-----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, Bp9rwe/opUCqRz9MYEe0o2BBxJXx9HB714fg9iB3Z5I0nbP1/z/ABBRJCUz7D/XZ egB1jePoja7KzRi6KLoLfA== 0000928385-99-003100.txt : 19991025 0000928385-99-003100.hdr.sgml : 19991025 ACCESSION NUMBER: 0000928385-99-003100 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991022 ITEM INFORMATION: FILED AS OF DATE: 19991022 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANGER ORTHOPEDIC GROUP INC CENTRAL INDEX KEY: 0000722723 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 840904275 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10670 FILM NUMBER: 99732164 BUSINESS ADDRESS: STREET 1: 7700 OLD GEORGETOWN RD 2ND FL CITY: BETHESDA STATE: MD ZIP: 20814 BUSINESS PHONE: 3019860701 MAIL ADDRESS: STREET 1: 7700 OLD GEORGETOWN RD 2ND FL 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 1 FORM 8-K DATED 10/22/1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities and Exchange Act of 1934 October 22, 1999 ------------------------------------------------ Date of Report (Date of earliest event reported) HANGER ORTHOPEDIC GROUP, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter)
Delaware 0-10670 84-0904275 - ---------------------------- ----------- --------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification Number) Two Bethesda Metro Center, Suite 1300, Bethesda, Maryland 20814 (Address of principal executive offices) (zip code) ----------------------------------------------------------------------
Registrant's telephone number, including area code: (301) 986-0701 -------------- 7700 Old Georgetown Road, Bethesda, Maryland ---------------------------------------------------------------------- (Former Address) Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. ----------------------------------------------------- (a) Financial Statements of Businesses Acquired. --- ------------------------------------------- On July 15, 1999, Hanger Orthopedic Group, Inc. ("Hanger") filed a Form 8-K reporting its acquisition of NovaCare Orthotics and Prosthetics, Inc. ("NovaCare O&P") and including NovaCare O&P financial statements for its fiscal years ended June 30, 1997 and 1998 (audited) and nine-month periods ended March 31, 1998 and 1999 (unaudited). The purpose of this Form 8-K is to file audited financial statements of NovaCare O&P for its fiscal year ended June 30, 1999, which will be incorporated by reference into Hanger's Registration Statement on Form S-4 (File No. 33-85045) relating to an exchange offer for its 11 1/4% Senior Subordinated Notes due 2009. Attached hereto are (i) NovaCare O&P consolidated balance sheet, dated June 30, 1999, (ii) NovaCare O&P consolidated statement of operations, consolidated statement of net investment and consolidated statement of cash flows for the fiscal year ended June 30, 1999, and (iii) the report of independent accountants and notes to the NovaCare O&P financial statements. 2 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. Date: October 22, 1999 HANGER ORTHOPEDIC GROUP, INC. By: /s/ Richard A. Stein ------------------------ Richard A. Stein Vice-President-Finance, Secretary and Treasurer 3 INDEX TO FINANCIAL STATEMENTS Page ---- NovaCare Orthotics and Prosthetics, Inc.: Report of Independent Accountants................... F-1 Consolidated balance sheet dated June 30, 1999...... F-2 Consolidated statement of operations for the fiscal year ended June 30, 1999................... F-3 Consolidated statement of net investment for the fiscal year ended June 30, 1999................... F-4 Consolidated statement of cash flows for the fiscal year ended June 30, 1999................... F-5 Notes to consolidated financial statements.......... F-6 4 Report of Independent Accountants To the Board of Directors and Shareholder of NovaCare Orthotics and Prosthetics, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, net investment and of cash flows present fairly, in all material respects, the financial position of NovaCare Orthotics and Prosthetics, Inc. and its subsidiaries ("the Company") at June 30, 1999, and the results of their operations and their cash flows for the year ended June 30, 1999, in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania October 13, 1999 F-1 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Consolidated Balance Sheet June 30, 1999 - ------------------------------------------------------------------------- (In thousands)
1999 Assets Current assets: Accounts receivable, net of allowance of $8,700 $58,327 Inventories 32,312 Deferred income taxes 2,525 Other current assets 3,102 --------- Total current assets 96,266 Property and equipment, net 13,479 Excess cost of net assets acquired, net 258,894 Other assets, net 2,540 --------- $371,179 --------- Liabilities and NovaCare, Inc. Net Investment Current liabilities: Current portion of financing arrangements-third parties $12,383 Accounts payable and accrued expenses-related party 94,592 Accounts payable and accrued expenses-third parties 29,252 -------- Total current liabilities 136,227 Financing arrangements, net of current portion - third parties 24,922 Deferred income taxes 5,156 Other 1,220 -------- Total liabilities 167,525 Commitments and contingencies NovaCare, Inc. net investment 203,654 -------- $371,179 --------
