-----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, UxIm1ZNh7iYK0VRzgKUUV6+a+JIurzLjxtw/zuVsPRsUEOI4mDapPt78wt/DBGyr LtWWZoMUzNwhkfDpew13wQ== /in/edgar/work/20000829/0000904456-00-000049/0000904456-00-000049.txt : 20000922 0000904456-00-000049.hdr.sgml : 20000922 ACCESSION NUMBER: 0000904456-00-000049 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANGER ORTHOPEDIC GROUP INC CENTRAL INDEX KEY: 0000722723 STANDARD INDUSTRIAL CLASSIFICATION: [8093 ] IRS NUMBER: 840904275 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-10670 FILM NUMBER: 712870 BUSINESS ADDRESS: STREET 1: TWO BETHESDA METRO CENTER STREET 2: SUITE 1300 CITY: BETHESDA STATE: MD ZIP: 20814 BUSINESS PHONE: 3019860701 MAIL ADDRESS: STREET 1: TWO BETHESDA METRO CENTER STREET 2: SUITE 1300 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 10-Q/A 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A No. 1 AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 Commission File Number 1-10670 HANGER ORTHOPEDIC GROUP, INC. ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter.) Delaware 84-0904275 ----------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Two Bethesda Metro Center, Suite 1200, Bethesda, MD 20814 ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's phone number, including area code: (301) 986-0701 ----------------------------------------------------------------------------- The undersigned registrant hereby amends the following portion of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2000: Part I - Item 1 (Financial Statements): Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 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. /s/RICHARD A. STEIN ------------------------- Richard A. Stein Date: August 29, 2000 Vice President - Secretary and Treasurer HANGER ORTHOPEDIC GROUP, INC. AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000. This amendment corrects the Consolidated Statements of Cash Flows on page 6 of the Form 10-Q to correct an error that occurred in connection with the Edgarization of the filing. The amendment (i) moves the $545 Proceeds from sale of common stock set forth as the third line item of the statement from the 2000 column to the 1999 column and (ii) moves the $150,000 Proceeds from long-term debt set forth as the fourth line item of the statement from the 2000 column to the 1999 column. HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED BALANCE SHEETS (Dollars In Thousands, Except Shares and Per Share Amounts) (unaudited)
June 30, December 31, 2000 1999 ------------- ------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,289 $ 5,735 Accounts receivable less allowance for doubtful accounts of $15,153 and $17,866 in 2000 and 1999, respectively 112,249 103,125 Inventories 67,878 59,915 Prepaid expenses and other assets 17,715 5,222 Income taxes receivable 4,535 3,644 Deferred income taxes 8,125 11,778 ---------- ---------- Total current assets 213,791 189,419 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT Land 4,177 4,177 Buildings 8,902 8,886 Machinery and equipment 29,139 26,677 Furniture and fixtures 9,563 8,629 Leasehold improvements 15,578 13,004 ---------- ---------- 67,359 61,373 Less accumulated depreciation and amortization 19,849 15,269 ---------- ---------- 47,510 46,104 ---------- ---------- INTANGIBLE ASSETS Excess of cost over net assets acquired 478,755 498,612 Non-compete agreements 1,551 2,019 Patents 9,835 9,768 Assembled Work Force 7,000 7,000 Other intangible assets 17,111 15,833 ---------- ---------- 514,252 533,232 Less accumulated amortization 27,667 20,412 ---------- ---------- 486,585 512,820 ---------- ---------- OTHER ASSETS Other 1,590 1,738 ---------- ---------- TOTAL ASSETS $ 749,476 $ 750,081 ========== ==========
The accompany notes are an integral part of the consolidated financial statements. 1 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED BALANCE SHEETS (Dollars In Thousands, Except Shares and Per Share Amounts) (unaudited)
