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, 1996
--------------
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.
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(Exact name of registrant as specified in its charter)
Delaware 84-0904275
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7700 Old Georgetown Road, Bethesda, MD 20814
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(301) 986-0701
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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 1, 1996; 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, 1996
(unaudited) and December 31, 1995 2
Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1995 (unaudited) 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 (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>
<TABLE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,146,310 $ 1,456,305
Accounts receivable less allowances for
doubtful accounts of $1,257,000 and
$1,144,000 in 1996 and 1995, respectively 12,299,318 13,324,991
Inventories 10,434,845 10,312,289
Prepaid expenses and other assets 1,454,513 1,040,914
Deferred income taxes 804,499 804,499
----------- -----------
Total current assets 26,139,485 26,938,998
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land 2,991,245 2,991,245
Buildings 2,595,414 2,592,214
Machinery and equipment 3,768,973 3,654,780
Furniture and fixtures 1,604,715 1,575,493
Leasehold improvements 1,197,058 1,184,782
----------- -----------
12,157,405 11,998,514
Less accumulated depreciation and amortization 4,520,785 4,232,858
----------- -----------
7,636,620 7,765,656
INTANGIBLE ASSETS
Excess of cost over net assets acquired 27,134,573 27,133,528
Non-compete agreements 4,786,371 4,786,371
Other intangible assets 3,835,753 3,825,240
----------- -----------
35,756,697 35,745,139
Less accumulated amortization 9,393,237 9,035,394
----------- -----------
26,363,460 26,709,745
OTHER ASSETS
Other 377,322 385,662
----------- -----------
TOTAL ASSETS $60,516,887 $61,800,061
=========== ===========
</TABLE>
2
<PAGE>
<TABLE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,943,011 $ 1,828,953
Accounts payable 1,806,759 1,612,401
Accrued expenses 826,132 710,510
Customer deposits 305,987 489,758
Accrued wages and payroll taxes 1,317,474 1,495,013
Deferred revenue 184,420 180,587
----------- -----------
Total current liabilities 6,383,783 6,317,222
----------- -----------
Long-term debt 21,495,428 22,925,124
Deferred income taxes 709,863 706,965
Other liabilities and accrued dividends 232,554 305,499
Mandatorily redeemable preferred stock, class C, 300
shares authorized, liquidation preference of $500 per 259,641 253,886
share
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 1996 and 1995, respectively 84,241 84,241
Additional paid-in capital 33,568,302 33,574,058
Accumulated deficit (1,561,363) (1,711,372)
----------- -----------
32,091,180 31,946,927
Treasury stock - (133,495 shares) (655,562) (655,562)
----------- -----------
31,435,618 31,291,365
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $60,516,887 $61,800,061
=========== ===========
</TABLE>
3
<PAGE>
<TABLE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED March 31, 1996 and 1995
(unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Sales $ 12,229,029 $ 12,211,038
Cost of products and services sold 5,884,724 5,867,202
------------- -------------
Gross profit 6,344,305 6,343,836
Selling, general & administrative 4,997,078 4,727,703
Depreciation and amortization
476,155 538,970
Amortization of excess cost over net assets acquired
169,615 172,942
Income from operations
701,457 904,221
Other expense:
Interest expense, net (393,236) (466,757)
Other (45,512) (16,518)
------------- -------------
Income from operations before income taxes 262,709 420,946
Provision for income taxes 112,700 176,746
------------- -------------
Net income $ 150,009 $ 244,200
============= =============
Income per common share:
Net income per share $ .02 $ .03
============= =============
Weighted average number of common shares
outstanding 8,324,263 8,290,544
</TABLE>
4
<PAGE>
<TABLE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED March 31, 1996 and 1995
(unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 150,008 $ 244,200
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for bad debt 236,503 127,232
Depreciation and amortization 476,155 538,970
Amortization of excess cost over net
assets acquired 169,615 172,942
Changes in assets and liabilities, net
