BETHESDA, Md., July 26 /PRNewswire-FirstCall/ -- Hanger Orthopedic Group, Inc. announces revenue of $152.9 million and pro-forma net income of $3.7 million, or $0.13 per diluted share, for the quarter ended June 30, 2006, adjusted for the effects of its recent refinancing. As previously announced 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. The Company also established a $75 million revolving credit facility at the close of the transaction that remains fully available. The pro-forma results exclude the $16.4 million cost of extinguishment of the debt and assumes that the new capital structure was in place on January 1, 2006.
Net sales for the quarter ended June 30, 2006 increased by $3.2 million, or 2.1%, to $152.9 million from $149.7 million in the prior year’s comparable quarter. The sales growth was the result of a $0.2 million, or 0.1%, increase in same-center sales in our patient care business and a $3.4 million, or 31.0%, increase in sales of the Company’s distribution segment. The increases were offset by a $0.3 million decrease as a result of closed patient care centers primarily due to the effects of the hurricanes in 2005. Gross profit for the second quarter of 2006 decreased by $0.4 million to $77.5 million, or 50.7% of net sales, compared to $77.9 million, or 52.1% of net sales, in the second quarter of the prior year due to a $4.1 million increase in the cost of materials. The increase in external sales of the Company’s distribution segment accounted for $2.8 million of this increase, as they have significantly higher material costs than in our patient care segment, and the balance related to a shift in the sales mix.
Income from operations of $16.0 million in the second quarter of 2006 was equal to that of the same period of the prior year principally due to the aforementioned decrease in gross profit, offset by a decrease in selling, general and administrative expenses. Selling, general and administrative expenses decreased by $0.7 million due to a $0.9 million reduction in bad debt and a $0.5 million reduction in labor costs, offset by a $0.7 million increase in the investments in the Company’s growth initiatives.
Net income applicable to common stock, on a pro-forma basis, for the second quarter of 2006 was $3.7 million, or $0.13 per diluted share, compared to $2.4 million, or $0.11 per diluted share, in the prior year. Including the costs of the recent refinancing, the net loss applicable to common stock was ($9.3) million or a loss of ($0.42) per diluted share for the quarter ended June 30, 2006, compared to a net income applicable to common stock of $2.4 million, or $0.11 per diluted share, in the prior year’s comparable quarter.
Net sales for the six months ended June 30, 2006 increased by $10.6 million, or 3.7%, to $293.3 million from $282.7 million in the prior year. The sales growth was principally the result of a $5.0 million, or 1.9%, increase in same-center sales in our patient care business, and a $6.6 million, or 31.0%, increase in sales of the Company’s distribution segment. The increases were offset by a $0.7 million decrease as a result of closed patient care centers primarily due to the effects of the hurricanes in 2005. Gross profit for the first six months of 2006, increased by $4.2 million to $147.7 million, or 50.4% of net sales, compared to $143.5 million, or 50.8% of net sales, in the first six months of the prior year due to the sales increase offset by a $5.7 million increase in the cost of materials due primarily to the increase in external sales of the Company’s distribution segment.
Income from operations decreased by $0.2 million in the first six months of 2006 to $26.9 million from $27.1 million in the same period of the prior year due to an increase in selling, general and administrative expenses, offset by an increase in gross profit. Selling, general and administrative expenses increased by $3.9 million due to a $3.4 million increase in labor costs, from merit increases and increased health insurance costs, a $1.6 million increase in the investments in our growth initiatives and a $0.6 million increase in professional fees, offset by a $1.7 million decrease in bad debts.
Net income applicable to common stock, on a pro forma basis, for the first six months of 2006 was $4.7 million, or $0.16 per diluted share, compared to $2.3 million, or $0.10 per diluted share, in the prior year. Including the costs of the recent refinancing, the net loss applicable to common stock was ($10.0) million or a loss of ($0.46) per diluted share for the first six months of 2006, compared to a net income applicable to common stock of $2.3 million, or $0.10 per diluted share, in the prior year.
Cash flow from operations was $17.1 million in the second quarter of 2006 compared to $23.7 million in the prior year. The decrease in cash flow from operations was primarily due to $6.0 million in accelerated interest expense payments related to the recent refinancing.
