Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Mar. 31, 2014 | 2-May-14 | |
Document and Entity Information | ' | ' |
Entity Registrant Name | 'HANGER, INC. | ' |
Entity Central Index Key | '0000722723 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 31-Mar-14 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Filer Category | 'Large Accelerated Filer | ' |
Entity Common Stock, Shares Outstanding | ' | 35,212,424 |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q1 | ' |
CONSOLIDATED_BALANCE_SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | Mar. 31, 2014 | Dec. 31, 2013 |
In Thousands, unless otherwise specified | ||
CURRENT ASSETS | ' | ' |
Cash and cash equivalents | $55,624 | $9,860 |
Net accounts receivable, less allowance for doubtful accounts of $10,313 and $10,022 in 2014 and 2013, respectively | 183,548 | 185,769 |
Inventories | 153,952 | 141,518 |
Prepaid expenses, other assets, and income taxes receivable | 27,678 | 15,519 |
Deferred income taxes | 30,366 | 30,298 |
Total current assets | 451,168 | 382,964 |
PROPERTY, PLANT AND EQUIPMENT | ' | ' |
Land | 794 | 794 |
Buildings | 16,517 | 15,397 |
Furniture and fixtures | 16,581 | 15,855 |
Machinery and equipment | 63,379 | 61,707 |
Equipment leased to third parties under operating leases | 34,198 | 34,142 |
Leasehold improvements | 88,576 | 85,176 |
Computer and software | 94,561 | 88,950 |
Total property, plant and equipment, gross | 314,606 | 302,021 |
Less accumulated depreciation and amortization | 183,187 | 175,223 |
Total property, plant and equipment, net | 131,419 | 126,798 |
INTANGIBLE ASSETS | ' | ' |
Goodwill | 702,455 | 681,547 |
Other intangible assets, less accumulated amortization of $29,267 and $27,375 in 2014 and 2013, respectively | 61,367 | 58,021 |
Total intangible assets, net | 763,822 | 739,568 |
OTHER ASSETS | ' | ' |
Debt issuance costs, net | 8,134 | 8,564 |
Other assets | 15,142 | 13,766 |
Total other assets | 23,276 | 22,330 |
TOTAL ASSETS | 1,369,685 | 1,271,660 |
CURRENT LIABILITIES | ' | ' |
Current portion of long-term debt | 20,869 | 15,998 |
Accounts payable | 41,789 | 36,729 |
Accrued expenses and other current liabilities | 22,734 | 24,923 |
Accrued interest payable | 5,534 | 1,898 |
Accrued compensation related costs | 21,605 | 36,331 |
Total current liabilities | 112,531 | 115,879 |
LONG-TERM LIABILITIES | ' | ' |
Long-term debt, less current portion | 541,066 | 452,261 |
Deferred income taxes | 76,971 | 76,545 |
Other liabilities | 48,615 | 46,755 |
Total liabilities | 779,183 | 691,440 |
COMMITMENTS AND CONTINGENCIES (Note G) | ' | ' |
SHAREHOLDERS' EQUITY | ' | ' |
Common stock, $.01 par value; 60,000,000 shares authorized, 36,346,814 and 36,113,202 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively | 363 | 361 |
Additional paid-in capital | 297,006 | 292,722 |
Accumulated other comprehensive loss | -1,020 | -1,020 |
Retained earnings | 294,809 | 288,813 |
Shareholders' equity, excluding treasury stock | 591,158 | 580,876 |
Treasury stock at cost (141,154 shares) | -656 | -656 |
Total shareholders' equity | 590,502 | 580,220 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $1,369,685 | $1,271,660 |
CONSOLIDATED_BALANCE_SHEETS_Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 |
In Thousands, except Share data, unless otherwise specified | ||
CONSOLIDATED BALANCE SHEETS | ' | ' |
Accounts receivable, allowance for doubtful accounts (in dollars) | $10,313 | $10,022 |
Other intangible assets, accumulated amortization (in dollars) | $29,267 | $27,375 |
Common stock, par value (in dollars per share) | $0.01 | $0.01 |
Common stock, shares authorized | 60,000,000 | 60,000,000 |
Common stock, shares issued | 36,346,814 | 36,113,202 |
Common stock, shares outstanding | 36,346,814 | 36,113,202 |
Treasury stock, shares | 141,154 | 141,154 |
CONSOLIDATED_STATEMENTS_OF_INC
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $) | 3 Months Ended | |
In Thousands, except Share data, unless otherwise specified | Mar. 31, 2014 | Mar. 31, 2013 |
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | ' | ' |
Net sales | $235,605 | $229,350 |
Material costs | 67,345 | 67,739 |
Personnel costs | 96,431 | 89,953 |
Other operating expenses | 45,600 | 39,657 |
Depreciation and amortization | 10,199 | 9,285 |
Income from operations | 16,030 | 22,716 |
Interest expense | 6,098 | 7,777 |
Income before taxes | 9,932 | 14,939 |
Provision for income taxes | 3,935 | 5,449 |
Net income | 5,997 | 9,490 |
Comprehensive income | $5,997 | $9,490 |
Basic Per Common Share Data | ' | ' |
Net income (in dollars per share) | $0.17 | $0.27 |
Shares used to compute basic per common share amounts (in shares) | 35,076,828 | 34,598,494 |
Diluted Per Common Share Data | ' | ' |
Net income (in dollars per share) | $0.17 | $0.27 |
Shares used to compute diluted per common share amounts (in shares) | 35,415,018 | 35,066,032 |
CONSOLIDATED_STATEMENTS_OF_CAS
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 3 Months Ended | |
In Thousands, unless otherwise specified | Mar. 31, 2014 | Mar. 31, 2013 |
Cash flows from operating activities: | ' | ' |
Net income | $5,997 | $9,490 |
Adjustments to reconcile net income to net cash provided by operating activities: | ' | ' |
Loss/(gain) on disposal of assets | -547 | 52 |
Provision for doubtful accounts | 3,754 | 1,657 |
Provision for deferred income taxes | 358 | ' |
Depreciation and amortization | 10,199 | 9,285 |
Amortization of debt issuance costs | 430 | 864 |
Compensation expense restricted stock units | 2,418 | 1,667 |
Changes in operating assets and liabilities, net of effects of acquired companies: | ' | ' |
Accounts receivable | 1,537 | 7,216 |
Inventories | -10,589 | -5,197 |
Prepaid expenses, other current assets, and income taxes | -12,736 | -3,860 |
Accounts payable | 2,126 | -2,006 |
Accrued expenses, accrued interest payable | 2,384 | 3,883 |
Accrued compensation related costs | -15,040 | -19,544 |
Other | -253 | -1,314 |
Net cash provided by/(used in) operating activities | -9,962 | 2,193 |
Cash flows from investing activities: | ' | ' |
Purchase of property, plant and equipment (net of acquisitions) | -8,297 | -5,110 |
Purchase of equipment leased to third parties under operating leases | -564 | -288 |
Acquisitions (net of cash acquired) | -19,167 | ' |
Purchase of company-owned life insurance investment | -2,294 | ' |
Proceeds from sale of property, plant and equipment | 522 | 91 |
Net cash used in investing activities | -29,800 | -5,307 |
Cash flows from financing activities: | ' | ' |
Borrowings under revolving credit agreement | 125,000 | ' |
Repayments under revolving credit agreement | -38,000 | ' |
Repayment of term loan | -1,406 | -750 |
Repayment of seller's notes and other contingent considerations | -1,594 | -1,410 |
Repayment of capital lease obligations | -340 | -180 |
Excess tax benefit from stock based compensation | 1,780 | 1,214 |
Proceeds from issuance of common stock | 86 | 62 |
Net cash provided by/(used in) financing activities | 85,526 | -1,064 |
Increase/(decrease) in cash and cash equivalents | 45,764 | -4,178 |
Cash and cash equivalents, at beginning of period | 9,860 | 19,211 |
Cash and cash equivalents, at end of period | 55,624 | 15,033 |
Cash paid during the period for: | ' | ' |
Interest | 1,629 | 3,290 |
Income taxes (net of refunds) | 11,159 | 5,591 |
Non-cash financing and investing activities: | ' | ' |
Issuance of restricted stock units | 8,691 | 9,617 |
Issuance of notes in connections with acquistisions | $9,300 | ' |
BASIS_OF_PRESENTATION
BASIS OF PRESENTATION | 3 Months Ended |
Mar. 31, 2014 | |
BASIS OF PRESENTATION | ' |
BASIS OF PRESENTATION | ' |
NOTE A — BASIS OF PRESENTATION | |
The unaudited interim consolidated financial statements as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013 have been prepared by Hanger, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair statement of the Company’s financial position, results of operations and cash flows for such periods. The year-end consolidated data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the full fiscal year. | |
These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2013, filed by the Company with the SEC. |
SIGNIFICANT_ACCOUNTING_POLICIE
SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2014 | |
SIGNIFICANT ACCOUNTING POLICIES | ' |
SIGNIFICANT ACCOUNTING POLICIES | ' |
NOTE B — SIGNIFICANT ACCOUNTING POLICIES | |
Principles of Consolidation | |
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying financial statements. | |
Use of Estimates | |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | |
Cash and Cash Equivalents | |
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. At various times throughout the year, the Company maintains cash balances in excess of Federal Deposit Insurance Corporation limits. | |
Credit Risk | |
The Company primarily provides O&P (orthotics and prosthetics) devices and services and products throughout the United States of America and is reimbursed by the patients, third-party insurers, governmentally funded health insurance programs, and, for those products distributed through the Products & Services business, from independent O&P providers. The Company also provides advanced rehabilitation technology and clinical programs to skilled nursing facilities in the United States primarily through operating leases. The Company performs ongoing credit evaluations of its customers. Accounts receivable are not collateralized. The ability of the Company’s debtors to meet their obligations is dependent upon their financial stability which could be affected by future economic factors, legislation and regulatory actions. Additionally, the Company maintains reserves for potential losses from these receivables that historically have been within management’s expectations. | |
Inventories | |
Patient Care—Inventories at Hanger Clinic, Dosteon and Cares, which consist of raw materials, work-in-process and finished goods, amounted to $120.1 million and $109.2 million at March 31, 2014 and December 31, 2013, respectively. Inventories in Hanger’s Clinics, which amounted to $110.0 million and $99.0 million at March 31, 2014 and December 31, 2013, respectively, consist principally of raw materials and work-in-process inventory valued based on the gross profit method, which approximates lower of cost or market using the first-in first-out method. Inventories in the Dosteon business amounted to $8.8 million and $8.9 million at March 31, 2014 and December 31, 2013, respectively, and consist principally of raw materials. As of March 31, 2014, the Dosteon inventories were valued based on the gross profit method, which approximates lower of cost or market using the first-in first-out method. | |
Inventories in the Cares business amounted to $1.2 million and $1.3 million as of March 31, 2014 and December 31, 2013, respectively, consisted principally of finished goods and are valued at the lower of cost or market using the first-in first-out method based on perpetual records. | |
Hanger Clinic and Dosteon do not maintain a perpetual inventory system. On October 31st of each year the company performs an annual physical inventory of all inventories in Hanger Clinics. Dosteon counted its inventories on December 31, 2013 and October 31, 2012. The Company values the raw materials and work-in-process inventory counted at October 31 at lower of cost or market using the first-in first-out method. Hanger Clinic work-in-process inventory consists of materials, labor and overhead which is valued based on established standards for the stage of completion of each custom order. Material, labor and overhead costs are determined at the individual clinic or groups of clinics level. Adjustments to reconcile the Hanger Clinic and Dosteon physical inventory are treated as changes in accounting estimates and are recorded in the fourth quarter. The Company recorded a fourth quarter adjustment of a decrease to inventory of $2.3 million in 2013. | |
