accretion of Preferred Stock -- 167 101 333 Net income applicable to common ------- ------- ------- ------- stockholders $ 1,325 $ 523 $ 2,195 $ 1,015 ======= ======= ======= ======= Supplemental Pro Forma ------- ------- ------- ------- Net income $ 1,325 $ 1,057 $ 2,556 $ 2,031 ======= ======= ======= ======= ---- ---- ---- ---- Net income per share $.12 $.10 $.23 $.19 ==== ==== ==== ==== Weighted average common shares ------- ------- ------- ------- outstanding 11,079 10,785 10,999 10,785 ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 3 SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (unaudited)
SIX MONTHS ENDED SIX MONTHS ENDED MARCH 1, 1997 MARCH 2, 1996 ---------------- ---------------- CASH FLOWS USED BY OPERATING ACTIVITIES: Net income $ 2,296 $ 1,348 Adjustments to reconcile net income to cash from (used by) operating activities: Depreciation and amortization 432 147 Net loss (gain) on sale of fixed assets 4 134 Change in assets and liabilities, net of effects from acquisition of St. Louis Ostomy in 1996 Accounts receivable 479 (890) Merchandise inventory (886) (941) Prepaid expenses and other 278 (36) Deferred income taxes 126 -- Accounts payable and accrued expenses (870) 303 Other Assets -- 314 -------- -------- Net cash from (used by) operating activities 1,859 (969) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (39) (60) Purchase of St. Louis Ostomy -- (10,709) Other assets and Goodwill (162) -- -------- -------- Net cash from investing activities (201) (10,769) CASH FLOWS FROM (USED BY) FINANCING ACTIVITIES: Issuance of common stock, net of issuance costs 46,018 6 Retirement of preferred stock (7,537) -- Repayments of long-term bank debt, net (24,472) 7,850 Repayments of subordinated debt (10,485) -- Capital contribution -- 98 -------- -------- Net cash from (used by) financing activities 3,524 7,954 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,182 (2,436) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,995 3,970 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,177 $ 1,534 -------- --------
The accompanying notes are an integral part of these consolidated financial statements. 4 SUBURBAN OSTOMY SUPPLY COMPANY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited consolidated 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 the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Operating results for the six months ended March 1, 1997 are not necessarily indicative of the results that may be expected for the year ending August 30, 1997 or any other interim period. These statements should be read in conjunction with the consolidated financial statements, notes and other information included in the Company's latest Form 10-K. (2) SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE Supplemental pro forma net income per share for the three and six month periods ended March 1, 1997 and March 2, 1996 have been calculated, as if as of September 3, 1995, the Company had sold the 3.9 million shares of Common Stock sufficient to fund the July 3, 1995 Recapitalization and repay indebtedness incurred to finance two acquisitions. The weighted average number of shares is the actual weighted average number of shares of Common Stock or equivalents thereof outstanding plus the 3.9 million shares of Common Stock that were sold in connection with the public offering, assuming issuance occurred on September 3, 1995. For the period subsequent to October 15, 1996, weighted average shares reflect actual weighted average shares computed consistent with the treasury stock method.
