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 June 5, 1997 (Date of earliest event
reported was May 12, 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 June 5, 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: July 15, 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 June 5, 1997, reported the acquisition by the Company on May 12, 1997
of substantially all of the assets of Fort Walton Orthopedic, Inc. ("Fort
Walton") and Mobile Limb & Brace, Inc. ("Mobile Limb"), companies primarily
engaged in providing orthotic and prosthetic patient care services. Items 7(a)
and 7(b) of the report stated that the historical combined financial
statements of Fort Walton and Mobile Limb 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 combined financial statements of Fort
Walton and Mobile Limb attached hereto:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants. . . . . . . . . . . . 5
Balance Sheets as of December 31, 1995 and 1996. . . . . 6
Statements of Income for the years ended
December 31, 1995 and 1996 . . . . . . . . . . . . . . 7
Statements of Changes in Shareholders' Equity for
the years ended December 31, 1995 and 1996 . . . . . . 8
Statements of Cash Flows for the years ended
December 31, 1995 and 1996 . . . . . . . . . . . . . . 9
Notes to financial statements. . . . . . . . . . . . . . 10
</TABLE>
(b) PRO FORMA FINANCIAL INFORMATION.
<TABLE>
<CAPTION>
Page
----
<S> <C>
The following lists the pro forma financial information
attached hereto:
Pro forma balance sheet dated as of March 31, 1997 . . . 15
Pro forma statement of operations for the three
months ended March 31, 1997. . . . . . . . . . . . . . 17
Pro forma balance sheet dated as of December 31, 1997. . 19
2
<PAGE>
Pro forma statement of operations for the
year ended December 31, 1996. . . . . . . . . . . . . 21
</TABLE>
3
<PAGE>
FT. WALTON ORTHOPEDIC INC.
AND MOBILE LIMB AND BRACE INC.
REPORT ON AUDITS OF
COMBINED FINANCIAL STATEMENTS
for the years ended
December 31, 1995 and 1996
4
<PAGE>
Report of Independent Accountants
To the Shareholders of
Ft. Walton Orthopedic Inc.
and Mobile Limb and Brace Inc.:
We have audited the accompanying combined balance sheets of Ft. Walton
Orthopedic Inc. and Mobile Limb and Brace Inc. as of December 31, 1995 and
1996 and the related combined statements of income, changes in stockholders'
equity, and cash flows for the years then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Ft.
Walton Orthopedic Inc. and Mobile Limb and Brace, Inc. as of December 31, 1995
and 1996 and the combined results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 12, 1997
5
<PAGE>
FT. WALTON ORTHOPEDIC INC.
AND MOBILE LIMB AND BRACE INC.
<TABLE>
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<CAPTION>
ASSETS 1995 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 75,109 $ 104,182
Accounts receivable, net of allowance for doubtful
accounts of $64,300 and $13,100, respectively 256,399 381,544
Inventories 355,067 357,656
Prepaid expenses and other current assets 6,390 4,450
---------- ----------
Total current assets 692,965 847,832
---------- ----------
Property, plant and equipment:
Buildings 208,010 -
Machinery and equipment 121,202 135,142
Furniture and fixtures 10,375 10,375
Leasehold improvements 31,895 44,449
---------- ----------
371,482 189,966
Less accumulated depreciation 152,195 120,512
---------- ----------
Net property, plant and equipment 219,287 69,454
---------- ----------
Total assets $ 912,252 $ 917,286
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 93,573 119,296
Accrued expenses 1,597 17,103
Current portion of long-term debt 145,411 21,424
---------- ----------
Total current liabilities 240,581 157,823
Long-term debt 45,525 39,345
Commitments and contingent liabilities
Common stock, $1.00 par value; 11,000 authorized;
5,900 issued and outstanding 5,900 5,900
Additional paid-in capital 19,296 19,296
Retained earnings 600,950 694,922
---------- ----------
Total stockholders' and equity 626,146 720,118
---------- ----------
Total liabilities and stockholders' equity $ 912,252 $ 917,286
========== ==========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
6
<PAGE>
FT. WALTON ORTHOPEDIC INC.
AND MOBILE LIMB AND BRACE INC.
