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Form 10-Q HANGER, INC. For: Jun 30

August 8, 2022 4:18 PM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10670
HANGER, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
84-0904275
(I.R.S. Employer
Identification No.)
10910 Domain Drive, Suite 300, Austin, TX
(Address of principal executive offices)
78758
(Zip Code)
Registrant’s telephone number, including area code: (512777-3800
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareHNGRNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x
As of August 3, 2022, the registrant had 39,123,266 shares of its Common Stock outstanding.



TABLE OF CONTENTS

ii


PART 1.    FINANCIAL INFORMATION

HANGER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except par value and share amounts)
(Unaudited)
As of June 30,As of December 31,
20222021
ASSETS
Current assets:
Cash and cash equivalents$24,380 $61,692 
Accounts receivable, net150,898 152,058 
Inventories88,018 87,462 
Income taxes receivable 581 
Other current assets19,614 16,536 
Total current assets282,910 318,329 
Non-current assets:
Property, plant, and equipment, net81,015 82,434 
Goodwill377,164 363,554 
Other intangible assets, net25,147 25,892 
Deferred income taxes43,069 45,494 
Operating lease right-of-use assets139,009 144,491 
Other assets18,552 17,945 
Total assets$966,866 $998,139 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt$15,636 $14,938 
Accounts payable67,651 63,565 
Accrued expenses and other current liabilities56,151 60,399 
Accrued compensation related costs56,795 54,465 
Current portion of operating lease liabilities34,326 33,438 
Total current liabilities230,559 226,805 
Long-term liabilities:
Long-term debt, less current portion465,022 502,307 
Operating lease liabilities117,230 124,016 
Other liabilities28,847 34,840 
Total liabilities841,658 887,968 
Commitments and contingencies (Note P)
Shareholders’ equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 39,276,679 shares issued and 39,133,858 shares outstanding at 2022, and 38,891,438 shares issued and 38,748,617 shares outstanding at 2021
393 389 
Additional paid-in capital376,717 373,644 
Accumulated other comprehensive loss(1,330)(11,150)
Accumulated deficit(249,876)(252,016)
Treasury stock, at cost; 142,821 shares at both 2022 and 2021
(696)(696)
Total shareholders’ equity125,208 110,171 
Total liabilities and shareholders’ equity$966,866 $998,139 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1


HANGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share amounts)
(Unaudited)
For the Three Months Ended
June 30,
For the Six Months Ended
June 30,
2022202120222021
Net revenues$312,033 $280,819 $573,320 $518,289 
Material costs98,433 89,271 184,025 164,441 
Personnel costs110,275 97,549 211,950 187,429 
Other operating costs38,970 32,788 75,138 64,286 
General and administrative expenses35,444 33,110 67,886 64,013 
Depreciation and amortization8,124 8,007 16,079 16,005 
Income from operations20,787 20,094 18,242 22,115 
Interest expense, net7,524 7,152 14,909 14,492 
Non-service defined benefit plan expense160 167 320 334 
Income before income taxes13,103 12,775 3,013 7,289 
Provision for income taxes2,986 2,616 873 460 
Net income$10,117 $10,159 $2,140 $6,829 
Basic and diluted per common share data:
Basic income per share$0.26 $0.26 $0.05 $0.18 
Weighted average shares used to compute basic income per share39,089,865 38,647,042 38,946,937 38,458,733 
Diluted income per share$0.26 $0.26 $0.05 $0.17 
Weighted average shares used to compute diluted income per share39,250,735 39,208,155 39,293,775 39,216,725 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2


HANGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(Unaudited)
For the Three Months Ended
June 30,
For the Six Months Ended
June 30,
2022202120222021
Net income$10,117 $10,159 $2,140 $6,829 
Other comprehensive income:
Unrealized gain on cash flow hedges, net of tax provision of $942, $388, $3,001, and $1,184, respectively
$2,866 $1,225 $9,762 $3,737 
Unrealized gain on defined benefit plan, net of tax provision of $15, $19, $63, and $38, respectively
46 60 58 120 
Total other comprehensive income2,912 1,285 9,820 3,857 
Comprehensive income$13,029 $11,444 $11,960 $10,686 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3


HANGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars and share amounts in thousands)
(Unaudited)
Common
Shares
Common
Shares, Par Value
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Treasury
Stock
Total
Balance, December 31, 202138,749 $389 $373,644 $(11,150)$(252,016)$(696)$110,171 
Net loss— — — — (7,977)— (7,977)
Share-based compensation expense— — 2,903 — — — 2,903 
Issuance of common stock upon vesting of restricted stock units 324 3 (3)— — —  
Effect of shares withheld to cover taxes— — (3,452)— — — (3,452)
Total other comprehensive income— — — 6,908 — — 6,908 
Balance, March 31, 202239,073 $392 $373,092 $(4,242)$(259,993)$(696)$108,553 
Net income— — — — 10,117 — 10,117 
Share-based compensation expense— — 3,601 — — — 3,601 
Issuance in connection with the exercise of stock options9 — 51 — — — 51 
Issuance of common stock upon vesting of restricted stock units 52 1 (1)— — —  
Effect of shares withheld to cover taxes— — (26)— — — (26)
Total other comprehensive income— — — 2,912 — — 2,912 
Balance, June 30, 202239,134 $393 $376,717 $(1,330)$(249,876)$(696)$125,208 

Common
Shares
Common
Shares, Par Value
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Treasury
Stock
Total
Balance, December 31, 202038,179 $383 $365,503 $(20,215)$(293,998)$(696)$50,977 
Net loss— — — — (3,330)— (3,330)
Share-based compensation expense— — 3,179 — — — 3,179 
Issuance in connection with the exercise of stock options29 — 366 — — — 366 
Issuance of common stock upon vesting of restricted stock units365 4 (4)— — —  
Effect of shares withheld to cover taxes— — (4,520)— — — (4,520)
Total other comprehensive income— — — 2,572 — — 2,572 
Balance, March 31, 202138,573 $387 $364,524 $(17,643)$(297,328)$(696)$49,244 
Net income— — — — 10,159 — 10,159 
Share-based compensation expense— — 3,239 — — — 3,239 
Issuance in connection with the exercise of stock options80 1 4 — — — 5 
Issuance of common stock upon vesting of restricted stock units69 1 (1)— — —  
Effect of shares withheld to cover taxes— — (40)— — — (40)
Total other comprehensive income— — — 1,285 — — 1,285 
Balance, June 30, 202138,722 $389 $367,726 $(16,358)$(287,169)$(696)$63,892 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


HANGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
For the Six Months Ended
June 30,
20222021
Cash flows provided by (used in) operating activities:
Net income$2,140 $6,829 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization16,079 16,005 
Benefit from doubtful accounts(68)(292)
Share-based compensation expense6,504 6,418 
Deferred income taxes(734)232 
Amortization of debt discounts and issuance costs1,044 948 
Gain on sale and disposal of fixed assets(863)(718)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net1,262 5,363 
Inventories309 (5,899)
Other current assets and other assets(2,197)(6,202)
Income taxes584 57 
Accounts payable4,597 (6,577)
Accrued expenses and other current liabilities1,606 (2,765)
Accrued compensation related costs2,284 (21,412)
Other liabilities(1,186)(522)
Operating lease liabilities, net of amortization of right-of-use assets(416)(780)
Changes in operating assets and liabilities:6,843 (38,737)
Net cash provided by (used in) operating activities30,945 (9,315)
Cash flows used in investing activities:
Purchase of property, plant, and equipment(10,596)(13,339)
Acquisitions, net of cash acquired(12,490)(35,349)
Purchase of therapeutic program equipment leased to third parties under operating leases(1,358)(870)
Proceeds from sale of property, plant, and equipment1,392 1,332 
Net cash used in investing activities(23,052)(48,226)
Cash flows used in financing activities:
Payment of employee taxes on share-based compensation(3,478)(4,560)
Payment on Seller Notes(5,000)(2,265)
Repayment of term loan(36,263)(2,525)
Payments of financing lease obligations(515)(529)
Payments under vendor financing arrangements (1,375)
Proceeds from the exercise of options51 371 
Net cash used in financing activities(45,205)(10,883)
Decrease in cash and cash equivalents(37,312)(68,424)
Cash and cash equivalents at beginning of period61,692 144,602 
Cash and cash equivalents at end of period$24,380 $76,178 
Non-cash financing and investing activities:
Purchase of property, plant, and equipment in accounts payable at period end$2,732 $3,349 
Seller Notes and other non-cash consideration related to acquisitions4,002 10,057 
Right-of-use assets obtained in exchange for finance lease obligations223 95 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