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 621 patient care centers in 46 states including the District of Columbia, with 3,389 employees including 1,012 practitioners (as of 6/30/06). 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 only 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) Income Statement: Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Net sales $152,855 $149,654 $293,300 $282,654 Cost of goods sold (exclusive of depreciation and amortization) 75,346 71,738 145,561 139,184 Selling, general and administrative 57,751 58,499 113,378 109,435 Depreciation and amortization 3,759 3,438 7,447 6,947 Income from operations 15,999 15,979 26,914 27,088 Interest expense, net 9,914 9,400 19,414 18,244 Extinguishment of debt 16,415 - 16,415 - Income/(loss) before taxes (10,330) 6,579 (8,915) 8,844 Provision (benefit) for income taxes (4,606) 2,763 (4,020) 3,693 Net income/(loss) (5,724) 3,816 (4,895) 5,151 Less preferred stock dividends declared and accretion-7% Redeemable Preferred Stock 1,186 1,455 2,751 2,874 Less preferred stock dividends declared and accretion-Series A 3.33% Convertible Preferred Stock 167 - 167 - Less beneficial conversion feature accretion-Series A Convertible Preferred Stock 2,224 - 2,224 - Net income/(loss) applicable to common stock $(9,301) $2,361 $(10,037) $2,277 Basic Per Share Data: Net income/(loss) $(0.42) $0.11 $(0.46) $0.11 Shares used to compute basic per common share amounts 21,946,319 21,661,157 21,891,694 21,644,918 Diluted Per Share Data: Net income/(loss) $(0.42) $0.11 $(0.46) $0.10 Shares used to compute basic per common share amounts 21,946,319 22,113,004 21,891,694 22,151,390 June 30, 2006 December 31, 2005 Balance Sheet Data: Working Capital $150,372 $135,551 Total Debt $422,727 $378,431 Shareholders’ Equity $156,927 $165,242 Three Months Ended Six Months Ended Income Statement as a % of Net Sales: June 30, June 30, 2006 2005 2006 2005 Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold (exclusive of depreciation and amortization) 49.3% 47.9% 49.6% 49.2% Selling, general and administrative 37.8% 39.1% 38.8% 38.7% Depreciation and amortization 2.5% 2.3% 2.5% 2.5% Income from operations 10.4% 10.7% 9.1% 9.6% Interest expense, net 6.5% 6.3% 6.6% 6.5% Extinguishment of debt 10.7% 0.0% 5.6% 0.0% Income/(loss) before taxes -6.8% 4.4% -3.1% 3.1% Provision (benefit) for income taxes -3.1% 1.9% -1.4% 1.3% Net income/(loss) -3.7% 2.5% -1.7% 1.8% 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. 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 Six Months Ended June 30, 2006 Income from operations, GAAP basis $15,999 $26,914 Interest expense, net (1) 9,672 19,007 Income before taxes 6,327 7,907 Provision for income taxes 2,607 3,255 Net income, Pro forma $3,720 $4,652 Diluted Per Share Data: Net income, Pro forma $0.13 $0.16 Shares used to compute diluted per common share amounts, for GAAP basis 21,946,319 21,891,694 Effects of dilutive options and restricted stock 723,520 639,591 Effects of conversion of Redeemable preferred 6,613,757 6,613,757 Shares used to compute diluted per common share amounts 29,283,596 29,145,042 (1) Assumes debt refinancing occurred effective January 1, 2006. Hanger Orthopedic Group, Inc. Three Months Ended Six Months Ended Statistical Data: June 30, June 30, 2006 2005 2006 2005 Patient-care centers 621 618 621 618 Number of Practitioners 1,012 1,017 1,012 1,017 Number of states (including D.C.) 46 45 46 45 Payor mix: Private pay and other 58.6% 57.4% 58.5% 57.4% Medicare 30.8% 32.5% 30.8% 31.6% Medicaid 6.3% 6.4% 6.4% 6.4% VA 4.3% 3.7% 4.3% 4.6% Percentage of net sales from: Patient-care services 90.6% 92.6% 90.5% 92.5% Distribution 9.4% 7.4% 9.5% 7.5%
Hanger Orthopedic Group, Inc.
CONTACT: Ivan R. Sabel, George E. McHenry, or Hai V. Tran, all of HangerOrthopedic Group, Inc., +1-301-986-0701
Web site: http://www.hanger.com//