<TABLE>
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net sales $ 2,575,609 $ 3,069,921
Cost of goods sold 1,386,908 1,537,107
------------ ------------
Gross profit 1,188,701 1,532,814
------------ ------------
Operating expenses:
Selling, general and administrative 832,181 833,118
Depreciation 34,935 33,697
------------ ------------
Total operating expenses 867,116 866,815
------------ ------------
Other income (expense) (363) (38,310)
------------ ------------
Net income $ 321,222 $ 627,689
============ ============
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
7
<PAGE>
FT. WALTON ORTHOPEDIC INC.
AND MOBILE LIMB AND BRACE INC.
<TABLE>
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
---------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 5,900 $ 19,296 $ 564,014 $ 589,210
Net income 321,222 321,222
Cash distributions to owners (284,286) (284,286)
---------- -------------- ------------ -----------
Balance at December 31, 1995 5,900 19,296 600,950 626,146
Net income 627,689 627,689
Cash distributions to owners (533,717) (533,717)
---------- -------------- ------------ -----------
Balance at December 31, 1996 5,900 $ 19,296 $ 694,922 $ 720,118
========== ============== ============ ===========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
8
<PAGE>
FT. WALTON ORTHOPEDIC INC.
AND MOBILE LIMB AND BRACE INC.
<TABLE>
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 321,222 $ 627,689
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 34,935 33,697
Provision for bad debt 13,100 64,300
Changes in assets and liabilities:
Accounts receivable (1,675) (189,445)
Inventories (12,628) (2,589)
Prepaid expenses (6,085) 1,940
Accounts payable and accrued expenses (30,665) 41,229
----------- -----------
Net cash provided by operating activities 318,204 576,821
----------- -----------
Cash flows from investing activities:
Capital expenditures (86,182) (10,414)
----------- -----------
Net cash used in investing activities (86,182) (10,414)
----------- -----------
Cash flows from financing activities:
Cash distributions to owners (284,286) (533,717)
Payments on long-term debt (18,860) (21,428)
Proceeds from long-term debt 42,201 17,811
----------- -----------
Net cash used in financing activities (260,945) (537,334)
----------- -----------
Net change in cash and cash equivalents (28,923) 29,073
Cash and cash equivalents, beginning of year 104,032 75,109
----------- -----------
Cash and cash equivalents, end of year $ 75,109 $ 104,182
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the year on long-term debt $ 14,486 $ 5,623
Noncash investing activity:
Distribution of building and mortgage to Deckert
Properties - $ 126,550
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
9
<PAGE>
FT. WALTON ORTHOPEDIC INC.
AND MOBILE LIMB AND BRACE INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BACKGROUND:
Ft. Walton Orthopedic Inc. and Mobile Limb and Brace Inc. (the "Company")
are producers and retailers of orthopedic and prosthetic products along
the Emerald Coast of Florida and the Mobile, Alabama area. Each of the
retail locations provide various products including orthopedic braces,
orthotics, prosthetics, custom footwear and durable medical equipment.
Since these companies are under common ownership and management, combined
financial statements have been presented. All intercompany transactions
and balances have been eliminated.
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, 1995 and 1996, the carrying value of financial
instruments such as cash and cash equivalents, trade receivables, trade
payables and long-term debt approximates fair value.
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.
10
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
LONG-LIVED ASSET IMPAIRMENT:
Effective January 1, 1996, 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." 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 Emerald Coast region of Florida and the Mobile, Alabama area, 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.
INCOME TAXES:
The Company 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 stockholders.
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.
11
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
3. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Bank loans to various financial institutions
maturing in varying monthly installments
through May 2000, interest ranging from
8.0% to 10.6% $ 190,936 $ 60,769
----------- -----------
190,936 60,769
Less current maturities 145,411 21,424
----------- -----------
$ 45,525 $ 39,345
=========== ===========
</TABLE>
The aggregate estimated payments of long-term obligations outstanding at
December 31, 1996 are:
<TABLE>
<S> <C>
1997 $ 21,424
1998 22,458
1999 13,586
2000 3,301
</TABLE>
4. RELATED PARTY TRANSACTIONS:
In April 1996, the Company transferred the title to the Ft. Walton,
Florida office building to Deckert Properties, a real estate company that
is also owned by owners of the Company. Deckert Properties also assumed
the balance of the mortgage on the building. The amount of debt
transferred to Deckert Properties was approximately $126,550 which
approximated the net book value of the building at that date. After the
transfer, Deckert Properties leased the building to the Company at a
monthly rent of $2,140 under an agreement which expires on April 30,
1998. The Company paid $17,120 in rent payments to Deckert Properties
during 1996.