The accompanying notes are an integral part of these consolidated financial statements. F-2 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Consolidated Statement of Operations For the Year Ended June 30, 1999 - ------------------------------------------------------------------------- (In thousands)
1999 Net revenues $278,820 Cost of services 223,409 ------------ Gross profit 55,411 Selling, general and administrative expenses 15,971 Selling, general and administrative expenses allocated from related party 17,015 Provision for uncollectible accounts 10,332 Amortization of excess cost of net assets acquired 7,430 ------------ Income from operations 4,663 Interest expense-related party (5,891) Interest expense-third parties (2,811) Royalty expense-related party (12,583) Minority interest (200) ------------ Loss before income tax benefit (16,822) Income tax benefit (3,400) ------------ Net loss $(13,422) ------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Consolidated Statement of Net Investment For the Year Ended June 30, 1999 - ------------------------------------------------------------------------ (In thousands) Balance at June 30, 1998 $99,490 Net contributions from NovaCare, Inc. 117,586 Net loss (13,422) ------------ Balance at June 30, 1999 $203,654 ------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Consolidated Statement of Cash Flows For the Year Ended June 30, 1999 - -------------------------------------------------------------------- (In thousands)
1999 Cash flows from operating activities: Net loss $(13,422) Adjustments to reconcile net loss to net cash flows provided by operating activities: Depreciation and amortization 11,741 Provision for uncollectible accounts 10,332 Minority interest 200 Deferred income taxes (302) Changes in assets and liabilities Accounts receivable (12,707) Inventories 5,667 Other current assets 1,024 Accounts payable and accrued expenses - third parties 5,564 Other, net (1,302) ------------ Net cash flows provided by operating activities 6,795 ------------ Cash flows from investing activities: Payments for businesses acquired (9,289) Additions to property and equipment (4,804) ------------ Net cash flows used in investing activities (14,093) ------------ Cash flows from financing activities: Payment of long-term debt and credit arrangements - third parties (14,359) Net advances from related party 19,698 ------------ Net cash flows provided by financing activities 5,339 ------------ Net decrease in cash and cash equivalents (1,959) Cash and cash equivalents, beginning of year 1,959 ------------ Cash and cash equivalents, end of year $ - ------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - -------------------------------------------------------------------------------- (In thousands) 1. Summary of Significant Accounting Policies Nature of Operations NovaCare Orthotics and Prosthetics, Inc. (the "Company") is a wholly owned subsidiary of NovaCare, Inc. (the "Parent"). The Company provides clinical services to patients including the design, fitting, fabrication and servicing of orthotic and prosthetic devices. Orthotic devices are used to provide external support, correction or protection to patients suffering from musculoskeletal conditions. Prosthetic devices are artificial limbs used by patients who have suffered the loss of a limb as a result of vascular diseases, diabetes, cancer, or trauma. Basis of Presentation The financial statements of the Company include the consolidated financial position, results of operations, and cash flows of the Company. The Parent's historical cost basis of assets and liabilities has been reflected in the Company's financial statements. The financial information in these financial statements is not necessarily indicative of results of operations, financial position and cash flows that would have occurred if the Company had been a separate stand-alone entity during the periods presented or of future results. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and companies effectively controlled through management agreements. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated. The Company recognizes a minority interest in its Balance Sheet and Statement of Operations for the portion of majority-owned subsidiaries attributable to its minority owners. 