Hanger Announces Fourth Quarter Results

Officials from Hanger Orthopedic Group Inc. announced a revenue of $153.9 million for the fourth quarter of 2006. This is a 3.2% increase from $149.2 million in the previous year’s comparable quarter, and net income of $4.9 million, or $0.17 per diluted share. In 2006, revenue increased by 3.6% to $598.8 million compared with $578.2 million in the previous year. Pro-forma net income was $14.5 million, or $0.49 per diluted share, for the year ended Dec. 31, 2006, adjusted for the effects of its refinancing, compared with $8.1 million of net income applicable to common stock in the prior year, or $0.37 per diluted share, excluding the impact of $3.7 million in net operating loss carry-forwards in various states, net of certain discrete tax items.

“We are pleased with the continued improved performance of our businesses in 2006,” said Ivan R. Sabel, chairman and chief executive officer of Hanger Orthopedic Group, in a company press release. “Our patient care centers were able to increase same center sales growth by more than 2% in a challenging reimbursement environment and our distribution business was able to generate more than 22% sales growth for the year. In addition, our growth initiatives reached important milestones with Linkia rolling out its full network management service solution for two significant national insurance providers, and with Innovative Neurotronics successfully launching the FDA-approved WalkAide product.”

In May 2006, Hanger refinanced all of its outstanding bank and bond indebtedness and convertible preferred stock using the proceeds from a $50 million private placement of 3.33% convertible perpetual preferred stock, a new $230 million senior secured term loan and a private offering of $175 million of senior unsecured notes. In connection with the transaction, Hanger also established a $75 million revolving credit facility at the close of the transaction that remains fully available.

Net sales for the fourth quarter of 2006 increased by $4.7 million (3.2%) to $153.9 million from the previous year’s comparable quarter. The sales growth was principally the result of a $3.9 million (2.9%) increase in same-center sales in its patient care business. Cost of goods sold for the fourth quarter of 2006 increased by $8.5 million to $78.3 million, or 50.9% of net sales, compared with $69.8 million, or 46.8% of net sales, in the fourth quarter of 2005. The increase was principally due to an increase in material costs, due to the sales increases in both the patient care and distribution segments, and adjustments related to the annual physical inventory.

Income from operations of $18.4 million in the fourth quarter of 2006 was $1 million higher than that of the same period in 2005 principally due to a reduction in selling, general and administrative expenses. Net sales for 2006 increased by $20.6 million (3.6%) to $598.8 million. The sales growth was principally the result of an $11.8 million (2.2%) increase in same-center sales in Hanger’s patient care business, and a $10 million (22%) increase in sales of Hanger’s distribution segment. Income from operations increased by $1.1 million for 2006 to $62.4 million due principally to the sales increase, offset by an increase in selling, general and administrative expenses.

“We enter 2007 with a solid foundation for growth, having completed a successful refinancing and having been granted our first Medicare price increase in 3 years,” Sabel said.

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