12
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
5. COMMITMENTS AND CONTINGENCIES:
The Company leases office space at several locations. The future minimum
payments under lease commitments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 62,000
1998 25,000
1999 20,000
2000 12,000
---------
$119,000
=========
</TABLE>
The Company's total rental expense was approximately $59,000 and $78,000
in 1995 and 1996, respectively.
6. RETIREMENT PLAN:
The Company has a 401(k) plan (the "Plan") which is offered to all
employees. The Plan provides, at the discretion of management the
Company's contribution to the Plan, an amount not to exceed 15% of the
eligible employees salary each year. The Company's matching contributions
to the plan were approximately $57,000 and $53,000 for the years ended
December 31, 1995 and 1996, respectively.
7. SUBSEQUENT EVENT:
On May 12, 1997, the Company sold certain assets and liabilities for $3.8
million to Hanger Orthopedic Group, Inc.
13
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed statement of
operations for the three months ended March 31, 1997 and the unaudited pro
forma consolidated condensed balance sheet as of December 31, 1996 are based
on the historical financial statements of Hanger Orthopedic Group, Inc.
("Hanger" or "the Company"), adjusted to give effect to the acquisition of
certain assets and assumption of certain liabilities of Prosthetic Treatment
Center, Inc. ("Kingsport"), the retail division of ACOR Orthopaedic, Inc.
("ACOR"), and Fort Walton Orthopedic, Inc. and Mobile Limb & Brace, Inc.
("FWM"). The following unaudited pro forma consolidated condensed balance
sheet as of March 31, 1997 is based on the historical financial statements of
the Company, adjusted to give effect to the acquisition of certain assets and
assumption of certain liabilities of ACOR and FWM. The following unaudited pro
forma consolidated condensed statement of operations for the year ended
December 31, 1996 is based on the historical financial statements of Hanger,
adjusted to give effect to the acquisition of certain assets and assumption of
certain liabilities of J. E. Hanger, Inc. of Georgia ("JEH"), Kingsport, ACOR
and FWM.
The unaudited pro forma consolidated condensed statement of operations
for the three months ended March 31, 1997 has been prepared assuming the
Kingsport, ACOR and FWM acquisitions occurred as of January 1, 1997. The
unaudited pro forma consolidated condensed statement of operations for the
year ended December 31, 1996 has been prepared assuming the JEH, Kingsport,
ACOR and FWM acquisitions occurred as of January 1, 1996. The unaudited pro
forma consolidated condensed balance sheet as of March 31, 1997 has been
prepared assuming that the ACOR and FWM acquisitions occurred as of March 31,
1997. The unaudited pro forma consolidated condensed balance sheet as of
December 31, 1996 has been prepared assuming that the Kingsport, ACOR and FWM
acquisitions occurred as of December 31, 1996. The acquisitions and related
adjustments are described in the notes thereto.
The unaudited pro forma consolidated condensed 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 condensed pro forma financial information
does not give effect to any matters other than those described in the notes
thereto.
