8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

CURRENT REPORT

FORM 8-K

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

Date of Report (Date of Earliest Event Reported): October 25, 2006

Hanger Orthopedic Group, Inc.
(Exact name of registrant as specified in its charter)

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

Two Bethesda Metro Center, Suite 1200
Bethesda, Maryland 20814
(Address of principal executive offices (zip code))

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

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 (see General Instruction A.2 below):

[ ] 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 240.13d-4(c))

Item 2.02 Results of Operations and Financial Condition

        On October 25, 2006, the Registrant issued a press release announcing its financial results for the quarter ended September 30, 2006. A copy of the Registrant’s press release is attached hereto as Exhibit 99 to this Current Report.

Item 9.01 Financial Statements and Exhibits

     (d) Exhibits.

            99 Press Release Issued by the Registrant on October 25, 2006

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.

By: /s/ Thomas C. Hofmeister
       Thomas C. Hofmeister
       Vice President and Chief Accounting Officer

Dated: October 27, 2006

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EX-99

Exhibit 99

Contacts:	Ivan R. Sabel	(301) 986-0701
	George E. McHenry	(301) 986-0701
	Hai V. Tran	(301) 986-0701

News Release

HANGER ORTHOPEDIC GROUP, INC. ANNOUNCES REVENUE OF

$151.5 MILLION AND PRO-FORMA NET INCOME OF $4.3 MILLION, OR

$0.15 PER DILUTED SHARE, FOR THE QUARTER ENDED SEPTEMBER 30, 2006

        BETHESDA, MARYLAND, October 25, 2006 – Hanger Orthopedic Group, Inc. (NYSE:HGR) announces revenue of $151.5 million and pro-forma net income of $4.3 million, or $0.15 per diluted share, for the quarter ended September 30, 2006, adjusted for the effects of its recent refinancing. In May 2006, Hanger refinanced all of its outstanding bank, 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 $0.5 million cost of extinguishment of the 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 September 30, 2006 increased by $5.1 million, or 3.5%, to $151.5 million from $146.4 million in the prior year’s comparable quarter. The sales growth was the result of a $2.1 million, or 1.6%, increase in same-center sales in our patient care business, a $2.7 million, or 22.8%, increase in sales of the Company’s distribution segment, and a $0.3 million increase in non-core activities. The increase in same center sales was accomplished despite the fact that there was one less business day in the third quarter of 2006 compared to 2005. Gross profit for the third quarter of 2006 increased by $3.5 million to $75.3 million, or 49.7% of net sales, compared to $71.8 million, or 49.0% of net sales, in the third quarter of the prior year. The increase was due principally to the increase in sales as well as a $0.6 million decrease in labor compared to 2005 as there was one less work-day in the current quarter.

        Income from operations of $17.1 million in the third quarter of 2006 was $0.4 million higher than that of the same period of the prior year principally due to the aforementioned increase in gross profit. Selling, general and administrative expenses increased by $3.0 million due principally to a $1.8 million increase in variable compensation accruals and $1.0 million increase in the investments in the Company’s growth initiatives.

        Net income applicable to common stock, on a pro-forma basis, for the third quarter of 2006 was $4.3 million, or $0.15 per diluted share, compared to the prior year’s actual $2.8 million, or $0.13 per diluted share. Including the costs of the recent refinancing, the net income applicable to common stock was $1.5 million, or $0.07 per diluted share, for the quarter ended September 30, 2006, compared to a net income applicable to common stock of $2.8 million, or $0.13 per diluted share, in the prior year’s comparable quarter.

        Net sales for the nine months ended September 30, 2006 increased by $15.8 million, or 3.7%, to $444.8 million from $429.0 million in the prior year. The sales growth was principally the result of a $7.2 million, or 1.8%, increase in same-center sales in our patient care business, and a $9.3 million, or 28.0%, 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 nine months increased by $7.9 million to $223.1 million, or 50.2% of net sales, compared to $215.2 million, or 50.2% of net sales, in the first nine months of the prior year due to the sales increase offset by a $7.9 million increase in the cost of materials due primarily to the increase in external sales of the Company’s distribution segment.

        Income from operations increased by $0.2 million in the first nine months of 2006 to $44.0 million from $43.8 million in the same period of the prior year due to an increase in gross profit, offset by an increase in selling, general and administrative expenses. Selling, general and administrative expenses increased by $6.9 million due primarily to a $5.7 million increase in labor costs from merit increases and increased health insurance costs, a $2.7 million increase in the investments in our growth initiatives and a $0.5 million increase in professional fees, offset by a $2.9 million decrease in bad debts.

        Net income applicable to common stock, on a pro-forma basis, for the first nine months of 2006 was $9.1 million, or $0.31 per diluted share, compared to the prior year’s actual $5.1 million, or $0.23 per diluted share. Including the costs of the recent refinancing, the net loss applicable to common stock was $8.5 million, or $0.39 per diluted share, for the first nine months of 2006, compared to a net income applicable to common stock of $5.1 million, or $0.23 per diluted share, in the prior year.

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        Cash flow from operations was $15.9 million in the third quarter of 2006, excluding the impact of the refinancing, compared to the prior year’s actual of $9.6 million. Including the effect of the refinancing, cash flow from operations for the third quarter was $15.2 million, compared to the prior year’s $9.6 million. Cash flow from operations for the nine months ended September 30, 2006, excluding the impact of the refinancing, was $12.9 million compared to the prior year’s actual of $13.4 million. Including the effect of the refinancing, cash flow from operations for the nine month period ended September 30, 2006, was $8.1 million compared to the prior year’s $13.4 million.