of effect from acquired companies:
Accounts receivable 789,170 275,507
Inventory (122,556) (295,203)
Prepaid and other assets (413,599) (428,611)
Other assets 8,341 128,298
Accounts payable 194,358 92,745
Accrued expenses 204,475 (60,304)
Accrued wages and payroll taxes (177,539) (365,558)
Customer deposits (183,771) (98,210)
Deferred revenue 3,833 2,846
Taxes payable (72,945) 176,746
Other liabilities (85,955) 22,773
----------- -----------
Total adjustments 1,026,085 290,173
----------- -----------
Net cash provided by operating activities 1,176,093 534,373
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets, net (158,891) (330,647)
Purchase of patents (10,513) (17,089)
Acquisitions, net of cash (265,194)
Purchase of non-compete agreements (35,000)
Other intangibles (1,045) (1,103)
----------- -----------
Net cash used in investing activities (170,449) (649,033)
----------- -----------
Continued
</TABLE>
5
<PAGE>
<TABLE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED March 31, 1996 and 1995
(unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net borrowings (repayments) under revolving
credit facility $ (900,000) $ 500,000
Repayment of long-term debt (415,639) (613,357)
Increase in financing costs 32,889
------------ ------------
Net cash used in financing activities (1,315,639) (80,468)
------------ ------------
Net change in cash and cash equivalents for the period (309,995) (195,128)
Cash and cash equivalents at beginning of period 1,456,305 1,048,381
------------ ------------
Cash and cash equivalents at end of period $ 1,146,310 $ 853,253
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 542,255 $ 616,808
============ ============
Taxes $ 207,780
============
Non-cash financing and investing activities:
Issuance of notes in connection with acquisitions $ 175,000
============
Dividends declared - preferred stock $ 5,755 5,262
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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, 1995, 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, 1996 and December 31, 1995 were comprised of the
following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
(unaudited)
<S> <C> <C>
Raw materials $ 8,292,954 $ 8,526,760
Work-in-process 1,264,685 1,107,289
Finished goods 877,206 678,240
------------ ------------
$ 10,434,845 $ 10,312,289
============ ============
</TABLE>
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:
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
--------------
1996 1995
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of products and services sold 48.1 48.0
Gross profit 51.9 52.0
Selling, general & administrative
expenses 40.9 38.7
Depreciation and amortization 3.9 4.4
Amortization of excess cost over net
assets acquired 1.4 1.4
Income from operations 5.7 7.4
Interest expense 3.2 3.8
Provision for income taxes .9 1.4
Net income 1.2 2.0
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1995
NET SALES
Net sales for the three months ended March 31, 1996, amounted to
approximately $12,229,000, an increase of approximately $18,000, or .1%, over
net sales of approximately $12,211,000 for the three months ended March 31,
1995. The increase in net sales, which occurred notwithstanding the closing
during 1995 of nine unprofitable patient-care centers, was primarily
attributable to the acquisition of two patient-care centers in Montana and
Florida in January and March 1995, respectively. Of the net sales contributed
by patient-care centers and facilities that were in operation during the first
quarters of both 1995 and 1996, patient-care centers recorded an increase in
net sales of $171,000, or 2%, manufacturing experienced a $300,000, or 13%,
decline in net sales, and distribution recorded a $127,000, or 22% increase in
net sales.
8
<PAGE>
GROSS PROFIT
Gross profit during the three months ended March 31, 1996 amounted to
approximately $6,344,000 and remained unchanged when compared to the prior
period. Gross profit as a percent of net sales decreased from 52.0% in the
first quarter of 1995 to 51.9% in the first quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses in the three months ended
March 31, 1996 increased by approximately $269,000, or 5.7%, compared to the
three months ended March 31, 1995. Selling, general and administrative
expenses as a percent of net sales increased to 40.9% from 38.7% for the same
period a year ago. The increase in selling, general and administrative
expenses was primarily a result of the Company's recently instituted OPNET
program.
