8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 27, 2004

HANGER ORTHOPEDIC GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	1-10670	84-0904275
(State or other	(Commission File	(IRS Employer
jurisdiction of	Number)	Identification No.)
incorporation)

Two Bethesda Metro Center, Suite 1200, Bethesda, MD 20814

(Address of principal executive offices, including zip code)

(Registrant's telephone number, including area code): (303) 837-1661

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02.    Results of Operations and Financial Condition.

        On October 27, 2004, the Registrant issued a press release announcing its financial results for the quarter ended September 30, 2004. A copy of the Registrant’s press release is attached as Exhibit 99.1 to this Current Report.

Item 9.01.    Financial Statements and Exhibits.

(a) Not applicable.

(b) Not applicable.

(c) Exhibits:

Exhibit Description

99.1 Exhibit 99.1 Press Release issued by the Registrant on October 27, 2004

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	HANGER ORTHOPEDIC GROUP, INC.
	/s/ Jason P. Owen
Date:  October 27, 2004	Jason P. Owen
	Treasurer

-2-

EXHIBIT INDEX

Exhibit Description

99.1 Exhibit 99.1 Press Release issued by the Registrant on October 27, 2004

EX-99.1

Two Bethesda Metro Center	Phone 301.986.0701
Suite 1200	Fax 301.986.0702
Bethesda, MD 20814

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

News Release

HANGER ORTHOPEDIC GROUP, INC. ANNOUNCES THIRD QUARTER

NET INCOME PER DILUTED SHARE OF $0.11 EXCLUDING A NON-CASH

GOODWILL IMPAIRMENT CHARGE

        BETHESDA, MARYLAND, October 27, 2004 – Hanger Orthopedic Group, Inc. (NYSE:HGR) today announced net income per diluted share of $0.11 excluding a non-cash goodwill impairment charge for the three-month period ended September 30, 2004, compared to net income per diluted share of $0.32 in the prior year’s comparable quarter.

        Net sales for the quarter ended September 30, 2004 increased by $6.1 million, or 4.3%, to $146.1 million from $140.0 million in the prior year’s comparable quarter. The sales growth was primarily the result of a $7.2 million, or 5.1%, increase from acquired practices and $1.1 million, or 11.1%, increase in sales of the Company’s distribution segment. These increases were offset by a $1.5 million, or 1.2%, decline in same-center sales in the Company’s O&P practices. The sales were in line with our expectations for the quarter despite a $1.0 million shortfall in the Southeast due to the effects of the hurricanes. Gross profit for the third quarter of 2004 was $75.9 million, or 51.9% of net sales, compared to $75.2 million, or 53.7% of net sales, in the third quarter of the prior year. The gross profit margin declined due to a 130 basis point increase in material costs and a 60 basis point increase in labor costs. The material cost increase was driven by a change in the mix of sales and continued pressure on reimbursement. Labor costs increased principally due to increased headcounts from acquired practices and annual salary increases.

        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 was performed. An annual review will be finalized in the fourth quarter, but we do not expect our estimate to change materially. Despite the impairment of goodwill charge, the company is in compliance with all financial covenants as of September 30, 2004.

        Income from operations excluding the non-cash goodwill impairment charge decreased by $9.3 million in the third quarter of 2004 to $15.0 million from $24.3 million in the same period of the prior year due to the combination of the reduction in gross profit margin and higher selling, general and administrative expenses which increased principally due to: i) $2.4 million in additional labor and bonus expense, ii) 2.1 million of business development and marketing expenses, iii) $1.6 million in higher health and liability insurance, iv) $1.6 million from the fixed costs of acquired practices, and v) $1.1 million related to Sarbanes-Oxley Section 404 compliance work and 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 third quarter of 2004 was $36.3 million, or approximately $1.68 per diluted share. Excluding the non-cash goodwill impairment charge and related tax effect, net income applicable to common stock for the third quarter of 2004 was $2.4 million or approximately $0.11 per diluted share. In the corresponding period of the prior year, Hanger had net income applicable to common stock of $7.3 million, or approximately $0.32 per diluted share.