June 30, December 31, 2000 1999 ------------- ------------- LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 29,591 $ 25,406 Accounts payable 18,538 16,714 Accrued expenses 6,130 5,445 Accrued interest payable 7,441 4,768 Accrued wages and payroll taxes 11,912 18,658 ---------- ---------- Total current liabilities 73,612 70,991 ---------- ---------- Long-term debt 421,162 426,211 Deferred income taxes 13,481 13,481 Other liabilities 4,837 5,141 7% Redeemable Preferred Stock, liquidation preference of $1,000 per share 63,647 61,343 SHAREHOLDERS' EQUITY Common stock, $.01 par value; 60,000,000 shares authorized, 19,043,497 and 19,043,497 shares issued, and 18,910,002 and 18,910,002 shares outstanding in 2000 and 1999 190 190 Additional paid-in capital 146,498 146,498 Retained earnings 26,705 26,882 ---------- ---------- 173,393 173,570 Treasury stock, at cost (133,495 shares) (656) (656) ---------- ---------- 172,737 172,914 TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY $ 749,476 $ 750,081 ========== ==========
The accompany notes are an integral part of the consolidated financial statements. 2 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED BALANCE SHEETS (Dollars In Thousands, Except Shares and Per Share Amounts) (unaudited)
2000 1999 ---- ---- Net Sales $ 125,872 $ 56,417 Cost of products and services sold 60,310 27,555 ------------ ------------ Gross profit 65,562 28,862 Selling, general & administrative expenses 42,833 18,052 Integration costs 502 Depreciation and amortization 2,939 1,021 Amortization of excess cost over net assets acquired 2,796 756 ------------ ------------ Income from operations 16,492 9,033 Other expense: Interest expense, net (10,951) (787) Other, net (31) (137) ------------ ------------ Income before income taxes 5,510 8,109 Provision for income taxes 3,103 3,234 ------------ ------------ Net income $ 2,407 $ 4,875 ============ ============ BASIC PER COMMON SHARE DATA Net income $ .06 $ .26 ============ ============ Shares used to compute basic per common share amounts 18,910,002 18,846,547 ============ ============ DILUTED PER COMMON SHARE DATA Net income $ .06 $ .24 ============ ============ Shares used to compute diluted per common share amounts * 19,154,415 20,023,628 ============ ============
* Excludes the effect of the conversion of common stock into which shares of 7% Redeemable Preferred Stock are convertible as it is anti-dilutive. The accompany notes are an integral part of the consolidated financial statements. 3 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED June 30, 2000 and 1999 (Dollars In Thousands, Except Shares and Per Share Amounts) (unaudited)
2000 1999 ---- ---- Net Sales $ 240,740 $ 105,562 Cost of products and services sold 117,494 52,444 ------------ ------------ Gross profit 123,246 53,118 Selling, general & administrative expenses 82,008 35,151 Integration costs 1,088 Depreciation and amortization 5,656 1,984 Amortization of excess cost over net assets acquired 5,787 1,498 ------------ ------------ Income from operations 28,707 14,485 Other expense: Interest expense, net (22,109) (1,075) Other, net (33) (99) ------------ ------------ Income before income taxes 6,565 13,311 Provision for income taxes 4,438 5,315 ------------ ------------ Net income $ 2,127 $ 7,996 ============ ============ BASIC PER COMMON SHARE DATA Net income (loss) $ (.01) $ .42 ============ ============ Shares used to compute basic per common share amounts 18,910,002 18,823,480 ============ ============ DILUTED PER COMMON SHARE DATA Net income (loss) $ (.01) $ .40 ============ ============ Shares used to compute diluted per common share amounts * 18,910,002 20,131,175 ============ ============
* Excludes the effect of the conversion of common stock into which shares of 7% Redeemable Preferred Stock are convertible as it is anti-dilutive. All other outstanding options and warrants are anti-dilutive due to the net loss for the Company for the six months ended June 30, 2000. The accompany notes are an integral part of the consolidated financial statements. 4 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED June 30, 2000 and 1999 (Dollars In Thousands, Except Shares and Per Share Amounts) (unaudited)
2000 1999 ---- ---- Cash flows from operating activities: Net income $ 2,127 $ 7,996 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for bad debt 8,106 4,226 Deferred income taxes 3,653 --- Depreciation and amortization 5,656 1,984 Amortization of excess cost over net assets acquired 5,787 1,498 Amortization of debt issue costs 965 --- Changes in assets and liabilities, net of effect from acquired companies: Accounts receivable (17,080) (8,374) Inventory (7,913) (3,572) Prepaid and other assets (3,769) (1,218) Other assets 146 (657) Accounts payable 1,797 1,988 Accrued expenses 1,286 1,730 Accrued wages and payroll taxes (6,794) (282) Other liabilities (222) (1,121) ---------- --------- Total adjustments (8,382) (3,798) ---------- --------- Net cash provided by (used in) operating activities (6,255) 4,198 ---------- --------- Cash flows provided by (used in) investing activities: Purchase of fixed assets (5,934) (2,557) Acquisitions, net of cash acquired (4,550) (8,950) Cash received pursuant to purchase price adjustment 15,000 --- ---------- --------- Net cash provided by (used in) investing activities 4,516 (11,507) ---------- ----------