        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 46 states including the District of Columbia, with 3,455 employees including 1,032 practitioners (as of 9/30/06). 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-

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Hanger Orthopedic Group, Inc.
(Dollars in thousands, except share and per share amounts)
(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2006		2005			2006			2005
Income Statement:
Net sales	$	151,549	$	146,393		$	444,849		$	429,047
Cost of goods sold (exclusive of depreciation and amortization)		76,229		74,630			221,790			213,813
Selling, general and administrative		54,569		51,606			167,947			161,041
Depreciation and amortization		3,630		3,409			11,077			10,356
Income from operations		17,121		16,748			44,035			43,837
Interest expense, net		9,852		9,405			29,266			27,649
Extinguishment of debt		537		--			16,953			--
Income (loss) before taxes		6,732		7,343			(2,184	)		16,188
Provision (benefit) for income taxes		3,274		3,020			(747	)		6,714
Net income (loss)		3,458		4,323			(1,437	)		9,474
Less preferred stock dividends declared and accretion-7% Redeemable Preferred Stock		--		1,491			2,752			4,364
Less preferred stock dividends declared and accretion-Series A 3.33% Convertible Preferred Stock		416		--			583			--
Less beneficial conversion feature accretion-Series A Convertible Preferred Stock		1,544		--			3,768			--
Net income (loss) applicable to common stock	$	1,498	$	2,832		$	(8,540	)	$	5,110
Basic Per Share Data:
Net income (loss)	$	0.07	$	0.13		$	(0.39	)	$	0.24
Shares used to compute basic per common share amounts		22,030,207		21,713,704			21,937,865			21,663,570
Diluted Per Share Data:
Net income (loss)	$	0.07	$	0.13		$	(0.39	)	$	0.23
Shares used to compute diluted per common share amounts		29,231,813		22,325,857			21,937,865			22,212,159
Cash Flow Data:
Cash flow from operations	$	15,182	$	9,555		$	8,108		$	13,406
Capital expenditures		2,733		2,525			7,911			6,482
Increase (decrease) in cash		1,243		(775	)		6,013			(187	)

Balance Sheet Data:	September 30, 2006		September 30, 2005
Cash balance	$	13,934	$	8,164
DSO's	$	59	$	65
Working Capital	$	153,557	$	138,189
Total Debt	$	412,377	$	386,049
Shareholders' Equity	$	162,474	$	158,112

	Three Months Ended September 30,						Nine Months Ended September 30,
Income Statement as a % of Net Sales:	2006			2005			2006			2005
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold (exclusive of depreciation and amortization)		50.3	%		51.0	%		49.8	%		49.8	%
Selling, general and administrative		36.0	%		35.3	%		37.8	%		37.6	%
Depreciation and amortization		2.4	%		2.3	%		2.5	%		2.4	%
Income from operations		11.3	%		11.4	%		9.9	%		10.2	%
Interest expense, net		6.5	%		6.4	%		6.6	%		6.4	%
Extinguishment of debt		0.3	%		--			3.8	%		--
Income (loss) before taxes		4.5	%		5.0	%		-0.5%			3.8	%
Provision for income taxes		2.2	%		2.1	%		-0.2%			1.6	%
Net income (loss)		2.3	%		2.9	%		-0.3%			2.2	%

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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		Nine Months Ended
	September 30, 2006
Income from operations, GAAP basis	$	17,121	$	44,034
Interest expense, net (1)		9,782		28,663
Income before taxes		7,339		15,371
Provision for income taxes		2,998		6,279
Net income, pro-forma	$	4,341	$	9,092
Diluted Per Share Data:
Net income, pro-forma	$	0.15	$	0.31
Shares used to compute diluted per common share amounts, for GAAP basis		22,030,207		21,937,865
Effects of dilutive options and restricted stock		687,849		702,369
Effects of conversion of Redeemable preferred		6,613,757		6,613,757
Shares used to compute diluted per common share amounts		29,331,813		29,253,991
(1) Assumes debt refinancing occurred effective January 1, 2006

	Three Months Ended		Nine Months Ended
	September 30, 2006
Cash flow from operations, GAAP basis	$	15,182	$	8,108
Premium paid on extinguishment of debt (1)		473		11,866
Tax benefit (cost) of debt extinguishment		276		(7,026	)
Cash flow from operations, pro-forma	$	15,931	$	12,948
(1) Assumes debt refinancing occurred effective January 1, 2006

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Hanger Orthopedic Group, Inc.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Patient-care centers		619			617			619			617
Number of Practitioners		1,032			1,059			1,032			1,059
Number of states (including D.C.)		46			45			46			45
Payor mix:
Private pay and other		58.7	%		55.2	%		58.6	%		56.5	%
Medicare		30.6	%		32.4	%		30.7	%		31.5	%
Medicaid		6.1	%		8.3	%		6.3	%		7.8	%
VA		4.6	%		4.1	%		4.4	%		4.2	%
Percentage of net sales from:
Patient-care services		90.3	%		91.9	%		90.5	%		92.3	%
Distribution		9.7	%		8.1	%		9.5	%		7.7	%

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