SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
Amendment No. 1 to Form 8-K filed on April 15, 1997
(Date of earliest event reported was April 1, 1997)
HANGER ORTHOPEDIC GROUP, INC.
------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 1-10670 84-0904275
---------------------------- ------------ --------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
7700 Old Georgetown Road, Bethesda, Maryland 20814
------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (301) 986-0701
The undersigned registrant hereby amends the following items of its
Current Report on Form 8-K filed on April 15, 1997, as set forth in the pages
attached hereto:
Items 7(a) and 7(b) - Historical Financial Statements
and Pro Forma Financial Information
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.
Date: June 13, 1997 By:/s/RICHARD A. STEIN
-------------------
Richard A. Stein
Vice President-Finance,
Secretary and Treasurer
<PAGE>
The Current Report of Hanger Orthopedic Group, Inc. (the "Company"),
filed on April 15, 1997, reported the acquisition by the Company on April 1,
1997 of substantially all of the orthotic and prosthetic assets of ACOR
Orthopaedic, Inc. ("Acor"), a company primarily engaged in providing orthotic
and prosthetic patient care services in the central Ohio area and
headquartered in Cleveland, Ohio. Items 7(a) and 7(b) of the report stated
that the historical financial statements of ACOR required under Rule 3-05 of
Regulation S-X and the pro forma financial information required under Article
11 of Regulation S-X would be filed no later than 60 days after the date by
which the Form 8-K was required to be filed. The purpose of this amendment is
to file such financial statements and information.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The following lists the historical financial statements of ACOR
attached hereto:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants. . . . . . . . . . . . . . 3
Balance Sheets as of December 31, 1996 and 1995. . . . . . . 4
Statements of Income for the years ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 5
Statements of Changes in Divisional Equity for
the years ended December 31, 1996 and 1995 . . . . . . . . 6
Statements of Cash Flows for the years ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 7
Notes to financial statements. . . . . . . . . . . . . . . . 8
(b) PRO FORMA FINANCIAL INFORMATION.
</TABLE>
The following lists the pro forma financial information attached
hereto:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro forma balance sheets dated March 31, 1997,
and December 31, 1996. . . . . . . . . . . . . . . . . . . 13
Pro forma statements of operations for the three
months ended March 31, 1997 and the year ended
December 31, 1996. . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
2
<PAGE>
ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION
REPORT ON AUDITS OF
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
<PAGE>
[LOGO: ] | COOPERS & LYBRAND
[Coopers & Lybrand] |
| a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
ACOR Orthopaedic, Inc. - Retail Division:
We have audited the accompanying balance sheets of ACOR Orthopaedic, Inc. -
Retail Division as of December 31, 1996 and 1995 and the related statements of
income, changes in divisional equity, and cash flows for the years then ended.
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ACOR Orthopaedic, Inc. -
Retail Division as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 18, 1997
3
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE>
ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION
<TABLE>
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 153,393 $ 586,219
Accounts receivable, net of allowance for doubtful
accounts of $28,000 and $32,000, respectively 852,716 737,857
Inventories 641,139 588,067
Prepaid expenses 13,500 9,972
---------- ----------
1,660,748 1,922,115
---------- ----------
Total current assets
Property, plant and equipment:
Machinery and equipment 74,004 73,334
Leasehold improvements 56,783 52,197
Furniture and fixtures 42,909 40,267
---------- ----------
173,696 165,798
Less: accumulated depreciation 96,594 84,328
---------- ----------
Net property, plant and equipment 77,102 81,470
Deposits 1,500 924
---------- ----------
Total assets $1,739,350 $2,004,509
========== ==========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable 160,265 160,630
Accrued payroll and other 54,715 38,664
Related party payable 37,000 83,000
---------- ----------
Total current liabilities 251,980 282,294
Commitments and contingent liabilities
Divisional equity 1,487,370 1,722,215
---------- ----------
Total liabilities and divisional equity $1,739,350 $2,004,509
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION
<TABLE>
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales $5,231,514 $4,754,460
Cost of goods sold 1,758,246 1,624,301
---------- ----------
Gross profit 3,473,268 3,130,159
---------- ----------
Operating expenses:
Salaries and related expenses 1,637,517 1,611,946
Selling, general and administrative 564,349 539,109
---------- ----------
Total operating expenses 2,201,866 2,151,055
---------- ----------
Net income $1,271,402 $ 979,104
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION
<TABLE>
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<S> <C>
Balance at December 31, 1994 $ 1,347,303
Net income 979,104
------------
Cash distributions to owners (604,192)
Balance at December 31, 1995 1,722,215
Net income 1,271,402