Continued The accompany notes are an integral part of the consolidated financial statements. 5 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED June 30, (Dollars In Thousands, Except Shares and Per Share Amounts) (unaudited)
2000 1999 ---- ---- Cash flows provided by (used in) financing activities: Net borrowings under revolving credit facility $ 13,400 $ 21,157 Repayment of term loans (5,500) --- Proceeds from sale of common stock 545 Proceeds from long-term debt 150,000 Repayment of long-term debt (7,352) (2,239) Increase in debt issue costs (1,255) (12,175) --------- ---------- Net cash provided by (used in) financing activities (707) 157,288 --------- ---------- Net change in cash and cash equivalents for the period (2,446) 149,978 Cash and cash equivalents at beginning of period 5,735 9,683 --------- ---------- Cash and cash equivalents at end of period $ 3,289 $ 159,661 ========= ========== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 19,373 $ 422 ========= ========== Taxes $ 2,137 $ 2,504 ========= ========== Non-cash financing and investing activities: Issuance of common stock in connection with acquisitions $ --- $ 500 ========= ========= Issuance of notes in connection with acquisitions $ 924 $ 1,026 ========= ========= Issuance of common stock in repayment of debt $ --- $ 168 ========= ========= Dividends declared on preferred stock $ 2,267 $ --- ========= ========= Accretion of preferred stock $ 37 $ --- ========= ========= Notes received pursuant to purchase price adjustment $ 9,700 $ --- ========= =========
The accompany notes are an integral part of the consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars In Thousands, Except Shares and Per Share Amounts) NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of a normal recurring nature, considered necessary for a fair presentation have been included. Certain reclassifications of prior year's data have been made to improve comparability and the Company uses the gross profit method to value inventory on an interim basis. These financial statements should be read in conjunction with the financial statements of Hanger Orthopedic Group, Inc. ("Hanger" or the "Company") and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1999 filed by the Company with the Securities and Exchange Commission. NOTE B - SEGMENT AND RELATED INFORMATION The Company evaluates segment performance and allocates resources based on the segments' EBITDA. "EBITDA" is defined as income from operations before depreciation, amortization, and integration costs. EBITDA is not a recognized measure of performance under Generally Accepted Accounting Principles ("GAAP"). While EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity, management understands that EBITDA is customarily used as a criteria in evaluating heath care companies. Moreover, substantially all of the Company's financing agreements contain covenants in which EBITDA is used as a measure of financial performance. "Other" EBITDA not directly attributable to reportable segments is primarily related to corporate general and administrative expenses. 7 Summarized financial information concerning the Company's reportable segments is shown in the following table:
Practice Management And Patient Care Centers Manufacturing Distribution Other Total ------------ ------------- ------------ ----- ----- Three Months Ended June 30, 2000 - ------------------- Net Sales Customers $ 116,004 $ 2,598 $ 7,270 $ --- $ 125,872 ========== ========== ========== ========== ========== Intersegments $ --- $ 4,057 $ 12,951 $ (17,008) $ --- ========== ========== ========== ========== ========== EBITDA $ 27,618 $ (1,219) $ 1,816 $ (5,486) $ 22,729 Restructuring costs and integration expense 257 -- --- 245 502 Depreciation and amortization 4,781 607 101 246 5,735 Interest expense, net 24,345 4 -- (13,398) 10,951 Other (income) expense (23) 16 38 -- 31 Income before taxes $ (1,742) $ (1,846) $ 1,677 $ 7,421 $ 5,510 ========== ========== ========== ========== ========== THREE MONTHS ENDED JUNE 30, 1999 Net Sales Customers $ 44,918 $ 2,794 $ 8,705 $ --- $ 56,417 ========== ========== ========== ========== ========== Intersegments $ --- $ 1,536 $ 5,674 $ (7,210) $ --- ========== ========== ========== ========== ========== EBITDA $ 10,795 $ 519 $ 1,436 $ (1,940) $ 10,810 Depreciation and amortization 1,260 400 43 74 1,777 Interest expense, net 250 4 --- 533 787 Other expense (income) 20 21 (117) 213 137 Income before taxes $ 9,265 $ 94 $ 1,510 $ (2,760) $ 8,109 ========== ========== ========== ========== ==========
