-----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, Jci4MTIeLm7nNcHBHCB9qVUBwiAwrKbzrTSvNv0S5c9Hyj/dpZVPLrW63jeYYlWP l809zOQxkun4vcz5hvA5gA== 0000904456-97-000106.txt : 19970616 0000904456-97-000106.hdr.sgml : 19970616 ACCESSION NUMBER: 0000904456-97-000106 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970401 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970613 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANGER ORTHOPEDIC GROUP INC CENTRAL INDEX KEY: 0000722723 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 840904275 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10670 FILM NUMBER: 97623554 BUSINESS ADDRESS: STREET 1: 7700 OLD GEORGETOWN RD 2ND FL CITY: BETHESDA STATE: MD ZIP: 20814 BUSINESS PHONE: 3019860701 MAIL ADDRESS: STREET 2: 7700 OLD GEORGETOWN RD 2ND FL CITY: BETHESDA STATE: MD ZIP: 20814 FORMER COMPANY: FORMER CONFORMED NAME: SEQUEL CORP DATE OF NAME CHANGE: 19890814 FORMER COMPANY: FORMER CONFORMED NAME: CELLTECH COMMUNICATIONS INC DATE OF NAME CHANGE: 19860304 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 8-K/A No. 1 CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities and Exchange Act of 1934 Amendment No. 1 to Form 8-K filed on April 15, 1997 (Date of earliest event reported was April 1, 1997) HANGER ORTHOPEDIC GROUP, INC. ------------------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 1-10670 84-0904275 ---------------------------- ------------ -------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification Number) 7700 Old Georgetown Road, Bethesda, Maryland 20814 ------------------------------------------------------------------ (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (301) 986-0701 The undersigned registrant hereby amends the following items of its Current Report on Form 8-K filed on April 15, 1997, as set forth in the pages attached hereto: Items 7(a) and 7(b) - Historical Financial Statements and Pro Forma Financial Information Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. HANGER ORTHOPEDIC GROUP, INC. Date: June 13, 1997 By:/s/RICHARD A. STEIN ------------------- Richard A. Stein Vice President-Finance, Secretary and Treasurer The Current Report of Hanger Orthopedic Group, Inc. (the "Company"), filed on April 15, 1997, reported the acquisition by the Company on April 1, 1997 of substantially all of the orthotic and prosthetic assets of ACOR Orthopaedic, Inc. ("Acor"), a company primarily engaged in providing orthotic and prosthetic patient care services in the central Ohio area and headquartered in Cleveland, Ohio. Items 7(a) and 7(b) of the report stated that the historical financial statements of ACOR required under Rule 3-05 of Regulation S-X and the pro forma financial information required under Article 11 of Regulation S-X would be filed no later than 60 days after the date by which the Form 8-K was required to be filed. The purpose of this amendment is to file such financial statements and information. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The following lists the historical financial statements of ACOR attached hereto:
Page ---- Report of Independent Accountants. . . . . . . . . . . . . . 3 Balance Sheets as of December 31, 1996 and 1995. . . . . . . 4 Statements of Income for the years ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 5 Statements of Changes in Divisional Equity for the years ended December 31, 1996 and 1995 . . . . . . . . 6 Statements of Cash Flows for the years ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 7 Notes to financial statements. . . . . . . . . . . . . . . . 8 (b) PRO FORMA FINANCIAL INFORMATION.
