-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, EclErKKKaSJij84KpSKNhKO88wOmONQ7LQKmfNzrWLMu7RZdJoJup11qcaDNuG3g kEGksXVdDwzohutWir1zZg== 0000908634-95-000015.txt : 19950509 0000908634-95-000015.hdr.sgml : 19950509 ACCESSION NUMBER: 0000908634-95-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950508 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10670 FILM NUMBER: 95535136 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 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 ----------- OR _ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from__________to___________ 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 (IRS Employer Identification No.) incorporation or organization) 7700 Old Georgetown Road, Bethesda, MD 20814 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (301) 986-0701 Former name, former address and former fiscal year, if changed since last report. Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 5, 1995; 8,290,544 shares of common stock, $.01 par value per share. HANGER ORTHOPEDIC GROUP, INC. INDEX Page No. Part I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1995 (unaudited) and December 31, 1994 2 Consolidated Statements of Operations for the three months ended March 31, 1995 and 1994 (unaudited) 4 Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and 1994 (unaudited) 5 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED BALANCE SHEETS March 31, December 31, 1995 1994 (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 853,253 $ 1,048,381 Accounts receivable less allowances for doubtful accounts of $1,041,000 and $975,000 in 1995 and 1994, respectively 12,008,411 12,392,843 Inventories 9,806,559 9,465,186 Prepaid expenses and other assets 1,400,891 1,149,026 Deferred income taxes 1,264,790 1,264,790 ------------ ------------ Total current assets 25,333,904 25,320,226 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT Land 2,991,245 2,991,245 Buildings 2,473,014 2,288,357 Machinery and equipment 3,311,302 3,232,442 Furniture and fixtures 1,551,802 1,526,237 Leasehold improvements 1,126,905 1,075,481 ------------- ------------ 11,454,268 11,113,762 Less accumulated depreciation and amortization 3,372,091 3,104,828 ------------- ------------ 8,082,177 8,008,934 ------------- ------------ INTANGIBLE ASSETS Excess of cost over net assets acquired 27,001,565 26,633,643 Non-compete agreements 4,786,371 4,751,371 Other intangible assets 3,746,507 3,762,307 ------------- ----------- 35,534,443 35,147,321 Less accumulated amortization 7,976,590 7,532,295 ------------- ----------- 27,557,853 27,615,026 ------------- ----------- OTHER ASSETS Other 408,734 537,032 ------------- ----------- TOTAL ASSETS $61,382,668 $61,481,218 ============= =========== 2 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED BALANCE SHEETS March 31, December 31, 1995 1994 (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 3,258,239 $ 2,132,076 Accounts payable 1,656,684 1,562,625 Accrued expenses 1,239,766 1,300,070 Customer deposits 294,512 392,722 Accrued wages and payroll taxes 1,057,183 1,422,741 Deferred revenue 100,536 97,690 --------------- --------------- Total current liabilities 7,606,920 6,907,924 --------------- --------------- Long-term debt 23,265,190 24,329,710 Deferred income taxes 563,902 563,902 Other liabilities and accrued dividends 292,645 269,871 Mandatorily redeemable preferred stock, class C, 300 shares authorized, liquidation preference of $500 per share 237,192 232,086 Mandatorily redeemable preferred stock, class F, 100,000 shares authorized, liquidation preference of $500 per share SHAREHOLDERS' EQUITY Common stock, $.01 par value; 25,000,000 shares authorized 8,424,039 shares issued and 8,290,544 shares outstanding in 1995 and 1994 84,241 84,241 Additional paid-in capital 33,590,751 33,595,857 Accumulated deficit (3,602,611) (3,846,811) --------------- -------------- 30,072,381 29,833,287 Treasury stock - (133,495 shares) (655,562) (655,562) --------------- -------------- 29,416,819 29,177,725 --------------- -------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $61,382,668 $61,481,218 =============== ============== 3 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED March 31, 1995 and 1994 (unaudited) 1995 1994 ---- ---- Net Sales $ 12,211,038 $ 10,108,590 Cost of products and services sold 5,867,202 5,059,790 ----------------- ----------------- Gross profit 6,343,836 5,048,800 Selling, general & administrative 4,727,703 4,869,696 Depreciation and amortization 538,970 583,344 Amortization of excess cost over net assets acquired 172,942 161,004 ------------------ ---------------- Income (loss) from operations 904,221 (565,244) Other expense: Interest expense, net (466,757) (339,915) Other (16,518) (15,176) ------------------ ---------------- Income (loss) from continuing operations before income taxes 420,946 (920,335) Provision (benefit) for income taxes 176,746 (414,000) ------------------ ----------------- Income (loss) from continuing operations before loss from discontinued operations 244,200 (506,335) Loss from discontinued operations net of tax benefit of $23,000 (28,618) ------------------ ------------------ Net income (loss) $ 244,200 $ (534,953) ================= ================= Income (loss) from continuing operations $.03 ($.06) Loss from discontinued operations $ .03 $ (.06) ================== ================= Weighted average number of common shares outstanding 8,290,544 8,383,181 4 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED March 31, 1995 and 1994 (unaudited) 1995 1994 ---- ---- Cash flows from operating activities: Net income (loss) $ 244,200 $ (534,953) Adjustments to reconcile net income to net cash provided by (used in ) operating activities: Discontinued operations 51,618 Provision for bad debt 127,232 146,237 Amortization of deferred compensation 4,197 Depreciation and amortization 538,970 583,344 Amortization of excess cost over net assets acquired 172,942 161,004 Deferred taxes (437,000) Changes in assets and liabilities, net of effect from acquired companies: Decrease in accounts receivable 275,507 413,365 Increase in inventory (295,203) (683,786) Increase in prepaid and other assets (428,611) (166,073) Decrease (increase) in other assets 128,298 (25,343) Increase in accounts payable 92,745 446,697 Decrease in accrued expenses (60,304) (27,480) Decrease in accrued wages and payroll taxes (365,558) (119,758) Increase (decrease) in customer deposits (98,210) 32,185 Increase in deferred revenue 2,846 5,800 Increase in taxes payable 176,746 Increase in other liabilities 22,774 85,410 ------------- ------------ Total adjustments 290,173 476,417 ------------- ------------ Net cash provided by (used in) in continuing operations 534,373 (58,536) Net cash used in discontinuing operations (5,031) ------------- ------------ Net cash provided by (used in) operating activities 534,373 (63,567) ------------- ------------ Cash flows from investing activities: Purchase of fixed assets, net (330,647) (169,782) Purchase of patents (17,089) (2,165) Acquisitions, net of cash (265,194) (860,170) Purchase of non-compete agreements (35,000) (150,500) Other intangibles (1,103) (106,369) -------------- ----------- Net cash used in investing activities (649,033) (1,288,986) -------------- ------------ Continued 5 HANGER ORTHOPEDIC GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED March 31, 1995 and 1994 (unaudited) 1995 1994 ---- ---- Cash flows from financing activities: Net borrowings under revolving credit facility $ 500,000 $ 674,449 Repayment of long-term debt (613,357) (324,147) Increase (decrease) in financing costs 32,889 (12,093) ------------- --------- Net cash (used in) provided by financing activities (195,128) 338,209 ------------- --------- Net change in cash and cash equivalents for the period (784,152) (1,014,344) Cash and cash equivalents at beginning of period 1,048,381 1,404,157 ------------- --------- Cash and cash equivalents at end of period $ 853,253 $ 389,813 ============= ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 616,808 $ 342,522 ============= ========= Non-cash financing and investing activities: Issuance of common stock in connection with acquisitions $ 200,000 Issuance of notes in connection with acquisitions $ 175,000 $ 425,000 ============= ========= Dividends declared - preferred stock $ 5,262 $ 4,810 ============= ========= The accompanying notes are an integral part of the consolidated financial statements. 6 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 footnotes 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. These financial statements should be read in conjunction with the financial statements of Hanger Orthopedic Group, Inc. (the "Company"), as of December 31, 1994, and notes thereto included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission. NOTE B -- INVENTORY Inventories at March 31, 1995 and December 31, 1994 were comprised of the following: March 31, 1995 December 31, 1994 -------------- ----------------- (unaudited) Raw materials $7,905,847 $8,078,838 Work-in-process 754,828 835,934 Finished goods 1,145,884 530,414 ----------- ------------ $9,806,559 $9,465,186 ========== ========== NOTE C -- ACQUISITIONS During the first quarter of 1995, the Company acquired two orthotic and prosthetic companies and certain assets of another O&P company. The aggregate purchase price was $390,000 comprised of $215,000 in cash and $175,000 in promissory notes. The cash portion of these acquisitions was borrowed under the Company's revolving credit facility. 