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): March 1, 2005

HANGER ORTHOPEDIC GROUP, INC.
(Exact Name of Registrant as Specified in Charter)

Delaware	1-10670	84-0904275
(State or Other Jurisdiction of	(Commission File Number)	(I.R.S. Employer
Incorporation)		Identification No.)

Two Bethesda Metro Center, Suite 1200, Bethesda, MD	20814
(Address of Principal Executive Office)	(Zip Code)

Registrant’s telephone number, including area code: (301) 986-0701

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 March 1, 2005, the Registrant issued a press release announcing its financial results for the quarter and year ended December 31, 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.

    (c)        Exhibits:

Exhibit	Description
99.1	Exhibit 99.1 Press Release issued by the Registrant on March 1, 2005.

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: March 2, 2005	Jason P. Owen
	Treasurer

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EX-99.1

Exhibit 99.1

Hanger Orthopedic Group, Inc.
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 NET INCOME

PER DILUTED SHARE OF $0.12 FOR THE QUARTER ENDED DECEMBER 31, 2004

        BETHESDA, MARYLAND, February 28, 2005 – Hanger Orthopedic Group, Inc. (NYSE:HGR) 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 11¼ % 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.

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        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 11¼% 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.

_________________

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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.

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-tables to follow-

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

	Three Months Ended					Twelve Months Ended
	December 31,					December 31,
	2004		2003			2004			2003
Income Statement:
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		$	1,249		$	27,206
Net income applicable to common stock excluding goodwill		N/A	$	664		$	10,662		$	19,744
impairman and other charges
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

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Hanger Orthopedic Group

	Three Months Ended				Twelve Months Ended
	December 31,				December 31,
Statistical Data:	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	%

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