HANGER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A — Organization and Summary of Significant Accounting Policies
Description of Business
Hanger, Inc. (“we,” “our,” or “us”) is a leading national provider of products and services that assist in enhancing or restoring the physical capabilities of patients with disabilities or injuries. We provide orthotic and prosthetic (“O&P”) services, distribute O&P devices and components, manage O&P networks, and provide therapeutic solutions to patients and businesses in acute, post-acute, and clinic settings. We operate through two segments, Patient Care and Products & Services.
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements.  These financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as previously filed with the Securities and Exchange Commission (the “SEC”).
In our opinion, the information contained herein reflects all adjustments necessary for a fair statement of our results of operations, financial position, and cash flows. All such adjustments are of a normal, recurring nature.  The results of operations for the interim periods are not necessarily indicative of those to be expected for the full year.
A detailed description of our significant accounting policies and management judgments is contained in our 2021 Form 10-K.
Reclassifications
We have reclassified certain amounts in the prior year condensed consolidated financial statements to be consistent with the current year presentation. These relate to immaterial classifications within expense line items in the condensed consolidated statements of operations.
Recent Developments Regarding COVID-19
We are subject to risks and uncertainties as a result of the outbreak of the novel coronavirus (“COVID-19”) pandemic (“COVID-19 pandemic”). The extent and duration of the impact of the COVID-19 pandemic on our operations and financial condition remain uncertain and difficult to predict. As a result of the COVID-19 pandemic, we believe that our patients are continuing to defer visits to our O&P clinics, as well as elective surgical procedures, both of which impact our business volumes through decreased patient encounters and physician referrals. While the emerging variants of the COVID-19 virus continue to contribute to employee absences and our use of temporary labor, we believe the overall adverse impact of the COVID-19 pandemic on our business volumes has diminished and stabilized over time. The United States government has responded with fiscal policy measures intended to support the healthcare industry and economy as a whole, including the passage of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) in March 2020.
CARES Act
The CARES Act established the Public Health and Social Services Emergency Fund, also referred to as the Cares Act Provider Relief Fund, which set aside $203.5 billion to be administered through grants and other mechanisms to hospitals, public entities, not-for-profit entities and Medicare- and Medicaid- enrolled suppliers and institutional providers. The purpose of these funds is to reimburse providers for lost revenue and health-care related expenses that are attributable to the COVID-19 pandemic. In April 2020, the U.S. Department of Health and Human Services (“HHS”) began making payments to healthcare providers from the $203.5 billion appropriation. These are grants, rather than loans, to healthcare providers, and will not need to be repaid.
During the full year of 2021, we recognized a total benefit of $1.1 million in our consolidated statement of operations within Other operating costs in our Patient Care segment for the grant proceeds we received under the CARES Act (“Grants”) from HHS. We accounted for the proceeds from the Grants by analogy to International Accounting Standard (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance and its principles surrounding the recognition of grants related to income. We recognize income related to grants on a systematic and rational basis when it becomes probable that we have complied with the terms and conditions of the grant and in the period in which the corresponding costs or income related to the grant are recognized. We are using the Grants for their intended purpose, and are compliant to the reporting requirements set by the terms and conditions of the grant.
The CARES Act also provided for a deferral of the employer portion of payroll taxes incurred during the COVID-19 pandemic through December 2020. The provisions allowed us to defer half of such payroll taxes until December 2021 and the remaining half until December 2022. We paid the first half in September 2021, and deferred $5.9 million of payroll taxes within Accrued compensation related costs in the condensed consolidated balance sheet as of June 30, 2022.
Recent Accounting Pronouncements, Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU, effective beginning on March 12, 2020, provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. We are currently evaluating the effects that the adoption of this guidance, and related clarifying standards, will have on our condensed consolidated financial statements and the related disclosures.
Note B — Earnings Per Share
Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period plus any potentially dilutive common shares, such as stock options, restricted stock units, and performance-based units calculated using the treasury stock method. Total anti-dilutive shares excluded from the diluted earnings per share computation were 213,957 and 100,387 for the three and six months ended June 30, 2022 and 2,721 and 1,302 for the three and six months ended June 30, 2021.
Our Credit Agreement (as defined below) restricts the payment of dividends or other distributions to our shareholders by us or any of our subsidiaries. See Note K - “Debt and Other Obligations” within these condensed consolidated financial statements.
6