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth for the periods indicated certain items of the Company's statements of operations and their percentage of the Company's net sales: For the Three Months Ended March 31, 1995 1994 ---- ---- Net sales 100.0% 100.0% Cost of products and services sold 48.0 50.1 Gross profit 52.0 49.9 Selling, general & administrative expenses 38.7 48.2 Depreciation and amortization 4.4 5.8 Amortization of excess cost over net assets acquired 1.4 1.6 Income (loss) from operations 7.4 (5.6) Interest expense 3.8 3.4 Provision (benefit) for income taxes 1.4 (4.1) Net income (loss) 2.0 (5.2) For the Three Months Ended March 31, 1995 Compared to the Three Months Ended March 31, 1994 Net Sales Net sales for the three months ended March 31, 1995, amounted to approximately $12,211,000, an increase of approximately $2,102,000, or 20.8%, over net sales of approximately $10,109,000 for the three months ended March 31, 1994. The increase was primarily a result of an increase in net sales attributable to patient care centers and facilities that were in operation during both periods ("Internal Base Net Sales") of $1,663,000, or 19%. Of the $1,663,000 increase in Internal Base Net Sales, $1,532,000, or 24%, was attributable to patient care centers and $130,000 was attributable to the Company's manufacturing and distribution activities. The remaining increase of $440,000 was attributable to O&P patient care centers and facilities acquired by the Company in late 1994 and 1995. The increase in net sales occurred notwithstanding the sale or closure of nine patient care centers during late 1994 and the first quarter of 1995 in connection with the restructuring (the "Restructuring") announced by the Company in March 1995. The non-recurring charges associated with the Restructuring were recorded during the fourth quarter of 1994. 8 Gross Profit Gross profit during the three months ended March 31, 1995 increased by approximately $1,295,000, or 25.7%, from the prior year's comparable quarter. In addition to increasing in dollar amount, gross profit as a percent of net sales increased from 49.9% to 52.0% for the comparable periods. The percentage increase in gross profit is primarily a result of the increase in net sales from patient care services and manufacturing sales as described above while labor costs remained the same. Gross profit as a percent of net sales for patient care services increased from 47% in 1994 to 51% in 1995. The increase resulted primarily from the increase in Internal Base Net Sales while labor costs remained the same. Gross profit as a percent of net sales for manufacturing increased from 51% in 1994 to 55% in 1995. This increase resulted primarily from the increase in Internal Base Net Sales while labor costs remained the same. Selling, General and Administrative Selling, general and administrative expenses in the three months ended March 31, 1995 decreased by approximately $142,000, or 2.9%, compared to the three months ended March 31, 1994. Selling, general and administrative expenses as a percent of net sales decreased to 38.7% from 48.2% for the same period a year ago. This decrease in general and administrative expenses as a percent of net sales resulted primarily from the increase in Internal Base Net Sales while selling, general and administrative remained the same. The decrease in selling, general and administrative expenses was primarily a result of cost reduction efforts initiated in late 1994 in connection with the Restructuring. Income (loss) from operations Principally as a result of the above, the income from operations in the quarter ended March 31, 1995 amounted to approximately $904,000, an increase of $1,481,000, or 262.1%, over the prior year's comparable quarter. Income (loss) from operations as a percent of net sales increased to 7.4% in the first quarter of 1995 from (5.6)% for the prior year's comparable period. Interest Expense Interest expense in the first quarter of 1995 amounted to approximately $467,000, an increase of approximately $126,000, or 37.3%, from the $339,000 of interest expense incurred in the first quarter of 1994. Interest expense as a percent of net sales increased to 3.8% from 3.4% for the same period a year ago. The increase in interest expense was primarily a result of an increase in borrowings of approximately $4,700,000 in connection with acquisitions consummated subsequent to March 31, 1994. 