SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A No. 1
AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 2000
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 (I.R.S. Employer Identification No.)
incorporation or organization)
Two Bethesda Metro Center, Suite 1200, Bethesda, MD 20814
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(Address of principal executive offices) (Zip Code)
Registrant's phone number, including area code:
(301) 986-0701
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The undersigned registrant hereby amends the following portion of its
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000:
Part I - Item 1 (Financial Statements): Consolidated Statements of Cash
Flows for the Six Months Ended June 30, 2000 and 1999
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.
/s/RICHARD A. STEIN
-------------------------
Richard A. Stein
Date: August 29, 2000 Vice President - Secretary and Treasurer
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE
30, 2000.
This amendment corrects the Consolidated Statements of Cash Flows on
page 6 of the Form 10-Q to correct an error that occurred in connection with
the Edgarization of the filing. The amendment (i) moves the $545 Proceeds from
sale of common stock set forth as the third line item of the statement from
the 2000 column to the 1999 column and (ii) moves the $150,000 Proceeds from
long-term debt set forth as the fourth line item of the statement from the
2000 column to the 1999 column.
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Shares and Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,289 $ 5,735
Accounts receivable less allowance for
doubtful accounts of $15,153 and $17,866
in 2000 and 1999, respectively 112,249 103,125
Inventories 67,878 59,915
Prepaid expenses and other assets 17,715 5,222
Income taxes receivable 4,535 3,644
Deferred income taxes 8,125 11,778
---------- ----------
Total current assets 213,791 189,419
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land 4,177 4,177
Buildings 8,902 8,886
Machinery and equipment 29,139 26,677
Furniture and fixtures 9,563 8,629
Leasehold improvements 15,578 13,004
---------- ----------
67,359 61,373
Less accumulated depreciation and amortization 19,849 15,269
---------- ----------
47,510 46,104
---------- ----------
INTANGIBLE ASSETS
Excess of cost over net assets acquired 478,755 498,612
Non-compete agreements 1,551 2,019
Patents 9,835 9,768
Assembled Work Force 7,000 7,000
Other intangible assets 17,111 15,833
---------- ----------
514,252 533,232
Less accumulated amortization 27,667 20,412
---------- ----------
486,585 512,820
---------- ----------
OTHER ASSETS
Other 1,590 1,738
---------- ----------
TOTAL ASSETS $ 749,476 $ 750,081
========== ==========
</TABLE>
The accompany notes are an integral part of the consolidated financial
statements.
1
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Shares and Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 29,591 $ 25,406
Accounts payable 18,538 16,714
Accrued expenses 6,130 5,445
Accrued interest payable 7,441 4,768
Accrued wages and payroll taxes 11,912 18,658
---------- ----------
Total current liabilities 73,612 70,991
---------- ----------
Long-term debt 421,162 426,211
Deferred income taxes 13,481 13,481
Other liabilities 4,837 5,141
7% Redeemable Preferred Stock,
liquidation preference of $1,000 per share 63,647 61,343
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 60,000,000 shares
authorized, 19,043,497 and 19,043,497 shares
issued, and 18,910,002 and 18,910,002 shares
outstanding in 2000 and 1999 190 190
Additional paid-in capital 146,498 146,498
Retained earnings 26,705 26,882
---------- ----------
173,393 173,570
Treasury stock, at cost (133,495 shares) (656) (656)
---------- ----------
172,737 172,914
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY $ 749,476 $ 750,081
========== ==========
</TABLE>
The accompany notes are an integral part of the consolidated financial
statements.