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 period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers its holdings of highly liquid debt and money-market instruments to be cash equivalents if the securities mature within 90 days from the date of acquisition. These investments are carried at cost, which approximates fair value. Net Revenues Net revenues are reported at the net realizable amounts from customers and third-party payors. Net revenues generated directly from Medicare and Medicaid reimbursement programs represented 35% of the Company's consolidated net revenues for the year ended June 30, 1999. F-6 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - -------------------------------------------------------------------------------- (In thousands) Inventories Inventories consist of customized orthotic and prosthetic merchandise held for sale, work in process and raw materials and are carried at the lower of cost or market. Cost of inventories is determined by the first-in, first-out method. Property and Equipment Property and equipment are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, which range principally from three to seven years for property and equipment and 30 to 40 years for buildings. Leasehold improvements are amortized over the lesser of the lease term or the asset's estimated useful life. Property and equipment also include external and incremental internal costs incurred to develop major business systems. Excess Cost of Net Assets Acquired Assets and liabilities acquired in connection with business combinations accounted for under the purchase method are recorded at their respective fair values. Deferred taxes have been recorded to the extent of the difference between the fair value and the tax basis of the assets acquired and liabilities assumed. The excess of the purchase price over the fair value of net assets acquired, including the recognition of applicable deferred taxes, consists of non-compete agreements, customers lists, and goodwill and is amortized on a straight-line basis over the estimated useful lives of the assets which range from five to 40 years. Effective July 1, 1997, the Company 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", which establishes accounting standards for the impairment of long-lived assets, certain identified intangible assets and goodwill related to those assets to be held and used and for long-lived assets and certain intangible assets to be disposed of. In accordance with SFAS No. 121, the Company reviews the realizability of long-lived assets, certain intangible assets and goodwill whenever events or circumstances occur which indicate recorded cost may not be recoverable. The Company also reviews the overall recoverability of goodwill based primarily on estimated future undiscounted cash flows. If the expected future cash flows (undiscounted) are less than the carrying amount of such assets, the Company recognizes an impairment loss for the difference between the carrying amount of the assets and their estimated fair value. In estimating future cash flows for determining whether an asset is impaired, and in measuring assets that are impaired, assets are grouped by geographic region. Other Assets Other assets consist principally of acquired patents, and security deposits. Income Taxes The Company records deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns in accordance with SFAS No. 109. See further discussion of income tax transactions with the Parent in Note 2. F-7 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - -------------------------------------------------------------------------------- (In thousands) 2. Related Party Transactions As a NovaCare, Inc. subsidiary, the Company entered into several arrangements where other NovaCare, Inc. subsidiaries charged fees for services that those subsidiaries provided to the Company. Upon a change of control of the Company, certain of these arrangements may be voided and the Company will no longer be subject to these fees. The Company will, however, be responsible for obtaining independent financing and will incur selling, general and administrative expenses related to the provision of these services. The following is a listing of the related party transactions reflected in the historical financial statements of the Company. Trademarks The Company is charged a royalty fee equal to a percentage of revenues for the use of the "NovaCare" name and trademark. Fees are paid to the Parent on a quarterly basis in accordance with the trademark agreement. As of April 1, 1999, the trademark agreement was terminated and the Company was no longer charged a fee for the use of the "NovaCare" name and trademark. Advances and Financing Arrangements The Company participated in the Parent's centralized cash management system to finance operations and acquisitions. The Company's cash deposits are transferred to the Parent on a daily basis. The Parent funds the Company's disbursement bank accounts as required. When disbursements exceed deposits, the