(in 000's, except per share amounts) THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- MARCH 1, MARCH 2, MARCH 1, MARCH 2, 1997 1996 1997 1996 ------- ------- ------- ------- Historical income before taxes $ 2,353 $ 1,186 $ 4,093 $ 2,299 Provision for income taxes (1,028) (496) (1,797) (951) Reversal of interest charges and amortization of deferred financing costs relating to debt treated as being repaid, net of tax -- 367 260 683 ------- ------- ------- ------- Supplemental pro forma net income $ 1,325 $ 1,057 $ 2,556 $ 2,031 ======= ======= ======= ======= Supplemental pro forma net income per share $ .12 $ .10 $ .23 $ .19 ======= ======= ======= ======= Supplemental pro forma weighted average shares outstanding 11,079 10,785 10,999 10,785 ------- ------- ------- -------
5 (3) RECENT ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). This Statement establishes standards for computing and presenting earnings per share and applies to entities with publicly traded common stock or potential common stock. SFAS 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997 and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share. The Company will adopt this statement for its quarter ended February 28, 1998. Assuming that SFAS 128 had been implemented, basic earnings per share would have been $0.13 and $0.10 for the three month periods ended March 1, 1997 and March 2, 1996, respectively and $0.25 and $0.20 for the six month periods ended March 1, 1997 and March 2, 1996, respectively. Under this Statement, diluted earnings per share would not have differed from the net income per share disclosed on the income statement. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 1, 1997 (13 WEEKS) VERSUS THREE MONTHS ENDED MARCH 2, 1996 (13 WEEKS) Net sales increased by $6.3 million, or 39%, to $22.8 million for the quarter ended March 1, 1997 from $16.5 million for the prior year period. The number of customer orders filled increased 30% to approximately 128,300 orders for the quarter ended March 1, 1997 versus approximately 98,900 for the prior year period. Same store growth in gross sales was approximately 10% and was primarily attributable to increased volume from national home health care chains and managed care organizations. The average order size increased to $182 for the quarter ended March 1, 1997 versus $171 for the same period ended March 2, 1996. Gross margin increased by $1.6 million, or 41%, to $5.5 million for the quarter ended March 1, 1997 from $3.9 million for the prior year period. Gross margin increased to 23.9% versus 23.5% over the same period. The increase in gross margin was primarily attributable to increased prices of products sold by the Company's acquisitions to attain consistent pricing company wide. Operating expenses increased by $0.9 million, or 47%, to $2.9 million for the quarter ended March 1, 1997 versus $2.0 million for the prior year period, and as a percentage of net sales, increased to 13% versus 12% for the prior year period. The increase in operating expenses as a percentage of net sales was primarily attributable to increased costs due to a change in shipping policy. Depreciation and amortization expense increased by $127,000, or 138%, to $219,000 for the quarter ended March 1, 1997 versus $92,000 for the prior year period due to the amortization of goodwill associated with previous acquisitions. Operating income increased by $525,000, or 29%, to $2.3 million for the quarter ended March 1, 1997 versus $1.8 million for the prior year period. Operating income decreased as a percentage of net sales to 10% for the quarter ended March 1, 1997 from 11% for the prior year period. The decrease in operating income as a percentage of net sales was primarily attributable to increased operating expenses and the amortization of goodwill. Interest expense decreased by $593,000, or 98.3%, to $10,000 for the quarter ended March 1, 1997 versus $603,000 for the prior year period. Interest expense also decreased as a percentage of net sales for the quarter ended March 1, 1997. This decrease in interest expense was primarily due to the repayment of substantially all long-term debt with the net proceeds of the public offering in October 1996. Provision for income taxes was $1,028,000, an effective tax rate of 44% of pre-tax income, for the quarter ended March 1, 1997 versus $496,000, or an effective tax rate of 42%, for the quarter ended March 2, 1996, primarily due to non-deductible goodwill amortization. SIX MONTHS ENDED MARCH 1, 1997 (26 WEEKS) VERSUS SIX MONTHS ENDED MARCH 2, 1996 (26 WEEKS) Net sales increased by $14.8 million, or 49%, to $44.8 million for the six months ended March 1, 1997 from $30.0 million for the prior year period. The number of customer orders filled increased 41% to approximately 253,800 orders for the six months ended March 1, 1997 versus approximately 179,000 for the prior year period. Same store growth in net sales was approximately 10% and was primarily attributable to increased volume from national home health care chains and managed care organizations. The average order size increased to $181 for the six months ended March 1, 1997 versus $172 for the same period ended March 2, 1996. Gross margin increased by $3.4 million, or 47%, to $10.6 million for the six months ended March 1, 1997 from $7.2 million for the prior year period. Gross margin decreased to 23.6% versus 24.0% over the same period. The decrease in gross margin was primarily attributable to competitive pricing of products sold by the Company to maintain or increase market share, particularly with respect to volume based pricing incentives and in the acquisitioned business. 