8
Practice Management And Patient Care Centers Manufacturing Distribution Other Total ------------ ------------- ------------ ----- ----- Three Months Ended June 30, 2000 - ------------------- Net Sales Customers $ 221,459 $ 4,990 $ 14,291 $ --- $ 240,740 ========== ========== =========== =========== =========== Intersegments $ --- $ 7,624 $ 26,523 $ (34,147) $ --- ========== ========== =========== =========== =========== EBITDA $ 49,632 $ (1,222) $ 3,716 $ (10,888) $ 41,238 Restructuring costs and integration expense 747 -- 6 335 1,088 Depreciation and amortization 9,918 902 152 471 11,443 Interest expense, net 25,047 7 -- (2,945) 22,109 Other expense 14 18 1 -- 33 Income before taxes $ 13,906 $ (2,149) $ 3,557 $ (8,749) $ 6,565 ========== ========== =========== =========== =========== SIX MONTHS ENDED JUNE 30, 1999 Net Sales Customers $ 85,107 $ 5,397 $ 15,058 $ --- $ 105,562 ========== ========== =========== =========== =========== Intersegments $ --- $ 2,662 $ 10,821 $ (13,483) $ --- ========== ========== =========== =========== =========== EBITDA $ 18,500 $ 827 $ 2,535 $ (3,895) $ 17,967 Depreciation and amortization 2,490 785 82 125 3,482 Interest expense, net 519 10 --- 546 1,075 Other (income) expense (181) (8) (219) 507 99 Income before taxes $ 15,672 $ 40 $ 2,672 $ (5,073) $ 13,311 ========== ========== =========== =========== ===========
9 NOTE C - INVENTORY Inventories at June 30, 1999 and December 31, 1998 were comprised of the following:
June 30, 2000 December 31, 1998 ------------- ----------------- (unaudited) Raw materials $40,775 $31,715 Work-in-process 17,155 17,172 Finished goods 9,948 11,028 --------- -------- $67,878 $59,915 ======= =======
NOTE D - ACQUISITIONS On July 1, 1999, the Company acquired all of the outstanding stock of NovaCare Orthotics and Prosthetics, Inc. ("NovaCare O&P") from NovaCare, Inc. pursuant to the terms of a Stock Purchase Agreement (the "Agreement"). Under the terms of the Agreement, the aggregate consideration totaled $445,000, which consisted of the assumption of liabilities and other obligations of $38,400 and the balance in cash. Of the cash portion, $15,000 was placed in escrow pending the determination of any potential post closing adjustments relating to working capital. On May 22, 2000, an arbitrator awarded the Company $25,104 as a result of the working capital deficiency from the purchase of NovaCare O&P. During the second quarter 2000, the Company received $15,000 of the award from escrow, and approximately $600 in interest on the escrow was recorded as interest income. Also during the second quarter of 2000, Hanger executed an agreement to settle the balance of the arbitration award with NovaCare, Inc. for $9,700, of which $6,000 was received on July 3, 2000, and $3,700 was in the form of a promissory note to be paid by the end of the fiscal year. The promissory note is secured and paid on a monthly basis of approximately $617 plus interest computed at a per annum rate of 7%. Amounts received and to be received under the arbitration and settlement agreements of $24,700 have been recorded as a reduction to "Excess cost over net assets acquired" in the accompanying consolidated balance sheet at June 30, 2000. Hanger required approximately $430,200 in cash to close the acquisition, to pay approximately $20,000 of related fees and expenses, including debt issue costs of approximately $16,000, and to refinance existing debt of approximately $2,500. The funds were raised by Hanger through (i) borrowing approximately $230,000 of revolving credit and term loans under a new bank facility; (ii) selling $150,000 principal amount of 11.25% Senior Subordinated Notes due 2009; and (iii) selling $60,000 of 7% Redeemable Preferred Stock. The new bank credit facility consists of a $100,000 revolving credit facility, of which $30,000 was drawn on in connection with the acquisition of NovaCare O&P, an A term facility and a tranche B term facility. The 7% Redeemable Preferred Stock accrues annual dividends, compounded quarterly, equal to 7%, is subject to put rights and will not require principal payments prior to maturity. Such Preferred Stock is convertible into shares of the Company's non-voting common stock at a price of $16.50 per share. 10 The acquisition of NovaCare O&P has been accounted for as a business combination in accordance with the purchase method. The results of operations for this acquisition have been included in the Company's results since July 1, 1999. The following table summarizes the unaudited consolidated pro forma information, assuming the acquisition had occurred at the beginning of the following period:
