EX-99.1 3 sdc549a.htm PRESS RELEASE
Two Bethesda Metro Center
Suite 1200
Bethesda, MD 20814 		Phone (301) 986-0701
  Fax (301) 986-0709

Contacts: Ivan R. Sabel
George E. McHenry
Jason P. Owen 		(301) 986-0701
(301) 986-0701
(301) 986-0701

News Release


HANGER ORTHOPEDIC GROUP, INC. ANNOUNCES THIRD QUARTER

NET INCOME PER DILUTED SHARE OF $0.33, A 10% INCREASE OVER

THE PRIOR YEAR

        BETHESDA, MARYLAND, October 30, 2003 – Hanger Orthopedic Group, Inc. (NYSE:HGR) today announced net income per diluted share of $0.33 for the three-month period ended September 30, 2003, compared to net income per diluted share of $0.30 in the prior year’s comparable quarter.

        Net sales for the quarter ended September 30, 2003 increased by $6.0 million, or 4.5%, to $140.0 million from $134.0 million in the prior year’s comparable quarter. The sales growth was primarily the result of a $2.1 million, or 1.7%, increase in same-center sales in the Company’s O&P practices, a $1.6 million, or 19.8%, increase in sales of the Company’s distribution segment, with the net balance coming principally from acquired practices. Gross profit for the third quarter of 2003 was $75.2 million, or 53.7%, of net sales, compared to $72.1 million, or 53.8%, of net sales, in the third quarter of the prior year. The improvement in gross profit dollars was due to increased net sales. Income from operations increased by $1.5 million in the third quarter of 2003, to $24.6 million from $23.1 million in the same period of the prior year. The increase in income from operations is the result of increased net sales slightly offset by a $1.2 million increase in selling, general and administrative expenses associated primarily with the operating expenses of acquired practices, costs associated with the roll-out of our new billing system, and an increase in our marketing and corporate development activities.

        Based on the above improvements, net income for the third quarter of 2003 increased to $8.8 million, or approximately $0.33 per diluted share. In the corresponding period of the prior year, Hanger had net income of $7.8 million, or approximately $0.30 per diluted share.

        Net sales for the nine months ended September 30, 2003 increased by $14.6 million, or 3.7%, to $405.1 million from $390.5 million in the prior year’s comparable period. The sales growth was primarily the result of a $4.5 million, or 1.2%, increase in same-center sales in the Company’s O&P practices, a $4.9 million, or 23.0%, increase in the sales of the Company’s distribution segment, with the net balance coming principally from acquired practices. Gross profit for the first nine months of 2003 was $214.2 million, or 52.9% of net sales, compared to $205.9 million, or 52.7% of net sales, in the comparable period of the prior year. The improvement in gross profit was due to increased net sales. Income from operations increased by $5.6 million in the first nine months of 2003, to $68.0 million from $62.4 million in the same period of the prior year. The increase in income from operations is the result of increased net sales slightly offset by a $2.2 million increase in selling, general and administrative expenses associated primarily with the operating expenses of acquired practices, costs associated with the roll-out of our new billing system, and an increase in our marketing and corporate development activities.

        As a result of the above improvements, net income for the first nine months of 2003 increased to $23.7 million, or approximately $0.88 per diluted share. In the corresponding period of the prior year, Hanger had net income of $17.0 million, or approximately $0.61 per diluted share.

        Chairman and CEO Ivan R. Sabel stated, “During the third quarter we were able to generate 10% growth in earnings per share despite continued challenges in our efforts to improve sales growth. Same-center sales growth was approximately 2% for the quarter, but we were able to leverage our efficient platform and improve our EBITDA margins from 19.0% last year to 19.6% in 2003. We increased EPS by 10% over the prior year by maintaining our gross profit margins and reducing our SG&A to 34.2% of sales this year compared to 34.8% in 2002. At the same time, we have been making significant investments in marketing, systems and corporate development that will benefit future periods. While we expect fourth quarter to produce the same or slightly improved sales growth as the third quarter, once we put the reimbursement and economic issues of 2003 behind us and the investments we are making begin to take hold we are optimistic that sales growth will improve in 2004.”