For Hanger Clinics, the October 31st inventory is subsequently adjusted at each quarterly and annual reporting period end by applying the gross profit method. As it relates to materials, the Company generally applies the gross profit method to individual clinics or groups of clinics for material costs. Labor and overhead and other aspects of the gross profit method are completed on a Hanger Clinic-wide basis. A similar approach is applied to Dosteon inventory, as applicable. | |
Products & Services—Inventories consisted principally of finished goods which are stated at the lower of cost or market using the first-in, first-out method for all reporting periods and are valued based on perpetual records. | |
Fair Value Measurements | |
The Company follows the authoritative guidance for financial assets and liabilities, which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. The authoritative guidance requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy by which these assets and liabilities must be categorized, based on significant levels of inputs as follows: | |
Level 1 unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company | |
Level 2 inputs that are observable in the marketplace other than those inputs classified as Level 1 | |
Level 3 inputs that are unobservable in the marketplace and significant to the valuation | |
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. | |
Financial Instruments | |
Assets measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013, are $51.6 million and $7.7 million, respectively, and are composed of cash equivalent money market investments. The money market investments are based on Level 1 observable market prices and are equivalent to one dollar. The carrying value of the Company’s short-term financial instruments, such as receivables and payables, approximate their fair values based on the short-term maturities of these instruments. During the second quarter of 2013, the Company refinanced its credit facilities by replacing its $300.0 million Term Loan and $100.0 million Revolving Credit Facility with a $225.0 million Term Loan Facility and a $200.0 million Revolving Credit Facility. See Note F for further information. | |
· The carrying values of the Company’s outstanding Term Loans as of March 31, 2014 and December 31, 2013, were $220.8 million and $222.2 million, respectively. The Company has determined the carrying value on these loans approximates fair value for debt with similar terms and remaining maturities based on interest rates currently available and has therefore concluded these are Level 2 measurements. | |
· The carrying values of the Company’s outstanding Revolving Credit Facilities as of March 31, 2014 and December 31, 2013, were $112.0 million and $25.0 million, respectively. The Company has determined the carrying value on these loans approximates fair value for debt with similar terms and remaining maturities based on interest rates currently available and has therefore concluded these are Level 2 measurements. | |
· The carrying value of the Senior Notes was $200.0 million as of March 31, 2014 and December 31, 2013. The fair value of the Senior Notes, was $213.0 million and $213.3 million as of March 31, 2014 and December 31, 2013. The Company has determined the fair value of the Senior Notes based on market observable inputs and has therefore concluded these are Level 2 measurements. | |
· Seller Notes are recorded at contractual carrying values of $29.1 million and $21.1 million as of March 31, 2014 and December 31, 2013, respectively, and carrying value approximates fair value for similar debt in all material respects. The Company estimates fair value of the seller notes with a discounted cash flow model using unobservable rates and has determined these represent Level 3 measurements. | |
Revenue Recognition | |
Revenues in the Company’s Patient Care segment are derived from the sale of O&P devices and the maintenance and repair of existing devices. Revenues from maintenance and repairs are recognized when the service is provided. Revenues from the sale of devices are recorded when the patient has accepted and received the device and recorded net of known and estimated future contractual adjustments and discounts. Contractual adjustments and discounts are recorded as contra-revenue within net sales on the Consolidated Statement of Income and Comprehensive Income. Medicare and Medicaid regulations and the various agreements we have with other third-party payors under which these contractual adjustments and discounts are calculated are complex and are subject to interpretation. Therefore, the devices and related services authorized and provided, and the related reimbursement, are subject to interpretation and adjustment that could result in payments that differ from our estimates. Additionally, updated regulations and pay schedules, and contract renegotiations, occur frequently, necessitating regular review and assessment of the estimation process by management. | |
Reserves for future contractual adjustments are estimated utilizing historical trends for such adjustments and are monitored monthly. As of March 31, 2014 and December 31, 2013, the Company estimated the reserve for future contractual adjustments and discounts to be $22.7 million and $20.6 million, respectively. The increase in the estimate is primarily related to both revenue growth resulting from both same clinic sales growth and clinic acquisitions, and from changes in collection trends. Individual patients are generally responsible for deductible and/or co-payments. The reserve for future contractual adjustments and discounts is reflected as a reduction of accounts receivable on the Company’s Consolidated Balance Sheet. | |
Revenues in the Company’s Products & Services segment are derived from the distribution of O&P devices and the leasing of rehabilitation technology combined with clinical therapy programs, education and training. Distribution revenues are recorded upon the shipment of products, in accordance with the terms of the invoice, net of estimated returns. Discounted sales are recorded at net realizable value. Leasing revenues are recognized based upon the contractual terms of the agreements, which contain negotiated pricing and service levels with terms ranging from one to five years, and are generally billed to the Company’s customers monthly. | |
Net Accounts Receivable | |
The Company reports accounts receivable at estimated net realizable amounts generated for products delivered and services rendered from federal, state, managed care health plans, commercial insurance companies and patients. Collections of these accounts receivable are the Company’s primary source of cash and are critical to the Company’s operating performance. The Company estimates uncollectible patient accounts primarily based upon its experience in historical collections from individual patients. Bad debt expense is reported within Other operating expenses within the Consolidated Statement of Income and Comprehensive Income. At March 31, 2014 and December 31, 2013, net accounts receivable reflected allowance for doubtful accounts, $10.3 million and $10.0 million respectively. | |
Property, Plant and Equipment | |
Property, plant and equipment are recorded at cost less accumulated depreciation, with the exception of assets acquired through acquisitions, which are initially recorded at fair value. Equipment acquired under capital leases is recorded at the lower of fair market value or the present value of the future minimum lease payments. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed of are removed from the respective accounts, and any resulting gains or losses are included in the Consolidated Statements of Income and Comprehensive Income. | |
Included within the Buildings line item were $12.0 million and $10.9 million of buildings recorded under capital leases, as of March 31, 2014 and December 31, 2013, respectively. Accumulated depreciation on these capital leases were $1.4 million and $0.9 million, as of March 31, 2014 and December 31, 2013, respectively. The annual future minimum lease payments as of March 31, 2014 under the lease agreements are $1.4 million, $2.0 million, $2.1 million, $2.1 million, $2.2 million, $9.5 million for the years ending 2014, 2015, 2016, 2017, 2018 and thereafter. These future minimum lease payments include $6.0 million of interest. | |
Goodwill and Other Intangible Assets | |
Goodwill represents the excess of purchase price over the fair value of net identifiable assets of purchased businesses. The Company assesses goodwill for impairment annually during the fourth quarter, or when events or circumstances indicate that the carrying value of the reporting units may not be recoverable. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If the Company determines that a two-step goodwill impairment test is necessary or more efficient than a qualitative approach, it will measure the fair value of the Company’s reporting units using a combination of income, market and cost approaches. Any impairment would be recognized by a charge to operating results and a reduction in the carrying value of the intangible asset. There were no impairment indicators since the last annual impairment test on October 1, 2013. | |
Debt Issuance Costs | |
Debt issuance costs incurred in connection with the Company’s long-term debt are amortized, on a straight-line basis, which is not materially different from the effective interest method, through the maturity of the related debt instrument. Amortization of these costs is included in Interest Expense in the Consolidated Statements of Income and Comprehensive Income. | |
Long-Lived Asset Impairment | |
The Company evaluates the carrying value of long-lived assets to be held and used whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. The carrying value of a long-lived asset group is not recoverable and is considered impaired if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The Company measures impairment as the amount by which the carrying value exceeds the fair market value. Fair market value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. There were no long-lived asset impairments or indicators of impairment for the periods ended March 31, 2014 and December 31, 2013. | |
Supplemental Executive Retirement Plan (SERP) | |
Effective January 2004, the Company implemented an unfunded noncontributory defined benefit plan (the “Plan”) for certain senior executives. Benefit costs and liabilities balances are calculated based on certain assumptions including benefits earned, discount rates, interest costs, mortality rates and other factors. The Company engages an actuary to calculate the benefit obligation and net benefit costs. The Plan, which is administered by the Company, calls for annual payments upon retirement based on years of service and final average salary. The Company believes the assumptions used are appropriate; however, changes in assumptions or differences in actual experience may affect our benefit obligation and future expenses. Actual results that differ from the assumptions are accumulated and amortized over future periods, affecting the recorded obligation and expense in future periods. For further information, including the significant assumptions used in the estimate, see Note I of the accompanying financial statements. | |
Income Taxes | |