The reconciliation of the numerators and denominators used to calculate basic and diluted net income per share are as follows:
For the Three Months Ended
June 30,
For the Six Months Ended
June 30,
(in thousands except share and per share amounts)2022202120222021
Net income$10,117 $10,159 $2,140 $6,829 
Weighted average shares outstanding - basic
39,089,865 38,647,042 38,946,937 38,458,733 
Effect of potentially dilutive restricted stock units and options160,870 561,113 346,838 757,992 
Weighted average shares outstanding - diluted
39,250,735 39,208,155 39,293,775 39,216,725 
Basic income per share$0.26 $0.26 $0.05 $0.18 
Diluted income per share$0.26 $0.26 $0.05 $0.17 
Note C — Revenue Recognition
Patient Care Segment
Revenue in our Patient Care segment is primarily derived from contracts with third party payors for the provision of O&P devices and is recognized upon the transfer of control of promised products or services to the patient at the time the patient receives the device. At, or subsequent to delivery, we issue an invoice to the third party payor, which primarily consists of commercial insurance companies, Medicare, Medicaid, the U.S. Department of Veterans Affairs (the “VA”), or private or patient pay (“Private Pay”) individuals. We recognize revenue for the amounts we expect to receive from payors based on expected contractual reimbursement rates, which are net of estimated contractual discounts and implicit price concessions. These revenue amounts are further revised as claims are adjudicated, which may result in additional disallowances.
The following table disaggregates revenue from contracts with customers in our Patient Care segment for the three and six months ended June 30, 2022 and 2021:
For the Three Months Ended
June 30,
For the Six Months Ended
June 30,
(in thousands)2022202120222021
Patient Care Segment
Medicare$83,013 $74,248 $148,867 $131,583 
Medicaid49,334 43,688 88,606 77,736 
Commercial insurance / managed care (excluding Medicare and Medicaid managed care)88,801 79,769 166,144 149,432 
VA25,393 21,633 46,442 41,397 
Private Pay19,129 17,449 35,429 32,321 
Total$265,670 $236,787 $485,488 $432,469 
The impact to revenue related to prior period performance obligations was not material for the three and six months ended June 30, 2022 or 2021.
Products & Services Segment
Revenue in our Products & Services segment is derived from the distribution of O&P components and from therapeutic solutions which includes the leasing and sale of rehabilitation equipment and ancillary consumable supplies combined with equipment maintenance, education, and training.
7