7 Operating expenses increased by $2.1 million, or 58%, to $5.7 million for the six months ended March 1, 1997 versus $3.6 million for the prior year period, and as a percentage of net sales, increased to 13% versus 12% for the prior year period. The increase in operating expenses was due to the support required for higher sales volume. The increase in operating expenses as a percentage of net sales was primarily attributable to increased costs due to a change in shipping policy. Depreciation and amortization expense increased by $285,000, or 194%, to $432,000 for the six months ended March 1, 1997 versus $147,000 for the prior year period due to the amortization of goodwill associated with previous acquisitions. Operating income increased by $1.0 million, or 29%, to $4.4 million for the six months ended March 1, 1997 versus $3.4 million for the prior year period. Operating income decreased as a percentage of net sales to 10% for the six months ended March 1, 1997 from 11% for the prior year period. The decrease in operating income as a percentage of net sales was primarily attributable to decreased gross margin and the amortization of goodwill. Interest expense decreased by $695,000, or 62%, to $425,000 for the six months ended March 1, 1997 versus $1,120,000 for the prior year period. Interest expense decreased as a percentage of net sales to 1% for the six months ended March 1, 1997 versus 4% for the prior year period. This decrease in interest expense as a percentage of net sales was primarily due to the repayment of substantially all long-term debt with the net proceeds of the public offering in October 1996. Provision for income taxes was $1.8 million, an effective tax rate of 44% of pre-tax income, for the six months ended March 1, 1997 versus $951,000, or an effective tax rate of 41%, for the six months ended March 2, 1996, primarily due to non-deductible goodwill amortization. LIQUIDITY AND CAPITAL RESOURCES Until its recent public offering, the Company financed its operations primarily through cash flow from operations and from bank borrowings secured by Company assets. In October 1996 the Company completed an initial public offering of shares of its common stock. Pursuant to the offering the Company sold 4,192,500 shares of its common stock, raising proceeds of approximately $46,000,000 net of approximately $773,000 in offering costs. The Company used $42,472,000 of the proceeds to pay down virtually all of its long term debt and redeem all of the Company's preferred stock. The remaining proceeds, along with cash from operations, is currently being invested in short-term investments. The above contains forward-looking statements that are subject to risks and uncertainties inherent in the Company's business. The Company's actual results could differ materially from those anticipated in those forward-looking statements as a result of certain factors, including those set forth in documents filed with the Securities and Exchange Commission including the prospectus dated October 9, 1996, related to the Company's recently completed initial public offering, and the recently filed Form 10-K. 8 PART II ITEM 1. LEGAL PROCEEDINGS LEGAL MATTERS The Company is party to certain claims and litigation in the ordinary course of business. The Company is not involved in any legal proceeding that it believes will result, individually or in the aggregate, in a material adverse effect on its financial condition or results of operations. The Company has filed suit in St. Louis, Missouri against former employees of St. Louis Ostomy Distributors ("St. Louis Ostomy"), a wholly-owned subsidiary of the Company, alleging misappropriation of St. Louis Ostomy's proprietary and confidential information. The Company is seeking equitable relief and damages. Discovery has recently begun in the litigation and, thus, no evaluation of the likely outcome of such litigation can be made at this time. ITEM 2. CHANGES IN SECURITIES - None ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Special Meeting in lieu of Annual Meeting of Stockholders held on February 19, 1997, the following matters were submitted to a vote of the Stockholders: (i) the election of Joseph F. Trustey as Director for a three year term and (ii) an amendment to the Company's Bylaws changing the date on which the Annual Meeting of Stockholders of the Company will be held each year to the second Wednesday in February. ITEM 5. OTHER INFORMATION - None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None. 9 SIGNATURES Pursuant to the requirements of the section 13 or 15(d) 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. April 14, 1997 /s/ Donald H. Benovitz By:________________________________________________________ Donald H. Benovitz President and Director April 14, 1997 /s/ Stephen N. Aschettino By:_________________________________________________________ Stephen N. Aschettino Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS AUG-30-1997 MAR-01-1997 7,177 0 8,625 479 7,804 23,864 2,069 1,079 38,079 7,830 0 0 0 46,180 (16,013) 38,079 44,769 44,769 34,197 5,707 432 0 240 4,093 1,797 0 0 0 0 2,269 .23 .23
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