The Company recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income tax liabilities and assets are determined based on the difference between the financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company recognizes a valuation allowance on the deferred tax assets if it is more likely than not that the assets will not be realized in future years. Significant accounting judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. The Company believes that its tax positions are consistent with applicable tax law, but certain positions may be challenged by taxing authorities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, the Company is subject to periodic audits and examinations by the Internal Revenue Service and other state and local taxing authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates. | |
Stock-Based Compensation | |
The Company issues under one active stock-based compensation plan restricted stock units that settle in shares common stock. Shares of common stock issued under the stock-based compensation plan are issued from the Company’s authorized and unissued shares. Restricted stock units are granted at the fair market value of the Company’s common stock on the grant date. Restricted stock units vest over a period of time determined in accordance with the terms of the compensation plan, which permits vesting periods ranging from one to four years. All restricted stock units issued under the plan have vested in four years, in the case of employees, and three years in the case of directors. | |
The Company applies the fair value recognition provisions of the authoritative guidance for stock compensation, which require companies to measure and recognize compensation expense for all stock-based payments at fair value. | |
Stock compensation expense relates to restricted stock units, as all previously granted stock options are now fully vested and all associated compensation expense has been recognized in prior years. The total value of the restricted stock units is expensed ratably over the requisite service period of the employees receiving the awards and is included within Other operating expenses on the Company’s Consolidated Statements of Income and Comprehensive Income. | |
Segment Information | |
The Company applies a “management” approach to disclosure of segment information. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the basis of the Company’s operating segments. During the first quarter of 2013, the Company assessed and updated their operating segments to align with how the business is managed and determined their reportable segments are the same as their operating segments. The description of the Company’s segments and the disclosure of segment information are presented in Note K. | |
Recent Accounting Pronouncements | |
In July 2013, the FASB issued ASU 2013-11, “Income Taxes” that requires unrecognized tax benefits be classified as an offset to deferred tax assets to the extent of any net operating loss carryforwards, similar tax loss carryforwards, or tax credit carryforwards available at the reporting date in the applicable tax jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position. An exception would apply if the tax law of the tax jurisdiction does not require the Company to use, and it does not intend to use, the deferred tax asset for such purpose. This guidance is effective for reporting periods beginning after December 15, 2013. The Company adopted this guidance and its implementation did not have a material impact on the Company’s Condensed Consolidated Financial Statements. |
GOODWILL_AND_OTHER_INTANGIBLE_
GOODWILL AND OTHER INTANGIBLE ASSETS | 3 Months Ended | |||||||||||||||||||
Mar. 31, 2014 | ||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | ' | |||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | ' | |||||||||||||||||||
NOTE C — GOODWILL AND OTHER INTANGIBLE ASSETS | ||||||||||||||||||||
The Company completes its annual goodwill and indefinite lived intangible impairment analysis in the fourth quarter of each year. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test. If the Company determines that a two-step goodwill impairment test is necessary or more efficient than a qualitative approach, it will measure the fair value of the Company’s reporting units using a combination of income, market and cost approaches. There were no impairment indicators since our last annual impairment test on October 1, 2013. | ||||||||||||||||||||
Goodwill allocated to the Company’s operating segments for the three months ended March 31, 2014 and for the year ended 2013 are as follows: | ||||||||||||||||||||
(In thousands) | Patient Care | Products & | Total | |||||||||||||||||
Services | ||||||||||||||||||||
Balance at December 31, 2013 | $ | 545,265 | $ | 136,282 | $ | 681,547 | ||||||||||||||
Additions due to acquisitions | 17,130 | 3,778 | 20,908 | |||||||||||||||||
Adjustments | — | — | — | |||||||||||||||||
Balance at March 31, 2014 | $ | 562,395 | $ | 140,060 | $ | 702,455 | ||||||||||||||
Patient Care | Products & | Total | ||||||||||||||||||
Services | ||||||||||||||||||||
Balance at December 31, 2012 | $ | 538,492 | $ | 136,282 | $ | 674,774 | ||||||||||||||
Additions due to acquisitions | 7,317 | — | 7,317 | |||||||||||||||||
Adjustments | (544 | ) | — | (544 | ) | |||||||||||||||
Balance at December 31, 2013 | $ | 545,265 | $ | 136,282 | $ | 681,547 | ||||||||||||||
The balances related to intangible assets as of March 31, 2014 and December 31, 2013 are as follows: | ||||||||||||||||||||
March 31, 2014 | December 31, 2013 | |||||||||||||||||||
(In thousands) | Gross | Accumulated | Net | Gross | Accumulated | Net | ||||||||||||||
Carrying | Amortization | Carrying | Carrying | Amortization | Carrying | |||||||||||||||
Amount | Amount | Amount | Amount | |||||||||||||||||
Customer Lists | $ | 50,263 | $ | (12,715 | ) | $ | 37,548 | $ | 46,932 | $ | (11,627 | ) | $ | 35,305 | ||||||
Trade Name | 11,825 | (380 | ) | 11,445 | 10,023 | (264 | ) | 9,759 | ||||||||||||
Patents and Other Intangibles | 28,546 | (16,172 | ) | 12,374 | 28,441 | (15,484 | ) | 12,957 | ||||||||||||
$ | 90,634 | $ | (29,267 | ) | $ | 61,367 | $ | 85,396 | $ | (27,375 | ) | $ | 58,021 | |||||||
Customer lists are amortized over their estimated period of benefit, generally 10 to 14 years. The majority of value associated to trade names is identified as an indefinite lived intangible asset, which is assessed for impairment on an annual basis as discussed in Note B. Trade names not identified as an indefinite lived intangible asset are amortized over their estimated period of benefit of approximately 1 to 3 years. Patents are amortized using the straight-line method over 5 years. Total intangible amortization expenses were $1.8 million and $1.7 million for the three months ended March 31, 2014 and March 31, 2013, respectively. The weighted average life of the additions to customer lists, patents and other intangibles is 6 years. |
INVENTORIES
INVENTORIES | 3 Months Ended | |||||||
Mar. 31, 2014 | ||||||||
INVENTORIES | ' | |||||||
INVENTORIES | ' | |||||||
NOTE D — INVENTORIES | ||||||||
Inventories recorded using the gross profit method primarily consisted of raw materials and work-in-process held by the Patient Care segment. Inventories using the perpetual method primarily consisted of finished goods held by the Products & Services segment. A description of the Company’s inventory valuation methodologies are presented in Note B. | ||||||||
(In thousands) | March 31, 2014 | December 31, 2013 | ||||||
Raw materials | $ | 43,143 | $ | 40,970 | ||||
Work in process | 75,661 | 66,832 | ||||||
Finished goods | 35,148 | 33,716 | ||||||
$ | 153,952 | $ | 141,518 |
ACQUISITIONS
ACQUISITIONS | 3 Months Ended |
Mar. 31, 2014 | |
ACQUISITIONS | ' |
ACQUISITIONS | ' |
NOTE E — ACQUISITIONS | |
During the three months ended March 31, 2014, the Company acquired seven companies, operating a total of 22 patient care clinics. The aggregate purchase price for these O&P businesses was $28.9 million. Of this aggregate purchase price, $9.3 million consisted of promissory notes, $0.4 million was made up of contingent consideration payable within the next two years and $19.1 million was paid in cash. The excess of purchase price over the aggregate fair value was recorded as goodwill. The Company preliminarily allocated the purchase price to the individual assets acquired and liabilities assumed, consisting of $2.6 million accounts receivable, $1.8 million inventory, $20.9 million of goodwill, $4.5 million of definite lived intangibles, $1.5 of indefinite lived intangibles, fixed assets and other assets of $1.4 million, and accounts payable and other liabilities of $3.8 million. The Company’s valuations are subject to adjustment as additional information is obtained. The value of the goodwill from these acquisitions can be attributed to a number of business factors including, but not limited to expected revenue and cash flow growth in future years. Contingent consideration is reported as other liabilities on the Company’s Consolidated Balance Sheet. The Company elected to treat all of these acquisitions as asset acquisitions for tax purposes resulting in all of the Q1 2014 recorded Goodwill as being amortizable for tax purposes. The expenses incurred related to these acquisitions were insignificant and were included in Other operating expenses on the Company’s Consolidated Statements of Income and Comprehensive Income. | |
During the three months ended March 31, 2013, the Company did not acquire any new O&P companies. | |
The results of operations for the acquisitions are included in the Company’s results of operations from the dates of acquisition. Pro forma results would not be materially different. In connection with contingent consideration agreements, the Company made payments of $0.4 million in the first three months of 2014 and $0.7 million in the same period 2013. As of March 31, 2014 the Company has accrued a total of $2.6 million related to contingent consideration provisions related to acquisitions made in prior periods. |
LONG_TERM_DEBT
LONG TERM DEBT | 3 Months Ended | |||||||
Mar. 31, 2014 | ||||||||
LONG TERM DEBT | ' | |||||||
LONG TERM DEBT | ' | |||||||
NOTE F — LONG TERM DEBT | ||||||||
Long-term debt consists of the following: | ||||||||
March 31, | December 31, | |||||||
(In thousands) | 2014 | 2013 | ||||||
Revolving Credit Facility | $ | 112,000 | $ | 25,000 | ||||
Term Loan | 220,781 | 222,188 | ||||||
7 1/8% Senior Notes due 2018 | 200,000 | 200,000 | ||||||
Subordinated seller notes, non-collateralized, net of unamortized discount with principal and interest payable in either monthly, quarterly or annual installments at effective interest rates ranging from 2.00% to 4.00%, maturing through November 2018 | 29,154 | 21,071 | ||||||
Total Debt | 561,935 | 468,259 | ||||||
Less current portion | (20,869 | ) | (15,998 | ) | ||||
Long Term Debt | $ | 541,066 | $ | 452,261 | ||||
Revolving Credit Facility | ||||||||
The $200.0 million Revolving Credit Facility matures on June 17, 2018 and bears interest at LIBOR plus 1.75%, or the applicable rate (as defined in the Credit Agreement). As of March 31, 2014, the Company had $84.5 million available under this facility. The amounts outstanding under the Revolving Credit Facility as of March 31, 2014 were $115.5 million, net of standby letters of credit of approximately $3.6 million. The obligations under the Revolving Credit Facility are senior obligations, are guaranteed by the Company’s subsidiaries, and are secured by a first priority perfected security interest in all of the Company’s assets, all the assets of the Company’s subsidiaries and the equity interests of the Company’s subsidiaries. | ||||||||
Term Loan | ||||||||