14
<PAGE>
<TABLE>
Unaudited Pro Forma Consolidated Condensed Balance Sheet as of March 31, 1997
<CAPTION>
Historical
------------------------------------------------------
Hanger
Orthopedic Ft. Walton/ Total Acquired Pro Forma
Group, Inc.(1) ACOR(1) Mobile(1) Companies Adjustments Pro Forma(5)
-------------- -------- ---------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $6,720,021 $431,563 $140,624 $572,187 ($4,072,187)(2)(3) $3,220,021
Accounts receivable 24,528,348 870,027 526,974 1,397,001 0 25,925,349
Inventory 15,650,023 663,650 381,335 1,044,985 0 16,695,008
Prepaids and other assets 2,756,664 13,529 5,150 18,679 0 2,775,343
Deferred income taxes 3,159,280 0 0 0 0 3,159,280
------------- ----------- ----------- ----------- ------------ -------------
Total Current Assets 52,814,336 1,978,769 1,054,083 3,032,852 (4,072,187) 51,775,001
------------- ----------- ----------- ----------- ------------ -------------
Property, plant & equipment, net 17,287,656 83,322 56,982 140,304 (15,350)(2) 17,412,610
Intangible assets, net 67,081,267 0 0 0 7,002,372 (3)(4) 74,083,639
Other assets 975,083 1,264 0 1,264 0 976,347
------------- ----------- ----------- ----------- ------------ -------------
Total Assets $138,158,342 $2,063,355 $1,111,065 $3,174,420 $2,914,835 $144,247,597
============= =========== =========== =========== ============ =============
LIABILITIES
Current Liabilities
Current portion of long-term debt $6,052,939 $0 $15,501 $15,501 $1,036,461(2)(3)(4) $7,104,901
Accounts payable 2,834,080 263,613 73,840 337,453 0 3,171,533
Accrued expenses and other 15,102,741 118,092 19,029 137,121 (65,750)(2) 15,174,112
------------- ----------- ----------- ----------- ------------ -------------
Total Current Liabilities 23,989,760 381,705 108,370 490,075 970,711 25,450,546
------------- ----------- ----------- ----------- ------------ -------------
Long-term debt 68,815,270 0 40,580 40,580 4,087,889 (3)(4) 72,943,739
Deferred income taxes 2,377,627 0 0 0 0 2,377,627
Other liabilites 2,544,850 0 0 0 0 2,544,850
------------- ----------- ----------- ----------- ------------ -------------
Total Liabilities 97,727,507 381,705 148,950 530,655 5,058,600 103,316,762
------------- ----------- ----------- ----------- ------------ -------------
STOCKHOLDERS' EQUITY
Common Stock 94,938 0 5,900 5,900 (5,260)(4) 95,578
Additional paid in capital 41,087,021 0 19,296 19,296 480,064 (4) 41,586,381
Retained Earnings (Accumulated
Deficit) (95,562) 1,681,650 936,919 2,618,569 (2,618,569)(3)(4) (95,562)
------------- ----------- ----------- ----------- ------------ -------------
41,086,397 1,681,650 962,115 2,643,765 (2,143,765) 41,586,397
Treasury Stock (655,562) 0 0 0 0 (655,562)
------------- ----------- ----------- ----------- ------------ -------------
Total Stockholders' Equity 40,430,835 1,681,650 962,115 2,643,765 (2,143,765) 40,930,835
------------- ----------- ----------- ----------- ------------ -------------
Total Liabilities and
Stockholder's Equity $138,158,342 $2,063,355 $1,111,065 $3,174,420 $2,914,835 $144,247,597
============= =========== =========== =========== ============ =============
15
<PAGE>
<FN>
The pro forma adjustments to the Unaudited Pro Forma Consolidated Condensed
Balance Sheet as of March 31, 1997 are as follows:
(1) Represents historical unaudited balance sheet data as of March 31,
1997.
(2) The pro forma reductions to cash ($572,187), property, plant and
equipment, net ($15,350), the current portion of long term debt
($2,000), accrued expenses and other ($65,750) and long term debt
($40,580) reflect the elimination of assets / liabilities not
acquired / assumed in connection with the acquisitions of ACOR and
FWM.
(3) To record the purchase price in connection with the ACOR
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
noncompete agreement valued at $50,000. Goodwill is to be amortized
over a forty year period.
(4) To record the purchase price in connection with the FWM transaction
which comprises $2,565,000 in cash, the issuance of a seller note
for $750,000 and the issuance of 64,000 shares of Company Common
Stock at $7.8125 per share. The addition of $2,966,279 to
intangible assets includes a noncompete agreement valued at
$38,150. Goodwill is to be amortized over a forty year period.
(5) Excludes potential future contingent consideration to be paid to
former shareholders of acquired companies based on prescribed
formulas. Contingent consideration is to be accounted for as
additional purchase price consideration if and when it becomes
probable.