The following table disaggregates revenue from contracts with customers in our Products & Services segment for the three and six months ended June 30, 2022 and 2021:
For the Three Months Ended
June 30,
For the Six Months Ended
June 30,
(in thousands)2022202120222021
Products & Services Segment
Distribution services, net of intersegment revenue eliminations$35,978 $33,275 $67,368 $63,935 
Therapeutic solutions10,385 10,757 20,464 21,885 
Total$46,363 $44,032 $87,832 $85,820 
Note D — Accounts Receivable, Net
Accounts receivable, net represents outstanding amounts we expect to collect from the transfer of our products and services. Principally, these amounts are comprised of receivables from Medicare, Medicaid, and commercial insurance plans. Our accounts receivable represent amounts outstanding from our gross charges, net of contractual discounts, sales returns, and other implicit price concessions including estimates for payor disallowances and patient non-payments.
We are exposed to credit losses primarily through our accounts receivable. These receivables are short in nature because their due date varies between due upon receipt of invoice and 90 days. We assess our receivables, divide them into similar risk pools, and monitor our ongoing credit exposure through active review of our aging buckets. Our activities include timely account reconciliations, dispute resolution, and payment confirmations. We also employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
Our expected loss methodology is developed using historical liquidation rates, current and future economic and market conditions, and a review of the current status of our patients and customers’ trade accounts receivable balances. We also group our receivables into similar risk pools to better measure the risks for each pool. After evaluating the risk for each pool, we have determined that additional credit loss risk is immaterial for the Patient Care segment. For the Products & Services segment, an allowance for doubtful accounts is recorded, which is deducted from gross accounts receivable to arrive at “Accounts receivable, net.” As of June 30, 2022, we have considered the current and future economic and market conditions resulting in a decrease to the allowance for doubtful accounts by approximately $0.1 million since December 31, 2021.
Accounts receivable, net as of June 30, 2022 and December 31, 2021 is comprised of the following:
As of June 30, 2022As of December 31, 2021
(in thousands)Patient CareProducts & ServicesConsolidatedPatient CareProducts & ServicesConsolidated
Gross charges before estimates for implicit price concessions$167,017 $23,527 $190,544 $173,115 $21,459 $194,574 
Less estimates for implicit price concessions:
Payor disallowances(30,863) (30,863)(33,007) (33,007)
Patient non-payments(6,835) (6,835)(7,500) (7,500)
Accounts receivable, gross129,319 23,527 152,846 132,608 21,459 154,067 
Allowance for doubtful accounts (1,948)(1,948) (2,009)(2,009)
Accounts receivable, net$129,319 $21,579 $150,898 $132,608 $19,450 $152,058 
8


Note E — Inventories
Our inventories are comprised of the following:
As of June 30,As of December 31,
(in thousands)20222021
Raw materials$23,850 $22,759 
Work in process20,772 15,807 
Finished goods43,396 48,896 
Total inventories$88,018 $87,462 
Note F — Acquisitions
2022 Acquisition Activity
During 2022, we completed the following acquisitions of O&P clinics with the intention of expanding the geographic footprint of our patient care offerings through the acquisitions of these high quality O&P providers. None of the acquisitions were individually material to our financial position, results of operations, or cash flows.
In the first quarter of 2022, we completed the acquisition of all the outstanding equity interests of an O&P business for total consideration of $5.0 million, of which $4.0 million was cash consideration, net of cash acquired, and $1.0 million was issued in the form of notes to shareholders at fair value.
In the second quarter of 2022, we completed the acquisitions of all the outstanding equity interests of two O&P businesses for total consideration of $11.7 million, of which $8.5 million was cash consideration, net of cash acquired, and $3.2 million was issued in the form of notes to shareholders at fair value.
We accounted for these transactions under the acquisition method of accounting and have reported the results of operations of each acquisition as of the respective dates of the acquisitions. We based the estimated fair values of intangible assets on an income approach utilizing the excess earnings method for customer relationships. The income approach utilizes management’s estimates of future operating results and cash flows using a weighted average cost of capital that reflects market participant assumptions. Other significant judgments used in the valuation of tangible assets acquired in the acquisitions include estimated selling price of inventory and estimated replacement cost for acquired property, plant, and equipment. For all other assets acquired and liabilities assumed, the fair value reflects the carrying value of the asset or liability due to their short maturity. We recorded the excess of the fair value of the consideration transferred in the acquisitions over the fair value of net assets acquired as goodwill. The goodwill reflects our expectations of favorable future growth opportunities, anticipated synergies through the scale of our O&P operations, and the assembled workforce. We expect that substantially all of the goodwill, which has been assigned to our Patient Care reporting unit, will not be deductible for federal income tax purposes.
Acquisition-related costs associated with Hanger’s acquisition of O&P businesses are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the three and six months ended June 30, 2022 were $0.3 million and $0.6 million, respectively, which includes those costs for transactions that are in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisitions completed during the three and six months ended June 30, 2022 were $0.2 million and $0.3 million, respectively.
We have not presented pro forma combined results for these acquisitions because the impact on previously reported statements of operations would not have been material individually or in the aggregate.
Purchase Price Allocation
We have performed a preliminary valuation analysis of the fair market value of the assets acquired and liabilities assumed in the acquisitions. The final purchase price allocations will be determined when we have completed and fully reviewed the detailed valuations which could differ materially from the preliminary allocations. The final allocations may include changes in allocations of acquired intangible assets as well as goodwill and other changes to assets and liabilities, including deferred taxes. The estimated useful lives of acquired intangible assets are also preliminary.
9