2
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Shares and Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 125,872 $ 56,417
Cost of products and services sold 60,310 27,555
------------ ------------
Gross profit 65,562 28,862
Selling, general & administrative expenses 42,833 18,052
Integration costs 502
Depreciation and amortization 2,939 1,021
Amortization of excess cost over net assets acquired 2,796 756
------------ ------------
Income from operations 16,492 9,033
Other expense:
Interest expense, net (10,951) (787)
Other, net (31) (137)
------------ ------------
Income before income taxes 5,510 8,109
Provision for income taxes 3,103 3,234
------------ ------------
Net income $ 2,407 $ 4,875
============ ============
BASIC PER COMMON SHARE DATA
Net income $ .06 $ .26
============ ============
Shares used to compute basic per common
share amounts 18,910,002 18,846,547
============ ============
DILUTED PER COMMON SHARE DATA
Net income $ .06 $ .24
============ ============
Shares used to compute diluted per common share
amounts * 19,154,415 20,023,628
============ ============
</TABLE>
* Excludes the effect of the conversion of common stock into which shares of
7% Redeemable Preferred Stock are convertible as it is anti-dilutive.
The accompany notes are an integral part of the consolidated financial
statements.
3
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED June 30, 2000 and 1999
(Dollars In Thousands, Except Shares and Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 240,740 $ 105,562
Cost of products and services sold 117,494 52,444
------------ ------------
Gross profit 123,246 53,118
Selling, general & administrative expenses 82,008 35,151
Integration costs 1,088
Depreciation and amortization 5,656 1,984
Amortization of excess cost over net assets acquired 5,787 1,498
------------ ------------
Income from operations 28,707 14,485
Other expense:
Interest expense, net (22,109) (1,075)
Other, net (33) (99)
------------ ------------
Income before income taxes 6,565 13,311
Provision for income taxes 4,438 5,315
------------ ------------
Net income $ 2,127 $ 7,996
============ ============
BASIC PER COMMON SHARE DATA
Net income (loss) $ (.01) $ .42
============ ============
Shares used to compute basic per common
share amounts 18,910,002 18,823,480
============ ============
DILUTED PER COMMON SHARE DATA
Net income (loss) $ (.01) $ .40
============ ============
Shares used to compute diluted per common share
amounts * 18,910,002 20,131,175
============ ============
</TABLE>
* Excludes the effect of the conversion of common stock into which shares of
7% Redeemable Preferred Stock are convertible as it is anti-dilutive. All
other outstanding options and warrants are anti-dilutive due to the net loss
for the Company for the six months ended June 30, 2000.
The accompany notes are an integral part of the consolidated financial
statements.
4
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED June 30, 2000 and 1999
(Dollars In Thousands, Except Shares and Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,127 $ 7,996
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for bad debt 8,106 4,226
Deferred income taxes 3,653 ---
Depreciation and amortization 5,656 1,984
Amortization of excess cost over net
assets acquired 5,787 1,498
Amortization of debt issue costs 965 ---
Changes in assets and liabilities, net
of effect from acquired companies:
Accounts receivable (17,080) (8,374)
Inventory (7,913) (3,572)
Prepaid and other assets (3,769) (1,218)
Other assets 146 (657)
Accounts payable 1,797 1,988
Accrued expenses 1,286 1,730
Accrued wages and payroll taxes (6,794) (282)
Other liabilities (222) (1,121)
---------- ---------
Total adjustments (8,382) (3,798)
---------- ---------
Net cash provided by (used in) operating activities (6,255) 4,198
---------- ---------
Cash flows provided by (used in) investing activities:
Purchase of fixed assets (5,934) (2,557)
Acquisitions, net of cash acquired (4,550) (8,950)
Cash received pursuant to purchase price adjustment 15,000 ---
---------- ---------
Net cash provided by (used in) investing activities 4,516 (11,507)
---------- ----------
</TABLE>
Continued
The accompany notes are an integral part of the consolidated financial
statements.