The Term Loan Facility, of which $220.8 million is outstanding, matures on June 17, 2018 and bears interest at LIBOR plus 1.75%, or the applicable rate (as defined in the Credit Agreement). Quarterly principal payments ranging from 0.625% to 3.750% are required throughout the life of the Term Loan. From time to time, mandatory prepayments may be required as a result of certain additional debt incurrences, certain asset sales, or other events as defined in the Credit Agreement. No mandatory prepayments are required under our Term Loan Agreement. The obligations under the Term Loan Facility are senior obligations, are guaranteed by the Company’s subsidiaries, and are secured by a first priority perfected security interest in all of the Company’s assets, all the assets of the Company’s subsidiaries and the equity interests of the Company’s subsidiaries. | ||||||||
71/8% Senior Notes | ||||||||
The 7 1/8 % Senior Notes mature November 15, 2018 and are senior indebtedness, which is guaranteed on a senior unsecured basis by all of the Company’s subsidiaries. Interest is payable semi-annually on May 15 and November 15 of each year. | ||||||||
Prior to November 15, 2014, the Company may redeem all or some of the notes at a redemption price of 103.6% all to interest that would otherwise have become due from the redemption date through November 15, 2014. On or after November 15, 2014, the Company may redeem all or a part of the notes with a premium, as described in further detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. | ||||||||
Subsidiary Guarantees | ||||||||
The Revolving and Term Loan Facilities and the 71/8% Senior Notes are guaranteed by all of the Company’s subsidiaries. Separate condensed consolidating information is not included as the parent company does not have independent assets or operations. The guarantees are full and unconditional and joint and several. There are no restrictions on the ability of our subsidiaries to transfer cash to the Company or to co-guarantors. | ||||||||
Debt Covenants | ||||||||
The terms of the Senior Notes, the Revolving Credit Facility, and the Term Loan Facility limit the Company’s ability to, among other things, purchase capital assets, incur additional indebtedness, create liens, pay dividends on or redeem capital stock, make certain investments, make restricted payments, make certain dispositions of assets, engage in transactions with affiliates, engage in certain business activities, and engage in mergers, consolidations and certain sales of assets. The credit agreement requires compliance with various covenants including but not limited to (i) minimum consolidated interest coverage ratio of 3.50:1.00 and (ii) maximum total leverage ratio of 4.00:1.00. As of March 31, 2014, the Company was in compliance with all covenants under these debt agreements. |
COMMITMENTS_AND_CONTINGENT_LIA
COMMITMENTS AND CONTINGENT LIABILITIES | 3 Months Ended |
Mar. 31, 2014 | |
COMMITMENTS AND CONTINGENT LIABILITIES | ' |
COMMITMENTS AND CONTINGENT LIABILITIES | ' |
NOTE G — COMMITMENTS AND CONTINGENT LIABILITIES | |
Contingencies | |
The Company is subject to legal proceedings and claims which arise from time to time in the ordinary course of its business, including additional payments under business purchase agreements. In the opinion of management, the amount of ultimate liability, if any with respect to these actions, will not have a materially adverse effect on the financial position, liquidity or results of operations of the Company. | |
The Company is in a highly regulated industry and receives regulatory agency inquiries from time to time in the ordinary course of its business, including inquiries relating to the Company’s billing activities. To date these inquiries have not resulted in material liabilities, but no assurance can be given that future regulatory agencies’ inquiries will be consistent with the results to date or that any discrepancies identified during a regulatory review will not have a material adverse effect on the Company’s consolidated financial statements. | |
On May 20, 2013, the Staff of the Division of Enforcement of the Securities and Exchange Commission (the “SEC”) informed the Company that it was conducting an investigation of the Company and made a request for a voluntary production of documents and information concerning the Company’s calculations of bad debt expense and allowance for doubtful accounts. The Company cooperated in the investigation. By letter dated April 14, 2014 the Staff informed the Company that it had concluded its investigation, and that based on the information the Staff had as of that date, the Staff did not intend to recommend an enforcement action by the SEC against the Company. The information in the Staff’s letter was provided under the guidelines set out in the final paragraph of Securities Act Release No. 5310. | |
Guarantees and Indemnifications | |
In the ordinary course of its business, the Company may enter into service agreements with service providers in which it agrees to indemnify or limit the service provider against certain losses and liabilities arising from the service provider’s performance of the agreement. The Company has reviewed its existing contracts containing indemnification or clauses of guarantees and does not believe that its liability under such agreements is material to the Company’s operations. |
NET_INCOME_PER_COMMON_SHARE
NET INCOME PER COMMON SHARE | 3 Months Ended | |||||||
Mar. 31, 2014 | ||||||||
NET INCOME PER COMMON SHARE | ' | |||||||
NET INCOME PER COMMON SHARE | ' | |||||||
NOTE H — NET INCOME PER COMMON SHARE | ||||||||
Basic per common share amounts are computed using the weighted average number of common shares outstanding during the year. Diluted per common share amounts are computed using the weighted average number of common shares outstanding during the year and dilutive potential common shares. Dilutive potential common shares consist of stock options and restricted shares and are calculated using the treasury stock method. | ||||||||
Net income per share is computed as follows: | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
(In thousands, except share and per share data) | 2014 | 2013 | ||||||
Net income | $ | 5,997 | $ | 9,490 | ||||
Shares of common stock outstanding used to compute basic per common share amounts | 35,076,828 | 34,598,494 | ||||||
Effect of dilutive restricted stock and options (1) | 338,190 | 467,538 | ||||||
Shares used to compute dilutive per common share amounts | 35,415,018 | 35,066,032 | ||||||
Basic income per share | $ | 0.17 | $ | 0.27 | ||||
Diluted income per share | $ | 0.17 | $ | 0.27 | ||||
(1) There were no anti-dilutive options for the three months ended March 31, 2014 and 2013. |
SUPPLEMENTAL_EXECUTIVE_RETIREM
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) | 3 Months Ended | |||||
Mar. 31, 2014 | ||||||
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) | ' | |||||
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) | ' | |||||
NOTE I — SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) | ||||||
The Company’s unfunded noncontributory defined benefit plan (the “Plan”) covers certain senior executives, is administered by the Company and calls for annual payments upon retirement based on years of service and final average salary. Benefit costs and liabilities balances are calculated based on certain assumptions including benefits earned, discount rates, interest costs, mortality rates and other factors. Actual results that differ from the assumptions are accumulated and amortized over future periods, affecting the recorded obligation and expense in future periods. | ||||||
The following assumptions were used in the calculation of the net benefit cost and obligation at March 31, 2014 and 2013: | ||||||
2014 | 2013 | |||||
Discount rate | 4.03 | % | 3.25 | % | ||
Average rate of increase in compensation | 3 | % | 3 | % | ||
The Company believes the assumptions used are appropriate; however, changes in assumptions or differences in actual experience may affect our benefit obligation and future expenses. The change in the Plan’s net benefit obligation for the three months ended March 31, 2014 and 2013 is as follows: | ||||||
(in thousands) | ||||||
Net benefit cost accrued at December 31, 2013 | $ | 20,952 | ||||
Service cost | 129 | |||||
Interest cost | 199 | |||||
Payments | (1,247 | ) | ||||
Net benefit cost accrued at March 31, 2014 | $ | 20,033 | ||||
(in thousands) | ||||||
Net benefit cost accrued at December 31, 2012 | $ | 22,377 | ||||
Service cost | 169 | |||||
Interest cost | 173 | |||||
Payments | (705 | ) | ||||
Net benefit cost accrued at March 31, 2013 | $ | 22,014 |
STOCKBASED_COMPENSATION
STOCK-BASED COMPENSATION | 3 Months Ended |
Mar. 31, 2014 | |
STOCK-BASED COMPENSATION | ' |
STOCK-BASED COMPENSATION | ' |
NOTE J - STOCK-BASED COMPENSATION | |
On May 13, 2010, the shareholders of the Company approved the 2010 Omnibus Incentive Plan (the “2010 Plan”) and suspended future grants under the Amended and Restated 2002 Stock Incentive and Bonus Plan (the “2002 Plan”) and the 2003 Non-Employee Directors’ Stock Incentive Plan (the “2003 Plan”). No new awards have been granted under the 2002 Plan or the 2003 Plan since that date; however, awards granted under either the 2002 Plan or the 2003 Plan that were outstanding on May 13, 2010 remain outstanding and continue to be subject to all of the terms and conditions of the 2002 Plan or the 2003 Plan, as applicable. | |
The 2010 Plan provides that 2.5 million shares of Common Stock are reserved for issuance, subject to adjustment as set forth in the 2010 Plan; provided, however, that only 1.5 million shares may be issued pursuant to the exercise of incentive stock options. Of these 2.5 million shares, 2.0 million are shares that are newly authorized for issuance under the 2010 Plan and 0.5 million are unissued shares not subject to awards that have been carried over from the shares previously authorized for issuance under the terms of the 2002 Plan and the 2003 Plan. Unless earlier terminated by the Board of Directors, the 2010 Plan will remain in effect until the earlier of (i) the date that is ten years from the date the plan is approved by the Company’s shareholders, which is ten years from the effective date for the 2010 plan, namely May 13, 2020, or (ii) the date all shares reserved for issuance have been issued. | |
As of March 31, 2014, of the 2.5 million shares of common stock authorized for issuance under the Company’s 2010 Plan, approximately 1.8 million shares have been issued. During the first three months of 2014, the Company issued approximately 0.3 million shares of restricted stock units under the 2010 Plan. The total fair value of these grants is $9.3 million. Total unrecognized share-based compensation cost related to unvested restricted stock units was approximately $18.3 million as of March 31, 2014 and is expected to be expensed as compensation expense over approximately four years as the units vest. | |
For the three months ended March 31, 2014 and 2013, the Company has included approximately $2.4 million and $1.7 million, respectively, for share-based compensation cost in the accompanying condensed consolidated statements of income for the 2010 Plan. Compensation expense relates to restricted stock unit grants under that plan. |
SEGMENT_AND_RELATED_INFORMATIO
SEGMENT AND RELATED INFORMATION | 3 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
SEGMENT AND RELATED INFORMATION | ' | ||||||||||||||||
SEGMENT AND RELATED INFORMATION | ' | ||||||||||||||||
NOTE K — SEGMENT AND RELATED INFORMATION | |||||||||||||||||
The Company has identified two operating segments and both performance evaluation and resource allocation decisions are determined based on each operating segment’s income from operations. The operating segments are described further below: | |||||||||||||||||
Patient Care —This segment consists of (i) the Company’s owned and operated patient care clinics and (ii) its contracting and network management business. The patient care clinics provide services to design and fit O&P devices to patients. These clinics also instruct patients in the use, care and maintenance of the devices. The principal reimbursement sources for the Company’s services are: | |||||||||||||||||