        “Finally, I am excited about the successful tender and refinance of our 11.25% subordinated notes that closed in early October. The Term B facility was well received by the market; it gives us $150 million in pre-payable debt and based on current interest rates it will save us approximately $6 million in annual interest cost. I thank our dedicated employees for their considerable efforts in continuing to deliver superior patient care while growing our business in a difficult environment”.

        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 588 patient-care centers in 44 states and the District of Columbia, with 3,115 employees. Hanger is organized into two business segments: 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. In addition, Hanger operates the largest orthotic and prosthetic managed care network in the country.

_________________

Certain statements included in this press release are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the Company’s SEC filings for factors that could cause actual results to differ materially from the Company’s expectations.

-tables to follow-

Hanger Orthopedic
(In Thousands, Except Share and Per Share Data)


Income Statement: Three Months Ended
September 30,		 Nine Months Ended
September 30,
  

 2003

 2002 1

2003

 2002 1

Net sales     $ 140,045   $ 133,980   $ 405,109   $ 390,546  
Cost of goods sold    64,799    61,884    190,905    184,610  
Gross profit    75,246    72,096    214,204    205,936  
Selling, general and administrative    47,844    46,628    138,322    136,096  
Depreciation and amortization    2,810    2,400    7,883    7,478  
Income from operations    24,592    23,068    67,999    62,362  
Interest expense, net    9,786    9,870    28,236    28,926  
Loss on early extinguishment of debt    --    --    --    4,686  
Income before taxes    14,806    13,198    39,763    28,750  
Provision for income taxes    5,977    5,368    16,103    11,727  
Net income    8,829    7,830    23,660    17,023  
Less preferred stock dividends declared and accretion    1,404    1,311    4,142    3,868  
Net income applicable to common stock   $ 7,425   $ 6,519   $ 19,518   $ 13,155  
Diluted Per Share Data2:   

Net income		   $ 0.33   $ 0.30   $ 0.88   $ 0.61  
Weighted average number of diluted common  
  shares outstanding    27,090,296    21,913,967    26,824,410    21,502,115  

Balance Sheet Data:

  
September 30,
2003

  

September 30,
2002

Working Capital            $ 136,163          $ 132,992  
Total Debt          368,785          393,822  
Shareholders' Equity          188,726          159,503  



Note 1:


Approximately $1.9 million in medical benefits for the quarter and $3.8 million in the nine month period ended September 30, 2002 were reclassed from Selling, General and Administrative expenses to Cost of Goods Sold to conform to the current year presentation.

Note 2: During the second quarter of 2003, the assumed conversion or the Company’s outstanding preferred stock became more dilutive to earnings per share; therefore the preferred stock dividends declared and accretion of $1.4 million in the third quarter and $4.1 million in the nine months ended September 30, 2003 were not included in the computation, as required by accounting principles generally accepted in the United States.


Hanger Orthopedic


Statistical Data: Three Months Ended
September 30,		 Nine Months Ended
September 30,

  		 2003 2002 2003 2002

Patient-care centers		       588     578     588     578  

Number of states (including D.C.)		    45    45    45    45  

Payor mix:		  
   Private pay and other    54.9 %  56.4 %  55.3 %  56.8 %
   Medicare    33.5 %  31.7 %  33.0 %  31.7 %
   Medicaid    9.3 %  9.6 %  9.3 %  9.3 %
   VA    2.3 %  2.3 %  2.4 %  2.2 %

EBITDA (millions)		   $ 27.4   $ 25.5   $ 75.9   $ 69.9  

EBITDA margin		    19.6 %  19.0 %  18.7 %  17.9 %

Operating margin		    17.6 %  17.2 %  16.8 %  16.0 %

Percentage of net sales from:		  
   Patient-care services    93.2 %  94.0 %  93.5 %  94.5 %
   Distribution    6.8 %  6.0 %  6.5 %  5.5 %