INCOME FROM OPERATIONS
Principally as a result of the above, the income from operations in the
quarter ended March 31, 1996 amounted to approximately $701,000, a decrease of
$203,000, or 22.4%, from the prior year's comparable quarter. Income from
operations as a percent of net sales decreased to 5.7% in the first quarter of
1996 from 7.4% for the prior year's comparable period.
INTEREST EXPENSE
Interest expense in the first quarter of 1996 amounted to approximately
$393,000, a decrease of approximately $74,000, or 15.8%, from the
approximately $467,000 of interest expense incurred in the first quarter of
1995. Interest expense as a percent of net sales decreased to 3.2% from 3.8%
for the same period a year ago. The decrease in interest was primarily a
result of a decrease in outstanding borrowings of approximately $3,000,000.
INCOME TAXES
The provision for income taxes in the first quarter of 1996 amounted to
approximately $113,000 compared to approximately $177,000 in the first quarter
of 1995.
NET INCOME
As a result of the above, the Company recorded net income of
approximately $150,000 in the quarter ended March 31, 1996, compared to net
income of approximately $244,000 in the quarter ended March 31, 1995.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated working capital at March 31, 1996 was
approximately $19.8 million. Cash available at that date was approximately
$1,146,000. Net cash provided by operations for the three months ended March
31, 1996 was approximately $1,176,000. The Company's cash resources available
during the first quarter of 1996 were satisfactory to meet its obligations.
The Company's total long-term debt at March 31, 1996, including a current
portion of approximately $1.9 million, was approximately $23.4 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) $11.8 million borrowed under the Company's revolving credit
facility with NationsBank, N.A. (the "Bank"); (iv) $4.4 million in term loans
borrowed from the Bank; and (v) approximately $2.2 million of other
indebtedness.
Under the terms of the Financing and Security Agreement, as amended,
between the Bank and the Company (the "Financing Agreement"), the Bank
currently provides a $13.0 million revolving credit facility (the "Revolving
Credit Facility"). The Revolving Credit Facility bears interest, at the
Company's option, 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%.
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.
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.
The Company is actively engaged in ongoing discussions with prospective
acquisition candidates. The Company plans to continue to expand its operations
through acquisitions, although at a slower rate than in prior years, 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.
10
<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
11
<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 10, 1996 /s/IVAN R. SABEL
---------------------------
Ivan R. Sabel, CPO
Chief Executive Officer
Date: May 10, 1996 /s/RICHARD A. STEIN
---------------------------
Richard A. Stein
Vice President - Finance
Principal Financial and
Accounting Officer
HANGER ORTHOPEDIC GROUP, INC.
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
FOR THE THREE MONTHS ENDED March 31, 1996 and 1995
1996 1995
---- ----
Net income $ 150,009 $ 244,200
Less:
Dividends declared 5,755 5,262
----------- -----------
Total $ 144,254 $ 238,938
Divided by:
Weighted average number of shares
outstanding 8,324,263 8,290,544
=========== ===========
Net income per share $.02 $.03
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000722723
<NAME> HANGER ORTHOPEDIC GROUP INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,146,310
<SECURITIES> 0
<RECEIVABLES> 13,556,318
<ALLOWANCES> 1,257,000
<INVENTORY> 10,434,845
<CURRENT-ASSETS> 26,139,485
<PP&E> 12,157,405
<DEPRECIATION> 4,520,785
<TOTAL-ASSETS> 60,516,887
<CURRENT-LIABILITIES> 6,383,783
<BONDS> 21,495,428
259,641
0
<COMMON> 84,241
<OTHER-SE> 31,351,377
<TOTAL-LIABILITY-AND-EQUITY> 60,516,887
<SALES> 12,229,029
<TOTAL-REVENUES> 12,229,029
<CGS> 5,884,724
<TOTAL-COSTS> 5,884,724
<OTHER-EXPENSES> 4,997,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393,236
<INCOME-PRETAX> 262,709
<INCOME-TAX> 112,700
<INCOME-CONTINUING> 150,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,009
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