9 Income Taxes The provision for income taxes in the first quarter of 1995 amounted to approximately $177,000 as compared to a $414,000 benefit in the first quarter of 1994. The benefit was a result of a loss from continuing operations incurred during 1994. Net Income (Loss) As a result of the above, the Company recorded net income of $244,000 in the quarter ended March 31, 1995, compared to a net loss of $535,000 in the quarter ended March 31, 1994. Liquidity and Capital Resources The Company's consolidated working capital at March 31, 1995 was approximately $18.3 million. Cash available at that date was approximately $853,000. Net cash provided by operations for the three months ended March 31, 1995 was $534,000. The Company's cash resources available during the first quarter of 1995 were satisfactory to meet its obligations. The Company's total long-term debt at March 31, 1995, including a current portion of approximately $3.2 million, was approximately $26.5 million. Such indebtedness included: (i) $4.0 million principal amount of an 8.5% Convertible Note; (ii) $1.0 million principal amount of an 8.25% Convertible Note; (iii) $13.3 million borrowed under the Company's $13.5 million revolving credit facility with Nations Bank, N.A. (the "Bank"); (iv) $5.0 million in term loans borrowed from the Bank and (v) approximately $3.2 million of other indebtedness. Under the terms of the Financing and Security Agreement between the Bank and the Company (the "Financing Agreement"), the Bank provides a $13.5 million revolving credit facility (the "Revolving Credit Facility") for a period of three years, expiring on June 30, 1996, bearing interest at either a fluctuating rate equal to the Bank's prime lending rate plus .25% or a fixed rate equal to the three-month London InterBank Offered Rate ("LIBOR") plus 2.5%, at the Company's option. The committed amount under the Financing Agreement will be automatically and permanently reduced, through mandatory pre-payments, to $13.25 million, $12.25 million, $12.0 million and $11.75 million at June 30, 1995, September 30, 1995, December 31, 1995 and March 31, 1996, respectively. The Revolving Credit Facility is collateralized by substantially all the assets of the Company and contains covenants restricting, among other things, the payment of dividends, the making of acquisitions and other transactions, and imposes net worth, debt service coverage and other financial maintenance requirements. 10 The Company plans to finance future acquisitions through internally generated funds or borrowings under the Revolving Credit Facility, the issuance of notes or shares of common stock of the Company, or through a combination thereof. During the first quarter of 1995, the Company acquired two orthotic and prosthetic companies and certain assets of another O&P company. Negotiations relating to those acquisitions commenced prior to the Restructuring. The total purchase price of the acquisitions effected during that period was $390,000, of which $215,000 was paid in cash, $175,000 was financed through seller notes. The cash paid to effect such acquisitions was borrowed under the Revolving Credit Facility established between the Company and the Bank. The Company is actively engaged in ongoing discussions with prospective acquisition candidates. The Company plans to continue to expand its operations through acquisitions, at a slower rate, with a view towards increasing efficiency and profitability of its existing facilities. Other Inflation has not had a significant effect on the Company's operations, as increased costs to the Company generally have been offset by increased prices of products and services sold. 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - Exhibit 11 - Computation of Net Income Per Share (b) Reports on Form 8-K NONE 12 SIGNATURES Pursuant to the requirements 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. HANGER ORTHOPEDIC GROUP, INC. Date: May 5, 1995 RONALD J. MANGANIELLO Ronald J. Manganiello Chief Executive Officer Date: May 5, 1995 RICHARD A. STEIN Richard A. Stein Vice President - Finance Principal Financial and Accounting Officer 13 EX-11 2 HANGER ORTHOPEDIC GROUP, INC. EXHIBIT 11 COMPUTATION OF NET INCOME PER SHARE FOR THE THREE MONTHS ENDED March 31, 1995 and 1994 1995 1994 ---- ---- Net income (loss) $ 244,000 $ (534,953) Less: Dividends declared 5,262 4,810 -------------------- -------------------- Total $ 238,938 $ (539,763) Divided by: Weighted average number of shares outstanding 8,290,544 8,383,181 ------------------- ------------------ Net income (loss) per share $.03 $(.06) ========================= =================== EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HANGER ORTHOPEDIC GROUP, INC.'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1995 MAR-31-1995 853,253 0 13,049,411 1,041,000 9,806,559 25,333,904 11,454,268 3,372,091 61,382,668 7,606,920 23,265,190 84,241 237,192 0 29,332,578 61,382,668 12,211,038 0 0 5,867,202 5,456,133 0 466,757 420,946 176,746 244,200 0 0 0 244,200 .03 0
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