BETHESDA, Md., Feb. 28 /PRNewswire-FirstCall/ -- Hanger Orthopedic Group, Inc. today announced net income per diluted share of $0.12 for the quarter ended December 31, 2004.
Net sales for the quarter ended December 31, 2004 increased by $3.1 million, or 2.2%, to $145.9 million from $142.8 million in the prior year’s comparable quarter. The sales growth was primarily the result of a $6.5 million, or 4.6%, increase from acquired practices and $1.2 million, or 13.5%, increase in sales of the Company’s distribution segment. These increases were offset by a $4.4 million, or 3.3%, decline in same-center sales in the Company’s O&P practices. The magnitude of the decline in same-center sales exceeded our full year decline of 1.7% due to the comparison with a strong fourth quarter of 2003 of 3.3%. Gross profit for the fourth quarter of 2004 increased by $2.2 million to $77.5 million, or 53.1% of net sales, compared to $75.3 million, or 52.7% of net sales, in the fourth quarter of the prior year due principally to the sales increase.
Income from operations decreased by $0.6 million in the fourth quarter of 2004 to $15.7 million from $16.3 million in the same period of the prior year due principally to a $0.7 million increase in depreciation and amortization expenses. Selling, general and administrative expenses increased by $1.8 million due principally to the fixed costs of acquired practices. Other significant fluctuations in the selling, general and administrative expenses for the quarter included $1.0 million in expenses related to Sarbanes-Oxley Section 404 compliance work and $0.5 million in expenses associated with the previously announced investigation of the West Hempstead matter. Additional fluctuations include: $0.6 million of business development and marketing expenses offset by cost reductions of: i) $1.6 million in labor and bonus expense, ii) $0.7 million in bad debt expense, and iii) $0.4 million in liability insurance.
Based on the above, net income applicable to common stock for the fourth quarter of 2004 was $2.6 million, or approximately $0.12 per diluted share. In the corresponding period of the prior year, Hanger had a net loss applicable to common stock of $9.7 million, or approximately $0.47 per diluted share. The early extinguishment of debt related to the tender and refinance of $134.4 million of the 111/4 % Senior Subordinated Notes completed in October of 2003 and premium paid related to the repurchase and retirement in 2003 of $30.0 million of 7% Redeemable Preferred Stock negatively impacted fiscal 2003’s results.
Net sales for the year ended December 31, 2004 increased by $20.8 million, or 3.8%, to $568.7 million from $547.9 million in the prior year. The sales growth was primarily the result of a $24.6 million, or 4.5%, increase from acquired practices and $4.7 million, or 13.2%, increase in sales of the Company’s distribution segment. These increases were offset by a $8.9 million, or 1.7%, decline in same-center sales in the Company’s O&P practices. Gross profit for the year ended December 31, 2004 was $292.8 million, or 51.5% of net sales, compared to $289.5 million, or 52.8% of net sales, in the comparable period of the prior year. The gross profit margin decline was primarily due to a combination of a decline in same-center sales growth driven by selective reimbursement cuts in conjunction with increased labor expenses resulting from higher employee health insurance costs and the inflationary impact on salary expenses.
At the beginning of fiscal year 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” under which goodwill and other intangible assets with indefinite lives are not amortized. The decline in our Company’s stock price in August of 2004 triggered an interim valuation of the goodwill and other intangibles as of August 31, 2004. This interim valuation resulted in a $45.8 million goodwill impairment charge. This charge is non- cash and reflects management’s best estimate of the impairment as if a fully completed annual review had been performed. On October 1, 2004, the annual review of goodwill was performed, and the results supported the goodwill impairment charge taken during the third quarter.
Income from operations, excluding the non-cash goodwill impairment charge, decreased by $23.0 million to $60.5 million during 2004, down from $83.5 million during 2003. The decrease in income from operations is the result of a combination of the reduction in gross profit margin and higher selling, general and administrative expenses principally due to: i) $5.6 million from the fixed costs of acquired practices, ii) $3.4 million in additional labor and bonus expense, iii) $3.4 million of business development, marketing expenses, and new product lines, iv) $2.5 million in facility and equipment rental expense, v) $2.4 million in higher health and liability insurance vi) $2.3 million related to Sarbanes-Oxley Section 404 compliance work, and vii) $1.0 million associated with the investigation of the West Hempstead billing allegations. The balance of the increase was caused by inflationary pressures on our fixed expenses.
Based on the above, net loss applicable to common stock for the year ended December 31, 2004 was $28.0 million, or approximately $1.30 per diluted share. Excluding the non-cash goodwill impairment charge and related tax effect, net income applicable to common stock for the year was $0.47 per diluted share. In the corresponding period of the prior year, Hanger had net income applicable to common stock of $8.2 million, or $0.37 per diluted share, for the year ended December 31, 2003. The early extinguishment of debt related to the tender and refinance of $134.4 million of the 111/4% Senior Subordinated Notes completed in October of 2003 and premium paid related to the repurchase and retirement in 2003 of $30.0 million of the Redeemable Preferred Stock impacted the fiscal 2003’s results. Otherwise, the Company would have reported net income applicable to common stock of approximately $0.98 per diluted share.