5
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED June 30,
(Dollars In Thousands, Except Shares and Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Net borrowings under revolving credit facility $ 13,400 $ 21,157
Repayment of term loans (5,500) ---
Proceeds from sale of common stock 545
Proceeds from long-term debt 150,000
Repayment of long-term debt (7,352) (2,239)
Increase in debt issue costs (1,255) (12,175)
--------- ----------
Net cash provided by (used in) financing activities (707) 157,288
--------- ----------
Net change in cash and cash equivalents for the period (2,446) 149,978
Cash and cash equivalents at beginning of period 5,735 9,683
--------- ----------
Cash and cash equivalents at end of period $ 3,289 $ 159,661
========= ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 19,373 $ 422
========= ==========
Taxes $ 2,137 $ 2,504
========= ==========
Non-cash financing and investing activities:
Issuance of common stock in connection with
acquisitions $ --- $ 500
========= =========
Issuance of notes in connection with acquisitions $ 924 $ 1,026
========= =========
Issuance of common stock in repayment of debt $ --- $ 168
========= =========
Dividends declared on preferred stock $ 2,267 $ ---
========= =========
Accretion of preferred stock $ 37 $ ---
========= =========
Notes received pursuant to purchase price adjustment $ 9,700 $ ---
========= =========
</TABLE>
The accompany notes are an integral part of the consolidated financial
statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Shares and Per Share Amounts)
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 notes 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. Certain reclassifications of prior year's
data have been made to improve comparability and the Company uses the gross
profit method to value inventory on an interim basis.
These financial statements should be read in conjunction with the
financial statements of Hanger Orthopedic Group, Inc. ("Hanger" or the
"Company") and notes thereto included in the Annual Report on Form 10-K for
the year ended December 31, 1999 filed by the Company with the Securities and
Exchange Commission.
NOTE B - SEGMENT AND RELATED INFORMATION
The Company evaluates segment performance and allocates resources based
on the segments' EBITDA. "EBITDA" is defined as income from operations before
depreciation, amortization, and integration costs. EBITDA is not a recognized
measure of performance under Generally Accepted Accounting Principles
("GAAP"). While EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with GAAP, or as a
measure of profitability or liquidity, management understands that EBITDA is
customarily used as a criteria in evaluating heath care companies. Moreover,
substantially all of the Company's financing agreements contain covenants in
which EBITDA is used as a measure of financial performance. "Other" EBITDA not
directly attributable to reportable segments is primarily related to corporate
general and administrative expenses.
7
<PAGE>
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
<TABLE>
<CAPTION>
Practice
Management
And Patient
Care Centers Manufacturing Distribution Other Total
------------ ------------- ------------ ----- -----
Three Months
Ended June 30, 2000
-------------------
<S> <C> <C> <C> <C> <C>
Net Sales
Customers $ 116,004 $ 2,598 $ 7,270 $ --- $ 125,872
========== ========== ========== ========== ==========
Intersegments $ --- $ 4,057 $ 12,951 $ (17,008) $ ---
========== ========== ========== ========== ==========
EBITDA $ 27,618 $ (1,219) $ 1,816 $ (5,486) $ 22,729
Restructuring costs and
integration expense 257 -- --- 245 502
Depreciation and
amortization 4,781 607 101 246 5,735
Interest expense, net 24,345 4 -- (13,398) 10,951
Other (income) expense (23) 16 38 -- 31
Income before taxes $ (1,742) $ (1,846) $ 1,677 $ 7,421 $ 5,510
========== ========== ========== ========== ==========
THREE MONTHS
ENDED JUNE 30, 1999
Net Sales
Customers $ 44,918 $ 2,794 $ 8,705 $ --- $ 56,417
========== ========== ========== ========== ==========
Intersegments $ --- $ 1,536 $ 5,674 $ (7,210) $ ---
========== ========== ========== ========== ==========