The aggregate purchase price of these acquisitions was allocated on a preliminary basis as follows:
(in thousands)
Cash paid, net of cash acquired$12,490 
Issuance of Seller Notes at fair value4,195 
Additional consideration36 
Aggregate purchase price16,721 
Accounts receivable697 
Inventories865 
Customer relationships (Weighted average useful life of 5.0 years)
2,270 
Non-compete agreements (Weighted average useful life of 5.0 years)
243 
Other assets and liabilities, net(418)
Net assets acquired3,657 
Goodwill$13,064 
Right-of-use assets and lease liabilities related to operating leases recognized in connection with the acquisitions completed for the six months ended June 30, 2022 were $0.7 million.
During the third quarter of 2022 to date, we completed the acquisitions of two O&P businesses for a total purchase price of $8.1 million. Total consideration transferred for these acquisitions is comprised of $6.3 million in cash consideration and $1.8 million in the form of notes to shareholders at fair value. Due to the proximity in time of these transactions to the filing of this Form 10-Q, it is not practicable to provide a preliminary purchase price allocation of the fair value of the assets purchased and liabilities assumed in the acquisitions. Acquisition-related expenses related to these transactions were not material.
2021 Acquisition Activity
During 2021, we completed the following acquisitions of O&P clinics with the intention of expanding the geographic footprint of our patient care offerings through the acquisition of these high quality O&P providers. None of the acquisitions were individually material to our financial position, results of operations, or cash flows.
In the first quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $24.2 million, of which $19.2 million was cash consideration, net of cash acquired, $4.0 million was issued in the form of notes to shareholders at fair value, and $1.0 million in additional consideration.
In the second quarter of 2021, we completed the acquisitions of all the outstanding equity interests of two O&P businesses for total consideration of $21.0 million, of which $16.0 million was cash consideration, net of cash acquired, $4.9 million was issued in the form of notes to shareholders at fair value, and $0.1 million in additional consideration.
In the third quarter of 2021, we completed the acquisitions of all the outstanding equity interests of three O&P businesses and the assets of one O&P business for total consideration of $6.2 million, of which $3.9 million was cash consideration, net of cash acquired, $1.5 million was issued in the form of notes to shareholders at fair value, and $0.8 million in additional consideration.
In the fourth quarter of 2021, we completed the acquisitions of all the outstanding equity interests of eight O&P businesses for total consideration of $53.1 million, of which $40.8 million was cash consideration, net of cash acquired, and $12.3 million was issued in the form of notes to shareholders at fair value.
10


Acquisition-related costs are included in general and administrative expenses in our condensed consolidated statements of operations. Total acquisition-related costs incurred during the year ended December 31, 2021 were $2.1 million, which includes those costs for transactions that were in progress or were not completed during the respective period. Acquisition-related costs incurred for the acquisitions completed during the year ended December 31, 2021 were $1.6 million.
The aggregate purchase price of these acquisitions was allocated on a preliminary basis as follows:
(in thousands)
Cash paid, net of cash acquired$79,927 
Issuance of Seller Notes at fair value22,706 
Additional consideration, net1,925 
Aggregate purchase price104,558 
Accounts receivable6,569 
Inventories4,683 
Customer relationships (Weighted average useful life of 5.0 years)
11,745 
Non-compete agreements (Weighted average useful life of 5.0 years)
558 
Other assets and liabilities, net(5,121)
Net assets acquired18,434 
Goodwill$86,124 
Right-of-use assets and lease liabilities related to operating leases recognized in connection with acquisitions completed for the year ended December 31, 2021 were $8.9 million.
Note G — Goodwill and Other Intangible Assets
We assess goodwill and indefinite-lived intangible assets for impairment annually as of October 1st, and between annual tests if an event occurs, or circumstances change, that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value.
The following table summarizes the activity in goodwill of the Patient Care operating segment for the period indicated:
For the Three Months Ended June 30, 2022
(in thousands)Goodwill, GrossAccumulated ImpairmentGoodwill, Net
As of December 31, 2021$792,222 $(428,668)$363,554 
Additions from acquisitions13,064 — 13,064 
Measurement period adjustments (1)
546 — 546 
As of June 30, 2022$805,832 $(428,668)$377,164 
(1) Measurement period adjustments primarily relate to 2021 acquisitions of approximately $0.5 million and are primarily attributable to adjustments to the preliminary allocations of acquired assets.
11