The following lists the pro forma financial information attached hereto:
Page ---- Pro forma balance sheets dated March 31, 1997, and December 31, 1996. . . . . . . . . . . . . . . . . . . 13 Pro forma statements of operations for the three months ended March 31, 1997 and the year ended December 31, 1996. . . . . . . . . . . . . . . . . . . . . 15
2 ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION REPORT ON AUDITS OF FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 [LOGO: ] | COOPERS & LYBRAND [Coopers & Lybrand] | | a professional services firm REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of ACOR Orthopaedic, Inc. - Retail Division: We have audited the accompanying balance sheets of ACOR Orthopaedic, Inc. - Retail Division as of December 31, 1996 and 1995 and the related statements of income, changes in divisional equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ACOR Orthopaedic, Inc. - Retail Division as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/COOPERS & LYBRAND 2400 Eleven Penn Center Philadelphia, Pennsylvania April 18, 1997 3 Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a limited liability association incorporated in Switzerland. ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS
1996 1995 ---- ---- Current assets: Cash and cash equivalents $ 153,393 $ 586,219 Accounts receivable, net of allowance for doubtful accounts of $28,000 and $32,000, respectively 852,716 737,857 Inventories 641,139 588,067 Prepaid expenses 13,500 9,972 ---------- ---------- 1,660,748 1,922,115 ---------- ---------- Total current assets Property, plant and equipment: Machinery and equipment 74,004 73,334 Leasehold improvements 56,783 52,197 Furniture and fixtures 42,909 40,267 ---------- ---------- 173,696 165,798 Less: accumulated depreciation 96,594 84,328 ---------- ---------- Net property, plant and equipment 77,102 81,470 Deposits 1,500 924 ---------- ---------- Total assets $1,739,350 $2,004,509 ========== ========== LIABILITIES AND DIVISIONAL EQUITY Current liabilities: Accounts payable 160,265 160,630 Accrued payroll and other 54,715 38,664 Related party payable 37,000 83,000 ---------- ---------- Total current liabilities 251,980 282,294 Commitments and contingent liabilities Divisional equity 1,487,370 1,722,215 ---------- ---------- Total liabilities and divisional equity $1,739,350 $2,004,509 ========== ==========
The accompanying notes are an integral part of these financial statements 4 ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ---- ---- Net sales $5,231,514 $4,754,460 Cost of goods sold 1,758,246 1,624,301 ---------- ---------- Gross profit 3,473,268 3,130,159 ---------- ---------- Operating expenses: Salaries and related expenses 1,637,517 1,611,946 Selling, general and administrative 564,349 539,109 ---------- ---------- Total operating expenses 2,201,866 2,151,055 ---------- ---------- Net income $1,271,402 $ 979,104 ========== ==========
The accompanying notes are an integral part of these financial statements 5 ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION STATEMENTS OF CHANGES IN DIVISIONAL EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 Balance at December 31, 1994 $ 1,347,303 Net income 979,104 ------------ Cash distributions to owners (604,192) Balance at December 31, 1995 1,722,215 Net income 1,271,402 Cash distributions to owners (1,506,247) ------------ Balance at December 31, 1996 $ 1,487,370 ============
The accompanying notes are an integral part of these financial statements 6 ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ---- ---- Cash flows from operating activities: Net income $ 1,271,402 $ 979,104 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 12,266 15,347 Provision (recovery) for bad debt (4,000) 10,000 Changes in assets and liabilities: Accounts receivable (110,859) (25,207) Inventories (53,072) (35,167) Other assets (4,104) (2,396) Accounts payable and accrued expenses 15,686 90,062 Related party payable (46,000) 23,000 ------------ ------------ Net cash provided by operating activities 1,081,319 1,054,743 ------------ ------------ Cash flows from investing activities: Capital expenditures (7,898) (1,817) ------------ ------------ Net cash used in investing activities (7,898) (1,817) ------------ ------------ Cash flows from financing activities: Cash distributions to owners (1,506,247) (604,192) ------------ ------------ Net cash used in financing activities (1,506,247) (604,192) ------------ ------------ Net change in cash and cash equivalents (432,826) 448,734 ------------ ------------ Cash and cash equivalents, beginning of year 586,219 137,485 ------------ ------------ Cash and cash equivalents, end of year $ 153,393 $ 586,219 ------------ ------------
