-----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, L8ve6eonFaCETPEM1EKYqen3HZGrmEr67tmEGBP++KVWdJ2tWSbpHg4Dfgz3Rybp xvzvL8xuUN5gC44baI8QJA== 0001016872-98-000003.txt : 19980122 0001016872-98-000003.hdr.sgml : 19980122 ACCESSION NUMBER: 0001016872-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971129 FILED AS OF DATE: 19980113 DATE AS OF CHANGE: 19980121 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUBURBAN OSTOMY SUPPLY CO INC CENTRAL INDEX KEY: 0001016872 STANDARD INDUSTRIAL CLASSIFICATION: 5047 IRS NUMBER: 042675674 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28850 FILM NUMBER: 98509101 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 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 quarter ended November 29, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBURBAN OSTOMY SUPPLY CO., INC. 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 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 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 December 31, 1997 there were 10,538,622 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)
NOVEMBER 29, 1997 AUGUST 30, 1997 _________________ _______________ (unaudited) ASSETS Current Assets Cash and cash equivalents $ 2,202 $ 2,270 Accounts receivable, less allowances of $729 and $638 12,748 12,207 Merchandise inventory 8,140 6,611 Prepaid expenses and other current assets 518 332 Deferred income taxes 516 464 ______ ______ Total current assets 24,124 21,884 Fixed assets, net 1,883 1,651 Goodwill 19,166 17,312 Other long-term assets 139 277 ______ ______ Total assets $45,312 $41,124 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ -- $ 16 Accounts payable and accrued expenses 8,692 7,608 ______ ______ Total current liabilities 8,692 7,624 Long-term Liabilities: Long-term debt, less current portion -- 7 Bank line of credit 2,000 -- Deferred income taxes 35 21 _____ ______ 2,035 28 Stockholders' Equity: Common Stock, no par; 40,000,000 shares authorized; issued and outstanding - 10,538,622 and 10,538,503 shares 47,188 47,188 Accumulated deficit (12,603) (13,716) ______ ______ Total stockholders' equity 34,585 33,472 ______ ______ Total liabilities and stockholders' equity $45,312 $41,124 ====== ======
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 NOVEMBER 29, 1997 NOVEMBER 30, 1996 _________________ _________________ Net sales $27,490 $21,963 Cost of goods sold 19,853 16,845 ______ ______ Gross margin 7,637 5,118 Operating expenses 5,160 2,797 Depreciation and amortization 359 213 ______ ______ Operating income 2,118 2,108 Interest income 50 73 Interest expense (64) (415) Other (expense) income (22) (26) ______ ______ Income before income taxes 2,082 1,740 Provision for income taxes 969 769 ______ ______ Net income 1,113 971 Accretion of Preferred Stock -- 101 Net income applicable to common ______ ______ stockholders $ 1,113 $ 870 ====== ====== Net income per share $ 0.10 ====== Weighted average common shares outstanding 11,189 __________________________________ Supplemental Pro Forma (see Note 2): Net income n/a $ 1,231 ====== Net income per share n/a $.11 ==== Weighted average common shares outstanding 10,919
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)
THREE MONTHS ENDED NOVEMBER 29, NOVEMBER 30, 1997 1996 ____________ ___________ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,113 $ 971 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 359 213 Changes in assets and liabilities, net of effects from acquisition of Care Management Accounts receivable 647 841 Merchandise inventory (850) (266) Prepaid expenses and other (108) 170 Accounts payable and accrued expenses 134 (390) _____ _____ Net cash from operating activities 1,295 1,539 CASH FLOWS (USED BY) FROM INVESTING ACTIVITIES: Purchase of fixed assets (133) (13) Purchase of Care Management, net of cash acquired (3,134) -- Other assets and goodwill (73) 49 ______ _____ Net cash used by investing activities (3,340) 36 CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowing under line of credit 2,000 -- Issuance of common stock, net of issuance costs -- 46,016 Retirement of preferred stock -- (7,538) Repayments of long-term bank debt, net (23) (24,449) Repayments of subordinated debt -- (10,485) ______ ______ Net cash from financing activities 1,977 3,544 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (68) 5,119 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,270 1,995 ______ ______ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,202 $ 7,114 ====== ======