EBITDA $ 10,795 $ 519 $ 1,436 $ (1,940) $ 10,810
Depreciation and
amortization 1,260 400 43 74 1,777
Interest expense, net 250 4 --- 533 787
Other expense (income) 20 21 (117) 213 137
Income before taxes $ 9,265 $ 94 $ 1,510 $ (2,760) $ 8,109
========== ========== ========== ========== ==========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Practice
Management
And Patient
Care Centers Manufacturing Distribution Other Total
------------ ------------- ------------ ----- -----
Three Months
Ended June 30, 2000
-------------------
<S> <C> <C> <C> <C> <C>
Net Sales
Customers $ 221,459 $ 4,990 $ 14,291 $ --- $ 240,740
========== ========== =========== =========== ===========
Intersegments $ --- $ 7,624 $ 26,523 $ (34,147) $ ---
========== ========== =========== =========== ===========
EBITDA $ 49,632 $ (1,222) $ 3,716 $ (10,888) $ 41,238
Restructuring costs and
integration expense 747 -- 6 335 1,088
Depreciation and
amortization 9,918 902 152 471 11,443
Interest expense, net 25,047 7 -- (2,945) 22,109
Other expense 14 18 1 -- 33
Income before taxes $ 13,906 $ (2,149) $ 3,557 $ (8,749) $ 6,565
========== ========== =========== =========== ===========
SIX MONTHS
ENDED JUNE 30, 1999
Net Sales
Customers $ 85,107 $ 5,397 $ 15,058 $ --- $ 105,562
========== ========== =========== =========== ===========
Intersegments $ --- $ 2,662 $ 10,821 $ (13,483) $ ---
========== ========== =========== =========== ===========
EBITDA $ 18,500 $ 827 $ 2,535 $ (3,895) $ 17,967
Depreciation and
amortization 2,490 785 82 125 3,482
Interest expense, net 519 10 --- 546 1,075
Other (income) expense (181) (8) (219) 507 99
Income before taxes $ 15,672 $ 40 $ 2,672 $ (5,073) $ 13,311
========== ========== =========== =========== ===========
</TABLE>
9
<PAGE>
NOTE C - INVENTORY
Inventories at June 30, 1999 and December 31, 1998 were comprised of the
following:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1998
------------- -----------------
(unaudited)
<S> <C> <C>
Raw materials $40,775 $31,715
Work-in-process 17,155 17,172
Finished goods 9,948 11,028
--------- --------
$67,878 $59,915
======= =======
</TABLE>
NOTE D - ACQUISITIONS
On July 1, 1999, the Company acquired all of the outstanding stock of
NovaCare Orthotics and Prosthetics, Inc. ("NovaCare O&P") from NovaCare, Inc.
pursuant to the terms of a Stock Purchase Agreement (the "Agreement"). Under
the terms of the Agreement, the aggregate consideration totaled $445,000,
which consisted of the assumption of liabilities and other obligations of
$38,400 and the balance in cash. Of the cash portion, $15,000 was placed in
escrow pending the determination of any potential post closing adjustments
relating to working capital. On May 22, 2000, an arbitrator awarded the
Company $25,104 as a result of the working capital deficiency from the
purchase of NovaCare O&P. During the second quarter 2000, the Company received
$15,000 of the award from escrow, and approximately $600 in interest on the
escrow was recorded as interest income. Also during the second quarter of
2000, Hanger executed an agreement to settle the balance of the arbitration
award with NovaCare, Inc. for $9,700, of which $6,000 was received on July 3,
2000, and $3,700 was in the form of a promissory note to be paid by the end of
the fiscal year. The promissory note is secured and paid on a monthly basis of
approximately $617 plus interest computed at a per annum rate of 7%. Amounts
received and to be received under the arbitration and settlement agreements of
$24,700 have been recorded as a reduction to "Excess cost over net assets
acquired" in the accompanying consolidated balance sheet at June 30, 2000.
Hanger required approximately $430,200 in cash to close the acquisition,
to pay approximately $20,000 of related fees and expenses, including debt
issue costs of approximately $16,000, and to refinance existing debt of
approximately $2,500. The funds were raised by Hanger through (i) borrowing
approximately $230,000 of revolving credit and term loans under a new bank
facility; (ii) selling $150,000 principal amount of 11.25% Senior Subordinated
Notes due 2009; and (iii) selling $60,000 of 7% Redeemable Preferred Stock.