Parent advances the difference to the Company through an interest-free accrued liability account. Assuming a LIBOR plus 1.5% borrowing rate, which approximates the Parent's borrowing rate, interest expense on net advances from the Parent would have been approximately $7,141 for the year ended June 30, 1999. In addition, certain advances from the Parent to the Company were funded through a line of credit arrangement. The annual interest rate on the line of credit was the prime rate of the Parent's lending bank plus 1.5% on the daily outstanding balance. Interest due to the Parent was paid quarterly in accordance with the loan agreement. As of April 1, 1999, the line of credit was satisfied by contribution of the balance under the line of credit to net investment by the Parent, and the loan agreement was terminated. Noncash contributions to net investment during the year ended June 30, 1999 were $117,586 and represent noncash financing activities. F-8 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - ----------------------------------------------------------------------------- (In thousands) Allocated Selling, General and Administrative The Parent has historically provided leased office space at the Parent's headquarters and certain selling, general and administrative services to the Company including shared management, legal, information systems, finance, and human resources. These expenses were allocated to the Company based on net revenues, specific utilization, or other methods which management of the Company believes to be reasonable. The expenses allocated to the Company for these services are not necessarily indicative of the expenses that would have been incurred if the Company had been a separate, independent entity that had managed these functions or if the Company contracted for these services with an independent third party. Income Taxes The Company is included in the consolidated Federal income tax return of the Parent. All tax payments are made by the Parent on behalf of the Company. The Company includes the liability for tax payments in its accrued liability account with the Parent. Current and deferred tax expense, included in these statements, was calculated as if the Company had filed separate income tax returns. Under a tax sharing agreement with the Parent, the Company is entitled to the tax benefits, attributable to the Company's losses, which are used in the Parent's consolidated return. Benefits and Payroll Service Fees The Company contracted with NovaCare Employee Services, Inc. (NCES), to provide payroll and benefit management administration. Under the agreement, NCES is reimbursed for all payroll and related benefit costs in addition to an administrative fee. Administrative fees incurred, related to this agreement were $6,638 for the year ended June 30, 1999. This amount is included in selling, general and administrative expenses allocated from related party. Additionally, payroll and related benefits expense disbursed by NCES for the Company approximated $2,415 for the year ended June 30, 1999. 3. Acquisition Transactions There were no acquisitions during the year ended June 30, 1999. During the years ended June 30, 1998 and 1997, the Company acquired 42 and 33 businesses, respectively. F-9 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - ------------------------------------------------------------------------------ (In thousands) Information with respect to businesses acquired in purchase transactions was as follows:
As of June 30, 1999 Excess cost of net assets acquired $287,041 Less: accumulated amortization 28,147 ------------- $258,894 -------------
Certain purchase agreements require additional payments if specific financial targets are met. Aggregate contingent payments in connection with these acquisitions at June 30, 1999 of approximately $15,910 have not been included in the initial determination of cost of the businesses acquired since the amount of such contingent consideration that may be paid in the future, if any, is not presently determinable. In connection with businesses acquired in prior years, the Company paid $8,526 in cash for the year ended June 30, 1999. 4. Inventories Inventories consisted of the following:
As of June 30, 1999 Materials and supplies $17,028 Work in process 12,376 Finished goods 2,908 ------------- $32,312 -------------
F-10 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - -------------------------------------------------------------------------- (In thousands) 5. Property and Equipment The components of property and equipment were as follows:
As of June 30, 1999 Land and buildings $477 Property, equipment and furniture 18,984 Leasehold improvements 10,665 ----------- 30,126 Less: accumulated depreciation 16,647 ----------- $13,479 -----------
