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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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)
========================= ===================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 853,253
<SECURITIES> 0
<RECEIVABLES> 13,049,411
<ALLOWANCES> 1,041,000
<INVENTORY> 9,806,559
<CURRENT-ASSETS> 25,333,904
<PP&E> 11,454,268
<DEPRECIATION> 3,372,091
<TOTAL-ASSETS> 61,382,668
<CURRENT-LIABILITIES> 7,606,920
<BONDS> 23,265,190
<COMMON> 84,241
237,192
0
<OTHER-SE> 29,332,578
<TOTAL-LIABILITY-AND-EQUITY> 61,382,668
<SALES> 12,211,038
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 5,867,202
<OTHER-EXPENSES> 5,456,133
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 466,757
<INCOME-PRETAX> 420,946
<INCOME-TAX> 176,746
<INCOME-CONTINUING> 244,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244,200
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