The new bank credit facility consists of a $100,000 revolving credit facility,
of which $30,000 was drawn on in connection with the acquisition of NovaCare
O&P, an A term facility and a tranche B term facility. The 7% Redeemable
Preferred Stock accrues annual dividends, compounded quarterly, equal to 7%,
is subject to put rights and will not require principal payments prior to
maturity. Such Preferred Stock is convertible into shares of the Company's
non-voting common stock at a price of $16.50 per share.
10
<PAGE>
The acquisition of NovaCare O&P has been accounted for as a business
combination in accordance with the purchase method. The results of operations
for this acquisition have been included in the Company's results since July 1,
1999.
The following table summarizes the unaudited consolidated pro forma
information, assuming the acquisition had occurred at the beginning of the
following period:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
------------------
<S> <C>
Net sales $241,238
----------------------------------------------------
Net (loss) $ (4,599)
----------------------------------------------------
Net loss per common share - diluted (1) $ (.36)
----------------------------------------------------
<FN>
(1) Excludes the effect of the conversion of common stock into which
shares of 7% Redeemable Preferred Stock are convertible as it is
anti-dilutive. All outstanding options and warrants are anti-dilutive
due to the net loss for the Company for the six months ended June 30,
1999.
</FN>
</TABLE>
Adjustments made in arriving at the unaudited consolidated pro forma
results include increased interest expense on acquisition debt, amortization
of goodwill, adjustments to the fair value of assets acquired and depreciable
lives, preferred stock dividends and related tax adjustments.
The unaudited consolidated pro forma results do not necessarily
represent results which would have occurred if the acquisition had taken place
at the beginning of the period, nor are they indicative of the results of
future combined operations or trends.
Additionally, the Company paid, during the six month period ending June
30, 2000, approximately $3,935 related to 38 orthotic and prosthetic companies
acquired in years prior to 2000. The payments were primarily made pursuant to
earnout and working capital provisions contained in the respective acquisition
agreements. The Company has accounted for these amounts as additional purchase
price resulting in an increase to excess of cost over net assets acquired.
Additional amounts aggregating approximately $16,487 may be paid in connection
with earnout provisions contained in previous acquisition agreements.
NOTE E -INTEGRATION & RESTRUCTURING COSTS
In connection with the acquisition of NovaCare O&P, the Company
implemented a restructuring plan on July 1, 1999. The plan contemplated lease
termination and severance costs associated with the closure of certain
redundant patient-care centers and corporate functions of the Company and
NovaCare O&P. The costs associated with the former NovaCare O&P centers were
recorded in connection with the purchase price allocation on July 1, 1999. The
costs associated with the existing Hanger centers were charged to operations
during the third quarter of 1999.
11
<PAGE>
The restructuring plan provided for the closure of 54 patient-care
centers and the termination of 225 employees. Through June 30, 2000, 43 of the
patient-care centers have been closed and 210 employees have been terminated.
Management reasonably expects to have the remaining patient-care centers
closed and employees severed by the end of 2000. Lease payments on closed
patient care centers are expected to be paid through 2003.
The components of the total restructuring reserve through June 30, 2000
are as follows:
<TABLE>
Lease
Employee Termination and Total
Severance Other Exit Restructuring
Costs Costs Reserve
--------- --------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1999 $1,600 $2,992 $ 4, 592
Year-to-date Spending (1,363) (430) $ (1,793)
------- ------- ---------
Balance at June 30, 2000 $ 237 $2,562 $ 2,799
======= ======= =========
</TABLE>
Additionally, during the three and six-month periods ended June 30,
2000, the Company recorded integration costs of $502 and $1,088, respectively,
related to the acquisition of NovaCare O&P. Integration costs include costs of
changing patient care center names, payroll and related benefits conversion
costs, stay-pay bonuses and related benefits for transitional employees and
certain other costs related to the acquisition. These costs are expensed as
incurred.