Cash distributions to owners (1,506,247)
------------
Balance at December 31, 1996 $ 1,487,370
============
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,271,402 $ 979,104
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 12,266 15,347
Provision (recovery) for bad debt (4,000) 10,000
Changes in assets and liabilities:
Accounts receivable (110,859) (25,207)
Inventories (53,072) (35,167)
Other assets (4,104) (2,396)
Accounts payable and accrued expenses 15,686 90,062
Related party payable (46,000) 23,000
------------ ------------
Net cash provided by operating activities 1,081,319 1,054,743
------------ ------------
Cash flows from investing activities:
Capital expenditures (7,898) (1,817)
------------ ------------
Net cash used in investing activities (7,898) (1,817)
------------ ------------
Cash flows from financing activities:
Cash distributions to owners (1,506,247) (604,192)
------------ ------------
Net cash used in financing activities (1,506,247) (604,192)
------------ ------------
Net change in cash and cash equivalents (432,826) 448,734
------------ ------------
Cash and cash equivalents, beginning of year 586,219 137,485
------------ ------------
Cash and cash equivalents, end of year $ 153,393 $ 586,219
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
7
<PAGE>
ACOR ORTHOPAEDIC, INC. - RETAIL DIVISION
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND:
ACOR Orthopaedic, Inc. - Retail Division (the "Company") is one of the
leading retailers of orthopedic and prosthetic products in Cleveland,
Ohio. Each of the three retail locations provide various products
including orthopedic braces, orthotics, prosthetics, custom footwear and
durable medical equipment. The Company is an operating division of ACOR
Orthopaedic, Inc. (the "Corporation") and is not a separate legal entity.
The financial statements for the Company as of December 31, 1996 and 1995
and for the years then ended have been prepared from books and records
maintained by the Corporation. These financial statements reflect the
financial position and results of operations of the Company at their
historical bases, including allocations of certain costs by the
Corporation. The Company's cash balance was determined using cash flow
contributions less distributions. Certain income statement amounts were
determined using estimates based on factors such as square footage
utilized by the Company as compared to total square footage and
divisional sales. These allocated costs, while reasonable under the
circumstances, may not represent the cost of similar activities on a
separate entity basis. The accounts and transactions between the
divisions have been disclosed as related party transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash and cash
equivalents. Cash includes currency on hand and demand deposits with high
quality institutions. At various times throughout the year, the Company
maintains cash balances in excess of FDIC limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
At December 31, 1996 and 1995, the carrying value of financial
instruments such as cash and cash equivalents, trade receivables and
trade payables approximates fair value.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INVENTORIES:
Inventories are stated at the lower of cost or market and consists
predominantly of finished goods available for sale. Cost is determined on
the average cost method.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost and are depreciated by
either the straight-line or double-declining balance method over their
estimated useful lives. Costs of major additions and betterments are
capitalized; maintenance and repairs which do not improve or extend the
life of respective assets are charged to operations as incurred. When an
asset is sold or otherwise disposed of, the cost of the property and the
related accumulated depreciation are removed from the respective
accounts, and any resulting gains or losses are reflected in income.
LONG-LIVED ASSET IMPAIRMENT:
Effective January 1, 1996, the Corporation 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." The
provisions of SFAS 121 require the Company to review its long-lived
assets for impairment on an exception basis whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through future cash flows. If it is determined that an
impairment loss has occurred based on expected cash flows, then the loss
is recognized in the income statement. The adoption of SFAS 121 did not
have an effect on the Company's financial statements.
REVENUE RECOGNITION:
Revenue on the sale of orthotic and prosthetic devices is recorded when
the device is accepted by the patient.
CREDIT RISK:
The Company primarily provides customized devices or services throughout
the north-central region of Ohio and is reimbursed by the patients'
third-party insurers or governmentally funded health insurance programs
such as Medicaid, Medicare, and U.S. Veteran Administration. The accounts
receivable are not collateralized. The ability of the Company's debtors
to meet their obligations is dependent upon the financial stability of
the insurers of the Company's customers and future legislation and
regulatory actions. Additionally, the Company maintains reserves for
potential losses.
9
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES:
The Corporation elected to be taxed pursuant to Subchapter "S" of the
Internal Revenue Code. Accordingly, federal and state income taxes or
credits accrue directly to the shareholders.