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 prin- ciples for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the fi- nancial statements, primarily consisting of normal recurring adjustments, have been included. Operating results for the three months ended November 29, 1997 are not necessarily indicative of the results that may be ex- pected for the year ending August 29, 1998 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. Certain reclassifications have been made to the 1997 consolidated financial statements to conform to the 1998 presentation. (2) SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE Supplemental pro forma net income per share for the three months ended November 30, 1996 has 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. QUARTER ENDED NOVEMBER 30, 1996 (in thousands, except per share amounts) _________________ Historical income before taxes $1,740 Provision for income taxes (769) Reversal of interest charges and amorti- zation of deferred financing costs relating to debt treated as being repaid, net of tax 260 _____ Supplemental pro forma net income $1,231 ====== Supplemental pro forma net income per share $ .11 ====== Supplemental pro forma weighted average shares outstanding 10,919 5 SUBURBAN OSTOMY SUPPLY COMPANY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 adopt- ed, the statement will require restatement of prior years' earnings per share. The Company will adopt this statement for its quarter ended Feb- ruary 28, 1998. Assuming that SFAS 128 had been implemented, basic earnings per share would have been $0.11 and $0.12 for the three month periods ended November 29, 1997 and November 30, 1996, respectively. Under this Statement, diluted earnings per share would not have differed from the net income per share disclosed on the income statement. (4) ACQUISITION OF CARE MANAGEMENT On October 10, 1997, Suburban Ostomy acquired all the outstanding capital stock of Care Management, a medical supply management company, for an aggregate consideration of approximately $3.1 million in cash. The cost of the acquisition exceeded the estimated fair market value of the net assets acquired by approximately $1.9 million, which has been included on the Consolidated Balance Sheet under goodwill. The Company has accounted for the transaction as a purchase and the Consolidated Income Statement includes Care Management's results from October 10, 1997 through November 29, 1997. (5) SUBSEQUENT EVENT On December 17, 1997, Invacare of Ohio announced a tender offer for all the outstanding common stock of Suburban Ostomy. The offer of $11.75 per common share has been agreed to by management and a majority of Company stockholders. The effective date of the purchase is expected to be January 31, 1998, at which time Suburban Ostomy will become a wholly owned subsidiary of Invacare. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ACQUISITION On October 10, 1997, Suburban Ostomy acquired all of the outstanding stock of Care Management for approximately $3.1 million in cash. The trans- action was accounted for as a purchase, and the consolidated income statements include the results of Care Management's operations from October 10, 1997 (See Note 4). RESULTS OF OPERATIONS Quarter ended November 29, 1997 versus November 30, 1996 Net sales increased by $5.5 million, or 25%, to $27.5 million for the quarter ended November 29, 1997 versus $22.0 million for the prior year period due primarily to incremental volume from Peiser's (acquired on May 1, 1997) and Care Management. The number of customer orders filled increased 35,640 to approximately 161,140 orders for the quarter ended November 29, 1997 versus approximately 125,500 for the prior year period. The average order size decreased to $176 for the quarter ended November 29, 1997 versus $180 for the prior year period due primarily to the addition of Peiser's patient-specific home health agency business which has a smaller average order size than Suburban Ostomy's business. Gross margin increased by $2.5 million, or 49%, to $7.6 million for the quarter ended November 29, 1997 versus $5.1 million for the prior year period. Gross margin increased to 27.8% versus 23.3% for the prior year period. The increase in gross margin was due primarily to the additional volume from Peiser's and Care Management. The increase in gross margin as a percentage of sales was due primarily to Peiser's home health agency business, which has higher gross margins than Suburban's historical business. Operating expenses increased by $2.4 million, or 84%, to $5.2 million for the quarter ended November 29, 1997 versus $2.8 million for the prior year period, and as a percentage of net sales, increased to 18.8% versus 12.7% for the prior period. The increase in operating expenses as