The accompanying notes are an integral part of these financial statements 7 ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION NOTES TO FINANCIAL STATEMENTS 1. BACKGROUND: ACOR Orthopaedic, Inc. - Retail Division (the "Company") is one of the leading retailers of orthopedic and prosthetic products in Cleveland, Ohio. Each of the three retail locations provide various products including orthopedic braces, orthotics, prosthetics, custom footwear and durable medical equipment. The Company is an operating division of ACOR Orthopaedic, Inc. (the "Corporation") and is not a separate legal entity. The financial statements for the Company as of December 31, 1996 and 1995 and for the years then ended have been prepared from books and records maintained by the Corporation. These financial statements reflect the financial position and results of operations of the Company at their historical bases, including allocations of certain costs by the Corporation. The Company's cash balance was determined using cash flow contributions less distributions. Certain income statement amounts were determined using estimates based on factors such as square footage utilized by the Company as compared to total square footage and divisional sales. These allocated costs, while reasonable under the circumstances, may not represent the cost of similar activities on a separate entity basis. The accounts and transactions between the divisions have been disclosed as related party transactions. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash and cash equivalents. Cash includes currency on hand and demand deposits with high quality institutions. At various times throughout the year, the Company maintains cash balances in excess of FDIC limits. FAIR VALUE OF FINANCIAL INSTRUMENTS: At December 31, 1996 and 1995, the carrying value of financial instruments such as cash and cash equivalents, trade receivables and trade payables approximates fair value. 8 NOTES TO FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: INVENTORIES: Inventories are stated at the lower of cost or market and consists predominantly of finished goods available for sale. Cost is determined on the average cost method. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at cost and are depreciated by either the straight-line or double-declining balance method over their estimated useful lives. Costs of major additions and betterments are capitalized; maintenance and repairs which do not improve or extend the life of respective assets are charged to operations as incurred. When an asset is sold or otherwise disposed of, the cost of the property and the related accumulated depreciation are removed from the respective accounts, and any resulting gains or losses are reflected in income. LONG-LIVED ASSET IMPAIRMENT: Effective January 1, 1996, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The provisions of SFAS 121 require the Company to review its long-lived assets for impairment on an exception basis whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through future cash flows. If it is determined that an impairment loss has occurred based on expected cash flows, then the loss is recognized in the income statement. The adoption of SFAS 121 did not have an effect on the Company's financial statements. REVENUE RECOGNITION: Revenue on the sale of orthotic and prosthetic devices is recorded when the device is accepted by the patient. CREDIT RISK: The Company primarily provides customized devices or services throughout the north-central region of Ohio and is reimbursed by the patients' third-party insurers or governmentally funded health insurance programs such as Medicaid, Medicare, and U.S. Veteran Administration. The accounts receivable are not collateralized. The ability of the Company's debtors to meet their obligations is dependent upon the financial stability of the insurers of the Company's customers and future legislation and regulatory actions. Additionally, the Company maintains reserves for potential losses. 9 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: INCOME TAXES: The Corporation elected to be taxed pursuant to Subchapter "S" of the Internal Revenue Code. Accordingly, federal and state income taxes or credits accrue directly to the shareholders. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 3. RELATED PARTY TRANSACTIONS: In the ordinary course of business, the Company purchases certain products from the Corporation's wholesale division. These purchases amounted to approximately $332,047 and $273,960 in 1996 and 1995, respectively. The Company's payable to the wholesale division at December 31, 1996 and 1995 was $37,000 and $83,000, respectively. Management believes these transactions were under terms no less favorable to the Company than those arranged with other parties. Two of the Company's locations are leased from a shareholder of the Corporation for a total of $9,300 per month. 4. COMMITMENTS AND CONTINGENCIES: The Company leases buildings at three retail locations and a corporate location as well as leases one automobile. The future minimum payments under lease commitments as of December 31, 1996 are as follows: 1997 $ 128,426 1998 131,247 1999 108,000 2000 108,000 2001 54,000 --------- $ 529,673 =========