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 periods. Actual results could differ from those
estimates.
3. RELATED PARTY TRANSACTIONS:
In the ordinary course of business, the Company purchases certain
products from the Corporation's wholesale division. These purchases
amounted to approximately $332,047 and $273,960 in 1996 and 1995,
respectively. The Company's payable to the wholesale division at December
31, 1996 and 1995 was $37,000 and $83,000, respectively. Management
believes these transactions were under terms no less favorable to the
Company than those arranged with other parties.
Two of the Company's locations are leased from a shareholder of the
Corporation for a total of $9,300 per month.
4. COMMITMENTS AND CONTINGENCIES:
The Company leases buildings at three retail locations and a corporate
location as well as leases one automobile. The future minimum payments
under lease commitments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 128,426
1998 131,247
1999 108,000
2000 108,000
2001 54,000
---------
$ 529,673
=========
</TABLE>
The Company's total rental expense was approximately $163,000 in 1996 and
$138,000 in 1995.
10
<PAGE>
5. RETIREMENT PLAN:
The Corporation has a 401(k) plan (the "Plan") which is offered to all
employees with over one year of service. The Plan provides, at the
discretion of management, an amount not to exceed 25% of the first 6%
contributed by the eligible employees each year. The Company's matching
contributions to the plan were approximately $12,000 and $16,000 for the
years ended December 31, 1996 and 1995, respectively.
6. SUBSEQUENT EVENT:
On April 1, 1997, the Corporation sold certain assets and liabilities of
the Company for $5.2 million to Hanger Orthopedic Group, Inc.
11
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated statement of operations
for the three months ended March 31, 1997 and the unaudited pro forma
consolidated balance sheets as of March 31, 1997 and December 31, 1996 are
based on the historical financial assets and assumption of certain liabilities
of the retail division of ACOR Orthopaedic, Inc. ("ACOR"). The following
unaudited pro forma consolidated statement of operations for the year ended
December 31, 1996 is based on the historical financial statements of Hanger,
adjusted to give the effect to the acquisitions of certain assets and
assumption of certain liabilities of ACOR and J.E. Hanger, Inc. of Georgia
("JEH"), a company that was acquired on November 1, 1996.
The unaudited pro forma consolidated statement of operations for the
three months ended March 31, 1997 has been prepared assuming the ACOR
acquisition occurred as of January 1, 1997. The unaudited pro forma
consolidated statement of operations for th year ended December 31, 1996 has
been prepared assuming the ACOR and JEH acquisitions occurred as of January 1,
1996. The unaudited pro forma consolidated balance sheets as of March 31, 1997
and December 31, 1996 have been prepared assuming that the ACOR acquisition
occurred on March 31, 1997 and December 31, 1996, respectively. The
acquisition and related adjustments are described in the notes thereto.
The unaudited pro forma consolidated financial statements of operations
do not purport to represent what the Company's results of operations would
actually have been had the transactions in fact occurred on the aforementioned
date, or to project the Company's results of operations for any future period.
The consolidated pro forma financial information does not give effect to any
matters other than those described in the notes thereto.
12
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1997
<TABLE>
<CAPTION>
Historical
-----------------------------------
Hanger ACOR Acquisition
Orthopedic Retail Pro Forma
Group, Inc. (a) Division (a) Adjustments Pro Forma (d)
----------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,720,021 $ 431,563 ($3,931,563) (b)/(c) $ 3,220,021
Accounts receivable 24,528,348 870,027 25,398,375
Inventory 15,650,023 663,650 0 16,313,673
Prepaids and other assets 2,756,664 13,529 2,770,193
Deferred income taxes 3,159,280 0 3,159,280
-------------- ------------ ------------ --------------
Total Current Assets 52,814,336 1,978,769 (3,931,563) 50,861,542
-------------- ------------ ------------ --------------
Property, plant & equipment, net 17,287,656 83,322 0 17,370,978
Intangible assets, net 67,081,267 0 4,036,093 (c) 71,117,360
Other assets 975,083 1,264 976,347
-------------- ------------ ------------ --------------
Total Assets $ 138,158,342 $ 2,063,355 $ 104,530 $ 140,326,227
============== ============ ============ ==============
LIABILITIES
Current Liabilities
Current portion of long-term debt $ 6,052,939 $ 0 $ 888,461 (c) $ 6,941,400