</FN>
</TABLE>
16
<TABLE>
Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Three Months Ended March 31, 1997
<CAPTION>
Historical
-----------------------------------------------------
Hanger Acquired
Orthopedic Companies Ft. Walton/ Total Acquired Pro Forma
Group, Inc. (1) Mobile(2) Companies Adjustments Pro Forma(9)
-------------- -------- ---------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $30,949,614 $1,347,500 $939,719 $2,287,219 ($97,780)(3) $33,139,053
Cost of Sales 16,229,929 490,919 402,081 893,000 (95,009)(3) 17,027,920
------------- ----------- ---------- ----------- ----------- -------------
Gross Profit 14,719,685 856,581 537,638 1,394,219 (2,771) 16,111,133
Selling, general & administrative 10,924,635 670,290 188,176 858,466 0 11,783,101
Depreciation & amortization 1,158,817 3,362 2,424 5,786 61,969 (4)(5) 1,226,572
------------- ----------- ---------- ----------- ----------- -------------
Income from operations 2,636,233 182,929 347,038 529,967 (64,740) 3,101,460
Interest expense (1,527,269) 0 0 0 (236,887)(6) (1,764,156)
Other expense (43,749) 0 5,866 5,866 (1,042)(6) (38,925)
------------- ----------- ---------- ----------- ----------- -------------
Income from operations before taxes 1,065,215 182,929 352,904 535,833 (302,669) 1,298,379
Provision for income taxes 447,300 0 0 0 97,928 (7) 545,228
------------- ----------- ---------- ----------- ----------- -------------
Net Income $617,915 $182,929 $352,904 $535,833 ($400,597) $753,151
============= =========== ========== =========== =========== =============
Net Income per common share(8): $0.06 $0.07
------------- -------------
Shares used to compute net income
per common share 9,977,853 10,041,853
------------- -------------
17
<PAGE>
The pro forma adjustments to the Unaudited Pro Forma Consolidated Condensed
Statements of Operations for the three months ended March 31, 1997 are as
follows:
<FN>
(1) The historical statements of operations data for Kingsport and ACOR
(collectively, the "Acquired Companies") for the three months ended
March 31, 1997 represent the results of operations of such
companies from January 1, 1997 to the earlier of their respective
dates of acquisition or March 31, 1997. Both acquisitions have been
accounted for as a purchase. Accordingly, the results of operations
of Kingsport is included in the historical results of operations of
the Company from the date of its acquisition.
Represents results of operations of the Acquired Companies prior to
their acquisition dates for the periods presented:
Quarter Ended March 31, 1997
--------------------------------
Company Acquired as of Net Sales Net Income (Loss)
------------- -------------- ----------- -------------------
Kingsport March 3, 1997 $56,920 ($11,361)
ACOR April 1, 1997 1,290,580 194,290
------------ ---------
Total $1,347,500 $182,929
============ =========
(2) The historical statement of operations data for FWM for the three
months ended March 31, 1997 represent the unaudited results of
operations from January 1, 1997 to March 31, 1997. The acquisition
has been accounted for as a purchase.
(3) The adjustments to reduce sales ($97,780) and cost of sales
($95,009) reflect the elimination of profit on intercompany sales
during the period presented.
(4) Reflects increases in historical amounts of the Acquired Companies
and FWM for amortization expense resulting from the revaluation in
purchase accounting of intangible assets, as follows
Quarter Ended
Company March 31, 1997
------------- --------------
Kingsport $1,667
ACOR 2,500
FWM 1,908
-------
Total $6,075
=======
(5) Reflects additional amortization over a 40-year period, as if such
Acquired Companies and FWM were acquired as of the beginning of the
period presented, as follows:
Quarter Ended
Company March 31, 1997
------------- --------------
JEH * $11,146
Kingsport 1,535
ACOR 24,913
FWM 18,300
--------
Total $55,894
========
* Reflects the full period effect of amortization incurred as a result of
the final working capital adjustment paid to the former shareholders of
JEH.
(6) The additional interest expense of $236,887 and the reduction in
other income of $1,042 reflect what would have been incurred if the
consideration (in the form of cash and promissory notes) for the
Acquired Companies and FWM had been paid at January 1, 1997. The
interest rates used to calculate pro forma interest (between 8% and
9%) on the assumed additional debt required to fund the cash
payments reflects the Company's approximate borrowing rate.
Quarter Ended March 31, 1997
Company Interest Expense Other Income
------------- ---------------------------------
JEH * $41,264 -
Kingsport 3,244 (1,042)
ACOR 117,563 -
FWM 74,816 -
-------- --------
Total $236,887 ($1,042)
======== ========
* Reflects the full period effect of interest incurred as a result of the
final working capital adjustment paid to the former shareholders of JEH.