· Commercial and other, which consist of individuals, rehabilitation providers, private insurance companies, HMOs, PPOs, hospitals, vocational rehabilitation, workers’ compensation programs and similar sources; | |||||||||||||||||
· Medicare, a federally funded health insurance program providing health insurance coverage for persons aged 65 or older and certain disabled persons, which provides reimbursement for O&P products and services based on prices set forth in published fee schedules (with 10 regional pricing areas for prosthetics & orthotics and by state for DME); | |||||||||||||||||
· Medicaid, a health insurance program jointly funded by federal and state governments providing health insurance coverage for certain persons in financial need, regardless of age, which may supplement Medicare benefits for financially needy persons aged 65 or older; and | |||||||||||||||||
· U.S. Department of Veterans Affairs. | |||||||||||||||||
The Company estimates that government reimbursement, comprised of Medicare, Medicaid and the U.S. Department of Veterans Affairs, in the aggregate, accounted for approximately 38.7% and 40.2%, of the Company’s net sales for the three months ended March 31, 2014 and 2013, respectively. | |||||||||||||||||
The Company’s contract and network management business is the only network management company dedicated solely to serving the O&P market and is focused on managing the O&P services of national and regional insurance companies. It partners with healthcare insurance companies by securing a national or regional contract either as a preferred provider or to manage their O&P network of providers. The network now includes approximately 1,170 O&P provider locations, including over 400 independent providers. As of March 31, 2014, it had 58 contracts with national and regional providers. | |||||||||||||||||
Products & Services—This segment consists of the Company’s distribution subsidiary, which distributes and fabricates O&P products and components for both the O&P industry and the Company’s own patient care clinics, and its rehabilitation solutions business. Rehabilitation solutions leases rehabilitation equipment and provides evidence-based clinical programs to post-acute rehabilitation service providers. This segment also develops emerging neuromuscular technologies for the O&P and rehabilitation markets. | |||||||||||||||||
Other — This consists of corporate overhead and includes unallocated expense such as personnel costs, professional fees and corporate offices expenses. | |||||||||||||||||
The accounting policies of the segments are the same as those described in the summary of “Significant Accounting Policies” in Note B to the consolidated financial statements. | |||||||||||||||||
Summarized financial information concerning the Company’s operating segments is shown in the following table. Intersegment sales mainly include sales of O&P components from the Products & Services segment to the Patient Care segment and were made at prices which approximate market values. | |||||||||||||||||
(In thousands) | Patient Care | Products & | Other | Consolidating | Total | ||||||||||||
Services | Adjustments | ||||||||||||||||
Three Months Ended March 31, 2014 | |||||||||||||||||
Net sales | |||||||||||||||||
Customers | $ | 195,630 | $ | 39,975 | $ | — | $ | — | $ | 235,605 | |||||||
Intersegments | — | 49,555 | — | (49,555 | ) | — | |||||||||||
Depreciation and amortization | 4,879 | 2,955 | 2,365 | — | 10,199 | ||||||||||||
Income (loss) from operations | 22,275 | 10,668 | (16,695 | ) | (218 | ) | 16,030 | ||||||||||
Interest (income) expense | 7,956 | 3,691 | (5,549 | ) | — | 6,098 | |||||||||||
Income (loss) before taxes | 14,319 | 6,977 | (11,146 | ) | (218 | ) | 9,932 | ||||||||||
Capital expenditures | 4,568 | 266 | 4,027 | — | 8,861 | ||||||||||||
Three Months Ended March 31, 2013 | |||||||||||||||||
Net sales | |||||||||||||||||
Customers | $ | 189,027 | $ | 40,323 | $ | — | $ | — | $ | 229,350 | |||||||
Intersegments | — | 51,083 | — | (51,083 | ) | — | |||||||||||
Depreciation and amortization | 4,066 | 3,203 | 2,016 | — | 9,285 | ||||||||||||
Income (loss) from operations | 25,389 | 9,475 | (11,885 | ) | (263 | ) | 22,716 | ||||||||||
Interest (income) expense | 7,750 | 3,335 | (3,308 | ) | — | 7,777 | |||||||||||
Income (loss) before taxes | 17,639 | 6,140 | (8,577 | ) | (263 | ) | 14,939 | ||||||||||
Capital expenditures | 2,903 | 107 | 2,388 | — | 5,398 | ||||||||||||
Total Assets | |||||||||||||||||
March 31, 2014 | 1,523,088 | 416,084 | — | (569,487 | ) | 1,369,685 | |||||||||||
December 31, 2013 | 1,502,721 | 408,628 | — | (639,689 | ) | 1,271,660 |
SIGNIFICANT_ACCOUNTING_POLICIE1
SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2014 | |
SIGNIFICANT ACCOUNTING POLICIES | ' |
Principles of Consolidation | ' |
Principles of Consolidation | |
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying financial statements. | |
Use of Estimates | ' |
Use of Estimates | |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | |
Cash and Cash Equivalents | ' |
Cash and Cash Equivalents | |
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. At various times throughout the year, the Company maintains cash balances in excess of Federal Deposit Insurance Corporation limits. | |
Credit Risk | ' |
Credit Risk | |
The Company primarily provides O&P (orthotics and prosthetics) devices and services and products throughout the United States of America and is reimbursed by the patients, third-party insurers, governmentally funded health insurance programs, and, for those products distributed through the Products & Services business, from independent O&P providers. The Company also provides advanced rehabilitation technology and clinical programs to skilled nursing facilities in the United States primarily through operating leases. The Company performs ongoing credit evaluations of its customers. Accounts receivable are not collateralized. The ability of the Company’s debtors to meet their obligations is dependent upon their financial stability which could be affected by future economic factors, legislation and regulatory actions. Additionally, the Company maintains reserves for potential losses from these receivables that historically have been within management’s expectations. | |
Inventories | ' |
Inventories | |
Patient Care—Inventories at Hanger Clinic, Dosteon and Cares, which consist of raw materials, work-in-process and finished goods, amounted to $120.1 million and $109.2 million at March 31, 2014 and December 31, 2013, respectively. Inventories in Hanger’s Clinics, which amounted to $110.0 million and $99.0 million at March 31, 2014 and December 31, 2013, respectively, consist principally of raw materials and work-in-process inventory valued based on the gross profit method, which approximates lower of cost or market using the first-in first-out method. Inventories in the Dosteon business amounted to $8.8 million and $8.9 million at March 31, 2014 and December 31, 2013, respectively, and consist principally of raw materials. As of March 31, 2014, the Dosteon inventories were valued based on the gross profit method, which approximates lower of cost or market using the first-in first-out method. | |
Inventories in the Cares business amounted to $1.2 million and $1.3 million as of March 31, 2014 and December 31, 2013, respectively, consisted principally of finished goods and are valued at the lower of cost or market using the first-in first-out method based on perpetual records. | |
Hanger Clinic and Dosteon do not maintain a perpetual inventory system. On October 31st of each year the company performs an annual physical inventory of all inventories in Hanger Clinics. Dosteon counted its inventories on December 31, 2013 and October 31, 2012. The Company values the raw materials and work-in-process inventory counted at October 31 at lower of cost or market using the first-in first-out method. Hanger Clinic work-in-process inventory consists of materials, labor and overhead which is valued based on established standards for the stage of completion of each custom order. Material, labor and overhead costs are determined at the individual clinic or groups of clinics level. Adjustments to reconcile the Hanger Clinic and Dosteon physical inventory are treated as changes in accounting estimates and are recorded in the fourth quarter. The Company recorded a fourth quarter adjustment of a decrease to inventory of $2.3 million in 2013. | |
For Hanger Clinics, the October 31st inventory is subsequently adjusted at each quarterly and annual reporting period end by applying the gross profit method. As it relates to materials, the Company generally applies the gross profit method to individual clinics or groups of clinics for material costs. Labor and overhead and other aspects of the gross profit method are completed on a Hanger Clinic-wide basis. A similar approach is applied to Dosteon inventory, as applicable. | |
Products & Services—Inventories consisted principally of finished goods which are stated at the lower of cost or market using the first-in, first-out method for all reporting periods and are valued based on perpetual records. | |
Fair Value Measurements | ' |
Fair Value Measurements | |
The Company follows the authoritative guidance for financial assets and liabilities, which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. The authoritative guidance requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy by which these assets and liabilities must be categorized, based on significant levels of inputs as follows: | |
Level 1 unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company | |
Level 2 inputs that are observable in the marketplace other than those inputs classified as Level 1 | |
Level 3 inputs that are unobservable in the marketplace and significant to the valuation | |
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. | |
Financial Instruments | ' |
Financial Instruments | |
Assets measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013, are $51.6 million and $7.7 million, respectively, and are composed of cash equivalent money market investments. The money market investments are based on Level 1 observable market prices and are equivalent to one dollar. The carrying value of the Company’s short-term financial instruments, such as receivables and payables, approximate their fair values based on the short-term maturities of these instruments. During the second quarter of 2013, the Company refinanced its credit facilities by replacing its $300.0 million Term Loan and $100.0 million Revolving Credit Facility with a $225.0 million Term Loan Facility and a $200.0 million Revolving Credit Facility. See Note F for further information. | |
· The carrying values of the Company’s outstanding Term Loans as of March 31, 2014 and December 31, 2013, were $220.8 million and $222.2 million, respectively. The Company has determined the carrying value on these loans approximates fair value for debt with similar terms and remaining maturities based on interest rates currently available and has therefore concluded these are Level 2 measurements. | |
· The carrying values of the Company’s outstanding Revolving Credit Facilities as of March 31, 2014 and December 31, 2013, were $112.0 million and $25.0 million, respectively. The Company has determined the carrying value on these loans approximates fair value for debt with similar terms and remaining maturities based on interest rates currently available and has therefore concluded these are Level 2 measurements. | |