The Company's total rental expense was approximately $163,000 in 1996 and $138,000 in 1995. 10 5. RETIREMENT PLAN: The Corporation has a 401(k) plan (the "Plan") which is offered to all employees with over one year of service. The Plan provides, at the discretion of management, an amount not to exceed 25% of the first 6% contributed by the eligible employees each year. The Company's matching contributions to the plan were approximately $12,000 and $16,000 for the years ended December 31, 1996 and 1995, respectively. 6. SUBSEQUENT EVENT: On April 1, 1997, the Corporation sold certain assets and liabilities of the Company for $5.2 million to Hanger Orthopedic Group, Inc. 11 HANGER ORTHOPEDIC GROUP, INC. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated statement of operations for the three months ended March 31, 1997 and the unaudited pro forma consolidated balance sheets as of March 31, 1997 and December 31, 1996 are based on the historical financial assets and assumption of certain liabilities of the retail division of ACOR Orthopaedic, Inc. ("ACOR"). The following unaudited pro forma consolidated statement of operations for the year ended December 31, 1996 is based on the historical financial statements of Hanger, adjusted to give the effect to the acquisitions of certain assets and assumption of certain liabilities of ACOR and J.E. Hanger, Inc. of Georgia ("JEH"), a company that was acquired on November 1, 1996. The unaudited pro forma consolidated statement of operations for the three months ended March 31, 1997 has been prepared assuming the ACOR acquisition occurred as of January 1, 1997. The unaudited pro forma consolidated statement of operations for th year ended December 31, 1996 has been prepared assuming the ACOR and JEH acquisitions occurred as of January 1, 1996. The unaudited pro forma consolidated balance sheets as of March 31, 1997 and December 31, 1996 have been prepared assuming that the ACOR acquisition occurred on March 31, 1997 and December 31, 1996, respectively. The acquisition and related adjustments are described in the notes thereto. The unaudited pro forma consolidated financial statements of operations do not purport to represent what the Company's results of operations would actually have been had the transactions in fact occurred on the aforementioned date, or to project the Company's results of operations for any future period. The consolidated pro forma financial information does not give effect to any matters other than those described in the notes thereto. 12 Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1997
Historical ----------------------------------- Hanger ACOR Acquisition Orthopedic Retail Pro Forma Group, Inc. (a) Division (a) Adjustments Pro Forma (d) ----------------- --------------- -------------- --------------- ASSETS Current Assets: Cash and cash equivalents $ 6,720,021 $ 431,563 ($3,931,563) (b)/(c) $ 3,220,021 Accounts receivable 24,528,348 870,027 25,398,375 Inventory 15,650,023 663,650 0 16,313,673 Prepaids and other assets 2,756,664 13,529 2,770,193 Deferred income taxes 3,159,280 0 3,159,280 -------------- ------------ ------------ -------------- Total Current Assets 52,814,336 1,978,769 (3,931,563) 50,861,542 -------------- ------------ ------------ -------------- Property, plant & equipment, net 17,287,656 83,322 0 17,370,978 Intangible assets, net 67,081,267 0 4,036,093 (c) 71,117,360 Other assets 975,083 1,264 976,347 -------------- ------------ ------------ -------------- Total Assets $ 138,158,342 $ 2,063,355 $ 104,530 $ 140,326,227 ============== ============ ============ ============== LIABILITIES Current Liabilities Current portion of long-term debt $ 6,052,939 $ 0 $ 888,461 (c) $ 6,941,400 Accounts payable 2,834,080 263,613 3,097,693 Accrued expenses and other 15,102,741 118,092 (65,750) (b) 15,155,083 -------------- ------------ ------------ -------------- Total Current Liabilities 23,989,760 381,705 822,711 25,194,176 -------------- ------------ ------------ -------------- Long-term debt 68,815,270 0 963,469 (c) 69,778,739 Deferred income taxes 2,377,627 0 2,377,627 Other liabilites 2,544,850 0 2,544,850 -------------- ------------ ------------ -------------- Total Liabilities 97,727,507 381,705 1,786,180 99,895,392 -------------- ------------ ------------ -------------- STOCKHOLDERS' EQUITY Common Stock 94,938 0 94,938 Additional paid in capital 41,087,021 0 41,087,021 Retained Earnings (Accumulated Deficit) (95,562) 1,681,650 (1,681,650) (b)/(c) (95,562) -------------- ------------ ------------ -------------- 41,086,397 1,681,650 (1,681,650) 41,086,397 -------------- ------------ ------------ -------------- Treasury Stock (655,562) 0 (655,562) -------------- ------------ ------------ -------------- Total Stockholders' Equity 40,430,835 1,681,650 (1,681,650) 40,430,835 -------------- ------------ ------------ -------------- Total Liabilities and Stockholder's Equity $138,158,342 $ 2,063,355 $ 104,530 $ 140,326,227 ============== ============ ============ ============== (a) Represents historical unaudited balance sheet data as of March 31, 1997. (b) The pro forma adjustments to cash ($431,563) and accrued expenses and other ($65,750) reflect the elimination of assets / liabilities not acquired / assumed in connection with the transaction. (c) To record the purchase price in connection with the transaction which comprises $3,500,000 in cash and the issuance of two promissory notes totalling $1,851,930, net of $12,270 discount. The addition of $4,036,093 to intangible assets includes a noncompe agreement valued at $50,000. Goodwill is to be amortized over a forty year period. (d) The unaudited pro forma amounts exclude potential future contingent consideration to be paid to former ACOR shareholders based on a prescribed formula. Contingent consideration is to be accounted for as additional purchase price consideration if and when it becomes probable.
