BETHESDA, Md., Feb. 13 /PRNewswire-FirstCall/ -- Hanger Orthopedic Group, Inc. announces revenue of $153.9 million, a 3.2% increase from $149.2 million in the prior year's comparable quarter, and net income of $4.9 million, or $0.17 per diluted share, for the quarter ended December 31, 2006. In 2006, revenue grew by 3.6% to $598.8 million compared to $578.2 million in the prior year. Pro-forma net income was $14.5 million, or $0.49 per diluted share, for the year ended December 31, 2006, adjusted for the effects of its refinancing, compared to $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. In May 2006, Hanger refinanced all of its outstanding bank and bond indebtedness and convertible preferred stock utilizing 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, the Company also established a $75 million revolving credit facility at the close of the transaction that remains fully available. The pro-forma results for the year ended December 31, 2006, exclude the $17.0 million cost of extinguishment of debt incurred in connection with the refinancing and assumes that the new capital structure was in place on January 1, 2006.
Net sales for the quarter ended December 31, 2006 increased by $4.7 million, or 3.2%, to $153.9 million from $149.2 million in the prior year's comparable quarter. The sales growth was principally the result of a $3.9 million, or 2.9%, increase in same-center sales in our 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 to $69.8 million, or 46.8% of net sales, in the fourth quarter of the prior year. 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 our annual physical inventory.
Income from operations of $18.4 million in the fourth quarter of 2006 was $1.0 million higher than that of the same period in the prior year principally due to a reduction in selling, general and administrative expenses. Selling, general and administrative expenses decreased by $4.8 million due primarily to a $3.8 million decrease in labor costs, primarily from decreases in variable compensation accruals, and a $0.8 million decrease in bad debts, offset by a $0.9 million increase in the investments in our growth initiatives.
Net income applicable to common stock for the fourth quarter of 2006 was $4.5 million, or $0.17 per diluted share, compared to the prior year's net income applicable to common stock of $3.0 million, or $0.14 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.
Net sales for the year ended December 31, 2006 increased by $20.6 million, or 3.6%, to $598.8 million from $578.2 million in the prior year. The sales growth was principally the result of an $11.8 million, or 2.2%, increase in same-center sales in our patient care business, and a $10.0 million, or 22.0%, increase in sales of the Company's distribution segment. The sales increases were offset by a $1.4 million decrease as a result of closed patient care centers primarily due to the effects of the hurricanes in 2005. Cost of goods sold for the year increased by $16.5 million to $300.1 million, or 50.1% of net sales, compared to $283.6 million, or 49.0% of net sales, in the prior year principally due to the sales increases, inflationary factors and a slight change in sales mix at our patient care centers.
Income from operations increased by $1.1 million for the year ended December 31, 2006, to $62.4 million from $61.3 million in the same period of the prior year due principally to the sales increase, offset by an increase in selling, general and administrative expenses. Selling, general and administrative expenses increased by $2.1 million due primarily to a $2.7 million increase in labor costs from merit increases and increased health insurance costs, and a $3.6 million increase in the investments in our growth initiatives, offset by a $3.7 million decrease in bad debts.
Net income, on a pro-forma basis, for the year ended December 31, 2006, was $14.5 million, or $0.49 per diluted share, compared to the prior year's net income applicable to common stock of $8.1 million, 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. Including the costs of the refinancing, the net loss applicable to common stock was $4.1 million, or $0.18 per diluted share, for the year ended December 31, 2006, compared to a net income applicable to common stock of $8.1 million, or $0.37 per diluted share, in the prior year, excluding the impact of $3.7 million in net operating loss carry-forwards in various states, net of certain discrete tax items.
In the fourth quarter of 2006, cash flow from operations was $15.9 million, compared to the prior year's $12.3 million. Cash flow from operations for the year ended December 31, 2006, excluding the impact of the refinancing, was $29.3 million compared to the prior year's actual of $25.7 million. Including the effect of the refinancing, cash flow from operations for the year ended December 31, 2006, was $24.0 million compared to the prior year's $25.7 million.
"We are pleased with the continued improved performance of our businesses in 2006," commented Ivan R. Sabel, Chairman and Chief Executive Officer of Hanger Orthopedic Group. Mr. Sabel added, "Our patient care centers were able to increase same center sales growth by over 2% in a challenging reimbursement environment and our distribution business was able to generate over 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. Combined, these efforts resulted in annual earnings per share growth of 32%, pro-forma for the refinancing and excluding the 2005 impact of $3.7 million in net operating loss carry-forwards in various states, net of certain discrete tax items. Finally, we enter 2007 with a solid foundation for growth, having completed a successful refinancing and having been granted our first Medicare price increase in three years."
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 618 patient care centers in 46 states including the District of Columbia, with 3,471 employees including 1,034 practitioners (as of 12/31/06). 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 leading provider network management company for the orthotics and prosthetics industry. The fourth unit, Innovative Neurotronics, introduces emerging neuromuscular technologies developed through independent research in a collaborative effort with industry suppliers worldwide. For more information on Innovative Neurotronics, Inc. or the WalkAide, visit http://www.ininc.us. For more information on Hanger, visit http://www.hanger.com.
This document contains forward-looking statements relating to the Company's results of operations. The United States Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward- looking statements. Statements relating to future results of 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.