· The carrying value of the Senior Notes was $200.0 million as of March 31, 2014 and December 31, 2013. The fair value of the Senior Notes, was $213.0 million and $213.3 million as of March 31, 2014 and December 31, 2013. The Company has determined the fair value of the Senior Notes based on market observable inputs and has therefore concluded these are Level 2 measurements. | |
· Seller Notes are recorded at contractual carrying values of $29.1 million and $21.1 million as of March 31, 2014 and December 31, 2013, respectively, and carrying value approximates fair value for similar debt in all material respects. The Company estimates fair value of the seller notes with a discounted cash flow model using unobservable rates and has determined these represent Level 3 measurements. | |
Revenue Recognition | ' |
Revenue Recognition | |
Revenues in the Company’s Patient Care segment are derived from the sale of O&P devices and the maintenance and repair of existing devices. Revenues from maintenance and repairs are recognized when the service is provided. Revenues from the sale of devices are recorded when the patient has accepted and received the device and recorded net of known and estimated future contractual adjustments and discounts. Contractual adjustments and discounts are recorded as contra-revenue within net sales on the Consolidated Statement of Income and Comprehensive Income. Medicare and Medicaid regulations and the various agreements we have with other third-party payors under which these contractual adjustments and discounts are calculated are complex and are subject to interpretation. Therefore, the devices and related services authorized and provided, and the related reimbursement, are subject to interpretation and adjustment that could result in payments that differ from our estimates. Additionally, updated regulations and pay schedules, and contract renegotiations, occur frequently, necessitating regular review and assessment of the estimation process by management. | |
Reserves for future contractual adjustments are estimated utilizing historical trends for such adjustments and are monitored monthly. As of March 31, 2014 and December 31, 2013, the Company estimated the reserve for future contractual adjustments and discounts to be $22.7 million and $20.6 million, respectively. The increase in the estimate is primarily related to both revenue growth resulting from both same clinic sales growth and clinic acquisitions, and from changes in collection trends. Individual patients are generally responsible for deductible and/or co-payments. The reserve for future contractual adjustments and discounts is reflected as a reduction of accounts receivable on the Company’s Consolidated Balance Sheet. | |
Revenues in the Company’s Products & Services segment are derived from the distribution of O&P devices and the leasing of rehabilitation technology combined with clinical therapy programs, education and training. Distribution revenues are recorded upon the shipment of products, in accordance with the terms of the invoice, net of estimated returns. Discounted sales are recorded at net realizable value. Leasing revenues are recognized based upon the contractual terms of the agreements, which contain negotiated pricing and service levels with terms ranging from one to five years, and are generally billed to the Company’s customers monthly. | |
Net Accounts Receivable | ' |
Net Accounts Receivable | |
The Company reports accounts receivable at estimated net realizable amounts generated for products delivered and services rendered from federal, state, managed care health plans, commercial insurance companies and patients. Collections of these accounts receivable are the Company’s primary source of cash and are critical to the Company’s operating performance. The Company estimates uncollectible patient accounts primarily based upon its experience in historical collections from individual patients. Bad debt expense is reported within Other operating expenses within the Consolidated Statement of Income and Comprehensive Income. At March 31, 2014 and December 31, 2013, net accounts receivable reflected allowance for doubtful accounts, $10.3 million and $10.0 million respectively. | |
Property, Plant and Equipment | ' |
Property, Plant and Equipment | |
Property, plant and equipment are recorded at cost less accumulated depreciation, with the exception of assets acquired through acquisitions, which are initially recorded at fair value. Equipment acquired under capital leases is recorded at the lower of fair market value or the present value of the future minimum lease payments. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed of are removed from the respective accounts, and any resulting gains or losses are included in the Consolidated Statements of Income and Comprehensive Income. | |
Included within the Buildings line item were $12.0 million and $10.9 million of buildings recorded under capital leases, as of March 31, 2014 and December 31, 2013, respectively. Accumulated depreciation on these capital leases were $1.4 million and $0.9 million, as of March 31, 2014 and December 31, 2013, respectively. The annual future minimum lease payments as of March 31, 2014 under the lease agreements are $1.4 million, $2.0 million, $2.1 million, $2.1 million, $2.2 million, $9.5 million for the years ending 2014, 2015, 2016, 2017, 2018 and thereafter. These future minimum lease payments include $6.0 million of interest. | |
Goodwill and Other Intangible Assets | ' |
Goodwill and Other Intangible Assets | |
Goodwill represents the excess of purchase price over the fair value of net identifiable assets of purchased businesses. The Company assesses goodwill for impairment annually during the fourth quarter, or when events or circumstances indicate that the carrying value of the reporting units may not be recoverable. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If the Company determines that a two-step goodwill impairment test is necessary or more efficient than a qualitative approach, it will measure the fair value of the Company’s reporting units using a combination of income, market and cost approaches. Any impairment would be recognized by a charge to operating results and a reduction in the carrying value of the intangible asset. There were no impairment indicators since the last annual impairment test on October 1, 2013. | |
Debt Issuance Costs | ' |
Debt Issuance Costs | |
Debt issuance costs incurred in connection with the Company’s long-term debt are amortized, on a straight-line basis, which is not materially different from the effective interest method, through the maturity of the related debt instrument. Amortization of these costs is included in Interest Expense in the Consolidated Statements of Income and Comprehensive Income. | |
Long-Lived Asset Impairment | ' |
Long-Lived Asset Impairment | |
The Company evaluates the carrying value of long-lived assets to be held and used whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. The carrying value of a long-lived asset group is not recoverable and is considered impaired if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The Company measures impairment as the amount by which the carrying value exceeds the fair market value. Fair market value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. There were no long-lived asset impairments or indicators of impairment for the periods ended March 31, 2014 and December 31, 2013. | |
Supplemental Executive Retirement Plan (SERP) | ' |
Supplemental Executive Retirement Plan (SERP) | |
Effective January 2004, the Company implemented an unfunded noncontributory defined benefit plan (the “Plan”) for certain senior executives. Benefit costs and liabilities balances are calculated based on certain assumptions including benefits earned, discount rates, interest costs, mortality rates and other factors. The Company engages an actuary to calculate the benefit obligation and net benefit costs. The Plan, which is administered by the Company, calls for annual payments upon retirement based on years of service and final average salary. The Company believes the assumptions used are appropriate; however, changes in assumptions or differences in actual experience may affect our benefit obligation and future expenses. Actual results that differ from the assumptions are accumulated and amortized over future periods, affecting the recorded obligation and expense in future periods. For further information, including the significant assumptions used in the estimate, see Note I of the accompanying financial statements. | |
Income Taxes | ' |
Income Taxes | |
The Company recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income tax liabilities and assets are determined based on the difference between the financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company recognizes a valuation allowance on the deferred tax assets if it is more likely than not that the assets will not be realized in future years. Significant accounting judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities. The Company believes that its tax positions are consistent with applicable tax law, but certain positions may be challenged by taxing authorities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, the Company is subject to periodic audits and examinations by the Internal Revenue Service and other state and local taxing authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates. | |
Stock-Based Compensation | ' |
Stock-Based Compensation | |
The Company issues under one active stock-based compensation plan restricted stock units that settle in shares common stock. Shares of common stock issued under the stock-based compensation plan are issued from the Company’s authorized and unissued shares. Restricted stock units are granted at the fair market value of the Company’s common stock on the grant date. Restricted stock units vest over a period of time determined in accordance with the terms of the compensation plan, which permits vesting periods ranging from one to four years. All restricted stock units issued under the plan have vested in four years, in the case of employees, and three years in the case of directors. | |
The Company applies the fair value recognition provisions of the authoritative guidance for stock compensation, which require companies to measure and recognize compensation expense for all stock-based payments at fair value. | |
Stock compensation expense relates to restricted stock units, as all previously granted stock options are now fully vested and all associated compensation expense has been recognized in prior years. The total value of the restricted stock units is expensed ratably over the requisite service period of the employees receiving the awards and is included within Other operating expenses on the Company’s Consolidated Statements of Income and Comprehensive Income. | |
Segment Information | ' |
Segment Information | |
The Company applies a “management” approach to disclosure of segment information. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the basis of the Company’s operating segments. During the first quarter of 2013, the Company assessed and updated their operating segments to align with how the business is managed and determined their reportable segments are the same as their operating segments. The description of the Company’s segments and the disclosure of segment information are presented in Note K. | |
Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements | |
In July 2013, the FASB issued ASU 2013-11, “Income Taxes” that requires unrecognized tax benefits be classified as an offset to deferred tax assets to the extent of any net operating loss carryforwards, similar tax loss carryforwards, or tax credit carryforwards available at the reporting date in the applicable tax jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position. An exception would apply if the tax law of the tax jurisdiction does not require the Company to use, and it does not intend to use, the deferred tax asset for such purpose. This guidance is effective for reporting periods beginning after December 15, 2013. The Company adopted this guidance and its implementation did not have a material impact on the Company’s Condensed Consolidated Financial Statements. |