13 Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1996
Historical ----------------------------------- Hanger ACOR Acquisition Orthopedic Retail Pro Forma Group, Inc. (a) Division (a) Adjustments Pro Forma (e) ----------------- --------------- -------------- --------------- ASSETS Current Assets: Cash and cash equivalents $ 6,572,402 $ 153,393 ($153,393)(b) $ 6,572,402 Accounts receivable 24,321,872 852,716 25,174,588 Inventory 15,916,638 641,139 0 16,557,777 Prepaids and other assets 1,595,169 13,500 1,608,669 Deferred income taxes 3,159,280 0 3,159,280 -------------- ------------ ------------ -------------- Total Current Assets 51,565,361 1,660,748 (153,393) 53,072,716 -------------- ------------ ------------ -------------- Property, plant & equipment, net 17,299,197 77,102 0 17,376,299 Intangible assets, net 65,151,423 0 5,803,762 (c)/(d) 70,955,185 Other assets 925,446 1,500 926,946 -------------- ------------ ------------ -------------- Total Assets $ 134,941,427 $ 1,739,350 $ 5,650,369 $ 142,331,146 ============== ============ ============ ============== LIABILITIES Current Liabilities Current portion of long-term debt $ 4,902,572 $ 0 $ 6,208,714 (c)/(d) $ 11,111,286 Accounts payable $ 4,141,993 $ 197,265 4,339,258 Accrued expenses and other 17,021,640 54,715 (34,444) (b) 17,041,911 -------------- ------------ ------------ -------------- Total Current Liabilities 26,066,205 251,980 6,174,270 32,492,455 -------------- ------------ ------------ -------------- Long-term debt 64,297,801 0 963,469 (c) 65,261,270 Deferred income taxes 2,377,627 0 2,377,627 Other liabilites 2,465,979 0 2,465,979 -------------- ------------ ------------ -------------- Total Liabilities 95,207,612 251,980 7,137,739 102,597,331 -------------- ------------ ------------ -------------- STOCKHOLDERS' EQUITY Common Stock 94,492 0 94,492 Additional paid in capital 41,008,363 0 41,008,363 Retained Earnings (Accumulated Deficit) (713,478) 1,487,370 (1,487,370) (b)/(c) (713,478) -------------- ------------ ------------ -------------- 40,389,377 1,487,370 (1,487,370) 40,389,377 -------------- ------------ ------------ -------------- Treasury Stock (655,562) 0 0 (655,562) -------------- ------------ ------------ -------------- Total Stockholders' Equity 39,733,815 1,487,370 (1,487,370) 39,733,815 -------------- ------------ ------------ -------------- Total Liabilities and Stockholder's Equity $ 134,941,427 $ 1,739,350 $ 5,650,369 $ 142,331,146 ============== ============ ============ ============== (a) Represents historical balance sheet data as of December 31, 1996. (b) The pro forma adjustments to cash ($153,393) and accrued expenses and other ($34,444) reflect the elimination of assets / liabilities not acquired / assumed in connection with the transaction. (c) To record the purchase price in connection with the transaction which comprises $3,536,819 in cash and the issuance of two promissory notes totalling $1,851,930, net of discount of $12,270. The addition to intangible assets of $4,020,328 includes a noncompete agreement valued at $50,000. Goodwill is to be amortized over a forty year period. (d) The proforma adjustments to intangible assets and the current portion of long term debt for $1,783,434 represents the final working capital adjustment paid to the former shareholders of J.E. Hanger, Inc. of Georgia, a company acquired November 1, 1996. (e) The unaudited pro forma amounts exclude potential future contingent consideration to be paid to former ACOR shareholders based on a prescribed formula. Contingent consideration is to be accounted for as additional purchase price consideration if and when it becomes probable.