Six Months Ended June 30, 1999 ------------------ Net sales $241,238 ---------------------------------------------------- Net (loss) $ (4,599) ---------------------------------------------------- Net loss per common share - diluted (1) $ (.36) ---------------------------------------------------- (1) Excludes the effect of the conversion of common stock into which shares of 7% Redeemable Preferred Stock are convertible as it is anti-dilutive. All outstanding options and warrants are anti-dilutive due to the net loss for the Company for the six months ended June 30, 1999.
Adjustments made in arriving at the unaudited consolidated pro forma results include increased interest expense on acquisition debt, amortization of goodwill, adjustments to the fair value of assets acquired and depreciable lives, preferred stock dividends and related tax adjustments. The unaudited consolidated pro forma results do not necessarily represent results which would have occurred if the acquisition had taken place at the beginning of the period, nor are they indicative of the results of future combined operations or trends. Additionally, the Company paid, during the six month period ending June 30, 2000, approximately $3,935 related to 38 orthotic and prosthetic companies acquired in years prior to 2000. The payments were primarily made pursuant to earnout and working capital provisions contained in the respective acquisition agreements. The Company has accounted for these amounts as additional purchase price resulting in an increase to excess of cost over net assets acquired. Additional amounts aggregating approximately $16,487 may be paid in connection with earnout provisions contained in previous acquisition agreements. NOTE E -INTEGRATION & RESTRUCTURING COSTS In connection with the acquisition of NovaCare O&P, the Company implemented a restructuring plan on July 1, 1999. The plan contemplated lease termination and severance costs associated with the closure of certain redundant patient-care centers and corporate functions of the Company and NovaCare O&P. The costs associated with the former NovaCare O&P centers were recorded in connection with the purchase price allocation on July 1, 1999. The costs associated with the existing Hanger centers were charged to operations during the third quarter of 1999. 11 The restructuring plan provided for the closure of 54 patient-care centers and the termination of 225 employees. Through June 30, 2000, 43 of the patient-care centers have been closed and 210 employees have been terminated. Management reasonably expects to have the remaining patient-care centers closed and employees severed by the end of 2000. Lease payments on closed patient care centers are expected to be paid through 2003. The components of the total restructuring reserve through June 30, 2000 are as follows: Lease Employee Termination and Total Severance Other Exit Restructuring Costs Costs Reserve --------- --------------- ------------- Balance at December 31, 1999 $1,600 $2,992 $ 4, 592 Year-to-date Spending (1,363) (430) $ (1,793) ------- ------- --------- Balance at June 30, 2000 $ 237 $2,562 $ 2,799 ======= ======= =========
Additionally, during the three and six-month periods ended June 30, 2000, the Company recorded integration costs of $502 and $1,088, respectively, related to the acquisition of NovaCare O&P. Integration costs include costs of changing patient care center names, payroll and related benefits conversion costs, stay-pay bonuses and related benefits for transitional employees and certain other costs related to the acquisition. These costs are expensed as incurred. NOTE F - NET INCOME PER COMMON SHARE 12 The following sets forth the calculation of the basic and diluted income per common share amounts for the three and six month periods ended June 30, 2000 and 1999.