Accounts payable 2,834,080 263,613 3,097,693
Accrued expenses and other 15,102,741 118,092 (65,750) (b) 15,155,083
-------------- ------------ ------------ --------------
Total Current Liabilities 23,989,760 381,705 822,711 25,194,176
-------------- ------------ ------------ --------------
Long-term debt 68,815,270 0 963,469 (c) 69,778,739
Deferred income taxes 2,377,627 0 2,377,627
Other liabilites 2,544,850 0 2,544,850
-------------- ------------ ------------ --------------
Total Liabilities 97,727,507 381,705 1,786,180 99,895,392
-------------- ------------ ------------ --------------
STOCKHOLDERS' EQUITY
Common Stock 94,938 0 94,938
Additional paid in capital 41,087,021 0 41,087,021
Retained Earnings
(Accumulated Deficit) (95,562) 1,681,650 (1,681,650) (b)/(c) (95,562)
-------------- ------------ ------------ --------------
41,086,397 1,681,650 (1,681,650) 41,086,397
-------------- ------------ ------------ --------------
Treasury Stock (655,562) 0 (655,562)
-------------- ------------ ------------ --------------
Total Stockholders' Equity 40,430,835 1,681,650 (1,681,650) 40,430,835
-------------- ------------ ------------ --------------
Total Liabilities and
Stockholder's Equity $138,158,342 $ 2,063,355 $ 104,530 $ 140,326,227
============== ============ ============ ==============
<FN>
(a) Represents historical unaudited balance sheet data as of March 31, 1997.
(b) The pro forma adjustments to cash ($431,563) and accrued expenses and
other ($65,750) reflect the elimination of assets / liabilities not
acquired / assumed in connection with the transaction.
(c) To record the purchase price in connection with the transaction which
comprises $3,500,000 in cash and the issuance of two promissory notes
totalling $1,851,930, net of $12,270 discount. The addition of $4,036,093
to intangible assets includes a noncompe agreement valued at $50,000.
Goodwill is to be amortized over a forty year period.
(d) The unaudited pro forma amounts exclude potential future contingent
consideration to be paid to former ACOR shareholders based on a
prescribed formula. Contingent consideration is to be accounted for as
additional purchase price consideration if and when it becomes probable.
</FN>
</TABLE>
13
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1996
<TABLE>
<CAPTION>
Historical
-----------------------------------
Hanger ACOR Acquisition
Orthopedic Retail Pro Forma
Group, Inc. (a) Division (a) Adjustments Pro Forma (e)
----------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,572,402 $ 153,393 ($153,393)(b) $ 6,572,402
Accounts receivable 24,321,872 852,716 25,174,588
Inventory 15,916,638 641,139 0 16,557,777
Prepaids and other assets 1,595,169 13,500 1,608,669
Deferred income taxes 3,159,280 0 3,159,280
-------------- ------------ ------------ --------------
Total Current Assets 51,565,361 1,660,748 (153,393) 53,072,716
-------------- ------------ ------------ --------------
Property, plant & equipment, net 17,299,197 77,102 0 17,376,299
Intangible assets, net 65,151,423 0 5,803,762 (c)/(d) 70,955,185
Other assets 925,446 1,500 926,946
-------------- ------------ ------------ --------------
Total Assets $ 134,941,427 $ 1,739,350 $ 5,650,369 $ 142,331,146
============== ============ ============ ==============
LIABILITIES
Current Liabilities
Current portion of long-term debt $ 4,902,572 $ 0 $ 6,208,714 (c)/(d) $ 11,111,286
Accounts payable $ 4,141,993 $ 197,265 4,339,258
Accrued expenses and other 17,021,640 54,715 (34,444) (b) 17,041,911
-------------- ------------ ------------ --------------
Total Current Liabilities 26,066,205 251,980 6,174,270 32,492,455
-------------- ------------ ------------ --------------
Long-term debt 64,297,801 0 963,469 (c) 65,261,270
Deferred income taxes 2,377,627 0 2,377,627
Other liabilites 2,465,979 0 2,465,979
-------------- ------------ ------------ --------------
Total Liabilities 95,207,612 251,980 7,137,739 102,597,331
-------------- ------------ ------------ --------------
STOCKHOLDERS' EQUITY
Common Stock 94,492 0 94,492
Additional paid in capital 41,008,363 0 41,008,363
Retained Earnings
(Accumulated Deficit) (713,478) 1,487,370 (1,487,370) (b)/(c) (713,478)
-------------- ------------ ------------ --------------
40,389,377 1,487,370 (1,487,370) 40,389,377
-------------- ------------ ------------ --------------
Treasury Stock (655,562) 0 0 (655,562)
-------------- ------------ ------------ --------------
Total Stockholders' Equity 39,733,815 1,487,370 (1,487,370) 39,733,815
-------------- ------------ ------------ --------------
Total Liabilities and
Stockholder's Equity $ 134,941,427 $ 1,739,350 $ 5,650,369 $ 142,331,146
============== ============ ============ ==============
<FN>
(a) Represents historical balance sheet data as of December 31, 1996.