14 Unaudited Pro Forma Consolidated Statement of Operations for the Three Months Ended March 31, 1997
Historical ----------------------------------- Hanger ACOR Acquisition Orthopedic Retail Pro Forma Group, Inc. (a) Division (a) Adjustments Pro Forma (h) ----------------- --------------- -------------- --------------- Net Sales $ 30,949,614 $ 1,290,580 ($60,523) (b) $ 32,179,671 Cost of Sales 16,229,929 460,275 (60,523) (b) 16,629,681 -------------- ------------ ------------ -------------- Gross Profit 14,719,685 830,305 0 15,549,990 Selling, general & administrative 10,924,635 632,948 11,557,583 Depreciation & amortization 1,158,817 3,067 38,559 (c)/(e) 1,200,443 -------------- ------------ ------------ -------------- Income from operations 2,636,233 194,290 (38,559) 2,791,964 Interest expense (1,527,269) 0 (158,827) (d)/(e) (1,686,096) Other expense (43,749) 0 (43,749) -------------- ------------ ------------ -------------- Income from operations before taxes 1,065,215 194,290 (197,386) 1,062,119 Provision for income taxes 447,300 0 (1,210) (e)/(f) 446,090 -------------- ------------ ------------ -------------- Net Income $617,915 $194,290 ($196,176) $616,029 ============== ============ ============ ============== Net Income per share (g): $0.06 $0.06 -------------- -------------- Shares used to compute net income per share: 9,977,853 9,977,853 -------------- -------------- (a) Represents the historical statement of operations for the period presented. (b) The pro forma adjustments to reduce sales ($60,523) and cost of sales ($60,523) reflects the elimination of intercompany sales between the two companies during the period presented. (c) The adjustment to depreciation and amortization ($27,413) represents the effects of the purchase price allocation. Goodwill is being amortized over forty years. (d) The adjustment to interest expense ($117,563) represents the effects of new promissory notes issued and additional debt assumed in connection with the transaction. (e) The adjustment to increase depreciation and amortization ($11,146), increase interest expense ($41,264) and decrease the provision for income taxes ($22,013) represents the effects of the final working capital adjustment paid on March 27, 1997, to the for (f) The increase in the provision for income taxes of $20,803 is to reflect income taxes as if the Company and ACOR were a C Corporation for the period presented. (g) Historical and pro forma net income per share, which has been adjusted for preferred stock dividends, is computed by dividing net income by the number of weighted average common and common-equivalent shares outstanding for the period. (h) The unaudited pro forma amounts exclude potential future contingent consideration to be paid to former ACOR shareholders based on a preprescribed formula. Contingent consideration is to be accounted for as additional purchase price consideration if and when it becomes probable.