Three Months Ended Six Months Ended June 30 June 30 ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net income $ 2,407 $ 4,875 $ 2,127 $ 7,996 Less preferred stock accretion and dividends declared (1,181) --- (2,304) --- ------------- ------------- ------------- ------------- Income (loss) available to common stockholders used to compute basic per common share amounts 1,226 4,875 (177) 7,996 Add back interest expense on convertible note payable, net of tax (2) 15 15 -- 27 ------------- ------------- ------------- ------------- Income (loss) available to common stockholders plus assumed conversions used to com- pute diluted per common share amounts (1) $ 1,241 $ 4,890 $ (177) $ 8,023 ============= ============= ============= ============ Average shares of common stock outstanding used to compute basic per common share amounts 18,910,002 18,846,547 18,910,002 18,823,480 Effect of convertible note payable (2) 69,430 92,573 -- 92,573 Effect of dilutive options (2) 103,140 559,995 -- 654,173 Effect of dilutive warrants (2) 71,843 524,513 -- 560,949 ------------- ------------- ------------- ------------- Shares used to compute dilutive per common share amounts (1) 19,154,415 20,023,628 18,910,002 20,131,175 ============= ============= ============= ============= Basic income (loss) per common share $ .06 $ .26 $ (.01) $ .42 Diluted income (loss) per common share $ .06 $ .24 $ (.01) $ .40 (1) Excludes the effect of the conversion of common stock into which shares of 7% Redeemable Preferred Stock are convertible as it is anti-dilutive. (2) All options, warrants and convertible notes payable are anti-dilutive due to the net loss for the Company for the six months ended June 30, 2000.
Options to purchase 243,000 and 2,835,963 shares of common stock were outstanding at June 30, 1999 and 2000, respectively, but were not included in the computation of diluted income per share for the three and six month ended June 30, 1999 and 2000, because the options' prices were greater than the average market price of the common shares. NOTE G - LONG TERM DEBT 13 On June 16, 1999, the Company issued, in a private offering, $150,000 of Senior Subordinated Notes, bearing interest of 11.25%, and maturing on June 15, 2009. Interest is payable on June 15 and December 15, commencing on December 15, 1999. In connection with the acquisition of NovaCare O&P, the Company replaced its bank credit facility existing at June 30, 1999 with a new facility. The new bank credit facility consists of a $100,000 revolving credit facility, a $100,000 tranche A term facility and a $100,000 tranche B term facility. The revolving credit facility and the tranche A term facility mature on July 1, 2005 and currently carry an interest rate of adjusted LIBOR plus 3.0% or ABR plus 2.0%. The tranche B term facility will mature on January 1, 2007 and currently carries an interest rate of adjusted LIBOR plus 4.0% or ABR plus 3.0%. The bank credit facility is collateralized by substantially all of the Company's assets, restricts the payment of dividends and contains certain affirmative and negative covenants customary in an agreement of this nature. The Company's total long term debt at June 30, 2000, including a current portion of approximately $29,591, was approximately $450,753. Such indebtedness included: (i) $150,000 senior subordinated notes; (ii) $68,400 for the revolver; (iii) $95,000 for tranche A; (iv) $99,500 for tranche B; and (v) a total of $37,853 of other indebtedness. NOTE H - COMMITMENTS AND CONTINGENCIES The Company is subject to legal proceedings and claims which arise in the ordinary course of its business, including claims related to alleged contingent additional payments under business purchase agreements. Many of these legal proceedings and claims existed in the NovaCare O&P business prior to the Company's acquisition of NovaCare O&P. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on the financial position, liquidity or results of operations of the Company. NOTE I - NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standard Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as amended, requires that an entity recognize all derivative instruments as either assets or liabilities on its balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction, and, if it is, the type of hedge transaction. The Company will adopt SFAS 133 by the first quarter of 2001. Due to the Company's limited use of derivative instruments, SFAS 133 is not expected to have a material effect on the financial position or results of operations of the Company. 14 -----END PRIVACY-ENHANCED MESSAGE-----