(b) The pro forma adjustments to cash ($153,393) and accrued expenses and
other ($34,444) reflect the elimination of assets / liabilities not
acquired / assumed in connection with the transaction.
(c) To record the purchase price in connection with the transaction which
comprises $3,536,819 in cash and the issuance of two promissory notes
totalling $1,851,930, net of discount of $12,270. The addition to
intangible assets of $4,020,328 includes a noncompete agreement valued at
$50,000. Goodwill is to be amortized over a forty year period.
(d) The proforma adjustments to intangible assets and the current portion of
long term debt for $1,783,434 represents the final working capital
adjustment paid to the former shareholders of J.E. Hanger, Inc. of
Georgia, a company acquired November 1, 1996.
(e) The unaudited pro forma amounts exclude potential future contingent
consideration to be paid to former ACOR shareholders based on a
prescribed formula. Contingent consideration is to be accounted for as
additional purchase price consideration if and when it becomes probable.
</FN>
</TABLE>
14
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations for the Three
Months Ended March 31, 1997
<TABLE>
<CAPTION>
Historical
-----------------------------------
Hanger ACOR Acquisition
Orthopedic Retail Pro Forma
Group, Inc. (a) Division (a) Adjustments Pro Forma (h)
----------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Sales $ 30,949,614 $ 1,290,580 ($60,523) (b) $ 32,179,671
Cost of Sales 16,229,929 460,275 (60,523) (b) 16,629,681
-------------- ------------ ------------ --------------
Gross Profit 14,719,685 830,305 0 15,549,990
Selling, general & administrative 10,924,635 632,948 11,557,583
Depreciation & amortization 1,158,817 3,067 38,559 (c)/(e) 1,200,443
-------------- ------------ ------------ --------------
Income from operations 2,636,233 194,290 (38,559) 2,791,964
Interest expense (1,527,269) 0 (158,827) (d)/(e) (1,686,096)
Other expense (43,749) 0 (43,749)
-------------- ------------ ------------ --------------
Income from operations before taxes 1,065,215 194,290 (197,386) 1,062,119
Provision for income taxes 447,300 0 (1,210) (e)/(f) 446,090
-------------- ------------ ------------ --------------
Net Income $617,915 $194,290 ($196,176) $616,029
============== ============ ============ ==============
Net Income per share (g): $0.06 $0.06
-------------- --------------
Shares used to compute net income
per share: 9,977,853 9,977,853
-------------- --------------
<FN>
(a) Represents the historical statement of operations for the period
presented.
(b) The pro forma adjustments to reduce sales ($60,523) and cost of sales
($60,523) reflects the elimination of intercompany sales between the two
companies during the period presented.
(c) The adjustment to depreciation and amortization ($27,413) represents the
effects of the purchase price allocation. Goodwill is being amortized
over forty years.
(d) The adjustment to interest expense ($117,563) represents the effects of
new promissory notes issued and additional debt assumed in connection
with the transaction.
(e) The adjustment to increase depreciation and amortization ($11,146),
increase interest expense ($41,264) and decrease the provision for income
taxes ($22,013) represents the effects of the final working capital
adjustment paid on March 27, 1997, to the for
(f) The increase in the provision for income taxes of $20,803 is to reflect
income taxes as if the Company and ACOR were a C Corporation for the
period presented.
(g) Historical and pro forma net income per share, which has been adjusted
for preferred stock dividends, is computed by dividing net income by the
number of weighted average common and common-equivalent shares
outstanding for the period.
(h) The unaudited pro forma amounts exclude potential future contingent
consideration to be paid to former ACOR shareholders based on a
preprescribed formula. Contingent consideration is to be accounted for as
additional purchase price consideration if and when it becomes probable.