15 Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 1996
Historical ----------------------------- ACOR Hanger J.E. Hanger, JEH Acquisition ACOR Acquisition Orthopedic Inc. of GA Pro Forma Retail Pro Forma Group, Inc. (a) (b) Adjustments (o) Division (c) Adjustments Pro Forma (o) --------------- ------------ --------------- ------------ ------------ -------------- Net Sales $66,805,944 $56,140,445 $5,231,514 ($6,562)(j) $128,171,341 Cost of Sales 32,233,373 31,587,270 69,421 (d)/(e) 1,758,246 (6,562)(j) 65,641,748 ------------ ------------ ----------- ----------- ----------- ------------- Gross Profit 34,572,571 24,553,175 (69,421) 3,473,268 0 62,529,593 Selling, general & administrative 27,029,315 18,704,852 28,602 (d)/(g) 2,189,600 47,952,369 Depreciation & amortization 2,848,465 1,602,903 157,990 (e)/(g)/(h) 12,266 108,338 (k) 4,729,962 ------------ ------------ ----------- ----------- ----------- ------------- Income from operations 4,694,791 4,245,420 (256,013) 1,271,402 (108,338) 9,847,262 Interest expense (2,546,561) (394,650) (3,639,611)(f)/(h) 0 (440,265)(l) (7,021,087) Other income (expense), net (177,216) 744,236 (509,501)(d)/(f) 0 0 57,519 ------------ ------------ ----------- ----------- ----------- ------------- Income from operations before taxes and extraordinary item 1,971,014 4,595,006 (4,405,125) 1,271,402 (548,603) 2,883,694 Provision for income taxes 889,886 76,966 (1,385)(i) 0 325,259 (m) 1,290,726 Extraordinary loss on early extinguishment of debt, net of tax 83,234 0 0 0 0 83,234 ------------ ------------ ----------- ----------- ----------- ------------- Net Income(loss) $997,894 $4,518,040 ($4,403,740) $1,271,402 ($873,862) $1,509,734 ============ ============ ============ =========== =========== ============= Net Income per share (n): $0.11 $0.15 ------------ ------------- Shares used to compute net income per share: 8,663,161 9,979,604 ------------ ------------- (a) Represents the historical statement of operations for the period presented. Includes JEH operations from November 1, 1996 through December 31, 1996. (b) Represents the historical statement of operations for the period January 1, 1996 through October 31, 1996. (c) Represents the historical statement of operations for the period presented. (d) The pro forma adjustments to reduce cost of sales ($47,279), selling, general and administrative ($56,398) and other income ($439,151) reflects the elimination of income and expenses in connection with assets / liabilities not acquired / assumed. (e) The reduction in depreciation and amortization of $332,475 and the increase in cost of sales of $116,700 represents the net ten month effect of the purchase price allocation. Goodwill is being amortized over forty years. (f) The adjustment to interest expense ($3,477,413) and other expense ($70,350) represents the additional ten month effects of new debt agreements and cash utilized in connection with the transaction. The interest expense adjustment includes $89,344 of amort (g) The adjustments to depreciation and amortization for $445,880 of amortized debt issue costs and selling, general and administrative for $85,000 of loan administative expenses are in connection with the aforementioned debt agreements. (h) The adjustment to increase depreciation and amortization ($44,585) and interest expense ($162,198) represents the full year effects of the final working capital adjustment paid on March 27, 1997, to the former shareholders of JEH. (i) To reflect income taxes as if the Company and JEH were a C Corporation for the period presented. (j) The pro forma adjustments to reduce sales ($6,562) and cost of sales ($6,562) reflects the elimination of intercompany sales between Hanger and ACOR during the period presented. (k) The adjustment to depreciation and amortization ($108,338) represents the effects of the purchase price allocation. Goodwill is being amortized over forty years. (l) The adjustment to interest expense ($440,265) represents the effects of new promissory notes issued and additional debt assumed in connection with the transaction. (m) To reflect income taxes as if the Company and ACOR were a C Corporation for the period presented. (n) Historical and pro forma net income per share is computed by dividing net income by the number of shares of common stock outstanding for the period. The shares used in the computation of net income per share on a pro forma adjusted basis also includes 1,000,000 shares issued in conjunction with the acquisition of JEH. (o) The unaudited pro forma amounts exclude potential future contingent consideration to be paid to former ACOR shareholders based on a prescribed formula. Contingent consideration is to be accounted for as additional purchase price consideration if and when it becomes probable.
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