-tables to follow- Hanger Orthopedic Group, Inc. (Dollars in thousands, except share and per share amounts) (unaudited) Three Months Ended Year Ended Income Statement: December 31, December 31, 2006 2005 2006 2005 Net sales $153,918 $149,193 $598,766 $578,241 Cost of goods sold (exclusive of depreciation and amortization) 78,275 69,777 300,065 283,591 Selling, general and administrative 53,646 58,413 221,592 219,454 Depreciation and amortization 3,593 3,564 14,670 13,920 Income from operations 18,404 17,439 62,439 61,276 Interest expense, net 9,377 9,492 38,643 37,141 Extinguishment of debt - - 16,953 - Income before taxes 9,027 7,947 6,843 24,135 Provision (benefit) for income taxes 4,156 (332) 3,409 6,382 Net income 4,871 8,279 3,434 17,753 Less preferred stock dividends declared and accretion-7% Redeemable Preferred Stock - 1,528 2,751 5,892 Less preferred stock dividends declared and accretion-Series A 3.33% Convertible Preferred Stock 416 - 999 - Less beneficial conversion feature accretion-Series A Convertible Preferred Stock - - 3,768 - Net income (loss) applicable to common stock $4,455 $6,751 $(4,084) $11,861 Basic Per Share Data: Net income (loss) $0.20 $0.31 $(0.19) $0.55 Shares used to compute basic per common share amounts 22,110,509 21,788,516 21,981,026 21,694,807 Diluted Per Share Data: Net income (loss) $0.17 $0.30 $(0.18) $0.53 Shares used to compute diluted per common share amounts 29,385,044 22,312,799 22,676,968 22,232,453 Cash Flow Data: Cash flow from operations $15,928 $12,274 $24,037 $25,741 Capital expenditures 4,916 2,277 12,827 8,759 Increase (decrease) in cash 9,205 (243) 15,218 (430) December 31, December 31, Balance Sheet Data: 2006 2005 Cash balance $23,139 $7,921 DSO's 61 64 Working Capital $157,231 $135,551 Total Debt $410,624 $378,431 Shareholders' Equity $167,700 $165,242 Income Statement as a % of Net Sales: Three Months Ended Year Ended December 31, December 31, Net sales 2006 2005 2006 2005 Cost of goods sold (exclusive of depreciation and amortization) 100.0% 100.0% 100.0% 100.0% Selling, general and administrative 50.9% 46.8% 50.1% 49.0% Depreciation and amortization 34.9% 39.1% 37.0% 38.0% Income from operations 2.3% 2.4% 2.5% 2.4% Interest expense, net 12.0% 11.7% 10.4% 10.6% Extinguishment of debt 6.1% 6.4% 6.5% 6.4% Income before taxes - - 2.8% - Provision (benefit) for income taxes 5.9% 5.3% 1.1% 4.2% Net income 2.7% -0.2% 0.6% 1.1% 3.2% 5.5% 0.6% 3.1% Hanger Orthopedic Group, Inc. (Dollars in thousands, except share and per share amounts) (unaudited)
Set forth below is a reconciliation of the non-GAAP pro-forma results of operations and the historical GAAP results of operations as well as the non- GAAP pro-forma cash flow from operations and the historical GAAP cash flow from operations. The Company believes the presentation of the pro-forma results, adjusted for the effects of the recent refinancing, is more reflective of the Company's current core operating results and provides investors with additional useful information to measure the Company's on-going performance.
Three Months Ended Year Ended December 31, December 31, 2005 2005 Income from operations, GAAP basis $17,439 $61,276 Interest expense, net 9,492 37,141 Income before taxes 7,947 24,135 Provision for income taxes, pro-forma (1) 3,407 10,121 Net income, pro-forma 4,540 14,014 Less preferred stock dividends 1,528 5,892 Net income, pro-forma, applicable to common stock $3,012 $8,122 Earnings per share, pro-forma $0.14 $0.37 Shares used to compute diluted per common share amounts, for GAAP basis 22,312,799 22,232,453 (1) Excluding the impact of $3.7 million in net operating loss carry- forwards in various states, net of certain discrete tax items Year Ended December 31, 2006 Income from operations, GAAP basis $62,439 Interest expense, net (2) 38,040 Income before taxes, pro-forma 24,399 Provision for income taxes, pro-forma 9,901 Net income, pro-forma 14,498 Earnings per share, pro-forma $0.49 Shares used to compute diluted per common share amounts, for GAAP basis 21,981,026 Effects of dilutive options and restricted stock 695,942 Effects of conversion of Redeemable preferred 6,613,757 Shares used to compute diluted per share amounts 29,290,725 Year Ended December 31, 2006 Cash flow from operations, GAAP basis $24,037 Premium paid on extinguishment of debt (2) 11,866 Tax benefit (cost) of debt extinguishment (6,558) Cash flow from operations, pro-forma $29,345 (2) Assumes debt refinancing occurred effective January 1, 2006. Hanger Orthopedic Group, Inc. Three Months Ended Year Ended Statistical Data: December 31, December 31, 2006 2005 2006 2005 Patient-care centers 618 624 618 624 Number of Practitioners 1,034 1,021 1,034 1,021 Number of states (including D.C.) 46 46 46 46 Payor mix: Private pay and other 59.7% 59.2% 58.9% 58.8% Medicare 29.8% 30.4% 30.5% 30.8% Medicaid 5.8% 6.1% 6.2% 6.1% VA 4.6% 4.3% 4.4% 4.3% Percentage of net sales from: Patient-care services 91.4% 91.8% 90.7% 92.1% Distribution 8.6% 8.2% 9.3% 7.9%
Hanger Orthopedic Group, Inc.CONTACT: Ivan R. Sabel, George E. McHenry, or Hai V. Tran,+1-301-986-0701, all of Hanger Orthopedic Group, Inc.
Web site: http://www.hanger.com/