Depreciation expense, including depreciation expense allocated by the Parent, for the year ended June 30, 1999 was $4,311. 6. Accounts Payable and Accrued Expenses - Third Parties Accounts payable and accrued expenses are summarized as follows:
As of June 30, 1999 Accounts payable $10,498 Accrued compensation and benefits 8,968 Accrued contingent purchase price 4,761 Accrued interest 1,632 Other 3,393 ----------- $29,252 -----------
F-11 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - -------------------------------------------------------------------------- (In thousands) 7. Financing Arrangements Financing arrangements consisted of the following:
As of June 30, 1999 Subordinated promissory notes (6% to 9%), payable through 2007 $36,491 Other 814 ----------- 37,305 Less: Current portion 12,383 ----------- $24,922 -----------
Subordinated promissory notes consist primarily of notes to former owners of businesses acquired. Carrying value of the notes approximates fair value. The Company also had financing arrangements with a related party comprising a line of credit with NovaCare, Inc. (See Note 2). At June 30, 1999, aggregate annual maturities of financing arrangements were as follows for the next five fiscal years and thereafter:
June 30, 2000 $12,383 2001 10,019 2002 7,980 2003 5,252 2004 252 Thereafter 1,419 ----------- $37,305 -----------
Interest paid on debt during 1999 was $9,151. 8. Leases The Company rents office and clinical space, transportation and therapy equipment under non-cancelable operating leases. F-12 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - -------------------------------------------------------------------------- (In thousands) Future minimum lease commitments for all non-cancelable operating leases as of June 30, 1999 are as follows:
Operating June 30, Leases 2000 $10,492 2001 8,175 2002 5,551 2003 3,022 2004 1,299 Thereafter 712 ------- Total minimum lease payments $29,251 -------
Rent expense was approximately $14,153 for the year ended June 30, 1999. 9. Income Taxes The components of income tax (benefit) expense were as follows:
Year Ended June 30, 1999 Current: Federal $ (3,223) State 125 ----------- (3,098) ----------- Deferred: Federal (236) State (66) ----------- (302) ----------- $ (3,400) -----------
F-13 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - -------------------------------------------------------------------------- (In thousands) The components of net deferred tax assets (liabilities) as of June 30, 1999 were as follows:
As of June 30, 1999 Accruals and reserves not currently deductible for tax purposes $2,099 Other 426 ----------- Gross deferred tax assets 2,525 ----------- Depreciation and capital leases (5,156) ----------- Gross deferred tax liabilities (5,156) ----------- Net deferred tax liability $ (2,631) -----------
The reconciliation of the expected tax benefit (computed by applying the Federal statutory tax rate to income before income taxes) to actual tax benefit was as follows:
Year Ended June 30, 1999 Expected federal income tax benefit $(5,888) State income taxes, less federal benefit 81 Non-deductible nonrecurring items 56 Non-deductible amortization of excess cost of net assets acquired 1,738 Other, net 613 ----------- $(3,400) -----------
F-14 NovaCare Orthotics and Prosthetics, Inc. and Subsidiaries (A Wholly-owned Subsidiary of NovaCare, Inc.) Notes to Consolidated Financial Statements June 30, 1999 - -------------------------------------------------------------------------- (In thousands) 10. Benefit Plans Retirement Plans Through the Parent, the Company participates in defined contribution 401(k) plans covering substantially all of its employees. The Company's portion of contributions made to the plans by the Parent for the year ended June 30, 1999 was $823. Stock Option Plans Certain employees of the Company participate in the Parent's stock option plans. Under the plans, substantially all options are granted for a term of up to 10 years at prices equal to the fair market value at the date of grant. Upon a change of control, options vest immediately and no further liability would accrue to either the Company or the Parent. 11. Commitments and Contingencies The Company is subject to legal proceedings and claims which arise in the ordinary course of its business, including a claim of $10 million related to alleged contingent additional payments under a business purchase agreement. 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. 12. Year End Adjustment As a result of a physical inventory, the Company recorded a fourth quarter adjustment of approximately $13.5 million, reducing inventory and increasing cost of services. Book inventory amounts during the year were determined based on a cost of services estimate established at the time of the prior physical inventories. 13. Subsequent Events The Company was acquired by Hanger Orthopedic Group, Inc. on July 1, 1999. F-15 -----END PRIVACY-ENHANCED MESSAGE-----