- The Washington Times - Monday, August 18, 2003

Hanger Orthopedic Group Inc. has mastered the art of fighting through difficult stretches.

After overcoming a troubled acquisition that hampered the company for three years, the Bethesda maker of prosthetics and orthopedic devices faced a tumbling stock price earlier this year.

But the company rebounded and announced Friday it bought Sacramento, Calif.-based Advanced Bio-Mechanics and Herndon-based Northern Virginia Orthotics and Prothetics. It did not disclose terms of the deal, but said the two companies had a total of $5.5 million in sales during 2002.

The acquisitions follow a positive earnings report and a four-month period when Hanger’s stock price rose from a year’s low on April 25 to a year’s high on Aug. 1. Shares fell 13 cents yesterday to close at $13.35 on the New York Stock Exchange.

Shares of Hanger have climbed back to where they were at the start of the year. Analysts said shares dipped in April amid investor fears that Congress would cut Medicare, and Hanger’s products would not be eligible for reimbursement, analysts said. Those fears proved unfounded.

“I think there was some misunderstanding,” said David MacDonald, an analyst with Leerink, Swann and Co. in Boston. Mr. MacDonald, who does not own Hanger shares, said roughly 1 percent of Hanger’s products would be affected if there are cuts to Medicare.

Analysts said the purchase of Advanced Bio-Mechanics helps Hanger solidify its market position in California, where it has almost twice as many offices than in any other state.

“They’re looking for opportunistic acquisitions,” Mr. MacDonald said. “This kind of fits in with that formula.”

Hanger had all but abandoned acquisitions after the troubled $445 million purchase of Novacare in 1999 forced the company to restructure.

Hanger executives said the integration of both Advanced Bio-Mechanics and Northern Virginia Orthotics and Prosthetics should be much easier, because the companies are significantly smaller.

“We did a great deal of due diligence and like the people there,” Hanger Treasurer Jason F. Owen said. “We are always looking to support our organic growth with mom-and-pop acquisitions.”

By acquiring Advanced Bio-Mechanics, Hanger will expand its product line to include sport-related equipment, such as helmets and poles for speed skiers.

Hanger in November bought ABI Orthotic Prosthetic Laboratories and its four facilities in Ohio and Pennsylvania.

Hanger reported earnings of $9.4 million, or 34 cents per share, for the second quarter of this year, compared with net income of $7.7 million, or 29 cents per share during the comparable period last year. Sales rose from $133.1 million to $138.9 million, or 4.4 percent, over the same period.

For Hanger, the improved earnings stem from its decision to concentrate on business fundamentals, by paying down debt and increasing cash flow, analysts said. The company endured turbulent times after acquiring Novacare Inc. in 1999. It was an enormous purchase that increased the company’s size by nearly 50 percent but added as much as $40 million in debt. Hanger shares dropped to less than $2 per share, and the company replaced its president and chief executive officer in January of 2002.

Current executives said the Novacare difficulties are in the past.

“We are continuing to pay down debt and up our free cash flow,” Mr. Owen said. “I’m very pleased with where we are.”


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