(7) Reflects income taxes as if each of the Company, JEH, the Acquired
Companies and FWM were a C Corporation for the period presented.
(8) Historical and pro forma net income per common share, which has
been adjusted for preferred stock dividends, are computed by
dividing net income by the number of weighted average common and
common-equivalent shares outstanding for the period. The shares
used in the computation of net income per common share on a pro
forma as adjusted basis also include Common Stock issued in
connection with the FWM acquisition.
(9) The unaudited pro forma amounts exclude potential future contingent
consideration to be paid to former shareholders of acquired
companies based on prescribed formulas. Contingent consideration is
to be accounted for as additional purchase price consideration if
and when it becomes probable.
</FN>
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Consolidated Condensed Balance Sheet as of December 31, 1996
Historical
-----------------------------------------------------
Hanger Kingsport
Orthopedic and Ft. Walton/ Total Acquired Pro Forma
Group, Inc.(1) ACOR(1) Mobile(1) Companies Adjustments Pro Forma(7)
-------------- -------- ---------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $6,572,402 $156,939 $104,182 $261,121 ($507,575)(2)(3) $6,325,948
Accounts receivable 24,321,872 852,716 381,544 1,234,260 0 25,556,132
Inventory 15,916,638 641,139 357,656 998,795 0 16,915,433
Prepaids and other assets 1,595,169 42,079 4,450 46,529 0 1,641,698
Deferred income taxes 3,159,280 0 0 0 0 3,159,280
------------- ----------- ---------- ----------- ----------- -------------
Total Current Assets 51,565,361 1,692,873 847,832 2,540,705 (507,575) 53,598,491
------------- ----------- ---------- ----------- ----------- -------------
Property, plant & equipment, net 17,299,197 103,270 69,454 172,724 (16,750)(2) 17,455,171
Intangible assets, net 65,151,423 29,775 0 29,775 9,384,239(3)(4)(5)(6) 74,565,437
Other assets 925,446 1,500 0 1,500 0 926,946
------------- ----------- ---------- ----------- ----------- -------------
Total Assets $134,941,427 $1,827,418 $917,286 $2,744,704 $8,859,914 $146,546,045
============= =========== ========== =========== =========== =============
LIABILITIES
Current Liabilities
Current portion of long-term debt $4,902,572 $0 $21,424 $21,424 $1,104,527(2)(3)(4)(5) $6,028,523
Accounts payable 4,141,993 197,265 119,296 316,561 0 4,458,554
Accrued expenses and other 17,021,640 54,715 17,103 71,818 (34,444)(2) 17,059,014
------------- ----------- ---------- ----------- ----------- -------------
Total Current Liabilities 26,066,205 251,980 157,823 409,803 1,070,083 27,546,091
------------- ----------- ---------- ----------- ----------- -------------
Long-term debt 64,297,801 0 39,345 39,345 9,585,387(2)(3)(4)(5)(6) 73,922,533
Deferred income taxes 2,377,627 0 0 0 0 2,377,627
Other liabilites 2,465,979 0 0 0 0 2,465,979
------------- ----------- ---------- ----------- ----------- -------------
Total Liabilities 95,207,612 251,980 197,168 449,148 10,655,470 106,312,230
------------- ----------- ---------- ----------- ----------- -------------
STOCKHOLDERS' EQUITY
Common Stock 94,492 10,000 5,900 15,900 (15,260)(3)(5) 95,132
Additional paid in capital 41,008,363 0 19,296 19,296 480,064 (5) 41,507,723
Retained Earnings (Accumulated
Deficit) (713,478) 1,565,438 694,922 2,260,360 (2,260,360)(3)(4)(5) (713,478)
------------- ----------- ---------- ----------- ----------- -------------
40,389,377 1,575,438 720,118 2,295,556 (1,795,556) 40,889,377
Treasury Stock (655,562) 0 0 0 0 (655,562)
------------- ----------- ---------- ----------- ----------- -------------
Total Stockholders' Equity 39,733,815 1,575,438 720,118 2,295,556 (1,795,556) 40,233,815
------------- ----------- ---------- ----------- ----------- -------------
Total Liabilities and
Stockholder's Equity $134,941,427 $1,827,418 $917,286 $2,744,704 $8,859,914 $146,546,045
============= =========== ========== =========== =========== =============
19
<PAGE>
The pro forma adjustments to the Unaudited Pro Forma Consolidated Condensed
Balance Sheet as of December 31, 1996 are as follows:
<FN>
(1) Represents historical balance sheet data as of December 31, 1996.