</FN>
</TABLE>
15
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended
December 31, 1996
<TABLE>
<CAPTION>
Historical
----------------------------- ACOR
Hanger J.E. Hanger, JEH Acquisition ACOR Acquisition
Orthopedic Inc. of GA Pro Forma Retail Pro Forma
Group, Inc. (a) (b) Adjustments (o) Division (c) Adjustments Pro Forma (o)
--------------- ------------ --------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $66,805,944 $56,140,445 $5,231,514 ($6,562)(j) $128,171,341
Cost of Sales 32,233,373 31,587,270 69,421 (d)/(e) 1,758,246 (6,562)(j) 65,641,748
------------ ------------ ----------- ----------- ----------- -------------
Gross Profit 34,572,571 24,553,175 (69,421) 3,473,268 0 62,529,593
Selling, general &
administrative 27,029,315 18,704,852 28,602 (d)/(g) 2,189,600 47,952,369
Depreciation & amortization 2,848,465 1,602,903 157,990 (e)/(g)/(h) 12,266 108,338 (k) 4,729,962
------------ ------------ ----------- ----------- ----------- -------------
Income from operations 4,694,791 4,245,420 (256,013) 1,271,402 (108,338) 9,847,262
Interest expense (2,546,561) (394,650) (3,639,611)(f)/(h) 0 (440,265)(l) (7,021,087)
Other income (expense), net (177,216) 744,236 (509,501)(d)/(f) 0 0 57,519
------------ ------------ ----------- ----------- ----------- -------------
Income from operations
before taxes and
extraordinary item 1,971,014 4,595,006 (4,405,125) 1,271,402 (548,603) 2,883,694
Provision for income taxes 889,886 76,966 (1,385)(i) 0 325,259 (m) 1,290,726
Extraordinary loss on
early extinguishment of
debt, net of tax 83,234 0 0 0 0 83,234
------------ ------------ ----------- ----------- ----------- -------------
Net Income(loss) $997,894 $4,518,040 ($4,403,740) $1,271,402 ($873,862) $1,509,734
============ ============ ============ =========== =========== =============
Net Income per share (n): $0.11 $0.15
------------ -------------
Shares used to compute net
income per share: 8,663,161 9,979,604
------------ -------------
<FN>
(a) Represents the historical statement of operations for the period
presented. Includes JEH operations from November 1, 1996 through December
31, 1996.
(b) Represents the historical statement of operations for the period January
1, 1996 through October 31, 1996.
(c) Represents the historical statement of operations for the period
presented.
(d) The pro forma adjustments to reduce cost of sales ($47,279), selling,
general and administrative ($56,398) and other income ($439,151) reflects
the elimination of income and expenses in connection with assets /
liabilities not acquired / assumed.
(e) The reduction in depreciation and amortization of $332,475 and the
increase in cost of sales of $116,700 represents the net ten month effect
of the purchase price allocation. Goodwill is being amortized over forty
years.
(f) The adjustment to interest expense ($3,477,413) and other expense
($70,350) represents the additional ten month effects of new debt
agreements and cash utilized in connection with the transaction. The
interest expense adjustment includes $89,344 of amort
(g) The adjustments to depreciation and amortization for $445,880 of
amortized debt issue costs and selling, general and administrative for
$85,000 of loan administative expenses are in connection with the
aforementioned debt agreements.
(h) The adjustment to increase depreciation and amortization ($44,585) and
interest expense ($162,198) represents the full year effects of the final
working capital adjustment paid on March 27, 1997, to the former
shareholders of JEH.
(i) To reflect income taxes as if the Company and JEH were a C Corporation
for the period presented.
(j) The pro forma adjustments to reduce sales ($6,562) and cost of sales
($6,562) reflects the elimination of intercompany sales between Hanger
and ACOR during the period presented.
(k) The adjustment to depreciation and amortization ($108,338) represents the
effects of the purchase price allocation. Goodwill is being amortized
over forty years.
(l) The adjustment to interest expense ($440,265) represents the effects of
new promissory notes issued and additional debt assumed in connection
with the transaction.
(m) To reflect income taxes as if the Company and ACOR were a C Corporation
for the period presented.
(n) Historical and pro forma net income per share is computed by dividing net
income by the number of shares of common stock outstanding for the
period. The shares used in the computation of net income per share on a
pro forma adjusted basis also includes 1,000,000 shares issued in
conjunction with the acquisition of JEH.
(o) The unaudited pro forma amounts exclude potential future contingent
consideration to be paid to former ACOR shareholders based on a
prescribed formula. Contingent consideration is to be accounted for as
additional purchase price consideration if and when it becomes probable.
</FN>
</TABLE>
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