Hanger Orthopedic Group, Inc., headquartered in Bethesda, Maryland, is the world’s premier provider of orthotic and prosthetic patient-care services. Hanger is the market leader in the United States, owning and operating 619 patient-care centers in 44 states and the District of Columbia, with 3,300 employees including 1,020 practitioners. Hanger is organized into four units. The two key operating units are patient-care which consists of nationwide orthotic and prosthetic practice centers and distribution which consists of distribution centers managing the supply chain of orthotic and prosthetic componentry to Hanger and third party patient-care centers. The third is Linkia which is the first and only managed care organization for the orthotics and prosthetics industry. The fourth segment is Innovative Neutronics which introduces emerging neuromuscular technologies developed through independent research in a collaborative effort with industry suppliers worldwide.
This document contains forward-looking statements relating to the Company’s revenues, contracts and operations. The United States Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. Statements relating to future revenues, contracts and operations in this document reflect the current views of management. However, various risks, uncertainties and contingencies could cause actual results or performance to differ materially from those expressed in, or implied by, these statements, including the Company’s ability to enter into and derive benefits from managed care contracts, the demand for the Company’s orthotic and prosthetic services and products and the other factors identified in the Company’s periodic reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.
Hanger Orthopedic Group, Inc. (In Thousands, Except Share and Per Share Data) Three Months Ended Twelve Months Ended Income Statement: December 31, December 31, 2004 2003 2004 2003 Net sales $145,854 $142,794 $568,721 $547,903 Cost of goods sold 68,371 67,478 275,961 258,383 Gross profit 77,483 75,316 292,760 289,520 Selling, general and administrative 58,195 56,424 218,689 195,516 Depreciation and amortization 3,545 2,807 13,531 10,690 Goodwill impairment and other charges - (213) 45,808 (213) Income from operations 15,743 16,298 14,732 83,527 Interest expense, net 8,908 8,041 34,558 36,278 Loss on early extinguishment of debt - 20,082 - 20,082 Income (loss) before taxes 6,835 (11,825) (19,826) 27,167 Provision for income taxes 2,883 (4,249) 3,568 11,521 Net income (loss) 3,952 (7,576) (23,394) 15,646 Less preferred stock dividends declared and accretion 1,385 1,200 4,587 5,342 Less preferred stock dividends paid - 2,120 - 2,120 Net income (loss) applicable to common stock $2,567 $(9,696) $(27,981) $8,184 Net income excluding goodwill impairment and other charges N/A $3,984 $15,249 $27,206 Net income applicable to common stock excluding goodwill impairment and other charges N/A $664 $10,662 $19,744 Basic Per Share Data: Net income applicable to common stock $0.12 $(0.47) $(1.30) $0.39 Net income excluding goodwill impairment and other charges N/A $0.03 $0.50 $0.95 Basic Shares Outstanding 21,582,729 20,794,810 21,473,765 20,813,456 Diluted Per Share Data: Net income applicable to common stock $0.12 $(0.47) $(1.30) $0.37 Net income excluding goodwill impairment and other charges N/A $0.14 $0.47 $0.98 Diluted Shares Outstanding 22,223,642 20,794,810 21,473,765 22,234,361 Diluted Shares Outstanding for diluted EPS excluding unusual items N/A 22,624,281 22,494,718 N/A December 31, December 31, Balance Sheet Data: 2004 2003 Working Capital $131,807 $141,273 Total Debt 393,111 409,436 Shareholders’ Equity 152,660 178,075 Hanger Orthopedic Group, Inc. Three Months Twelve Months Ended Ended Statistical Data: December 31, December 31, 2004 2003 2004 2003 Patient-care centers 619 585 619 585 Number of Practitioners 1,020 955 1,020 955 Number of states (including D.C.) 45 45 45 45 Payor mix: Private pay and other 56.4% 55.6% 55.7% 55.2% Medicare 29.3% 32.4% 31.3% 33.0% Medicaid 10.4% 9.0% 9.2% 9.2% VA 3.9% 3.0% 3.8% 2.6% Percentage of net sales from: Patient-care services 93.1% 93.8% 93.0% 93.6% Distribution 6.9% 6.2% 7.0% 6.4% Operating Margin (Excluding Impairment of Goodwill) 10.8% 11.4% 10.6% 15.2%
Hanger Orthopedic Group, Inc.
CONTACT: Ivan R. Sabel, George E. McHenry, or Jason P. Owen, of HangerOrthopedic Group, Inc., +1-301-986-0701
Web site: http://www.hanger.com/