        Net sales for the nine months ended September 30, 2004 increased by $17.8 million, or 4.4%, to $422.9 million from $405.1 million in the prior year’s comparable period. The sales growth was primarily the result of a $20.4 million, or 5.0%, increase from acquired practices and $3.5 million, or 13.1%, increase in sales of the Company’s distribution segment. These increases were offset by a $4.5 million, or 1.2%, decline in same-center sales in the Company’s O&P practices. Gross profit for the first nine months of 2004 was $215.3 million, or 50.9% of net sales, compared to $214.2 million, or 52.9% of net sales, in the comparable period of the prior year. The gross profit margin declined due to a 130 basis point increase in material costs and a 60 basis point increase in labor costs. The material cost increase was driven by a change in the mix of sales and continued pressure on reimbursement. Labor costs increased principally due to increased headcounts from acquired practices and annual salary increases.

        Income from operations excluding the non-cash goodwill impairment charge decreased by $22.4 million in the first nine months of 2004 to $44.8 million from $67.2 million in the same period of the prior year. 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) $5.1 million of business development and marketing expenses, ii) $4.7 million from the fixed costs of acquired practices, iii) $4.3 million in additional labor and bonus expense, iv) $2.6 million in higher health and liability insurance, and v) $2.2 million related to Sarbanes-Oxley Section 404 compliance work and 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 first nine months of 2004 was $30.5 million, or approximately $1.42 per diluted share. Excluding the non-cash goodwill impairment charge and related tax effect, net income applicable to common stock for the first nine months of 2004 was $8.1 million or approximately $0.36 per diluted share. In the corresponding period of the prior year, Hanger had net income applicable to common stock of $19.1 million, or approximately $ 0.87 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 625 patient-care centers in 44 states and the District of Columbia, with 3,258 employees including 1,022 practitioners. Hanger is organized into four business segments. 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.

_________________

-tables to follow-

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

Income Statement:	Three Months Ended September 30,					Nine Months Ended September 30,
	2004			2003		2004			2003
Net sales	$	146,133		$	140,045	$	422,867		$	405,109
Cost of goods sold		70,248			64,799		207,590			190,905
Gross profit		75,885			75,246		215,277			214,204
Selling, general and administrative		57,560			48,110		160,495			139,093
Depreciation and amortization		3,311			2,810		9,986			7,883
Impairment of Goodwill		45,808			--		45,808			--
Income (loss) from operations		(30,794	)		24,326		(1,012	)		67,228
Interest expense, net		9,054			9,786		25,650			28,236
Income (loss) before taxes		(39,848	)		14,540		(26,662	)		38,992
Provision for income taxes (1)		(4,946	)		5,863		684			15,771
Net income (loss)		(34,902	)		8,677		(27,346	)		23,221
Less preferred stock dividends declared and accretion		1,351			1,404		3,202			4,142
Net income (loss) applicable to common stock	$	(36,253	)	$	7,273	$	(30,548	)	$	19,079
Basic Per Share Data:
Net income (loss) applicable to common stock	$	(1.6	)	$	0.35	$	(1.42	)	$	0.92
Net Income (Excluding Impairment of Goodwill)	$	0.11				$	0.36
Basic Shares Outstanding		21,548,925			20,658,239		21,437,443			20,690,950
Diluted Per Share Data:
Net income	$	(1.68	)	$	0.32	$	(1.42	)	$	0.87
Net Income (Excluding Impairment of Goodwill)	$	0.11				$	0.36
Weighted average number of diluted common
shares outstanding		21,548,925			27,090,296		21,437,443			26,824,410

Balance Sheet Data:	September 30, 2004		September 30, 2003
Working Capital		$      135,335		$      134,302
Total Debt		411,063		368,784
Shareholders' Equity		149,244		186,866

(1) Includes $7,165 tax benefit related to the Impairment of Goodwill

Hanger Orthopedic Group, Inc.

Statistical Data:	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Patient-care centers		625			588			625			588
Number of Practitioners		1,022			953			1,022			953
Number of states (including D.C.)		45			45			45			45
Payor mix:
Private pay and other		55.8	%		54.9	%		55.4	%		55.3	%
Medicare		31.6	%		33.5	%		32.1	%		33.0	%
Medicaid		8.5	%		9.3	%		8.7	%		9.3	%
VA		4.1	%		2.3	%		3.8	%		2.4	%
Percentage of net sales from:
Patient-care services		92.7	%		93.2	%		92.9	%		93.5	%
Distribution		7.3	%		6.8	%		7.1	%		6.5	%
Operating Margin (Excluding
Impairment of Goodwill)		10.3	%		17.4	%		10.6	%		16.6	%