GOODWILL_AND_OTHER_INTANGIBLE_1
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) | 3 Months Ended | |||||||||||||||||||
Mar. 31, 2014 | ||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | ' | |||||||||||||||||||
Schedule of goodwill allocated to the Company's operating segments | ' | |||||||||||||||||||
(In thousands) | Patient Care | Products & | Total | |||||||||||||||||
Services | ||||||||||||||||||||
Balance at December 31, 2013 | $ | 545,265 | $ | 136,282 | $ | 681,547 | ||||||||||||||
Additions due to acquisitions | 17,130 | 3,778 | 20,908 | |||||||||||||||||
Adjustments | — | — | — | |||||||||||||||||
Balance at March 31, 2014 | $ | 562,395 | $ | 140,060 | $ | 702,455 | ||||||||||||||
Patient Care | Products & | Total | ||||||||||||||||||
Services | ||||||||||||||||||||
Balance at December 31, 2012 | $ | 538,492 | $ | 136,282 | $ | 674,774 | ||||||||||||||
Additions due to acquisitions | 7,317 | — | 7,317 | |||||||||||||||||
Adjustments | (544 | ) | — | (544 | ) | |||||||||||||||
Balance at December 31, 2013 | $ | 545,265 | $ | 136,282 | $ | 681,547 | ||||||||||||||
Schedule of balances related to intangible assets | ' | |||||||||||||||||||
March 31, 2014 | December 31, 2013 | |||||||||||||||||||
(In thousands) | Gross | Accumulated | Net | Gross | Accumulated | Net | ||||||||||||||
Carrying | Amortization | Carrying | Carrying | Amortization | Carrying | |||||||||||||||
Amount | Amount | Amount | Amount | |||||||||||||||||
Customer Lists | $ | 50,263 | $ | (12,715 | ) | $ | 37,548 | $ | 46,932 | $ | (11,627 | ) | $ | 35,305 | ||||||
Trade Name | 11,825 | (380 | ) | 11,445 | 10,023 | (264 | ) | 9,759 | ||||||||||||
Patents and Other Intangibles | 28,546 | (16,172 | ) | 12,374 | 28,441 | (15,484 | ) | 12,957 | ||||||||||||
$ | 90,634 | $ | (29,267 | ) | $ | 61,367 | $ | 85,396 | $ | (27,375 | ) | $ | 58,021 |
INVENTORIES_Tables
INVENTORIES (Tables) | 3 Months Ended | |||||||
Mar. 31, 2014 | ||||||||
INVENTORIES | ' | |||||||
Schedule of inventory | ' | |||||||
(In thousands) | March 31, 2014 | December 31, 2013 | ||||||
Raw materials | $ | 43,143 | $ | 40,970 | ||||
Work in process | 75,661 | 66,832 | ||||||
Finished goods | 35,148 | 33,716 | ||||||
$ | 153,952 | $ | 141,518 |
LONG_TERM_DEBT_Tables
LONG TERM DEBT (Tables) | 3 Months Ended | |||||||
Mar. 31, 2014 | ||||||||
LONG TERM DEBT | ' | |||||||
Schedule of long-term debt | ' | |||||||
March 31, | December 31, | |||||||
(In thousands) | 2014 | 2013 | ||||||
Revolving Credit Facility | $ | 112,000 | $ | 25,000 | ||||
Term Loan | 220,781 | 222,188 | ||||||
7 1/8% Senior Notes due 2018 | 200,000 | 200,000 | ||||||
Subordinated seller notes, non-collateralized, net of unamortized discount with principal and interest payable in either monthly, quarterly or annual installments at effective interest rates ranging from 2.00% to 4.00%, maturing through November 2018 | 29,154 | 21,071 | ||||||
Total Debt | 561,935 | 468,259 | ||||||
Less current portion | (20,869 | ) | (15,998 | ) | ||||
Long Term Debt | $ | 541,066 | $ | 452,261 |
NET_INCOME_PER_COMMON_SHARE_Ta
NET INCOME PER COMMON SHARE (Tables) | 3 Months Ended | |||||||
Mar. 31, 2014 | ||||||||
NET INCOME PER COMMON SHARE | ' | |||||||
Schedule of computation of net income per share | ' | |||||||
Three Months Ended | ||||||||
March 31, | ||||||||
(In thousands, except share and per share data) | 2014 | 2013 | ||||||
Net income | $ | 5,997 | $ | 9,490 | ||||
Shares of common stock outstanding used to compute basic per common share amounts | 35,076,828 | 34,598,494 | ||||||
Effect of dilutive restricted stock and options (1) | 338,190 | 467,538 | ||||||
Shares used to compute dilutive per common share amounts | 35,415,018 | 35,066,032 | ||||||
Basic income per share | $ | 0.17 | $ | 0.27 | ||||
Diluted income per share | $ | 0.17 | $ | 0.27 | ||||
(1) There were no anti-dilutive options for the three months ended March 31, 2014 and 2013. |
SUPPLEMENTAL_EXECUTIVE_RETIREM1
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) (Tables) | 3 Months Ended | |||||
Mar. 31, 2014 | ||||||
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) | ' | |||||
Schedule of weighted average assumptions used to determine benefit obligation and net benefit cost | ' | |||||
The following assumptions were used in the calculation of the net benefit cost and obligation at March 31, 2014 and 2013: | ||||||
2014 | 2013 | |||||
Discount rate | 4.03 | % | 3.25 | % | ||
Average rate of increase in compensation | 3 | % | 3 | % | ||
Summary of change in benefit obligation | ' | |||||
(in thousands) | ||||||
Net benefit cost accrued at December 31, 2013 | $ | 20,952 | ||||
Service cost | 129 | |||||
Interest cost | 199 | |||||
Payments | (1,247 | ) | ||||
Net benefit cost accrued at March 31, 2014 | $ | 20,033 | ||||
(in thousands) | ||||||
Net benefit cost accrued at December 31, 2012 | $ | 22,377 | ||||
Service cost | 169 | |||||
Interest cost | 173 | |||||
Payments | (705 | ) | ||||
Net benefit cost accrued at March 31, 2013 | $ | 22,014 |
SEGMENT_AND_RELATED_INFORMATIO1
SEGMENT AND RELATED INFORMATION (Tables) | 3 Months Ended | ||||||||||||||||
Mar. 31, 2014 | |||||||||||||||||
SEGMENT AND RELATED INFORMATION | ' | ||||||||||||||||
Summary of financial information concerning the Company's operating segments | ' | ||||||||||||||||
(In thousands) | Patient Care | Products & | Other | Consolidating | Total | ||||||||||||
Services | Adjustments | ||||||||||||||||
Three Months Ended March 31, 2014 | |||||||||||||||||
Net sales | |||||||||||||||||
Customers | $ | 195,630 | $ | 39,975 | $ | — | $ | — | $ | 235,605 | |||||||
Intersegments | — | 49,555 | — | (49,555 | ) | — | |||||||||||
Depreciation and amortization | 4,879 | 2,955 | 2,365 | — | 10,199 | ||||||||||||
Income (loss) from operations | 22,275 | 10,668 | (16,695 | ) | (218 | ) | 16,030 | ||||||||||
Interest (income) expense | 7,956 | 3,691 | (5,549 | ) | — | 6,098 | |||||||||||
Income (loss) before taxes | 14,319 | 6,977 | (11,146 | ) | (218 | ) | 9,932 | ||||||||||
Capital expenditures | 4,568 | 266 | 4,027 | — | 8,861 | ||||||||||||
Three Months Ended March 31, 2013 | |||||||||||||||||
Net sales | |||||||||||||||||
Customers | $ | 189,027 | $ | 40,323 | $ | — | $ | — | $ | 229,350 | |||||||
Intersegments | — | 51,083 | — | (51,083 | ) | — | |||||||||||
Depreciation and amortization | 4,066 | 3,203 | 2,016 | — | 9,285 | ||||||||||||
Income (loss) from operations | 25,389 | 9,475 | (11,885 | ) | (263 | ) | 22,716 | ||||||||||
Interest (income) expense | 7,750 | 3,335 | (3,308 | ) | — | 7,777 | |||||||||||
Income (loss) before taxes | 17,639 | 6,140 | (8,577 | ) | (263 | ) | 14,939 | ||||||||||
Capital expenditures | 2,903 | 107 | 2,388 | — | 5,398 | ||||||||||||
Total Assets | |||||||||||||||||
March 31, 2014 | 1,523,088 | 416,084 | — | (569,487 | ) | 1,369,685 | |||||||||||
December 31, 2013 | 1,502,721 | 408,628 | — | (639,689 | ) | 1,271,660 |
SIGNIFICANT_ACCOUNTING_POLICIE2
SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 |
Inventories | ' | ' |
Raw materials, work-in-process and finished goods | $153,952,000 | $141,518,000 |
Raw materials | 43,143,000 | 40,970,000 |
Finished goods | 35,148,000 | 33,716,000 |
Patient-Care | ' | ' |
Inventories | ' | ' |
Raw materials, work-in-process and finished goods | 120,100,000 | 109,200,000 |
(Increase) decrease in physical inventory | ' | 2,300,000 |
Hanger Clinic | ' | ' |
Inventories | ' | ' |
Raw materials and work-in-process | 110,000,000 | 99,000,000 |
Dosteon | ' | ' |
Inventories | ' | ' |
Raw materials | 8,800,000 | 8,900,000 |
Cares | ' | ' |
Inventories | ' | ' |
Finished goods | $1,200,000 | $1,300,000 |
SIGNIFICANT_ACCOUNTING_POLICIE3
SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $) | 3 Months Ended | 12 Months Ended | ||||||||||||||||
Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Dec. 31, 2013 | Jun. 30, 2013 | Jun. 30, 2013 | Mar. 31, 2014 | Dec. 31, 2013 | Jun. 30, 2013 | Jun. 30, 2013 | Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Dec. 31, 2013 | |
Term Loans | Term Loans | Prior Term Loan Facility | New Term Loan Facility | Revolving Credit Facility | Revolving Credit Facility | Prior Revolving Credit Facility | New Revolving Credit Facility | 7.125% Senior Notes due 2018 | 7.125% Senior Notes due 2018 | Seller Notes | Seller Notes | Level 2 | Level 2 | Recurring basis | Recurring basis | |||
7.125% Senior Notes due 2018 | 7.125% Senior Notes due 2018 | Level 1 | Level 1 | |||||||||||||||
Money Market Funds | Money Market Funds | |||||||||||||||||
Fair Value of Financial Instruments | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Fair value of assets | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | $51,600,000 | $7,700,000 |
Market price (in dollars per share) | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | $1 | ' |
Face amount of debt | ' | ' | ' | ' | 300,000,000 | 225,000,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Maximum borrowing capacity | ' | ' | ' | ' | ' | ' | 200,000,000 | ' | 100,000,000 | 200,000,000 | ' | ' | ' | ' | ' | ' | ' | ' |
Carrying value | 561,935,000 | 468,259,000 | 220,781,000 | 222,188,000 | ' | ' | 112,000,000 | 25,000,000 | ' | ' | 200,000,000 | 200,000,000 | 29,154,000 | 21,071,000 | ' | ' | ' | ' |
Fair value of Senior Notes | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 213,000,000 | 213,300,000 | ' | ' |
Revenue Recognition | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Estimated reserve for future contractual adjustments and discounts | $22,700,000 | $20,600,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Customer contract term, minimum | '1 year | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Customer contract term, maximum | '5 years | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
SIGNIFICANT_ACCOUNTING_POLICIE4
SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2014 | Dec. 31, 2013 | |
SIGNIFICANT ACCOUNTING POLICIES | ' | ' |
Allowance for Doubtful Accounts Receivable | $10,313,000 | $10,022,000 |
Long-Lived Asset Impairment | ' | ' |
Impairments of long-lived asset | 0 | 0 |
Buildings | ' | ' |
Property, Plant and Equipment | ' | ' |
Asset under capital leases | 12,000,000 | 10,900,000 |
Accumulated depreciation on capital leases asset | 1,400,000 | 900,000 |
Annual future minimum lease payments under capital leases | ' | ' |
2014 | 1,400,000 | ' |
2015 | 2,000,000 | ' |
2016 | 2,100,000 | ' |
2017 | 2,100,000 | ' |
2018 | 2,200,000 | ' |
Thereafter | 9,500,000 | ' |
Interest included in future minimum lease payments | $6,000,000 | ' |
SIGNIFICANT_ACCOUNTING_POLICIE5
SIGNIFICANT ACCOUNTING POLICIES (Details 4) (Restricted stock units) | 3 Months Ended |
Mar. 31, 2014 | |
Stock-Based Compensation | ' |
Number of stock-based compensation plans | 1 |
Employees | ' |
Stock-Based Compensation | ' |
Period for vesting of awards | '4 years |
Directors | ' |
Stock-Based Compensation | ' |
Period for vesting of awards | '3 years |
Minimum | ' |
Stock-Based Compensation | ' |
Period for vesting of awards | '1 year |
Maximum | ' |
Stock-Based Compensation | ' |
Period for vesting of awards | '4 years |
GOODWILL_AND_OTHER_INTANGIBLE_2
GOODWILL AND OTHER INTANGIBLE ASSETS (Details) (USD $) | 3 Months Ended | 12 Months Ended | 3 Months Ended | 12 Months Ended | 3 Months Ended | |
In Thousands, unless otherwise specified | Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Dec. 31, 2013 | Mar. 31, 2014 | Dec. 31, 2012 |
Patient Care | Patient Care | Products & Services | Products & Services | |||