The balances related to intangible assets as of June 30, 2022 are as follows:
As of June 30, 2022
(in thousands)Gross Carrying AmountAccumulated AmortizationAccumulated ImpairmentNet Carrying Amount
Customer lists$30,894 $(12,799)$— $18,095 
Trade name255 (214)— 41 
Patents and other intangibles9,818 (6,924)— 2,894 
Definite-lived intangible assets40,967 (19,937)— 21,030 
Indefinite-lived trade name9,070 — (4,953)4,117 
Total other intangible assets$50,037 $(19,937)$(4,953)$25,147 
Amortization expense related to other intangible assets was approximately $1.7 million and $3.3 million for the three and six months ended June 30, 2022, respectively, and $1.2 million and $2.2 million for the three and six months ended June 30, 2021, respectively.
Note H — Other Current Assets and Other Assets
Other current assets consist of the following:
As of June 30,As of December 31,
(in thousands)20222021
Non-trade receivables$6,582 $7,725 
Prepaid maintenance5,658 4,553 
Prepaid insurance1,706 510 
Other prepaid assets5,668 3,748 
Total other current assets$19,614 $16,536 
Other assets consist of the following:
As of June 30,As of December 31,
(in thousands)20222021
Implementation costs for cloud computing arrangements$6,213 $6,459 
Cash surrender value of company-owned life insurance3,945 4,471 
Finance lease right-of-use assets2,563 2,732 
Deposits2,240 2,178 
Non-trade receivables1,565 1,172 
Other2,026 933 
Total other assets$18,552 $17,945 
12


Note I — Accrued Expenses and Other Current Liabilities and Other Liabilities
Accrued expenses and other current liabilities consist of:
As of June 30,As of December 31,
(in thousands)20222021
Patient prepayments, deposits, and refunds payable$29,236 $26,475 
Insurance and self-insurance accruals9,857 8,943 
Accrued sales taxes and other taxes8,272 7,803 
Accrued professional fees1,400 750 
Accrued interest payable774 707 
Derivative liability 6,425 
Other current liabilities6,612 9,296 
Total$56,151 $60,399 
Other liabilities consist of:
As of June 30,As of December 31,
(in thousands)20222021
Supplemental executive retirement plan obligations$18,980 $20,779 
Long-term insurance accruals7,599 7,112 
Derivative liability 4,664 
Other2,268 2,285 
Total$28,847 $34,840 
Note J — Income Taxes
We recorded a provision for income taxes of $3.0 million and $0.9 million for the three and six months ended June 30, 2022, respectively. The effective tax rate was 22.8% and 29.0% for the three and six months ended June 30, 2022, respectively. We recorded a provision for income taxes of $2.6 million and $0.5 million for the three and six months ended June 30, 2021, respectively. The effective tax rate was 20.5% and 6.3% for the three and six months ended June 30, 2021, respectively.
The increase in the effective tax rate for the three months ended June 30, 2022 compared with the three months ended June 30, 2021 is primarily attributable to a windfall from share-based compensation for the three months ended June 30, 2021 compared to a shortfall from share-based compensation for the three months ended June 30, 2022. Our effective tax rate for the three months ended June 30, 2022 is similar to the federal statutory tax rate of 21%, but the difference consists primarily of research and development credits offset by non-deductible expenses and shortfall from share-based compensation. Our effective tax rate for the three months ended June 30, 2021 differed from the federal statutory tax rate of 21% primarily due to research and development credits, non-deductible expenses, and windfall from share-based compensation.
For the year ending December 31, 2022, we estimate a research and development tax credit of $2.7 million, net of tax reserves. We record the tax benefit, net of tax reserves, as a deferred tax asset. For the year ended December 31, 2021, we recognized research and development tax credits of $4.3 million, net of tax reserves.
13


Note K — Debt and Other Obligations
Debt consists of the following:
As of June 30,As of December 31,
(in thousands)20222021
Debt:
Term Loan B$449,800 $486,063 
Seller Notes28,885