a percentage of net sales was due primarily to the the recent acquisitions of Peiser's and Care Management, which have traditionally had higher operating costs. Depreciation and amortization expense increased by $146,000, or 68.5%, to $359,000 for the quarter ended November 29, 1997 versus $213,000 for the prior year period due primarily to an increase in the amortization of goodwill associated with acquisitions. Operating income remained constant at $2.1 million for the quarters ended November 29, 1997 and November 30, 1996. However, as a percentage of net sales, operating income decreased to 8% for the quarter ended November 29, 1997 versus 10% for the prior year period due primarily to the higher operating costs at the two recent acquisitions. 7 Interest expense decreased by $351,000, or 85%, to $64,000 for the quarter ended November 29, 1997 versus $415,000 for the prior year period due primarily to the repayment of substantially all long-term debt from the proceeds of the initial public offering in October 1996. The provision for income taxes was $969,000, an effective tax rate of 46.5% of pre-tax income, for the quarter ended November 29, 1997 versus $769,000, or an effective tax rate of 44.2%, for the quarter ended November 30, 1996. The increase is due primarily to higher state tax liabilities. LIQUIDITY AND CAPITAL RESOURCES Borrowing capacity under the Company's Credit Facility (the "Credit Facility") is $30 million, and borrowings bear interest at either its lender's Base Rate or LIBOR plus an applicable margin, depending on the Company's earnings. The outstanding borrowings under the Credit Facility are secured by substantially all of the assets of the Company, including a pledge of all of the capital stock of its subsidiaries. The Credit Facility contains covenants which require the Company to maintain certain financial ratios and impose certain limitations and prohibitions on the Company with respect to: (i) incurring additional indebtedness; (ii) the creation of security interests on the assets of the Company; and (iii) the payment of cash dividends on the Common Stock. At November 29, 1997, the Company was in compliance with such covenants. The Company borrowed $3 million on October 10, 1997 for the purpose of acquiring Care Management (see Note 4). There was $2 million outstanding under the Credit Facility at November 29, 1997. The Company's long-term liquidity needs consist of working capital and capital required to fund future acquisitions. The Company believes that its cash flow from operations and its Credit Facility will be sufficient to fund its operations and possible acquisitions through fiscal 1998. Forward-looking statements in this report, including without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1996. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including without limitation the following: (i) the Company's plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company; (ii) the Compnay's plans and results of operations will be affected by the Company's ability to manage its growth; and (iii) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission. SUBSEQUENT EVENT On December 17, 1997, Invacare of Ohio announced a tender offer for all the outstanding common stock of Suburban Ostomy. The offer of $11.75 per share has been agreed to by management and a majority of stockholders. The effective date of the purchase is expected to be January 31, 1998, at which time Suburban Ostomy would become a wholly-owned subsidiary of Invacare (see Note 5). 8 PART II ITEM 1. LEGAL PROCEEDINGS The Company is party to certain claims and litigation in the ordinary course of business. The Company is not involved in any legal proceed- ing that it believes will result, individually or in the aggregate, in a material adverse effect on its financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES - None ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None 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 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. January 9, 1998 /s/ Donald H. Benovitz By:________________________________ Donald H. Benovitz President and Director January 9, 1998 /s/ Stephen N. Aschettino By:________________________________ Stephen N. Aschettino Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 9 EX-27 2
5 SUBURBAN OSTOMY SUPPLY CO FINANCIAL DATA SCHEDULE FOR QUARTER ENDED NOVEMBER 29, 1997 1,000 3-MOS AUG-29-1998 NOV-29-1997 2,202 0 13,477 729 8,140 24,124 3,355 1,472 45,312 8,692 0 0 0 47,188 0 45,312 27,490 27,490 19,853 5,519 22 0 14 2,082 969 1,113 0 0 0 1,113 .10 .10
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