Net | ' | ' | ' | ' | ' | ' |
Balance at the beginning of the period | $681,547 | $674,774 | $545,265 | $538,492 | $136,282 | $136,282 |
Additions due to acquisitions | 20,908 | 7,317 | 17,130 | 7,317 | 3,778 | ' |
Adjustments | ' | -544 | ' | -544 | ' | ' |
Balance at the end of the period | $702,455 | $681,547 | $562,395 | $545,265 | $140,060 | $136,282 |
GOODWILL_AND_OTHER_INTANGIBLE_3
GOODWILL AND OTHER INTANGIBLE ASSETS (Details 2) (USD $) | 3 Months Ended | ||
Mar. 31, 2014 | Mar. 31, 2013 | Dec. 31, 2013 | |
Intangible assets | ' | ' | ' |
Gross Carrying Amount | $90,634,000 | ' | $85,396,000 |
Accumulated Amortization | -29,267,000 | ' | -27,375,000 |
Net Carrying Amount | 61,367,000 | ' | 58,021,000 |
Amortization expense | 1,800,000 | 1,700,000 | ' |
Weighted average life of the additions to customer lists, patents and other intangibles | '6 years | ' | ' |
Trade Name | ' | ' | ' |
Intangible assets | ' | ' | ' |
Gross Carrying Amount | 11,825,000 | ' | 10,023,000 |
Accumulated Amortization | -380,000 | ' | -264,000 |
Net Carrying Amount | 11,445,000 | ' | 9,759,000 |
Trade Name | Minimum | ' | ' | ' |
Intangible assets | ' | ' | ' |
Amortization period | '1 year | ' | ' |
Trade Name | Maximum | ' | ' | ' |
Intangible assets | ' | ' | ' |
Amortization period | '3 years | ' | ' |
Customer Lists | ' | ' | ' |
Intangible assets | ' | ' | ' |
Gross Carrying Amount | 50,263,000 | ' | 46,932,000 |
Accumulated Amortization | -12,715,000 | ' | -11,627,000 |
Net Carrying Amount | 37,548,000 | ' | 35,305,000 |
Customer Lists | Minimum | ' | ' | ' |
Intangible assets | ' | ' | ' |
Amortization period | '10 years | ' | ' |
Customer Lists | Maximum | ' | ' | ' |
Intangible assets | ' | ' | ' |
Amortization period | '14 years | ' | ' |
Patents and Other Intangibles | ' | ' | ' |
Intangible assets | ' | ' | ' |
Gross Carrying Amount | 28,546,000 | ' | 28,441,000 |
Accumulated Amortization | -16,172,000 | ' | -15,484,000 |
Net Carrying Amount | $12,374,000 | ' | $12,957,000 |
Patents | ' | ' | ' |
Intangible assets | ' | ' | ' |
Amortization period | '5 years | ' | ' |
INVENTORIES_Details
INVENTORIES (Details) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 |
In Thousands, unless otherwise specified | ||
INVENTORIES | ' | ' |
Raw materials | $43,143 | $40,970 |
Work in process | 75,661 | 66,832 |
Finished goods | 35,148 | 33,716 |
Total | $153,952 | $141,518 |
ACQUISITIONS_Details
ACQUISITIONS (Details) (USD $) | Mar. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Mar. 31, 2014 |
O & P company | ||||
company | ||||
clinic | ||||
Acquisitions | ' | ' | ' | ' |
Number of Businesses Acquired | ' | ' | ' | 7 |
Number of patient care clinics operated by acquiree | ' | ' | ' | 22 |
Aggregate purchase price of businesses | ' | ' | ' | $28,900,000 |
Promissory notes as a part of purchase price | ' | ' | ' | 9,300,000 |
Contingent consideration payable reported as other liabilities | ' | ' | ' | 400,000 |
Maximum term for payment of contingent consideration | ' | ' | ' | '2 years |
Purchase price for acquisition paid in cash | ' | ' | ' | 19,100,000 |
Accounts receivable | ' | ' | ' | 2,600,000 |
Inventory | ' | ' | ' | 1,800,000 |
Goodwill | 702,455,000 | 681,547,000 | 674,774,000 | 20,900,000 |
Definite lived intangibles | ' | ' | ' | 4,500,000 |
Indefinite lived intangibles | ' | ' | ' | 1,500,000 |
Fixed assets and other assets | ' | ' | ' | 1,400,000 |
Accounts payable and other liabilities | ' | ' | ' | $3,800,000 |
ACQUISITIONS_Details_2
ACQUISITIONS (Details 2) (USD $) | 3 Months Ended | |
In Millions, unless otherwise specified | Mar. 31, 2014 | Mar. 31, 2013 |
Acquired intangible assets | ' | ' |
Payments made in connection with contingent consideration agreements | $0.40 | $0.70 |
Amount accrued related to contingent consideration | $2.60 | ' |
LONG_TERM_DEBT_Details
LONG TERM DEBT (Details) (USD $) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2014 | Dec. 31, 2013 | |
Long-Term Debt | ' | ' |
Total Debt | $561,935,000 | $468,259,000 |
Less current portion | -20,869,000 | -15,998,000 |
Long term debt | 541,066,000 | 452,261,000 |
Revolving credit facility | ' | ' |
Long-Term Debt | ' | ' |
Total Debt | 112,000,000 | 25,000,000 |
Maximum borrowing capacity | 200,000,000 | ' |
Interest, base rate | 'LIBOR | ' |
Interest rate margin (as a percent) | 1.75% | ' |
Balance available under the credit facility | 84,500,000 | ' |
Amounts outstanding under the credit facility | 115,500,000 | ' |
Standby letters of credit | ' | ' |
Long-Term Debt | ' | ' |
Amount outstanding | 3,600,000 | ' |
Term loan | ' | ' |
Long-Term Debt | ' | ' |
Total Debt | 220,781,000 | 222,188,000 |
Interest, base rate | 'LIBOR | ' |
Interest rate margin (as a percent) | 1.75% | ' |
Outstanding amount | 220,800,000 | ' |
Mandatory prepayment | 0 | ' |
Term loan | Minimum | ' | ' |
Long-Term Debt | ' | ' |
Quarterly principal payment percentage | 0.63% | ' |
Term loan | Maximum | ' | ' |
Long-Term Debt | ' | ' |
Quarterly principal payment percentage | 3.75% | ' |
7.125% Senior notes due 2018 | ' | ' |
Long-Term Debt | ' | ' |
Total Debt | 200,000,000 | 200,000,000 |
Interest rate stated percentage | 7.13% | 7.13% |
7.125% Senior notes due 2018 | Prior to November 15, 2014 | ' | ' |
Long-Term Debt | ' | ' |
Redemption period, end date | 14-Nov-14 | ' |
Percentage of the aggregate principal amount at which the notes may be redeemed | 103.60% | ' |
Subordinated seller notes, non-collateralized, net of unamortized discount with principal and interest payable in either monthly, quarterly or annual installments at effective interest rates ranging from 2.00% to 4.0%, maturing through November 2018 | ' | ' |
Long-Term Debt | ' | ' |
Total Debt | $29,154,000 | $21,071,000 |
Effective interest rate, minimum | 2.00% | 2.00% |
Effective interest rate, maximum | 4.00% | 4.00% |
New credit agreement | Minimum | ' | ' |
Long-Term Debt | ' | ' |
Consolidated interest coverage ratio | 3.5 | ' |
New credit agreement | Maximum | ' | ' |
Long-Term Debt | ' | ' |
Total leverage ratio | 4 | ' |
NET_INCOME_PER_COMMON_SHARE_De
NET INCOME PER COMMON SHARE (Details) (USD $) | 3 Months Ended | |
In Thousands, except Share data, unless otherwise specified | Mar. 31, 2014 | Mar. 31, 2013 |
NET INCOME PER COMMON SHARE | ' | ' |
Net income | $5,997 | $9,490 |
Shares of common stock outstanding used to compute basic per common share amounts | 35,076,828 | 34,598,494 |
Effect of dilutive restricted stock and options (in shares) | 338,190 | 467,538 |
Shares used to compute dilutive per common share amounts | 35,415,018 | 35,066,032 |
Basic income per share (in dollars per share) | $0.17 | $0.27 |
Diluted income per share (in dollars per share) | $0.17 | $0.27 |
Anti-dilutive options (in shares) | 0 | 0 |
SUPPLEMENTAL_EXECUTIVE_RETIREM2
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) (Details) (USD $) | 3 Months Ended | |
In Thousands, unless otherwise specified | Mar. 31, 2014 | Mar. 31, 2013 |
Weighted average assumptions used to determine the benefit obligation and net benefit cost | ' | ' |
Discount rate, to determine net benefit cost (as a percent) | 4.03% | 3.25% |
Average rate of increase in compensation, to determine net benefit cost (as a percent) | 3.00% | 3.00% |
Change in Benefit Obligation | ' | ' |
Net benefit cost accrued at the beginning of the period | $20,952 | $22,377 |
Service cost | 129 | 169 |
Interest cost | 199 | 173 |
Payments | -1,247 | -705 |
Net benefit cost accrued at the end of the period | $20,033 | $22,014 |
STOCKBASED_COMPENSATION_Detail
STOCK-BASED COMPENSATION (Details) (USD $) | 0 Months Ended | 3 Months Ended | 3 Months Ended | |||
In Millions, unless otherwise specified | 13-May-10 | Mar. 31, 2014 | 13-May-10 | Mar. 31, 2014 | Mar. 31, 2013 | Mar. 31, 2014 |
2010 Omnibus Incentive Plan | 2010 Omnibus Incentive Plan | 2002 Stock Incentive and Bonus Plan and 2003 Non-Employee Directors' Stock Incentive Plan | Restricted stock units | Restricted stock units | Restricted stock units | |
2010 Omnibus Incentive Plan | ||||||
Stock-Based Compensation | ' | ' | ' | ' | ' | ' |
Shares of common stock reserved for issuance | 2.5 | 2.5 | ' | ' | ' | ' |
Shares of common stock authorized for issuance under the share-based compensation plan | 2 | 1.5 | ' | ' | ' | ' |
Number of shares of available for future issuance | ' | ' | 0.5 | ' | ' | ' |
Plan expiration unless earlier terminated by the Board of Directors | '10 years | ' | ' | ' | ' | ' |
Shares of common stock issued under the Plan | ' | 1.8 | ' | ' | ' | ' |
Granted (in shares) | ' | ' | ' | ' | ' | 0.3 |
Value of grants during the period | ' | ' | ' | ' | ' | $9.30 |
Unrecognized stock-based compensation expense related to non-vested stock | ' | ' | ' | ' | ' | 18.3 |
Period over which unrecognized share-based compensation cost will be expensed | ' | ' | ' | ' | ' | '4 years |
Stock-based compensation expense | ' | ' | ' | $2.40 | $1.70 | ' |
SEGMENT_AND_RELATED_INFORMATIO2
SEGMENT AND RELATED INFORMATION (Details) (USD $) | 3 Months Ended | ||
In Thousands, unless otherwise specified | Mar. 31, 2014 | Mar. 31, 2013 | Dec. 31, 2013 |
segment | |||
SEGMENT AND RELATED INFORMATION | ' | ' | ' |
Number of operating segments | 2 | ' | ' |
Net sales | ' | ' | ' |
Net sales | $235,605 | $229,350 | ' |
Depreciation and amortization | 10,199 | 9,285 | ' |
Income (loss) from operations | 16,030 | 22,716 | ' |
Interest (income) expense | 6,098 | 7,777 | ' |
Income before taxes | 9,932 | 14,939 | ' |
Capital expenditures | 8,861 | 5,398 | ' |
Total assets | 1,369,685 | ' | 1,271,660 |
Consolidating Adjustments | ' | ' | ' |
Net sales | ' | ' | ' |
Net sales | -49,555 | -51,083 | ' |
Income (loss) from operations | -218 | -263 | ' |
Income before taxes | -218 | -263 | ' |
Total assets | -569,487 | ' | -639,689 |
Patient Care | ' | ' | ' |
Segment and related information | ' | ' | ' |
Minimum age for health insurance coverage under Medicare health insurance program | 65 | ' | ' |
'Medicare reimbursement for O&P products and services based on prices set forth in published fee schedules, number of regional pricing areas | 10 | ' | ' |
Minimum age to supplement Medicare benefits for financially needy persons under Medicaid health insurance program | 65 | ' | ' |
Estimated government reimbursement as a percentage of the company's net sales | 38.70% | 40.20% | ' |
Number of O&P provider locations | 1,170 | ' | ' |
Number of O&P independent providers | 400 | ' | ' |
Number of contracts with national and regional providers | 58 | ' | ' |
Net sales | ' | ' | ' |
Net sales | 195,630 | 189,027 | ' |
Depreciation and amortization | 4,879 | 4,066 | ' |
Interest (income) expense | 7,956 | 7,750 | ' |
Capital expenditures | 4,568 | 2,903 | ' |
Patient Care | Operating segments | ' | ' | ' |
Net sales | ' | ' | ' |
Income (loss) from operations | 22,275 | 25,389 | ' |
Income before taxes | 14,319 | 17,639 | ' |
Total assets | 1,523,088 | ' | 1,502,721 |
Products and Services | ' | ' | ' |
Net sales | ' | ' | ' |
Net sales | 39,975 | 40,323 | ' |
Depreciation and amortization | 2,955 | 3,203 | ' |
Interest (income) expense | 3,691 | 3,335 | ' |
Capital expenditures | 266 | 107 | ' |
Products and Services | Operating segments | ' | ' | ' |
Net sales | ' | ' | ' |
Income (loss) from operations | 10,668 | 9,475 | ' |
Income before taxes | 6,977 | 6,140 | ' |
Total assets | 416,084 | ' | 408,628 |
Products and Services | Consolidating Adjustments | ' | ' | ' |
Net sales | ' | ' | ' |
Net sales | 49,555 | 51,083 | ' |
Other | ' | ' | ' |
Net sales | ' | ' | ' |
Depreciation and amortization | 2,365 | 2,016 | ' |
Interest (income) expense | -5,549 | -3,308 | ' |
Capital expenditures | 4,027 | 2,388 | ' |
Other | Operating segments | ' | ' | ' |
Net sales | ' | ' | ' |
Income (loss) from operations | -16,695 | -11,885 | ' |
Income before taxes | ($11,146) | ($8,577) | ' |