NOTE F - NET INCOME PER COMMON SHARE
12
<PAGE>
The following sets forth the calculation of the basic and diluted income
per common share amounts for the three and six month periods ended June 30,
2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 2,407 $ 4,875 $ 2,127 $ 7,996
Less preferred stock accretion and
dividends declared (1,181) --- (2,304) ---
------------- ------------- ------------- -------------
Income (loss) available to
common stockholders used to
compute basic per common share amounts 1,226 4,875 (177) 7,996
Add back interest expense on convertible
note payable, net of tax (2) 15 15 -- 27
------------- ------------- ------------- -------------
Income (loss) available to common stockholders
plus assumed conversions used to com-
pute diluted per common share amounts (1) $ 1,241 $ 4,890 $ (177) $ 8,023
============= ============= ============= ============
Average shares of common stock
outstanding used to compute basic per
common share amounts 18,910,002 18,846,547 18,910,002 18,823,480
Effect of convertible note payable (2) 69,430 92,573 -- 92,573
Effect of dilutive options (2) 103,140 559,995 -- 654,173
Effect of dilutive warrants (2) 71,843 524,513 -- 560,949
------------- ------------- ------------- -------------
Shares used to compute dilutive per
common share amounts (1) 19,154,415 20,023,628 18,910,002 20,131,175
============= ============= ============= =============
Basic income (loss) per common share $ .06 $ .26 $ (.01) $ .42
Diluted income (loss) per common share $ .06 $ .24 $ (.01) $ .40
<FN>
(1) Excludes the effect of the conversion of common stock into which shares
of 7% Redeemable Preferred Stock are convertible as it is anti-dilutive.
(2) All options, warrants and convertible notes payable are anti-dilutive
due to the net loss for the Company for the six months ended June 30,
2000.
</FN>
</TABLE>
Options to purchase 243,000 and 2,835,963 shares of common stock were
outstanding at June 30, 1999 and 2000, respectively, but were not included in
the computation of diluted income per share for the three and six month ended
June 30, 1999 and 2000, because the options' prices were greater than the
average market price of the common shares.
NOTE G - LONG TERM DEBT
13
<PAGE>
On June 16, 1999, the Company issued, in a private offering, $150,000 of
Senior Subordinated Notes, bearing interest of 11.25%, and maturing on June
15, 2009. Interest is payable on June 15 and December 15, commencing on
December 15, 1999.
In connection with the acquisition of NovaCare O&P, the Company replaced
its bank credit facility existing at June 30, 1999 with a new facility. The
new bank credit facility consists of a $100,000 revolving credit facility, a
$100,000 tranche A term facility and a $100,000 tranche B term facility. The
revolving credit facility and the tranche A term facility mature on July 1,
2005 and currently carry an interest rate of adjusted LIBOR plus 3.0% or ABR
plus 2.0%. The tranche B term facility will mature on January 1, 2007 and
currently carries an interest rate of adjusted LIBOR plus 4.0% or ABR plus
3.0%. The bank credit facility is collateralized by substantially all of the
Company's assets, restricts the payment of dividends and contains certain
affirmative and negative covenants customary in an agreement of this nature.
The Company's total long term debt at June 30, 2000, including a current
portion of approximately $29,591, was approximately $450,753. Such
indebtedness included: (i) $150,000 senior subordinated notes; (ii) $68,400
for the revolver; (iii) $95,000 for tranche A; (iv) $99,500 for tranche B; and
(v) a total of $37,853 of other indebtedness.
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business, including claims related to alleged
contingent additional payments under business purchase agreements. Many of
these legal proceedings and claims existed in the NovaCare O&P business prior
to the Company's acquisition of NovaCare O&P. In the opinion of management,
the amount of ultimate liability, if any, with respect to these actions will
not have a materially adverse effect on the financial position, liquidity or
results of operations of the Company.
NOTE I - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standard Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as
amended, requires that an entity recognize all derivative instruments as
either assets or liabilities on its balance sheet at their fair value. Changes
in the fair value of derivatives are recorded each period in current earnings
or other comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction, and, if it is, the type of hedge transaction.
The Company will adopt SFAS 133 by the first quarter of 2001. Due to the
Company's limited use of derivative instruments, SFAS 133 is not expected to
have a material effect on the financial position or results of operations of
the Company.
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