Condensed historical balance sheet information for Kingsport and
ACOR is as follows:
Current Total Current Total
Company Assets Assets Liabilities Equity
------- ------- ------ ----------- ------
Kingsport $32,125 $88,068 $0 $88,068
ACOR 1,660,748 1,739,350 251,980 1,487,370
Total $1,692,873 $1,827,418 $251,980 $1,575,438
* - unaudited
(2) The pro forma reductions to cash ($257,575), property, plant and
equipment, net ($16,750), the current portion of long term debt
($14,488), accrued expenses and other ($34,444) and long term debt
($32,781) reflect the elimination of assets / liabilities not
acquired / assumed in connection with the acquisitions of ACOR and
FWM.
(3) To record the purchase price in connection with the Kingsport
transaction which comprises $250,000 in cash and the issuance of a
seller note for $250,000. The addition to intangible assets of
$411,932 includes a noncompete agreement valued at $50,000.
Goodwill is to be amortized over a forty year period.
(4) To record the purchase price in connection with the ACOR
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.
(5) To record the purchase price in connection with the FWM transaction
which comprises $2,565,000 in cash, the issuance of a seller note
for $750,000 and the issuance of 64,000 shares of Company Common
Stock at $7.8125 per share. The addition of $3,168,545 to
intangible assets includes a noncompete agreement valued at
$38,150. Goodwill is to be amortized over a forty year period.
(6) The proforma adjustments to intangible assets and 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.
(7) Excludes potential future contingent consideration to be paid to
former shareholders of acquired companies based on prescribed
formulas. Contingent consideration is to be accounted for as
additional purchase price consideration if and when it becomes
probable.
</FN>
</TABLE>
20
<PAGE>
<TABLE>
Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Year Ended December 31, 1996
<CAPTION>
Historical
-----------------------------------------------------
Hanger JEH &
Orthopedic Acquired Ft. Walton/ Total Acquired Pro Forma
Group, Inc. Companies(1) Mobile(2) Companies Adjustments Pro Forma(11)
------------ ------------ ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $66,805,944 $61,753,968 $3,069,921 $64,823,889 ($127,555)(3) $131,502,278
Cost of Sales 32,233,373 33,522,245 1,537,107 35,059,352 (54,519)(3)(4)(5) 67,238,206
------------ ------------ ----------- ------------ ------------ -------------
Gross Profit 34,572,571 28,231,723 1,532,814 29,764,537 (73,036) 64,264,072
Selling, general & administrative 27,029,315 21,226,162 833,118 22,059,280 28,602 (4)(7) 49,117,197
Depreciation & amortization 2,848,465 1,616,942 33,697 1,650,639 371,266 (5)(6)(7) 4,870,370
------------ ------------ ----------- ------------ ------------ -------------
Income from operations 4,694,791 5,388,619 665,999 6,054,618 (472,904) 10,276,505
Interest expense (2,546,561) (394,650) 0 (394,650) (4,391,721)(8) (7,332,932)
Other income (expense), net (177,216) 745,444 (38,310) 707,134 (515,751)(4)(8) 14,167
------------ ------------ ----------- ------------ ------------ -------------
Income from operations before taxes
and extraordinary item 1,971,014 5,739,413 627,689 6,367,102 (5,380,376) 2,957,740
Provision for income taxes 889,886 76,966 0 76,966 367,061 (9) 1,333,913
Extraordinary loss on early
extinguishment of debt, net of tax 83,234 0 0 0 0 83,234
------------ ------------ ----------- ------------ ------------ -------------
Net Income(loss) $997,894 $5,662,447 $627,689 $6,290,136 ($5,747,437) $1,540,593
============ ============ =========== ============ ============ =============
Net Income per common share (10): $0.11 $0.15
------------ -------------
Shares used to compute net income
per common share: 8,663,161 10,043,604
------------ -------------
21
<PAGE>
The pro forma adjustments to the Unaudited Pro Forma Consolidated Condensed
Statements of Operations for the year ended December 31, 1996 are as follows:
<FN>
(1) The historical statements of operations data for JEH and the
Acquired Companies for the year ended December 31, 1996 represent
the results of operations of such companies from January 1, 1996 to
the earlier of their respective dates of acquisition or December
31, 1996. Each of the acquisitions has been accounted for as a
purchase. Accordingly, the results of operations of each of the
above companies are included in the historical results of
operations of the Company from the date of its acquisition.
Represents results of operations of JEH and each of the Acquired
Companies prior to their acquisition dates for the periods
presented:
Year Ended December 31, 1996
Company Acquired as of Net Sales Net Income (Loss)
------------- ---------------- ---------------------------------
JEH November 1, 1996 $56,140,445 $4,518,040
Kingsport March 3, 1997 382,009 (126,995)
ACOR April 1, 1997 5,231,514 1,271,402
----------- -----------
Total $61,753,968 $5,662,447
=========== ===========
(2) The historical statement of operations data for FWM for the year
ended December 31, 1996 represent the results of operations from
January 1, 1996 to December 31, 1996. The acquisition has been
accounted for as a purchase.
(3) The adjustments to reduce sales ($127,555) and cost of sales
($123,940) reflect the elimination of profit on intercompany sales
during the period presented.
(4) The adjustments to reduce cost of sales ($47,279), selling, general
and administrative ($56,398) and other income ($439,151) reflects
the elimination of historical income and expenses generated from
JEH assets not acquired.
(5) Reflects increases and reductions in historical amounts of JEH, the
Acquired Companies and FWM for depreciation and amortization
expenses resulting from the revaluation in purchase accounting of
fixed assets and intangible assets, as follows
Year Ended December 31, 1996
----------------------------------------------------------------
Company Cost of Sales Depreciation Amortization Total
------------- ----------------------------------------------------------------
JEH $116,700 $116,700 ($1,213,744) ($980,344)
Kingsport - - 10,000 10,000
ACOR - - 10,000 10,000
FWM - - 7,630 7,630
-------- -------- ------------ ----------
Total $116,700 $116,700 ($1,186,114) ($952,714)
======== ======== ============ ==========
(6) Reflects additional amortization over a 40-year period, as if JEH,
the Acquired Companies and FWM were acquired as of the beginning of
the period presented, as follows:
Year Ended
Company December 31, 1996
------------- -----------------
JEH $809,154
Kingsport 9,048
ACOR 98,338
FWM 78,260
--------
Total $994,800
========
(7) Reflects adjustments to depreciation and amortization for $445,880
of additional amortized debt issue costs and selling, general and
administrative for $85,000 of loan administative expenses as if the
$90 million credit facility had been in place on January 1, 1996.
(8) The additional interest expense of $4,391,721 and the reduction in
other income of $76,600 reflect what would have been incurred if
the consideration (in the form of cash and promissory notes) for
JEH, the Acquired Companies and FWM had been paid at January 1,
1997. The interest rates used to calculate pro forma interest
(between 8% and 9%) on the assumed additional debt required to fund
the cash payments reflect the Company's approximate borrowing rate.
Year Ended December 31, 1996
Company Interest Expense Other Income
------------- ----------------------------------
JEH $3,639,611 ($70,350)
Kingsport 16,691 (6,250)
ACOR 440,265 -
FWM 295,154 -
---------- ---------
Total $4,391,721 ($76,600)
========== =========
(9) Reflect income taxes as if each of the Company, JEH, the Acquired
Companies and FWM were a C Corporation for the period presented.
(10) Historical and pro forma net income per common share, which have
been adjusted for preferred stock dividends, computed by dividing
net income by the number of weighted average common and
common-equivalent shares outstanding for the period. The shares
used in the computation of net income per common share on a pro
forma as adjusted basis also include Common Stock issued in
connection with the acquisitions.
(11) Excludes potential future contingent consideration to be paid to
former shareholders of acquired companies companies based on
prescribed formulas. Contingent consideration is to be accounted
for as additional purchase price consideration if and when it
becomes probable.
</FN>
</TABLE>
22
